The debt wasn't because the team wasn't supported, it was because the original business plan to fund building an arena and expansion fee got severely undermined by a NDP gov't that decided not to play along.
In case anyone wants a slightly more specific history to the bolded...
Basically, the Ontario Premier at the time was David Peterson, a Liberal. Part of our bid for the NHL team involved a privately funded arena, but it was privately funded based on three guarantees from the government:
1) the arena site (100 acres) and surrounding land (500 acres) needed priority to be re-zoned so that an arena could be built on what was until then zoned as agricultural land
2) public money to build a $30mil highway interchange that would allow highway access to the arena - the interchange would then be donated back to the province upon completion.
3) Support from the provincial government for the team in the upcoming expansion bid process.
Peterson agreed to all 3 of the requests, and specifically was in favor of the private funding for the arena with public funding for the infrastructure (the interchange) and thought it was fair in light of the Skydome budgetary disaster, which cost the province almost $700mil.
Rae then won the 1990 election, but not only that, only 1 of the 12 ridings in Ottawa went to an NDP candidate, so Ottawa went to the bottom of the list for any requests from the government. Rae promptly reneged on all three promises made by the Peterson government. No re-zoning of land. No public money for an interchange (when the Sens were forced to pay for it, it was the only privately-financed interchange on a 400-series highway in the entire province). They wouldn't even fly to Florida to help promote the expansion bid.
The Sens had to basically take the province to a hearing at the Ontario Municipal Board (who was in charge of arbitrating land use in Ontario). The OMB ruled that the Senators were allowed to build the arena on the 100 acres of land that it now sits on, but refused the interchange claim, and most importantly refused the re-zoning of the 500 acres of land around the arena owned by the senators.
How did the re-zoning refusal of the 500 acres put the Sens in a hole? Well, the entire financing of the arena was through the development of that land. The Sens has bought 600 acres of land at $12,000 per acre. After re-zoning and building the arena, the land would have been worth $100,000+ per acre overnight. The arena was to be funded when the Sens flipped the surrounding land at a 10x profit on what they paid for it. When Rae refused to honor Peterson's promises, it meant that the team was still required to build an arena without public money, but they went into EXTREME debt to do so (they not only had to find $250mil to build the arena, but another $30mil for the interchange), debt which the team never got out of until the Melnyk purchase of the team + arena. Also, let's not forget that Melnyk didn't pay almost any of that debt - Bryden basically stiffed local businesses for over $100 million of "forgiven" debt - he only ended up paying $600k of that $100mil, and if he had declared bankruptcy, he would have paid $0.
Honestly... if Peterson had never called an early election in 1990 (he called the election 2 years early), the team would probably still be owned by Rod Bryden & Terrace Investments. We never would have gone into debt to build the arena, the surrounding 500 acres would have been built up into a huge developmental retail/residential neighborhood (think the current Lebreton project, but in Kanata), and the org probably would have a MUCH different history.