County official proposes diverting one-third of tourist dollars to build Cavs a glass wall

It’s been almost eight months since the Cleveland Cavaliers asked for a $140 million expansion of their arena to add more public space and give it a glass exterior wall, and Cuyahoga County Executive Armond Budish said, “Let me get half of that for you.” Now, Budish thinks he may have found some of the money, asking the local tourism agency to use hotel tax money to pay for the Cavs’ renovations.

Destination Cleveland collects about $15 million a year in hotel taxes, and paying off $70 million in Cavs expenses would cost about $4-5 million a year, so this would clearly be a hefty chunk of change, unless Budish has other revenue sources in mind as well. The Cavs are already getting a cut of the alcohol-and-cigarette-tax extension that county voters approved back in 2014 — Budish recently proposed splitting the proceeds evenly among the Cavs, Indians, and Browns, as nobody bothered to work that out beforehand — and since that amounts to about $170 million in total present value, Cavs owner Dan Gilbert is effectively asking for $70 million on top of the $60 million he just got two years ago for renovations. But really, who can put a price on the enjoyment that local sports fans get from a glass wall?

Stadiums now just big-ass billboards and public subsidy generating machines, face it

Today in sports teams sell ad rights for lots and lots of money:

The [Atlanta] Falcons organization has sold corporate sponsorships at Mercedes-Benz Stadium totaling more than $900 million in contractually obligated long-term revenue, SportsBusiness Journal reports in this week’s edition.

That’s $900 million over several decades, so not really worth $900 million toward today’s construction costs. Still, it should go a long way toward helping pay off the Falcons$1.6 billion stadium, especially when the team is already getting tax money worth nearly $700 million.

Also today in sports teams sell ad rights for lots and lots of money:

The Minnesota Timberwolves and Lynx named five new “founding partners” on Monday who will help pay for the $130 million renovation of Target Center now underway…

In exchange for its sponsorship, each founding partner will receive a customized package with the two teams. Each package will offer a yet-to-be disclosed “physical presence” inside the arena, plus outdoor and indoor digital signage and category exclusivity.

That Minneapolis Star Tribune article doesn’t mention it, but the Target Center renovation also got $48 million in public funds.

These are only two data points, obviously, but they do help explain why team owners are so eager to build new facilities despite tons of evidence that they don’t bring in all that much more money in actual arena revenues. New sports venues aren’t just new sports venues — they’re also new billboards, and corporations are more willing to throw money at slapping their names on a fresh canvas than on one that’s been written on already a bunch of times, even if it’s dubious whether there’s any real business value.

Plus, of course, it’s way easier to ask for public money for new (or renovated) buildings than it is to just ask for straight taxpayer handouts because you want to boost your profits. When future alien anthropologists try to puzzle out why we spent so much of our time building and then tearing down places to watch mass sporting spectacles, it’ll be fun to see how many tries it takes before they arrive at “it was the best way to separate people from their wallets.”

Yep, Pistons owner is getting even more public money to move team to downtown Detroit

And we have the terms under which the Detroit Pistons will move from their 28-year-old arena in Auburn Hills to a zero-year-old arena in their namesake city, courtesy of MLive. With no further ado:

The Pistons will play all home games at the 20,000-seat Little Ceasars Arena starting with the 2017-18 season.

Right, we figured.

The team and Palace Sports & Entertainment will move its business operations, corporate headquarters, team practice and training facilities into a new practice facility, to be built north of the arena at a cost between $32 and $55 million.

That’s pricey. Who’s going to pay for that?

Detroit’s DDA has agreed to contribute $34.5 million in additional bond proceeds through refinancing to be used for redesign and construction to modify Little Caesars Arena from a hockey facility to jointly house an NHL and NBA team.

Apparently Steve Neavling was right to be suspicious when Detroit’s Downtown Development Authority scheduled a meeting for a half-hour before the Pistons announcement and wouldn’t tell anybody what it was. But is this real Detroit city money, or passthrough money that’s really coming out of state education funds, like most of the rest of the arena costs? Reply cloudy, ask again later.

No city of Detroit general fund dollars will be spent on the arena project, and any additional costs or cost overruns will be paid entirely by the Pistons, the Red Wings and associated companies.

Teams pay overruns, all the public money comes out of special segregated funds, not the precious “general fund,” blah blah. It’s still city (or state) dollars that could be used for something else otherwise.

The Pistons are responsible for all costs relating to the development, construction, operation and maintenance of the practice facility.

That’s good!

The location of the team’s practice facility may be owned by the DDA, subjection to a concession agreement with the Pistons.

That’s possibly bad, since it means the practice facility wouldn’t pay any property taxes! Unless the concession agreement involved making payments in lieu of taxes. Reply cloudy, etc.

The Pistons have agreed to a 10-point community benefits plan, including investing $2.5 million over six years for the construction, renovation and refurbishment of more than 60 basketball courts in Detroit, the employment of at least 51 percent of Detroit residents on the construction of the practice facility and provide 20,000 free tickets a year to Detroit youth and area residents.

Better than nothing, but for what the DDA is putting into this, they could have built 1,000 basketball courts.

So, wait, who’s paying for that practice arena again?

Wait, what?

Okay, phew. You know, this “rough draft of history” stuff was a lot easier before Twitter got people publishing their actual rough drafts.

Anyway, total public subsidies for the arena are now at $334.5 million at minimum, and possibly even higher than that. You can argue that it’s worth it to Detroit to throw this money at the arena in order to lure the Pistons across the border from Auburn Hills — the tax impact may not be as huge as team owners like to pretend, but it doesn’t have to be to repay just $34.5 million — or you could argue that the Red Wings are eliminating a competitor (the Palace at Auburn Hills will almost certainly be razed now) and the Pistons are getting a newer home, and they’re both owned by billionaires who clearly want to do this deal regardless, so why the hell can’t they pay for adding a basketball court instead of Detroit be giving up scarce tax revenue?

More news tomorrow morning, if the magic eight ball clears up.

Pistons to announce move to Red Wings arena; public money, fate of Auburn Hills arena unclear

For anyone wondering if the Detroit Pistons are really going to abandon their own arena in Auburn Hills and shack up with the Red Wings in downtown Detroit, looks like, yup, they sure are:

The Detroit Pistons will announce Tuesday that they’ll leave The Palace of Auburn Hills to join the Detroit Red Wings at Little Caesars Arena in downtown Detroit for the 2017-18 season, a source familiar with the negotiations told The Detroit News on Monday.

What all this means in terms of financial details between the Pistons and Red Wings owners, the fate of the Palace at Auburn Hills (razed for redevelopment? all-Disney-on-Ice schedule?), and whether any more public money will be involved, we have no clue as of yet — though Motor City Muckraker blogger Steve Neavling notes with alarm that Detroit’s Downtown Development Authority is going to be voting on something right before the Pistons announcement:

neavling_on_stadiumMore news later today, I guess. Though given the way these things go, don’t be too surprised if we get a lot of renderings and not much in the way of financial details until later.

Leonsis hints at demanding new arena for Capitals, Wizards as soon as old one is paid off

So among all of last week’s pre-election shenanigans, this happened:

“My inclination right now would be — it’s pretty awesome where we are,” [Washington Capitals and Wizards owner Ted] Leonsis said Wednesday, the morning of the Wizards’ 2016-17 home opener. “And I love what’s happened to [downtown] D.C. But I don’t know what’s going to happen five, six, seven years from now. . . . I will be a free agent. I mean, that hasn’t been lost on me.”…

His “free agent” comment aside, Leonsis made it clear he is not actively seeking to leave downtown D.C., an area that has grown up around the franchises into a thriving, inner-city entertainment and shopping district. But neither would Leonsis commit to keeping the teams there.

“In terms of the Verizon Center, I’m being sincere: There’s been no discussions of would we look to move,” he said. “Have we talked to Virginia? We have not. Have we talked to Maryland? We have not. I would never do that. My goal would be stay where we are or stay within the city.”

That … that’s a threat, right? Pretty sure that dropping the names of neighboring states and then saying only that you want to “stay where we are or stay within the city” is a veiled threat of the “it’d be a shame if someone was to set fire to the paratroopers” variety.

The crazy thing here is that Leonsis owns the Verizon Center, so he’s in effect threatening to break his lease with himself. He actually made a point of noting that in his talk with reporters, calling his $23 million in annual mortgage payments and $13 million in annual maintenance payments “the worst building deal in professional sports” — it’s really not, but even if it were, having to pay to build and maintain your building is what in most industries is considered a normal business expense, and in any case was baked into the price that Leonsis paid Abe Pollin for the two teams in 2010 — and griped that it’s the equivalent of “paying four, five times the rent compared to other teams that we compete with.”

The mortgage will be paid off in 2023, when the Verizon Center turns 26. Why Leonsis refers to this date as a time to become a “free agent” is slightly baffling, since he has the same debt obligations whether he demands a new arena now or later, but maybe he thinks, “Hey, I just paid off my mortgage and am now more profitable, how about gifting me an even newer arena!” is the kind of argument that will fly with D.C. elected officials?

The only other thing I can think of is that maybe Leonsis, noting how property around the Verizon Center has become more valuable since it opened — partly thanks to its construction jump-starting development interest, partly because pretty much everywhere in D.C. is soaring in value these days — is angling to get both a new arena (this time with somebody else paying the mortgage) and get to redevelop the Verizon Center site. Or maybe he’s just keeping his options open in case he can wangle a piece of the RFK site. Leonsis managed to get $50 million from D.C. for a friggin’ practice facility, so you have to figure he’s hard at work planning an encore.

Atlanta mayor proposes giving Hawks $142.5m for arena renovations, because they asked nicely

Nine months after saying he wanted to offer up to $150 million to the owners of the Atlanta Hawks for arena renovations to get them to sign a lease extension, Atlanta Mayor Kasim Reed has offered $142.5 million to the owners of the Atlanta Hawks for arena renovations:

The city will put $142.5 million into the renovation, with the Hawks contributing $50 million.

About $110 million will come from extension of car-rental tax and the city will contribute $12.5 million from the sale of Turner Field, which is expected to close by year end. The remaining $20 million from the city will come from a series of expected future land sales, Reed said…

Hawks officials have previously said they are looking to, among a number of upgrades, replace the bank of suites that dominate one side of the arena, install a variety of different-size suites, improve the connectivity so fans can navigate around the arena on one level and create better floor seating by changing the layout which originally had oval ends to accommodate hockey.

So how bad would this deal — which still requires approval by the Atlanta city council and the Atlanta-Fulton County Recreation Authority — be for city residents? Let’s come at it from a variety of different angles:

  • Having the public put up 74% of the renovation costs for a privately run sports facility sounds pretty bad, unless the Hawks are agreeing to share more arena revenues with the city in exchange. The deal is just being described as a “lease extension,” though, so presumably they’re not.
  • On the bright side, $142.5 milllion is a lot less than the almost $700 million in public funds that the Falcons are getting for their new stadium. On the less bright side, they’re getting a whole new stadium out of the deal, whereas this is just rejiggering the suites and concourses.
  • Philips Arena only cost $213.5 million to build in the first place, so this is almost paying for its construction cost all over again.
  • The Hawks’ lease already runs through 2028; this would extend it through 2046. That makes this a public tithe of a little less than $8 million per each added year, which is cheaper than the $14.6 million per year that Charlotte is paying the Carolina Panthers for their lease extension, so, um, good negotiating?
  • Now Hawks fans don’t have to worry about the team moving out of town in 2029! Which will be a real worry following the economic upheaval in the first year of the Farkas Administration.

In short, then, the owners of the Hawks complained that their 17-year-old arena was designed wrong and needed a $200 million upgrade 12 years before their lease was to run out, and the mayor of Atlanta said, “Sure, we’ll pay for three-quarters of that, if you extend your lease some.” It’s not the worst deal in the world — it’s not even the worst deal that Reed himself has brokered — but it’s not an especially good one either, especially if anyone in Atlanta was hoping to use that future tax money for something that would benefit more than one group of local rich guys. Atlanta city council, ball’s in your court.

Pistons owner says talks “serious” on moving to downtown Detroit in 2017

The Detroit Pistons are about to cut a deal to move into the Red Wings‘ new downtown arena when it opens next fall. Or not:

“Look, I think if we’re going to do it, it’s going to be soon,” [Pistons owner Tom] Gores said. “I’ve always, I think, been relatively transparent with (the media) and we’re getting close.

“We’re very close to a deal.”…

“Just so you guys are clear, we don’t have a deal. But we are talking serious,” he said.

Gores was then asked if a deal could be announced in the coming days. At that, the Pistons owner seemed to repress a slight grin.

“We’ll see, we’ll see,” he said.

The weird part here is that in moving downtown, Gores would be abandoning the Palace of Auburn Hills, which he himself owns. Gores has tried to sell the building to Oakland County for redevelopment, but the county balked at his $384 million asking price. So you’d have to think that Red Wings owner Mike Ilitch would have to offer a pretty sweet deal to make it Gores’s while, and Ilitch has little incentive to do so, so hmm. Maybe this is Gores trying to throw a scare into Oakland County that they could end up losing the Pistons and getting no new development in return — sort of a Blazing Saddles-style threat, but the only one he has available to him? Or maybe he genuinely thinks he can make more money by renting from Ilitch and redeveloping the Auburn Hills site himself than by running a separate arena and having to compete for concert acts. The only thing for sure: This trend of sports team owners giving press conferences while wearing t-shirts is spreading fast.

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Two private developers express interest in renovating KeyArena, world has turned upside-down

In the wake of Chris Hansen’s surprise announcement that he’d shoulder all the construction costs of a new Seattle arena (or at least front the money for all of them, though he’d still pay some of them off with tax breaks), another potential bombshell: Both the Oak View Group, an entertainment venue business launched last year by former AEG exec Tim Leiweke and artist manager Irving Azoff, and AEG itself have expressed interest in renovating KeyArena to bring in NBA and NHL teams.

“We believe in the KeyArena location,” Leiweke, CEO of the 11-month-old Oak View Group, told The Seattle Times in an interview Thursday night. “We believe that the studies have proven — and we will continue to do additional studies as we go through this process — that there is a chance to renovate and make that arena work for music and sports.

“And the economics are such that if the right private-public partnership can be established, that it will stand alone on its own two feet without the rest of the land around it having to be developed.’’

If you’re like me, your alarm bells probably went up at “the right private-public partnership,” since that is almost always code for “we’ll build it … for a price.” The last best estimate of the cost of Key renovations was $285 million; while Leiweke told the Times that “we understand that the private sector is going to have to do the heavy lifting here,” there are no details yet of what exactly Oak View would be asking for from the public side, in either cash or tax kickbacks.

That said, Seattle could do far worse than suddenly having three different developers fighting for the right to build a new or renovated arena. As the Times’ Geoff Baker writes:

That’s great news for NBA fans and anyone wanting the NHL here. Two arena locales close to the downtown core will openly compete; with NBA and NHL leadership looking on, knowing a winning site won’t be in some distant suburb… Seattle has become a wealthy, desired place where many more people and businesses than ever, sports leagues included, want to be. And like the most beautiful woman at the dance, we don’t have to leave with the first guy showing up in a designer suit.

That’s, um, only a slightly creepy metaphor, Geoff, but the point is valid: All else being equal, it’s always better to have options, since you have the potential to drive suitors into a bidding war. Possibly not a hugely lucrative bidding war — I remain skeptical that there’s a ton of money to be made in building or renovating a Seattle arena — but competition is always good for getting the best price, so kudos to Seattle politicians for driving a hard bargain. Now to see if they can pick a winner based on what will be the best deal for residents, and not just on which powerful locals are shouting the loudest.

Hansen offers Seattle arena with no public money, fine print means he’d still get public money

Well, huh: Would-be Seattle NBA owner Chris Hansen, apparently realizing his plans were going nowhere since the city council’s May vote to disallow closing a street to make way for his proposed new arena, has upped the ante by saying he will now build the project entirely with private money if it’s approved. Sort of, anyway:

We have concluded that a changed economic climate makes possible the private financing of the arena. For that reason, and to address concerns expressed by city council members, we would consider revising the street vacation petition to eliminate public financing of the arena. In such a case the MOU would be terminated and the rights and obligations of the parties under the MOU would end. The City and County would recoup the $200 million in debt capacity, and tax revenue streams generated by the arena would cease to be encumbered for arena debt service.

  • Approval of the street vacation
  • Granting of a waiver of the City’s admissions tax for the arena, just as similar waivers have been granted for the other sports venues
  • Adjustment of the City’s B&O tax rate for revenue generated out-of-town

So how much money would this save taxpayers compared to the original deal? To determine that, we need to revisit the prior arena funding plan, which I don’t appear to have ever totaled up in one post — let’s start with this summary of the not-quite-final plan, plus this update, and see how we can do:

  • The city and county were going to take out $200 million in bonds, which would be repaid by Hansen in the form of rent and kickbacks of arena-related taxes. These bonds would now be eliminated, but so, presumably, would be the rent payments.
  • The first tax that would have been redirected was $71.8 million worth of arena admissions taxes. Now, instead of being collected by the city and then used to pay off public bonds, this money would be not collected by the city and then could be used by Hansen to pay off his private stadium costs. So, a wash.
  • Hansen was to get an additional $15.7 million in reimbursed business taxes. Without knowing exactly what “adjustment” he now wants to the business tax, it’s impossible to say if he’d still get this full amount, but he’d certainly get some of it.
  • Hansen would get to keep $15.1 million in incremental property taxes on the arena site, plus $5.8 million in arena sales taxes. He’s no longer asking for these tax breaks, so far as I can tell.
  • Hansen would put up $40 million to pay for road improvements for the Port of Seattle, which has been griping that its trucks would face more traffic from games at the arena. This is presumably still on the table.

So most of the public money that Hansen was asking for, he’s still asking for — it just would go to pay off his private loans instead of city arena bonds. The good news is that this wasn’t a terrible deal for taxpayers to begin with: The tax breaks were small enough that Seattle was going to come reasonably close to breaking even anyway, and still would if enough consumers chose to spend money in Seattle rather than the surrounding area as a result of the new arena. (This would mostly cannibalize spending from elsewhere in Washington state, of course, but taxpayers in the city itself at least wouldn’t lose out much.) The less-good news is that Hansen’s new proposal is mostly just reshuffling the bookkeeping deck chairs, so if you hated the old plan, there’s little reason to like the new one any better.

Guess we’ll see what the Seattle city council thinks, since their opinion is the only one that matters. Or, since the new proposal would dispense with Hansen’s soon-to-expire MOU, giving him more time to cut a deal, maybe the next city council after the 2017 elections. Give Hansen credit for persistence: He really really wants to own a new Seattle Sonics basketball team, and he’s clearly not going to go home until the fat lady has sung her last note.

Ballmer still talking new Clippers arena, glancing meaningfully at Staples Center lease

Los Angeles Clippers owner Steve Ballmer went and said this this week:

“Last time I checked with any of my friends who are in the real-estate business, you’d better have an option than just going back to your current landlord hat in hand and saying, ‘Please, please, please, sir, please give me the chance to play in your building again.’ So, yeah, we’re going to have real options. We’re out sort of putting together those options today.”

This is being interpreted as an intention to build a new arena just for the Clippers by the time their Staples Center lease expires in 2024, and clearly Ballmer is going to be investigating that. But it’s also clear — both from Ballmer’s statement and from simple economics — that the Clippers owner is looking to create leverage so that he can negotiate a better lease on his current home if that looks like a better option. I.e., same as it was when he first said this back in August.

Ballmer has said he won’t move the team out of L.A., so it looks like his only two options are to spend maybe $1 billion on a new arena just for himself somewhere in SoCal, or to use that threat to extract more money from his Staples lease. This is his right, and more power to him — at least assuming he doesn’t try to play cities off against each other to try to get public subsidies to pay for his new home, which has proven tough in California — but let’s name our threats accurately, shall we?