Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 16, 1992 TAG: 9202160180
SECTION: SPORTS PAGE: C9 EDITION: METRO
SOURCE: BOB ZELLER SPORTSWRITER
DATELINE: LENGTH: Long
TEAM III REELS AFTER BAD DEAL
ONE OF NASCAR'S youngest teams had a promising driver and a plum of a sponsor until the team owner's spending sprees landed his empire in hot water. Now the future depends on the bankruptcy court.\ Kenny Wallace's smile was as bright as the lights of the New York skyline on Dec. 5 as he met the motorsports media more than 60 stories above the streets of Manhattan.
The 28-year-old NASCAR driver had reached the big leagues. He was hitting the Winston Cup circuit in 1992 with Team III Racing, a 2-year-old team created by Charlotte, N.C., businessman Sam McMahon III, 34, who named it after himself.
The news conference in the exclusive Rainbow Room, high atop Rockefeller Center, was called to announce the most exciting news a new NASCAR team could hope to have, other than a race victory itself: Team III had landed a major, full-season sponsor - Dirt Devil vacuums by Royal Appliance Manufacturing Co. of Cleveland.
"We're a very well-funded team," Wallace said in New York on the eve of the 1991 Winston Cup Awards Banquet.
Dirt Devil's ebullient president, John Balch, had agreed to spend at least $1 million on Wallace's rookie season, with incentives for much more. Balch was ready to go stock car racing.
"Sam and I have told Kenny that the only thing he's gotta bring back is the steering wheel," he said. "We're just going to have a lot fun."
Balch promised he would be no flash-in-the-pan sponsor. "We're going to stay in this thing," he said.
Today, less than 11 weeks later, Team III and McMahon III are mired in a financial scandal in U.S. Bankruptcy Court in Charlotte, N.C.
Dirt Devil is out of NASCAR before ever participating in a race. Balch has nothing to show for the reported $500,000 he spent on the team. And when the green flag falls on the Daytona 500 at 12:15 p.m. today, Wallace will not be on the track.
"What happened was like you're coming down the backstrech at Daytona and going into turn three when there's nothing but smoke," Wallace said. "And you don't know what's there until you get into it."
Wallace and Dirt Devil left Team III in the wake of a bankruptcy court report filed in January that said McMahon III (pronounced MAC-ma-hawn) took more than $2.2 million from one of the family's insolvent hotel partnerships and spent it on Team III, buying the team an airplane, a twin turbine helicopter and a luxury motor home.
Wallace has returned to the Grand National series, where he finished second in last year's championship. He finished 16th in Saturday's Goody's 300.
But McMahon also took over Wallace's Grand National team when he hired Wallace for Team III, so the financial status of that team also is in limbo. Felix Sabates and his Winston Cup driver, Kyle Petty, are trying to buy the team from McMahon III, but the legal difficulties have prevented that.
Sponsors are the lifeblood of a racing team, so it often is hard to understand how unsponsored teams manage to pay the bills and keep racing.
Team III was unsponsored last year, but it made every race, using a variety of drivers, including Mickey Gibbs, Dick Trickle and Jimmy Hensley of Ridgeway, Va.
The bankruptcy court's report showed how Team III did it.
Between January and November, McMahon III made at least 36 withdrawals totaling $2,240,576 from the bank accounts of Florida Hotel Properties, a 10-hotel partnership he owned with his father, Sam McMahon Jr., and gave the money to Team III.
McMahon III also spent some $591,000 on himself, the report said, buying such things as a Sea Ray boat and a lot on Lake Norman in North Carolina.
The McMahon family once controlled more than 50 Days Inn motels across the Southeast, more than anybody in the country. However, they have had to sell many of them because of the recession.
Florida Hotel Properties was no exception; however, while it struggled to survive financially, McMahon III used hotel revenues to go racing.
At first the money came slowly, the bankruptcy court reports shows - $50,000 on Jan. 4 and $60,000 on Feb. 1. A smaller payment, $3,636, went to a motorsports television show called "The Pros in Motor Sports."
In late 1990 and early 1991, however, Team III had problems. Contractors building the team's 44,000 square-foot shop in Concord, N.C., sued the team, claiming McMahon's checks were bouncing.
In March, Team III said it had resolved those problems. During the same month, however, the bankruptcy report shows that McMahon III made eight withdrawals totaling $400,000 for Team III.
In April, McMahon withdrew $305,000 from the hotel accounts to buy a King Air B200 airplane for the team.
On July 2, Florida Hotel Properties declared bankruptcy under Chapter 11, which allowed it to continue operating under the McMahons' control while developing a plan to pays its creditors.
That didn't stop McMahon III.
On Oct. 4, two days before the Mello Yello 500 at Charlotte Motor Speedway, McMahon went on a buying spree. He spent more than $700,000 in hotel funds to buy Team III an Agusta 109A Twin Turbine helicopter and a 1992 Blue Bird Wonderlodge motor home, the bankruptcy report shows.
On Nov. 15, McMahon paid Atlanta Motor Speedway $22,500 in hotel funds for a Team III hospitality suite at the season-ending Hardee's 500.
McMahon always sought the best for his team. He bought new Pontiacs for seven team members, sources close to the team said.
When a food chain offered Team III a $15,000 one-race sponsorship, McMahon snubbed it, sources said.
After he purchased the helicopter, McMahon III insisted it be taken to Atlanta with the plane, so the chopper could fly him directly into the track.
Wallace and other team members said they had no idea Team III was having severe financial problems. The purchase of the helicopter, the airplane and the motor home reinforced their notion that everything was fine.
These luxuries helped sell the team to potential sponsors. They also led to the downfall of Team III's deal with Wallace and Dirt Devil.
The Oct. 4 withdrawals for the helicopter and motor home sent up red flags in bankruptcy court, records show. The withdrawals were unauthorized by the court and were not done in the ordinary course of business, the report said.
On Dec. 13 - eight days after that triumphant Manhattan news conference - the court took control of the accounts and launched the investigation into McMahon's spending.
McMahon, a reluctant interview under the best of circumstances (he did not speak at his own New York news conference), could not be reached for comment. However, he told the Charlotte Observer earlier this month that the allegations "are a bunch of muckety-muck."
Said Wallace: "Sam felt he was going to save everything before the hammer came down. Time ran out."
Bankruptcy court records show that McMahon made misleading and inaccurate statements to accountants and court examiners when they asked him about the withdrawals for Team III.
McMahon told examiners that some of the spending on Team III was for advertising on the stock cars. His father, McMahon Jr., said money that went to the team was used to promote Days Inns.
However, sources close to the team confirmed what was apparent all last year: Team III did no Days Inn promotions.
Moreover, a report from one accounting firm that assisted in the investigation said McMahon III "stated that he did incorporate Team III racing in 1990, but in 1991 he no longer had an interest."
Throughout 1991, Team III news releases identified McMahon III as the owner.
The McMahons told the bankruptcy examiners that they believed the spending was for legitimate business expenses. If that is not the case, the money will be returned to Florida Hotel Properties, McMahon Jr. told the Charlotte paper. He also told the paper that some of the money already had been repaid.
Indeed, the bankruptcy report showed an unexplained $300,000 deposit to one of the hotel's two bank accounts on Dec. 12 - one day before the bankruptcy court ordered its investigation.
In December, sometime after the New York news conference, Dirt Devil gave Team III $500,000 - its first sponsorship payment, sources said.
In late January, shortly before Balch withdrew Dirt Devil's sponsorship, he found out that Team III's paychecks to its employees were bouncing, sources close to the team said.
The people at Dirt Devil do not appear interested in discussing their brief, unhappy foray into NASCAR. Balch and a Dirt Devil spokeswoman did not return repeated calls.
"I think Dirt Devil will be back in racing," said Wallace, who formed a tight friendship with Balch in the short time they worked together. "But the racing community right now is shaken up because not every day does a sponsor like that come in."
Last Wednesday, Bankruptcy Court Judge Marvin Wooten signed an order that prohibits McMahon III from transferring or encumbering any assets in the family empire, including those of Team III.
However, the full extent of McMahon's questionable spending on Team III may not yet be known. Investigations of the finances and spending of two other McMahon-controlled hotel partnerships remain incomplete.
Keywords:
AUTO RACING