Economy fells another Burnsville council member’s business
Dan Kealey
Kealey surrenders retail chain, while Gustafson makes plans to start over
by John Gessner
Thisweek Newspapers
Burnsville City Council Member Dan Kealey’s used-media business survived the early-2000s collapse in music CD sales.
Pivoting to video games and DVDs, the business then survived the Great Recession’s onset in 2008.
But DSK Sound Inc. couldn’t withstand a second drop in consumer spending in 2011. In August, Kealey’s business was liquidated through an agreement with his secured creditor, M & I Bank. Now another lender, Wells Fargo Bank, is suing Kealey for $97,740 in unpaid debt on a business line of credit.
“This is a story about another business falling victim to the deep recession,” said Kealey, 54.
He’s the second Burnsville council member whose business fortunes were upended by the downturn. Dan Gustafson lost his franchise with Concert Group Logistics, a freight-forwarding firm, in July 2009, and filed for Chapter 7 bankruptcy protection in 2010. His successful petition freed him of $1.28 million in debts.
Gustafson said Kealey has been candid about his situation, “and he’s been working his tail off, like I did, to save his business.”
“He and I chatted a lot,” said Gustafson, who’s now planning a new venture. “He certainly has my support. You don’t ever want to see somebody ever go through anything like this. But unfortunately, between the two of us, we’re two of millions who are going through this.”
Kealey said Chapter 7 is an option.
“If I had to file, it would only be to discharge the personal guarantees associated with my business that failed at the hands of the recession, and for no other reason,” he said.
Employed by Burnsville-based Rixmann Cos. as director of new business development and community affairs, Kealey said his personal finances aren’t in peril, though he has flirted with home foreclosure and reports having scant personal savings.
He launched DSK Sound in 1993, once owning six stores that he said produced peak-year gross sales of about $2.4 million.
When CD sales tanked, the business adjusted.
“Video games grew from nothing to 50 percent of my sales in a few years,” he said. DVDs accounted for 40 percent of sales and CDs a mere 10 percent when the business closed, Kealey said.
He shuttered poorly performing stores in Roseville and Minnetonka in 2008, leaving four stores – Replay Music Movies Games at Burnhill Plaza in Burnsville, and three Mega Media Xchange stores in Blaine, Maplewood and St. Cloud.
His decision to join Rixmann Cos., which owns Pawn America stores, in September 2008 was another attempt to shore up his own business, Kealey said. He subtracted his salary from DSK’s overhead costs, leaving employees to run the business while he drew a salary elsewhere.
“Roughly 25 people lost their jobs when this company closed,” Kealey said.
Sales tanked in 2008 but eventually recovered to the point where Kealey said he was able to meet expenses and debt payments negotiated with M & I Bank, where he had two loans backed by the U.S. Small Business Administration.
Then sales plummeted by 30 percent, he said.
“The second dip of this recession hammered retailers this spring,” Kealey said. “There were national reports that showed consumer spending hit a two-year low in 2011.”
Said Kealey, “I could not sustain another massive revenue fall as a result of consumer spending pulling back. I was unable to meet rent obligations, and therefore I negotiated a voluntary surrender of the assets to the bank, and they took control and liquidated the assets.”
The liquidation value “won’t equal the loan value, so the difference is still a liability I am personally guaranteed to support.”
His efforts to repay M & I date back to the sale of his home on Crystal Lake in 2007, when the bank “took possession of all the equity” and received $170,000 over the following year, Kealey said.
Kealey dodged foreclosure on his next home, on 152nd Street, by closing a sale in April.
“It was in the foreclosure process. And I did have a cash buyer, and I sold it before the end of the reclamation period,” said Kealey, who lives with his wife and family.
Remaining obligations
The remaining sum he owes M & I is larger than the $97,740 he owes Wells Fargo, Kealey said.
Kealey said he hadn’t been making payments to Wells Fargo while negotiating new payment terms. He said he was surprised to learn the bank had filed suit against him on Oct. 3 in Dakota County District Court. His ex-wife, Robin, is also named in the suit, but Kealey said her stake in DSK ended some time ago.
The civil complaint says Kealey has not made payments on the debt since about Oct. 19, 2009. He applied for the line of credit in July 2005, according to the complaint.
A third creditor, a private party, holds a “small note” in DSK, Kealey said.
Gustafson eyes new
venture
After his debts were cleared by the bankruptcy court, Gustafson, 58, landed a midlevel management job with Manna Freight Systems in Mendota Heights.
“I think I’d worked for myself for so long, it was difficult to work for somebody else,” said Gustafson, who left that job last month. “So we’re going into our own business.”
He and his wife, Suzanne, plan to operate a food truck. Minneapolis, St. Paul, and various fairs and festivals are possible venues for the new business, Gustafson said.
“The food-truck business is one of those things in this country that’s really taking off,” said Gustafson, who in the early 1990s owned the Roxy Music Cafe at St. Anthony Main in Minneapolis. “It allows you to have a restaurant without investing in the brick and mortar, which helps keep your expenses down.”
The couple have yet to decide on a food specialty. Gustafson said they hope to be in business this spring. He said he’s researched permit requirements in Minneapolis and St. Paul, as well as applicable state health regulations.
“We’ve been doing our diligence on it,” he said.
Suzanne, who once worked part time at the Burnsville Performing Arts Center, is now working part time at Costco in Burnsville, Gustafson said. The couple were able to keep their house in the bankruptcy proceeding, which wrapped up last summer.
“It was the worst day of my life having to do it and then it was the best day of my life after it was done,” Gustafson said. “Suddenly I didn’t have the weight of the world on me any more, which allowed me to start over again.”
John Gessner is at burnsville.thisweek@ecm-inc.com.
