Atlanta mayor “comfortable” giving $150m he doesn’t have yet to Hawks owner for arena remodel

Atlanta Mayor Kasim Reed still really wants to throw money at the Hawks for an upgrade to their 17-year-old arena:

“We have not settled on the number, but what we have looked at is our own capacity of what we can comfortably finance,” he said in an hour-long meeting with AJC reporters and the newspaper’s editorial board. “We think that number is between 100 million and 150 million (dollars).

“The total project would be anywhere from 200 million to 300 million (dollars),” he said.

Reed said the sources of funding haven’t been determined, but rental car taxes are likely to be part and he did not rule out funding from the Westside Tax Allocation District.

So… wait, what? The city can comfortably finance $100-150 million, but doesn’t know where the money would come from? I thought that $150 million figure was supposed to be from money available after the city sells Turner Field? Now it’s just a big ol’ number that Reed is offering Hawks owner Tony Ressler because that’s just what Atlanta does, even though the team can’t move anywhere without paying massive penalties? Come on, Atlanta Journal-Constitution, I’m counting on you to raise your eyebrows at least a little more at this.

 

Stadium spending is bad for humans and other living things, Thursday edition

Happy National Notice That Stadium Subsidies Are A Bad Deal Day, everybody!

  • The Wall Street Journal notices that the soon-to-be-again Los Angeles Rams are set to join the San Francisco 49ers and Golden State Warriors in building new sports venues without much in the way of public money, and declares this a trend, in California, at least. Though the authors then note that the Sacramento Kings got plenty of public cash, and the San Diego Chargers could yet get a bunch from that city, “despite a wealth of academic studies showing that stadiums and arenas are poor investments when it comes to economic development.” I’m not exactly sure what this all is supposed to add up to, but it does provide a nice roundup of the stadium landscape for anyone who’s been living under a rock.
  • The San Gabriel Valley Tribune asks if the new Rams stadium in Inglewood will provide a big economic boost to the region, and cites a couple of economists and the finance director of Foxborough, Massachusetts in answering, “Nah.” In particular, Vanderbilt’s John Vrooman replies: “The net local impact of a professional sports team is zero, if not negative sum, particularly for an NFL team playing in a monolithic space-eating stadium. … The local sports bars will probably rock, but most direct spending at the stadium stays at the stadium. The injection of new cash flow into the local economy is negligible because it’s coming at the expense of local spending someplace else. The indirect spin-offs are also small because most of the spending leaks out of the economy like a sieve and so the urban/regional multipliers are usually zero, zip … nada.” Stan Kroenke’s poor poor people are going to be awfully disappointed.
  • Milwaukee’s Fox6 looks at the “arena district” the Bucks are promising to create around their new taxpayer-subsidized arena, and notes that in Columbus, while restaurants around that city’s new arena indeed did great, restaurants in other parts of town saw business decline: “Other restaurants went out of business and a lot of people started moving out of the neighborhood and into newer apartments,” said Tony Scartz, a restaurateur in the Brewery District across town from the new arena. “And most importantly, for me personally, was the office space vacancy that was created because people moved out of the Brewery District and into the newer office space down around the Arena District.” This is exactly what you’d expect from the substitution effect, as explained in the Fox6 piece by, um, me.

Tune back in tomorrow, when some city official somewhere will tout the massive economic benefits available from building a new sports venue! They will fight eternally…

Brooklyn Nets arena lost money in 2015, is probably no good for anything for anybody

Russian billionaire Mikhail Prokhorov, who already owned 80% of the Brooklyn Nets and 45% of the Barclays Center where they play, bought the remaining shares of those two items from developer Bruce Ratner over the holidays. (If I’m doing the math right, Prokhorov paid $285 million in cash, plus $344 million in promised future payments.) But the interesting part of the transaction, as uncovered by Atlantic Yards Report’s Norman Oder, is that the financial documents released then show that the Barclays Center is continuing to lose money:

The Barclays Center had a terrible year financially in the fiscal year ending June 2015. Net revenues plummeted, to less than half the total once projected, and the arena lost some $9 million in what was (roughly) its third year in operation…

The arena’s net operating income (NOI) fell well behind expectations, to $38 million, due to declines in event and related revenues, while operating expenses remained high.

We’ve heard this before, particularly two years ago when it was revealed that despite being one of the top-selling arenas in the U.S. in its first year, the Barclays Center was still barely breaking even after paying off its construction debt, thanks to high operating costs and discounts being offered to performers to lure them to Brooklyn instead of one of the New York area’s many other arenas. That seems to be even more the case now, and while the arrival of the Islanders provides more dates for 2015-16, that’s not necessarily a good thing: It also displaces nights that the arena could be rented out for concerts, and the arena’s weird rent deal with the Islanders (the arena pays team owner Charles Wang a flat negative rent, but keeps all ticket and other revenues) means that if ticket sales are slow, the arena could end up taking a loss on the NHL.

All of this means it’s a good time to wonder what the hell exactly Ratner and Prokhorov got out of this arena that has turned a large swath of Brooklyn upside down for more than a decade now. The purchase price on the last chunk of the arena valued it at slightly less than the construction cost, so Ratner’s not quite breaking even on the money he poured into the arena itself. (Yes, he got a pile of public subsidies, but those were in the form of discounted land and tax breaks, so not anything he can actually put in the bank now that he doesn’t own the building.) He also got the development rights to a bunch of land where he can erect apartment towers, but that isn’t going all too well either, though at least a couple of buildings are now close to completion.

Prokhorov, meanwhile, has put in somewhere around $1 billion in order to own a historically awful NBA franchise plus an arena that might just, if you squint, be able to break even. Of course, he might see this as a perfectly reasonable price to pay to be able to hang out with NBA players and do whatever the hell this is. He has more billions where that came from, anyway.

As for Brooklyn residents, we now have a terrible basketball team to watch, and a pretty decent hockey team, and a garish arena and some growing housing towers on a site that otherwise would probably have something similar anyway, given that pretty much every possible site in Brooklyn now has a giant apartment tower going up on it. And any revitalization effect on the surrounding neighborhood has been mixed at best: There’s a  Shake Shack and other new restaurants, certainly, but then, there were new restaurants opening in droves in that area even before the arena was planned; meanwhile, the site of the old Triangle Sports sporting goods store, which was cited as the harbinger of a land rush when its owners closed it and put the building up for sale, is still vacant almost four years later.

It’s probably too simplistic to say of the Brooklyn arena that everybody ended up a loser, but certainly there are no clear winners. I’m going to be spending some more time shortly digging into some of these questions so I can wrap up the final chapter of The Brooklyn Wars (which means, yes, there’s actually a publishing date visible at the end of the tunnel), at which point I can probably provide some firmer answers. But for now, man, was that an epic train wreck, or what?

Inventor of PSLs says he never meant them to be a mere cash grab from fans

My Vice Sports colleague Aaron Gordon has a fascinating interview up today with sports marketer Max Muhleman, best known as the inventor of personal seat licenses. And he gets Muhleman to reveal something that I hadn’t heard before: The original idea for PSLs was not to charge for them at all, but rather use them as a reward for fan loyalty.

As the story goes, Muhleman’s first PSLs were developed for the then-expansion Charlotte Hornets, when owner George Shinn suggesting buying leather jackets for fans who’d put down non-refundable season ticket deposits without knowing if there would even be a team. Muhleman, who’d run the ticket drive, countered by suggesting that fans be allowed to pass their seats on to someone else if they gave them up, rather than having them go to the next person on the waitlist as was usual practice. He called this “charter seat rights.”

Then, history happened:

Muhleman never meant for the PSL to become an investment. It was simply about thanking the fans who pledged their own money to help support a new team or stadium. The idea of re-selling Charter Seat Rights didn’t even occur to Muhleman until he saw a classified ad in the paper after the Hornets’ incredibly successful inaugural season, when they sold out every game in the 23,000 seat arena. The ad read: “‘Leaving town. Two charter seat rights. $5000.” When Muhleman called the number, the person on the other end said they had already received about a dozen calls and they regretted not asking for $10,000.

Four years later, when Jerry Richardson was trying to raise money for a Carolina Panthers stadium, he turned to Muhleman, who remembered that classified ad. Eventually, the rebranded PSLs raised $92 million for Richardson at zero cost to him, and a revolution was born.

The Vice headline claims that Muhleman now “hates PSLs as much as you do,” and while I love a grabby headline as much as the next guy, it’s not quite accurate: He actually tells Gordon that he feels like PSLs have gotten so pricey that they’re just a money grab, losing the necessary balance of also building fan loyalty by offering them something in exchange for their fandom:

“I thought we were on to something that worked, that it made good music with the sport, the fan, the owners, we could all come together in a harmonious, mutually productive, helpful way,” he said. “But these programs I see, so many of them I can only say are unilateral, and unilateral in favor of ‘how much can we get out of these people?’ And I do not believe the path to success in sports is maximum leverage of fans.”

Of course, it depends on your meaning of “success.” When it’s a choice between hundreds of millions of dollars in cash now and potential good will down the road, that hasn’t been a decision that most NFL owners have had to think too hard about.

Hawks owners to seek public cash for arena and practice space, because Christmas is about giving

Atlanta Hawks CEO Steve Koonin dropped a few hints last week about what he and his fellow team execs are seeking in a renovated arena and new practice facility, though most of it comes down to “we’re working on it”:

  • Arena renovations would take place in phases so that the Hawks could keep playing there throughout the process. No word on how much it would cost, but Koonin made clear he’s expecting public money, saying, “We want the city to do its fair share, and we plan to do ours.” (Atlanta Mayor Kasim Reed previously floated $150 million as the city’s share, but that was a while ago now, before the new owners even bought the team.)
  • There’s no one site being targeted for the practice facility, but it’s planned to open for the 2017-18 season, which is soon. And Koonin said team execs are “talking to public officials about collaboration,” so expect more taxpayer cash there as well.

It’s all pretty nebulous for now, but will likely get more concrete in the coming weeks and months. And it makes even clearer that asking for separate practice facilities is becoming a thing for team owners seeking new ways to ask cities to buy them crap: We just saw this with the Washington Wizards, and Koonin said not having a separate practice space puts teams at “a competitive disadvantage” — which on the face of it sounds pretty silly (really, free agents won’t sign with your team if they have to practice where they play games?), but certainly sounds better as a reason to ask for public cash than “all the other kids are getting them this Christmas.” Though why being at a competitive disadvantage should be Atlanta taxpayers’ problem and not the Hawks’ owners is another question that isn’t asked often enough.

Wizards practice arena plan would put taxpayers on hook for full cost, plus overruns

If the idea of Washington, D.C. spending $50 million on a practice facility for the Wizards sounded terrible enough, it just got worse: The city government would be on the hook for all cost overruns as well, with the team’s share limited to $4.5 million in rent payments over 19 years:

Monumental is the only tenant lined up for the facility and is expected to use it about 40 percent of the time, through Wizards practices, Mystics games and games from a NBA D-League franchise that has not yet been created. Events DC, the city’s convention and sports arm, would be responsible for booking events the rest of the time and would pay for any overruns beyond $55 million.

[D.C. council chair Phil] Mendelson said since Monumental’s contribution of $4.5 million equated to the rent the company would pay over the 19-year lease it expects to sign, the mayor had committed to paying for the entire bill even though ticket sales will go to Monumental. “How will we make any money off of this?” Mendelson asked.

The details of the deal for the arena, which would also host Mystics WNBA games and maybe an NBA D-League team, are still not worked out. Mendelson actually supports the plan, despite his qualms, so it looks to have a good chance of passing — if so, I hope they’ll at least chisel his “How will we make any money off of this?” quote into the cornerstone.

Nobody actually has money for suburban Seattle hockey arena plan, it may die by year’s end

There hasn’t been much news of late about the arena that former oil trader Ray Bartoszek said he was going to build in the Seattle suburb of Tukwila, and apparently there are good reasons for that:

Bartoszek has said his previous investor pulled out in July, scuttling his plans to apply for an NHL expansion team.

Bartoszek has yet to find a replacement investor. He said there is still potential of one emerging by year’s end, but he could not guarantee if the land options will be extended.

So we’re back to what this whole Tukwila deal seemed like in the first place: Rich guy says he’ll build an arena with private money, as soon as he finds somebody else with private money to actually spend on it. Bartoszek has put down some money for extensions on land options already, so presumably he’s at least somewhat serious about this thing, though it could always just be something he sees as an investment in getting his name mentioned in NHL expansion owner discussions. There are worse ways to spend your money when you’re a billionaire.

Pacers to get $3.5m arena roof on top of $350m in prior subsidies, because Indiana

And now it’s time for the incredulous tweet of the day:

Answer: Yes, the $16 million a year that Indianapolis agreed to give the Pacers owners in 2014 only covers operating costs, and specific upgrades to seating, locker rooms, and scoreboards. So $3.5 million for a new roof will be on the public tab on top of that, bringing the total subsidy for the Pacers to … let’s see, $187 million to build the arena in the first place, plus $33 million in operating subsidies for 2010-13, plus $160 million for 2014-2023, and really we should present-value all of this but I don’t have the exact spending dates — should we say $350 million, maybe? For an arena that only cost half that to build? I still say the Pacers may have the sweetest subsidy deal in all of sports, though obviously there are lots of other contenders.

76ers owners interested in London NFL team, says somebody

Hey, there might actually be somebody crazy enough to want to own an NFL team in London! According to NBA columnist Mitch Lawrence writing on the Forbes website, “industry sources” say that Josh Harris and David Blitzer, owners of the Philadelphia 76ers, are “gunning to own the first NFL team in London.” In fact, their recent purchase of minority shares of the Premier League’s Crystal Palace, according to Lawrence, is an attempt to “get to know the market” in advance of a London NFL push.

Lawrence is a former New York Daily News basketball columnist now writing for Forbes as a “contributor” (i.e., freelance, possibly not paid); the number of named sources in his story is zero, which is always a bit of a red flag, and Lawrence’s previous record with unnamed sources includes plenty of misses. Presumably somebody chose to leak this through him, likely Harris and Blitzer themselves, which would make sense if they want to position themselves as the top candidates to get a London expansion franchise if one becomes available for the right price … but now we’re deep into multiple levels of speculation. File this one away, anyway, and if it comes up again, preferably from someone with an actual name, we can start to take it more seriously.