With casino taxes falling short, Columbus could bail on $44m of Blue Jackets bailout

Back in June, I discussed how Columbus and Franklin County taxpayers are doing on their public bailout of the Columbus Blue Jackets‘ arena, which is not well: Thanks to local casino taxes falling far short of projections, the arena is barely managing to pay its operating costs, meaning there’s no money left over to repay $10 million in debt to the state of Ohio and $44 million to former arena owners Nationwide Realty Investors. It turns out that may be good news for Columbus residents, though, since the terms of the deal are that if the casino money falls short, taxpayers can simply skip out on the debt:

The deal was structured so that casino tax revenue would be used to fund part of the arena management company operations, pay for capital expenses and repay the loans — in that order.

So far, casino taxes are generating only enough revenue to supplement management and operating costs at the arena.

The way the deal is constructed, Nationwide would assume the debt if there is not enough money to cover the arena purchase. The city and the county are not obligated to provide any other sources of revenue from their budgets to make up for the shortfall. That means their own budgets aren’t at risk, and without the prospect of an empty or dilapidated arena neither has an incentive now to reopen the deal.

“As far as I am concerned, Nationwide is carrying bad debt,” said City Auditor Hugh J. Dorrian. “ The contract will not be rewritten.”

This doesn’t make the bailout a good deal, mind you: The city and county are still sending $4 million a year in casino taxes to cover operating costs, plus have an estimated $2 million a year in deferred maintenance expenses that it has to pay off somehow. And defaulting on a $10 million loan from the state would just shift the burden from city taxpayers to state taxpayers in general, which isn’t really a net gain for the Ohio public.

That said, kudos to whoever on the Columbus side of things negotiated this “we’ll owe the private arena developers who we’re bailing out $44 million, unless we don’t have it in which case you’re out of luck, suckers” clause. At least it’s prevented a bad deal from going to worse.

9 comments on “With casino taxes falling short, Columbus could bail on $44m of Blue Jackets bailout

  1. “John Rosenberger, the lawyer the city and county hired to broker the arena deal, estimated in 2011 that the county would take in about $12 million per year in casino revenue and Columbus $18 million as a host city. And those projections were significantly tamped down from what casino advocates were saying host cities and counties would receive. In hindsight, even those projections were wildly optimistic: Using those numbers, both the city and county should have raked in a combined $116 million since 2013. The real number is $41.3 million. And only about a quarter to a third of that money — just over $10 million — goes to the arena.”

    Hooray for combating wildest expectations in a deal that keeps the risk on the private company (which just happens to be an insurance company).

    “The authority also has to consider how it will keep the 16-year-old arena fresh as new ones pop up across the country. Experts peg the typical life cycle of an arena at 25 to 30 years. ….Victor Matheson statement….
    Brown said Columbus will continue to need a Downtown arena to host major events, and that will require “the community to reinvest.” “A world-class community will need a Downtown arena to maintain its prominence and remain in the forefront of growth and development in North America,” he said. “There’s no free lunch here.””

    That’s sort of what you’d expect the guy tasked with running the arena/convention centers to say. I fear for how Seattle would be growing if we weren’t simply coasting on our arena 21 years after renovation.

  2. Neil, any possibility the Blue Jackets could end up relocating to Quebec City? Isn’t the Videotron center there fairly new and capable of hosting them?

    • I live in Columbus and am a Blue Jackets fan. Zero chance.

      The reason being is that the team has a pretty nice lease (they don’t pay anything and get all of the money from concessions and parking near the arena). I’ll bet they’re profitable even when we have the 3rd or 4th worst attendance in the league. The penalty for breaking the lease (which goes until 2039) is several million dollars. Nothing to sneeze at, but at the same time, less than an expansion fee.

      • Yup, what Stine said. Nationwide might get the short end of the stick here, but the Blue Jackets owners are making out great.

  3. Hard to imagine that an expensive building that has nothing going on most of the day or most days of the month would lose money.

    • Yes. They lose the most money on days the Jackets are playing. I’ll bet they are in the black when other concerts/events are hosted there.

      • I would agree. Just gets at the myth of these arenas–there are very few that can truly stand on their own with inherent demand.

        If people really believe that these are needed to be a “real city,” then prepare to pay for it from general revenues.

  4. So now Nationwide can take a loss on their federal taxes and instead of the NHL paying rent the US tax payers get screwed along with Columbus tax payers.