Terry Pegula speaks at a press conference about the Pegula Ice Arena at Penn State, Penn State via flickr
Amidst an global economic crisis and multiple management controversies, Terry and Kim Pegula, the billionaire owners of the Buffalo Bills and Sabres football and hockey franchises, recently launched a new venture seeking to invest hundreds of millions of dollars in the US oil and gas industry.
The Pegulas’ fracked gas, entertainment, and hospitality empire has taken blows recently from a combination of poor sports performance, the downturn of the petroleum industry, and the coronavirus pandemic, which has further destroyed demand for oil and disrupted professional sports. Now, the Pegulas are hoping to again tap into the luck that made them billionaires in the 2010’s in order to keep funding their lavish lifestyle. Other influential people are looking to profit too.
East Resources Acquisition Company, the Pegulas’ new firm, is raising money for a speculative venture to buy up US fracking assets as the industry is rocked by a rash of bankruptcies. The company made a $300 million initial public offering in late July. One initial East Resources Acquisition investor – and a member of its board of directors – is former Pennsylvania Governor Tom Corbett. Corbett was a major ally of the fracking industry during his tenure as governor, and he received hundreds of thousands of dollars in campaign donations from the Pegulas.
The Pegulas’ latest fracking venture is a risky play in a time of great uncertainty for the oil and gas industry. While assets can likely be bought on the cheap thanks to a mounting wave of bankruptcies, accelerating pressure to keep fossil fuels in the ground and the economic crisis precipitated by the coronavirus pandemic threaten to render these investments unprofitable.
Fracking, entertainment, and real estate: the Pegula empire
The Pegula fortune comes from two well-timed sales of fracking assets in the early 2010’s at the height of the Marcellus Shale fracking boom. The family’s company East Resources made one sale of Marcellus fracking assets to Royal Dutch Shell for $4.7 billion in 2010, and then another sale to Aubrey McClendon’s American Energy Partners for $1.75 billion in 2014.
With the proceeds of these sales, the Pegulas bought first the Buffalo Sabres National Hockey League franchise and then the Buffalo Bill National Football League team.
The Pegulas have also waded into real estate development, private equity, and the entertainment business. Pegula Sports and Entertainment, the family holding company, won a bid and $36.7 million in subsidies to develop a valuable property in Buffalo’s Canalside district into a hotel, restaurants, and hockey rinks. The Pegulas have also assembled properties in the adjacent Cobblestone district, turning one building into a small brewery and bar for the Canadian beer company Labatt. The family also owns AdPro Sports, an apparel company, Rand Capital, a Buffalo-based private equity firm, and the country music record label Black River Entertainment.
Though Terry Pegula indicated when he bought the Sabres that he would spare no expense making the team a success – he notoriously told reporters at a press conference “If I want to make money, I’ll drill another well” – his tenure as owner has been marked by nine consecutive failures to make the playoffs, drawing the ire of Buffalo hockey fans. The Buffalo Bills have fared somewhat better, ending an 18-year playoff drought in 2017 and returning to the playoffs two years later.
The Pegula years in Buffalo sports have seen frequent turnover in high-level staff and management, as well as on the field of play and accusations from insiders of a “toxic culture” where employees were “overworked because of continual downsizing while dealing with chain-of-command breakdowns, poor communication flow and interdepartmental disorder,” according to The Athletic’s Tim Graham.
A slide from an internal Pegula Sports and Entertainment presentation published by The Athletic listed funding the Pegula family’s lifestyle as a top goal of their organization. The Pegulas have used the Buffalo Bills and their “One Buffalo” brand to market apparel designed by their daughter, pro tennis player Jessie Pegula, as well as Jessie Pegula’s skincare line.
Jessie Pegula’s skincare line @Ready24 is now available in @Wegmans locations throughout Buffalo!— Buffalo Bills (@BuffaloBills) November 2, 2019
Go get it, Bills fans. #OneBuffalo pic.twitter.com/WD9FONgZs3
Taylor Gahagen, Jessie Pegula’s fiancé, was made Pegula Sports and Entertainment’s director of corporate development, and Jason Long, the son of Terry Pegula’s longtime friend, was made general manager of HarborCenter. Gordon Kerr, Kim Pegula’s brother, left his job as a school administrator in the Buffalo suburb of Hamburg to be president and CEO of Black River Entertainment after the Pegulas bought the label. Kerr’s daughter, Kim and Terry Pegula’s niece, Hannah Kerr has a record deal with Black River’s Christian music imprint.
Despite giving the impression that sports and entertainment were now his sole focus, Pegula’s time outside the fracking industry was actually quite short-lived. He set up an LLC called JKLM Energy that began drilling in Pennsylvania – and racking up environmental violations – in 2015, just a year after he purchased the Buffalo Bills.
However, the natural gas market is not what it was when the Pegulas made their billions. Since reaching a peak in 2012, the fracking boom has driven natural gas prices down below the level of profitability for many small drillers. JKLM Energy shuttered its gas wells in July 2019, according to The Athletic.
The coronavirus pandemic has caused more issues for the family’s enterprises as pro sports leagues have canceled or curbed their seasons, restrictions have limited public gatherings and the operation of hospitality businesses, and a historic economic contraction has left people out of work and without money to spend on entertainment.
In April 2020, as Pegula’s net worth stood at around $5 billion, Pegula Sports and Entertainment laid off 21 employees and furloughed more than 100 others. On July 30, the Pegulas announced that they were sending all Buffalo Bills rookies home from training camp after five members of the team tested positive for coronavirus.
Now, the Pegula family is looking again to fund their lifestyle with fracking industry speculation with the creation of East Resources Acquisition, a so-called “blank check company” without a specific business plan that is raising money to invest in oil and gas assets. The move comes amid a growing wave of bankruptcies in the sector as heavily-leveraged drillers across the United States have been pummeled by falling oil prices due to a price war between Saudi Arabia and Russia and demand destruction due to the coronavirus pandemic.
A new fracking venture with an old fracking ally
According to filings with the Securities and Exchange Commission, East Resources Acquisition is seeking to raise $300 million from investors in an initial public offering underwritten by Wells Fargo. The company will use the money to identify and acquire “long-lived assets with relatively stable decline profiles and low fixed costs supported by existing production and cash flow, but that we believe are underperforming their potential.”
One early investor in the Pegulas’ new company is the Boston hedge fund Adage Capital Management, which reported an 8.3% stake in East Resources Management on August 3.
Another investor is former Pennsylvania Governor Tom Corbett.
Corbett, a Republican who held office from 2011 through 2015, was a valuable ally of the state’s fracking industry. Corbett signed the controversial Act 13 into law, which restricted
municipalities’ right to zone against oil and gas development and subjected local laws regarding oil and gas development to review by the Public Utility Commission. Corbett also overturned former Governor Ed Rendell’s ban on drilling in 60 state forests. Corbett’s appointee to the Pennsylvania Department of Environmental Protection, Michael Krancer, was a former energy industry lobbyist who once stated that “At the end of the day, my job is to get gas done.”
The Pegula family were some of Corbett’s major benefactors. From 2009 through 2014, Terry and Kim Pegula donated $655,000 to Corbett’s campaigns, according to data from the National Institute for Money in Politics.
Corbett is now an investor in East Resources Acquisition Company. Documents filed with the Securities and Exchange Commission show that Corbett acquired 10,000 Class B shares in the company on July 22. That filing also reports that Corbett is a member of the company’s board of directors.
Corbett’s ownership and governance role at the Pegula’s new oil and gas venture is another entry in the State of Pennsylvania’s notorious revolving door with the fracking industry. When we first reported on the fracking revolving door in Pennsylvania in 2013, we found that all three of Corbett’s immediate predecessors as governor had ties to the oil and gas industry as had every Pennsylvania Secretary of Environmental Protection since the department’s creation.
The revolving door between Pennsylvania oil and gas regulators and the fracking industry figured prominently in a scathing grand jury report released in July 2020 by Pennsylvania’s Attorney General Josh Shapiro. The report found that years of poor government oversight of fracking failed to “properly protect the health, safety and welfare of the thousands of Pennsylvania citizens who were affected by this industry.”
Some of the people impacted by the lax regulation of the fracking industry under Corbett and his predecessors were harmed by the Pegula family’s operations. A 2017 report by PennEnvironment found that East Resources was one of the most frequently cited companies for environmental and public health violations from 2008 through 2016 and that JKLM Energy had the third highest rate of environmental and public health violations per well drilled in that time period.
While those violations and the money the Pegulas invested in political influence proved profitable at the beginning of the US fracking boom, it is unclear whether the family’s latest foray into oil and gas speculation will pan out for them and their investors.
Bankruptcies in the oil industry may mean that the Pegulas can buy assets on the cheap. However the landscape of the industry is vastly different than it was in the early 2010’s. The drilling boom of that decade has driven natural gas prices so low as to make the capital-intensive fracking process uneconomical for many drillers. As more and more information has come out showing the negative impacts fracking has on public health, public resistance to the industry has grown. Since the beginning of the fracking boom, the claim by the fracking industry and its supporters that natural gas can be a “bridge fuel” to a future of low-carbon energy has been discredited and the need for rapid decarbonization of the global economy has gained widespread support.
The Pegulas’ net worth has not yet diminished during the economic downturn. In fact, from March 18, 2020 through June 17, it actually increased by 2% – from $5.0 billion to $5.1 billion. However, as the coronavirus rages in the United States and the economy continues to slump without meaningful relief for working people, the family and their co-investors could find their investments stranded in businesses without a future.