As Pegulas face business challenges, employees describe a toxic culture at PSE -

Last January, within a couple of weeks of the Buffalo Bills reaching the playoffs for the second time in three seasons, owner and president Kim Pegula spoke to her employees about tightening their belts.

Over the course of a few days, Pegula addressed various departments via video conference from the family’s home office in Boca Raton, Fla. She explained raises and bonuses should not be expected aside for those, such as coaches and players, contracted to receive them. Budgets would be scrutinized.

Times ahead were going to be difficult, Pegula stressed, and sacrifices must be made. The tone underscored worries that had been circulating among workers at various Pegula Sports and Entertainment properties. They already feared Terry and Kim Pegula were eyeing additional cutbacks to right-size a sports, media and hospitality empire that expanded too rapidly.

Kim Pegula’s video presentation included a rundown of organizational objectives. One particular slide, titled “Pegula Family Goals,” shook executives and lower-level employees alike. A handout version of the slide, obtained and verified by The Athletic, listed the Pegulas’ three chief objectives: win championships, sustainability, return on investment.

Pegula, current and former employees say, explained that return on investment included maintaining the family’s lifestyle.

“People were walking out of those meetings like they’d been punched in the gut,” a Bills management source said. “We just made the playoffs in the NFL, where it’s impossible to lose money. We’re firing on all cylinders. Now we have to pinch pennies?

“The morale after those meetings was lower than the day Ralph Wilson died.”

Spirits within PSE’s other properties were depressed before that. The Buffalo Sabres have been among the NHL’s worst clubs for nearly a decade, missing the playoffs nine straight seasons (presuming the 2019-20 regular season standings hold true) while employing six head coaches in that time. A source with knowledge of the numbers said the Sabres have been losing between $40 million and $60 million the past few seasons.

Key executives departed, three amid sex scandals and three more for reasons never divulged to the staff. Jobs throughout the PSE portfolio were culled. Many roles were eliminated or divided up, creating more work for the same pay.

Many in management positions have wondered if any of the Pegulas’ companies are turning a profit aside from the Bills. Not even the industry that made Terry Pegula wealthy could be relied upon. His natural gas wells have been capped since last summer; prices have plummeted further since.

The Bills, though, essentially had been insulated from the PSE melancholy until January.

Two sources close to Bills head coach Sean McDermott say the January meetings left him concerned about low morale eroding the culture he and general manager Brandon Beane have cultivated over the past three years with a meticulous, holistic attitude.

Any worries McDermott harbored for One Bills Drive would be felt exponentially deeper in the Pegulas’ downtown offices, where employees already were wary. Vice presidents took the handouts from Kim Pegula’s video presentation and shared them with different departments.

The VPs reiterated one of Kim Pegula’s primary organizational goals was maintaining her family’s lifestyle.

“What that told me,” said one current PSE employee, “is I’m getting laid off before they cancel that family trip to Tahiti.”

It has been assumed the coronavirus pandemic caused a drastic reduction to the Pegulas’ workforce, but concern over upcoming terminations have loomed since November, when 10 of 30 jobs were eliminated from PicSix Creative, a marketing agency the Pegulas formed two years earlier.

Tension only intensified after the Bills’ season.

“One day, we were a perfect company,” a current PSE employee said of the November firings. “The next, you’re hearing left and right that one person was let go, then two, then six. All early on a Monday morning.

“It was a shock not only to hear friends going, but that we are actually not doing as well as some imagined.”

Anxiety roiled nearly two months before PSE laid off virtually its entire hospitality division on March 20.

Last week, PSE fired another 21 employees, including three vice presidents, and announced 104 furloughs across a portfolio that includes the Buffalo Bandits, the Rochester Knighthawks of the National Lacrosse League and the Rochester Americans, the Sabres’ minor-league affiliate.

Terry and Kim Pegula, meanwhile, have paused construction of their new superyacht in Amsterdam.

Employees say they feel increasingly rudderless amid growing concern the Pegulas are low on liquidity while operating too many side projects. The angst has contributed to waning confidence and heightened insecurity.

The Athletic interviewed 39 current and former full-time employees by telephone, text and verified direct message. All have worked for PSE, the Bills or the Sabres within the past 14 months. All but five were on the staff directory within the 2019 Bills or 2019-20 Sabres media guide. Their names are being withheld because of their concerns over reprisal.

“Toxic culture” was the most repeated phrase from those interviewed. They detailed being overworked because of continual downsizing while dealing with chain-of-command breakdowns, poor communication flow and interdepartmental disorder.

The most common observations made from the perspective of those interviewed:

The Pegulas’ resources and attention are stretched too thin by businesses not related to the core mission of winning games.
There is a lack of faith in the shrunken executive leadership team: executive vice presidents Gregg Brandon (legal), Frank Cravotta (creative), Chuck LaMattina (finance), Mark Preisler (media and content) and Ron Raccuia (licensing and brand merchandise).
High job turnover is coupled with little explanation for it.
Family and close friends receive positions of growing influence or are allowed pet projects.
Employees conveyed support and sympathy for their coworkers along with resentment that upper management takes their efforts for granted.

“A lot of the things that were so amazing about it when I started,” said a former PSE employee, “began to evaporate as they continued to cut corners and cut expenses.

“I’m sure you’ve heard or will hear that the people who work there are awesome people, but the people high up in executive leadership now are snakes, to put it kindly.”

Representatives for Terry and Kim Pegula also provided information on the condition of anonymity. They stressed difficult personnel moves are being made because they must be and that any judgment should be reserved for the future, when the results will speak for themselves.

Kim Pegula agreed to email responses to questions about employee morale and workplace perceptions. The Athletic has published the entire transcript of those answers here.

“As I have been taking a deeper look into how all our businesses have been operating,” Kim Pegula wrote, “I have had to make changes. Some I could plan for, and others I could not.

“If I had a magic wand and in one swing could make everything the way we intended, I would. But these types of changes take time and are a natural part of the evolution of all businesses. We are no different.

“Are we where we want to be as an organization? Definitely not; I don’t know any business that is. All I can say is that we will continue to address these issues.”

Sports teams are considered a civic trust. They represent their region on the national stage, and few sports markets rely on their teams for positive communal energy like Western New York does.

The Pegulas became stewards not only for fans, but also the public at large given the amount of state and county tax dollars dedicated to the cause.

Terry Pegula, his fortune amassed through hydrofracking, was unknown to Buffalo sports fans until 2011, when he bought the Sabres, Americans and Bandits for a reported $189 million. A year earlier, he donated $102 million to his alma mater, Penn State, to build the Pegula Ice Arena and start a Division I hockey program.

Kim Pegula formed PSE in 2014 to oversee the teams and additional ventures, including Black River Entertainment (a country music label run by her brother in Nashville) and the $200 million HarborCenter project. Within the HarborCenter complex are two hockey rinks, a Marriott hotel, (716) Food and Sports, Tim Hortons and Healthy Scratch (a restaurant launched by daughters Jessie and Kelly Pegula).

When Bills founder Ralph Wilson died in March 2014, panic overtook Western New York. Fans long feared that when Wilson passed the team would be snatched up by someone with designs on relocating to Toronto or Los Angeles or Las Vegas or London.

Terry and Kim Pegula became heroes, easing a region’s collective torment by ensuring the Bills would remain for generations to come. They paid a record $1.4 billion for the franchise.

On Oct. 12, 2014, the Pegula family emerged from the tunnel at Ralph Wilson Stadium to an explosion of cheers and chants before the Bills played the New England Patriots, their first game as owners.

Kim and Terry Pegula address the crowd at Ralph Wilson Stadium in their first game as owners on Oct. 12, 2014. (Tom Szczerbowski / Getty Images)

The pregame party launched the Pegulas’ signature campaign. Fans performed a card stunt that spelled out “One Buffalo” in the upper and lower decks.

“It is intended to bring the community of Buffalo together as a representation of teamwork and a deeper connection between Buffalo sports teams and their fans,” PicSix Creative says on its website. “It is a meaningful sign that we are all moving in the same direction: One Team; One Goal; One Community; One Family; One Buffalo.”

Not only did Pegula Sports and Entertainment oversee both of Buffalo’s big-league clubs, but it also intensified Western New York’s us-against-the-world tribal spirit.

“I used to feel proud to tell people I worked for PSE,” said a current employee. “Then there was a point I just had to force a smile when talking about my job. Now, when people ask me about openings, I tell them not to apply.”

Several people interviewed mocked One Buffalo as a marketing gimmick, not a corporate ethos. Even among fans, the concept of One Buffalo has come to represent less of a unifying movement and more of a brand. The logo is on shirts, hoodies, hats, ice cream, cupcakes and beer.

“We always say winning fixes everything,” a current PSE employee said. “And I’m sure if the Sabres were successful some of these issues would be less infuriating on the surface.

“But, top to bottom, it doesn’t excuse the fact they’re trying to make shortcuts within these large entities. Any feeling of a true One Buffalo should be out the window. The whole thing just feels like a scam.”

Upheaval within the Pegulas’ inner circle began when managing partner and president Russ Brandon resigned in May 2018 after an internal investigation into inappropriate sexual relationships and workplace misconduct. Two trusted HarborCenter executives, Michael Gilbert and Nik Fattey, resigned in January 2019 after an internal investigation into sexual harassment claims.

Three PSE executive vice presidents exited in February 2019: chief operating officer Bruce Popko, chief administrative officer Brent Rossi and head of business development Erica Muhleman. No reasons for the moves were revealed.

“We kept people in leadership roles because we trusted them to have our interests and the interest of the teams as their number one priority,” Kim Pegula wrote. “We were wrong.

“We fully admit we put trust in some of the wrong people and made decisions based on information that was given to us by them. It’s our fault. … We allowed them more leeway than clearly they deserved. We kept them too long, and we’ve paid the price. It’s a lesson I’ve learned over the last couple of years.”

As such, Kim Pegula is unapologetic about elevating two close family connections over the past year and a half.

Taylor Gahagen is PSE’s director of corporate development and Jessie Pegula’s fiancé. Executives consider Gahagen a rising star, but frustrations throughout PSE in recent years have created skepticism among the rank and file.

Jason Long emerged from the Bills sports performance department in September 2019 to take over HarborCenter as general manager. Long is the son of Terry Pegula’s longtime friend, Bob Long, an executive with East Resources until Pegula sold it in 2010 for $4.7 billion.

“After what we have gone through with previous leadership,” Kim Pegula wrote, “I think it is understandable that we would want to put in place people we’ve known all our lives and who are part of our family. … We have learned through past mistakes the quality of the person is more important than their experience, especially if they have a different agenda and do not represent who we are as people or as an organization.”

Kim Pegula has taken on the role of president for all five of PSE’s teams and with an inner circle that has gotten smaller and less experienced over the past two years. The Bills also are without a chief administrative officer after declining to renew Dave Wheat’s contract in February.

“President of an NFL or NHL team is not a part-time job,” one Bills source said.

Several employees interviewed for this story said they were encouraged when employee surveys were distributed on June 5, 2019.

“They emphasized there would be changes to improve the organization,” a former PSE employee said. “I never felt that they actually listened.”

Workers from different departments say they compared notes and came up with a list of common concerns they were hopeful the executive leadership team would address. At the annual employee breakfast to launch the Sabres season, Kim Pegula revealed the two pressing concerns from surveys: goal setting and employee development.

The results didn’t match the feedback provided by those interviewed for this story.

“I remember being underwhelmed,” said a current Sabres employee.

The executive leadership team, known within the company as the ELT, devised collaboration committees for each of the main entities, PSE, Bills, Sabres, Rochester and hospitality among them.

The committees began meeting in January but had two inherent problems, employees say. They were given little direction as to what the groups were supposed to accomplish, and they were to answer to the ELT, the very people employees seemed most troubled about.

“We have been working on correcting that,” Kim Pegula wrote in response to a question about lack of faith in the ELT. “We had to take a hard look over the last few years and make decisions on people we lost confidence in, people that I considered close friends.

“Don’t forget: We have numerous properties across our portfolios, many formed under the recommendation by past leadership. I understand that not every decision is going to be understood by each and every employee, but at the heart of it, we are doing what we believe is right for the health of the organizations.”

Less than two years ago, PSE listed eight executive vice presidents. Now it has five.

Three ELT members have been with the Pegulas since before they bought the Bills. Cravotta and LaMattina joined the Sabres in 2004 under Tom Golisano’s ownership. Preisler, a former NHL Network and ESPN producer, joined PSE in August 2014.

Gregg Brandon, Russ Brandon’s younger brother, has been the Bills’ general counsel since August 2013. He became a PSE executive vice president in 2018.

Raccuia became a PSE executive vice president in August 2017, when the Pegulas bought a majority stake in his AdPro Sports apparel company. Raccuia was an NFL agent who represented Bills running back Fred Jackson, cornerback Terrence McGee, safety Coy Wire and punter Brian Moorman.

Natural gas has been the underpinning of the Pegulas’ wealth. Forbes estimates Terry Pegula is worth $4.5 billion, and while that number is considered a bit high by a source close to the Pegulas, there’s no quibbling the family is prosperous.

Upon purchasing the Sabres and declaring the team’s sole purpose would be winning Stanley Cups, Terry Pegula famously remarked, “If I want to make money, I’ll drill another well.”

Natural gas closed Friday at $1.76 per unit, up 23 cents compared to just two weeks earlier. The increase, nevertheless, leaves the Pegulas far behind where they were when they began amassing their PSE portfolio.

Natural gas sold for $4.21 per unit the day he bought the Sabres and for $3.89 the morning the NFL unanimously approved Terry and Kim as the next Bills owners. They funded their Bills acquisition by selling off $1.7 billion in oil-drilling acreage.

The Pegulas can’t go to that well now.

“I don’t know any industry that wouldn’t be affected with that type of decline,” Kim Pegula wrote. “People may not like that our businesses interconnect or have influence over another, but all I can say is that if it wasn’t for the oil and gas industry and the people that work in that business, we couldn’t have invested in Buffalo, and the people who are employed would not have their current jobs.

“We do not have an endless supply of capital, and, like everywhere else around the country, all of our organizations have been affected by the pandemic. It would be irresponsible to not reevaluate our holdings.”

JKLM Energy — named for children Jessica, Kelly, Laura and Matthew — capped its wells in July because natural gas prices had fallen too far. The price then was $2.14 per unit, 21.6 percent higher than it closed Friday.

Another snapshot from the Pegulas’ investment collection is Rand Capital Corp.

Terry Pegula finalized a $25 million deal in November to buy 57 percent of the Buffalo-based venture-capital firm.

He paid $3 per share, a premium over the stock’s $2.73 price that day. Rand closed Friday at $2.12.

Emblematic of PSE’s inefficiency was PicSix, an overambitious venture that had nothing to do with winning football or hockey games and has had employees from other departments rolling their eyes since its origin.

The intention was to capitalize on a deep creative staff with a boutique advertising and marketing agency for outside clients such as New Era Cap, the University at Buffalo and Canisius College. One of the critical issues was inexperience at running such a business.

PicSix launched in June 2017. By last November, despite interviewing and hiring new workers merely four months earlier, PSE abruptly fired 30 percent of the PicSix staff along with half a dozen from business development.

As the Pegulas downsize and their ELT looks for “efficiencies,” a term used for jobs that can be combined across all organizations rather than having similar roles at each club, workers claim they constantly are being asked to do more work with less resources.

“People are fried,” one former executive said. “They’ve been letting people go for over a year, and the ones that have to work with both the Bills and the Sabres are going nonstop from summer until April. It would be later than that if the Sabres ever made the playoffs.

“Nights, weekends, different fan bases, different presentations, different databases, different practices within each league.”

Examples of communication breakdowns were plentiful among those who spoke with The Athletic. Two from ticket sales — one current and one former employee — recounted recurring problems with receiving commission payments.

“We didn’t make great money, so we were relying on that,” a sales source said. “As the year progressed, we never got them on time. There was always an excuse.”

The Sabres’ shootout win over Washington on March 9 would be the final game at KeyBank Center before the NHL paused its regular season. (Timothy T. Ludwig / USA TODAY Sports)

Since the coronavirus pandemic halted hockey and lacrosse seasons, PSE has made public relations missteps regarding the wages of KeyBank Center and Blue Cross Arena ushers, ticket-takers, security and freelance broadcast workers.

While other NHL clubs promised to pay the workers regardless of whether the season resumed, PSE’s initial public comment was that it would take a wait-and-see approach. Kim Pegula later announced game-night employees would be compensated once games officially were canceled.

The pandemic shutdown nixed a busy three-day weekend in KeyBank Center. The Sabres were scheduled to host games March 13 and March 15; the Bandits had a game in between.

All three games were to be televised. PSE entities pay the broadcast crews. An email from Pegula’s vice president of broadcasting, Chrisanne Bellas, announced that usual work for the three games was canceled, but a crew was needed to pack up equipment spread throughout the arena and to load the broadcast truck. A game-day crew normally features more than 20 workers.

Only six were called in and compensated for a 10-hour day. The bypassed workers were paid the five-hour minimum for Friday’s postponement of the Sabres.

“There will be no compensation for the crews scheduled for Saturday and Sunday,” Bellas wrote in the email. “As more information becomes available, we will provide updates as necessary.”

No further information has been supplied since that March 12 email, leaving the broadcast workers in the dark even though the NLL called off its season April 8. Broadcast workers have not been paid (or gotten any notification when they will be) for the Bandits’ three canceled home games.

A pandemic is not the sole reason the Pegulas have dismissed so many people.

Furloughs and salary reductions for top executives are one thing. But those who have been fired would have been gone regardless of COVID-19.

Kim Pegula said as much Tuesday in an email to the remaining employees.

“Layoffs are always difficult and not something we take lightly,” Kim wrote in the internal email. “Over the last year, Terry and I have been analyzing all levels of our businesses to truly understand their viability and sustainability. We have slowly been making changes over the last several months, and feel it’s necessary to continue with planned moves based upon the conclusion of the scheduled Sabres season.

“We thank and acknowledge these people for the work and contributions they made to the organization and wish them well. We are providing severance, knowing that this is not the best time to announce these changes.”

But word circulated swiftly through PSE, Bills and Sabres offices that three vice presidents among the 21 firings would receive only two weeks of health insurance.

Among those let go: vice president of tickets and service John Sinclair, vice president of live events Jennifer Van Rysdam and vice president of media relations Chris Bandura. They combined for 72 years of Sabres service.

Seymour Knox IV, son and nephew of the Sabres’ co-founders, posted The Athletic’s article about the firings on his Facebook page. He added the message: “A very sad day in Sabreland.”

In the comments underneath, recognizable names lashed out at the Pegulas.

Former Sabres minority owner and president Larry Quinn called the moves “baffling,” said Kim Pegula was “making a horrendous mistake” and blamed “sneaks (who are) hiding and assassinating good people.”

A source confirmed Bonny Seiling, wife of French Connection right wing Rene Robert, called Thursday to cancel her family’s season tickets, as she stated under Knox’s post. Sabres Hall of Fame goaltender Don Edwards called Sinclair’s dismissal “very disheartening. … Despite the current pandemic, looking optimistically ahead to when it ends, common sense, loyalty and appreciation for someone’s many years of devotion and dedication is the strength of any organization.”

The ousted Sabres vice presidents did receive severance pay, unlike Wheat. After 20 seasons with the Bills, he was informed the day before his contract expired in February that he would not be renewed.

Two sources said Wheat was resistant to PSE synergies and fought to keep the Bills an isolated organization, that he didn’t want the problems at PSE or the Sabres to be felt in Orchard Park.

“We have invested almost all profits back into the Bills,” Kim Pegula wrote. “We have renovated locker rooms, training areas, clubs, suites, our cafeteria, scouting room and most recently funded a new sports-training center along with all the normal capital expenditures needed for an almost 50-year-old stadium.

“With the pandemic and the uncertainty of sports in the near future, we instituted a hiring freeze, freeze on raises and bonuses as well as reassessing discretionary spending. We, along with many other teams, put into place these same guidelines so that we could plan for uncertain times.”

Wheat, the Bills’ top executive after Russ Brandon’s resignation, and the former Sabres vice presidents declined to be interviewed for this story.

In a news release about last Tuesday’s workplace announcements, PSE made a point to mention the Bills “continue to operate at normal levels” because the NFL’s offseason schedule hasn’t been significantly changed. The NFL Draft will begin Thursday.

A league source took note of that proclamation, saying “That’s the Pegulas sending a message to their NFL peers that their other business decisions are not impacting their competitiveness. Roger Goodell pays attention to things like that.” No NFL team has announced cutbacks due to the pandemic.

“The culture is legitimate,” a Bills source said. “Whatever’s going on with the Sabres, I don’t care. That’s their problem. Their shit better not affect what we built.”

In response to a question about their plans with their struggling hockey club, Kim Pegula said, “We are not looking at selling the Sabres. We are looking at the best way to operate the club so that it’s viable and sustainable.”

She conceded future stadium and arena costs — newly built or renovated — already have been incorporated into their business decisions.

As the NFL’s second-smallest market, every dollar will count. The outlook for state and county tax dollars has darkened during the pandemic.

“We are trying to correct our mistakes and the mistakes of others with the goal in mind that we need to be better in many areas to not only survive but to thrive,” Kim Pegula concluded in her email to The Athletic.

“Despite these challenges, we believe there is still a lot of optimism and opportunity here in Western New York with the right people in place and the collaboration of all our entities we always envisioned.”

— Additional reporting by John Vogl

(Top photo: AP Photo/Phelan M. Ebenhack)

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