New arena has Nets’ value soaring, Nets’ profits in the toilet

The new Forbes NBA franchise value figures are out, and the Brooklyn Nets jumped almost 50% in value for the second straight year, thanks to their new arena in the borough of artisanal mayonnaise. Which must mean they’re making money hand over fist, right?

The Nets are on track to lose at least $50 million this season even with an extended playoff run, thanks to a $101 million payroll and luxury tax bill of at least $80 million.

Um, okay, then. There are three possible takeaways from this. One, which is Atlantic Yards Report’s view, is that it doesn’t matter how much money you lose on a pro sports team, since you’ll make it up when it’s time to sell. Two would be that Forbes’ team valuation figures are on crack. (It’s worth noting that the magazine’s annual profit and loss figures have been pretty much on target when compared to data later publicly released, but their team valuations haven’t matched up that well with sale prices.) Or three, people who buy sports teams will pay crazy money to sit in the owner’s box, even if it’s to own a team that has no hope of ever turning a profit. I wouldn’t have picked owner stupidity at one time, but recent evidence has me less certain.

Barclays Center barely breaking even despite #1 arena ranking

Hey, remember how the Brooklyn Nets’ Barclays Center was rated the top-grossing arena in the U.S. for the first half of 2013, and I concluded that it could be “an exception to the rule that arenas don’t usually make money” after paying off construction costs? Turns out I may have been slightly hasty:

In its first full year in operation, the arena brought in about $30 million in operating profit, the company reported on Monday, far less than the more than $76 million projected when the arena began construction in 2010.

That’s from the Wall Street Journal’s Eliot Brown, who took to Twitter to add:

So even the top-grossing arena in the country barely broke even in its first full year. Apparently John Christison was right when he said it’s tough to make money on these things. (Which isn’t really a surprise, him being a longtime arena manager and all.)

Norman Oder of Atlantic Yards Report takes a closer look at why the Barclays Center had that $46 million shortfall in operating profit, and finds that it’s virtually all added expenses:

Brown’s article doesn’t link to the actual SEC filing, so we’re at a dead end for the moment on how the Barclays Center managed to blow through an extra $50 million in spending in its first year. More on this later, I hope.

[UPDATE: Brown informs me that the SEC and bond filings aren't exactly comparable because they don't use the same accounting measures, so it's probably not an extra $50 million in spending. His conclusion that the Barclays Center is barely breaking even stands, though. One possible explanation: Even though the arena is doing gangbusters business, it's likely doing so by offering "generous deals to woo big names, either by offering low rent or by guaranteeing a performer a high portion of ticket sales," as Brown reported in October.]

Brooklyn arena developer sues NYC to get lower tax bill on its parking lots

Forest City Ratner, the developer of the Brooklyn Nets arena and the as-yet-mostly-unbuilt surrounding Atlantic Yards housing tower project, is suing the city for lower property tax payments on one of its parking lots. Because that’s just what developers do:

The Finance Department put the block’s market value at $11.2 million for its current fiscal year, which began July 1. But FCR says in a lawsuit filed in Brooklyn Supreme Court that it’s only worth about $1.6 million…

“As you can imagine, real estate and development companies like Forest City have a fiduciary responsibility to review and question assessments in a timely manner,” FCR spokesman Joe DePlasco told DNAinfo New York.

“This is a standard operating procedure for these types of companies.”

FCR, you may recall, last year sued the city over its Barclays Center tax bill, then later said it was a mistake, after realizing that Barclays Center doesn’t pay taxes. Nor does the parking lot block, technically, but it does pay PILOTs (payments in lieu of taxes), which, unlike the PILOTs for the actual arena site, the city gets to keep, rather than kicking them back to pay off Ratner’s arena costs.

Under the deal to build on the Atlantic Yards, FCR leases the block for a nominal fee from the state’s Empire State Development Corporation.

Since the state owns the Atlantic Yards, the land is exempt from property taxes. However, FCR must make payments in lieu of taxes, or PILOTs, to the city to develop the block.

The PILOT amount for the block is the equivalent of what FCR would pay the city in property taxes, according to the ESDC. The Finance Department determined that for this fiscal year the property tax for the block would be nearly $700,000, according to city records.

If the court agrees to lower the city’s appraisal, FCR would in turn pay a smaller PILOT amount, according to the ESDC.

This is apparently the kind of lawsuit that land owners file all the time, so no hard feelings or anything between FCR and the city. Unlike the lawsuit by employees of Ludwig’s Drug Store charging racist treatment when they attended games in the store’s luxury suite, which looks to have hard feelings aplenty — understandable when you’ve been charged $1,000 for a pizza.

NYC development agency: Nets arena earning us more than half what it’s costing us, woohoo!

The Brooklyn Nets‘ Barclays Center brought in $14 million in new tax revenues to New York City last year, according to … well, according to the New York Daily News, which reported it in an exclusive this morning, but they got the info from … the New York City Economic Development Corporation, which got it from … “data provided by Barclays Center developer Forest City Ratner.”

Okay, then.

The $14 million figure claims to be a measure of spending by non-New York City residents both inside and outside the arena, as well as income taxes paid by Nets employees; the Daily News article doesn’t say whether this is only of non-city residents who came to the city just to go to Barclays, since as you may have heard, some people visit New York City for other reasons and might take in a basketball game while in town. Nor does it say how Forest City Ratner compiled the data — I’m guessing with fan surveys, since they claim to be tracking spending outside the arena as well, but no details have been provided. I’ve asked NYCEDC for more specifics; if I hear back, I’ll post an update here.

Anyway, if the $14 million in new tax revenues is true, how good is that for New York City? Assuming it lasts for another 30 years and doesn’t tail off as the new-arena smell wears off, that’d be worth about $200 million in present value to the city. City taxpayers, meanwhile, are putting up about $350 million toward the arena ($170 million in cash, $180 million in tax breaks), according to the New York City Independent Budget Office, meaning — okay, that’s a pretty crappy return even if you take the Nets’ claims at face value.

The IBO, incidentally, previously estimated that the city would earn about $130 million in new revenues to pay off its $350 million arena cost, a number that could end up just about right in line with the Nets’ claims, if out-of-town arena attendance dips some in coming decades. So props to the IBO for their projection, and way fewer props to the Daily News for citing the IBO’s report without ever mentioning the $350 million cost figure. It’s almost like they fired all their editors or something.

Brooklyn arena raking in the dough, for itself, anyway

All hail the Brooklyn Nets’ Barclays Center, which was named the top-grossing venue in the U.S. for the first half of 2013:

The Brooklyn arena was named the top-grossing venue in America for the first half of 2013, according to Billboard, with $46.9 million in gross ticket sales revenue. According to Pollstar, the venue – which has hosted 51 concerts since it opened in September and will bring in Beyonce and Justin Bieber next week – was the third-biggest ticket-seller in the world, behind The O2 in London and Manchester Arena in Manchester, England.

Now, that’s top-grossing, and doesn’t say much about how much the Nets will, um, net after paying off their share of the arena costs. And there’s no guarantee that the Barclays Center will still be on top in years when Madison Square Garden doesn’t shut down in May for renovations, let alone a few years down the road when Barclays is no longer the shiniest kid on the block. And, of course, we still don’t know what if anything all this money changing hands via Ticketmaster means for business in the surrounding Brooklyn neighborhoods.

Still, it’s an indication that the Nets bond offering wasn’t totally crazy, and that there is an exception to the rule that arenas don’t usually make money: Build one in the middle of the nation’s largest city, where you can charge top ticket prices, and which was previously served by only one other comparable arena whose calendar was booked to bursting. And make sure that Mick Jagger and Paul McCartney live forever.

Brooklyn arena helps local businesses, also doesn’t help local businesses

The Wall Street Journal has chimed in with the latest “What has the Brooklyn Nets‘ Barclays Center meant for local businesses?” story, and its answer, unsurprisingly, is “it depends who you ask.”

“I can tell you both personally and professionally I have seen a great impact on the local businesses,” says Carlo Scissura, president of the Brooklyn Chamber of Commerce. “You go into any restaurant or bar before or after a game or concert and they’re packed.”

Still, area businesses say that doesn’t always translate into an increase in sales. “Even if there’s no activity going on at Barclays, I tend to maintain my same numbers,” says Andre Jordan, one of the owners of Die Koelner Bierhalle, a German beer hall that opened in August on St. Marks Place. Mr. Jordan says that the bar’s core clientele is residents in surrounding neighborhoods like Park Slope and Boerum Hill.

The basic problem here is the but-for factor: When you build a sports arena in an already-booming neighborhood — and Brooklyn’s Prospect Heights was about as booming as you could get, complete with an artisanal mayonnaise store — it’s hard to tell whether all the foot traffic came for the arena, or was there anyway. Or whether the arena traffic displaced the usual traffic, as Jordan told the WSJ: “My customers who would normally have come in will look and say, ‘It’s too busy in there, let’s find some other place.’”

There’s obviously some impact when you have 18,000 people streaming in and out of a neighborhood most nights, but it’s complicated, especially since everyone is going to want to eat at the same time (nobody’s going to head for the beer hall during a Nets game). There are ways of doing a more fine-tuned analysis here, which I hope to do at some point; you’ll be the first to know when it happens.

[UPDATE: Atlantic Yards Report notes that the same fan survey that prompted the WSJ article also revealed that only 8% of Nets ticket buyers came from New Jersey, as opposed to more than 15% in pre-Brooklyn-move projections. Which has been good for easing traffic fears, since Brooklynites are more likely to take public transit or walk to the games, but less good for economic impact on New York City, since luring fans from New Jersey was key to the project's economic benefit claims.]

Latest state-of-the-art stadium enhancement: Smell-o-vision

The most remarkable part of this DNAinfo article on how the Brooklyn Nets are pumping a “signature scent” into the Barclays Center isn’t that the Brooklyn Nets are pumping a signature scent into the Barclays Center, nor even that the Brooklyn Nets have a signature scent. No, it’s that sports teams have apparently been spritzing perfume at you for a while now without your knowledge:

That cocoa-drenched cloud you inhale when you walk into the Times Square Hershey’s store isn’t candy — it’s ScentAir.

In recent years the company’s olfactory empire has expanded to include sports venues such as the Dallas Cowboys’ and Atlanta Hawks’ stadiums. At the St. Louis Rams’ stadium the air is redolent with a “cotton candy” fragrance that’s meant to “create a positive first impression for fans,” a team spokesman told ESPN.com.

It’s only fitting that the Nets are resorting to this, given that they were among the first franchises to pipe in fake crowd noise to make it sound like fans were actually cheering. Nobody’s allergic to loud sounds (okay, maybe Roger Miller), though, unlike smells — you have to wonder if the first sports-fan lawsuit against smell-spritzing can be far off.

Barclays Center first visit: No better on the inside than the outside

I got my first look inside Brooklyn’s Barclays Center last night, for the Neil Young/Patti Smith show. And while the show was mostly good (Patti was excellent and endearingly goofy in a too-short set; Neil and Crazy Horse were absolutely devastating on several songs, but much of the new material fell flat and the feedback solos could have been cut back by about 20 minutes), my first impression of the building was that it’s as underwhelming inside as it is jarring outside.

All modern stadiums and arenas have a fundamental problem to solve, which is how to jam in the maximum number of high-priced lower-deck seats and luxury suites without making the hoi polloi upstairs feel isolated from the event. The Barclays Center handles this extremely poorly, combining a sprawling lower section with a large wedge of suites that makes viewing from the front row of the upper deck (where we were seated) like watching from the opposite rim of the Grand Canyon. I don’t have schematics available to tell me whether I was actually more distant than I would have been at, say, Madison Square Garden, but I can say that last night the overwhelming impression I got was of just a massive sea of air in front of me, punctuated by the desk lamps lighting the suites in the ring below. (We could also glimpse passing traffic on Flatbush Avenue through a break in the curtain behind the stage, which felt less like a feature than a bug.)

There were other problems as well: The restrooms have been wedged into a section of the seating bowl where the concourses are exceptionally narrow, meaning when everyone lined up for them between sets, there were major traffic jams. The famed Jay-Z-inspired black/grey color scheme came off less urban chic than corporate blah. And while the Disney-trained staff were certainly friendly, I can’t say they were especially helpful — the defining image of the night for me was when the Nathan’s food stand guy sold me two bottles of Dasani water (a mere $4.50 each!) and then insisted on pouring them into plastic cups, apologizing the whole way that this was the way they had to do it.

I guess the same could be said about the arena as a whole. But I’m still waiting for my apology, Mr. Ratner.

Your morning great big ball of stadium stupid

I’ve never actually heard of Pacific Standard magazine — apparently until recently it was called Miller-McCune, which I’ve also never heard of — but if this infographic is what it has to offer, then I hope I never heard of it again. Ostensibly an explanation of how to “help a Los Angeles [NFL] stadium buck the trend” of stadium projects, you know, sucking for the cities that build them, it ends up combining the interactivity of a bad Flash game with the informativeness of a USA Today charticle. Among the things readers will learn from PS:

  • On the “best to worst subsidies” graph (most of which consists of a graphic that looks to have been lifted from one of these), it says that “Public financing accounted for 50 percent of the new Lucas Oil Stadium [in Indianapolis], offset by taxes on hotels, rental cars, restaurants, and sales of Colts license plates.” Um, no.
  • The “Making It Work” chart, once you’ve scrolled over little gratuitous circles to see what the chart actually says, suggests “folding in concessions and entertainment” uses for a sports facility, pointing to the “apartments and office space” of Brooklyn’s Barclays Center as an example. Exempt that none of the apartments have broken ground yet, and the office tower was scrapped four years ago.
  • There’s a map of the U.S. with little colored markers indicating how much public funding various stadiums have received, which would be cute, except that tons of buildings are left out (where’s the Seattle Seahawks‘ stadium, for one?) and that the figures are drawn from some wildly inaccurate source (Citi Field, for example, is listed as 19% publicly funded, which really, not.)

On the marginally less stupid front, meanwhile, let’s turn to Bill Parker of DRays Bay, who has penned an essay about the Tampa Bay Rays‘ stadium campaign that, like Pacific Standard’s infographic, starts by acknowledging that stadium deals are almost always terrible for the public before asking, gee, can we get one of them here?

I think that on some level, by now, virtually every governor, city council and county board of commissioners recognizes that it’s a bad deal. Yet, they continue to happen because there’s the fear that the team will bolt to another location, and no politician wants to be the one who was stuck in office when the team left town (which is a bad thing for real-world reasons, too; the teams do provide jobs, even if it’s a low number for their revenue brackets, and tend to have pretty active local charity arms). It’s in everyone’s collective interest to simply agree to stop doing these deals, but individual actors (cities, in this case) often have their own reasons to ignore the common good and do it anyway.

And so this keeps happening. But can it happen in Tampa or St. Pete?

Parker actually kind of punts on whether he’s rooting for it to happen there (he says as a Minnesotan, he loves the Twins’ new ballpark, but hates its public subsidies), but the upshot of the article remains the same: Stadium deals are almost always ripoffs, but never mind that, what are the odds of this one going through? Which neatly achieves the goal of stadium seekers: shift the terms of the debate from “Should we build a stadium?” to “How should we build a stadium?” Because everyone agrees that whatever it costs, the Rays totally neeeeeeeeeeeed a new stadium. (Quiet, you.)

Ratner “inadvertantly” sues NYC over Nets arena tax bill

A strange story emerged last week when the New York City news site DNAinfo reported that developer Forest City Ratner was fighting the property tax assessments on the Brooklyn Nets‘ new arena, filing a court petition claiming that the city had made an “erroneous” valuation of the land at nearly seven times its actual worth. This was weird, as DNAinfo noted, because FCR doesn’t actually pay any property taxes on the arena:

In a 2009 report, the city’s fiscal watchdog, the Independent Budget Office, estimated Forest City Ratner received $761 million in subsidies and tax breaks from the city and state to erect the arena and develop the 22-acre Atlantic Yards.

Under the deal’s terms, the city agreed to forgo collecting property taxes on the site. Instead Forest Ratner makes payments in lieu of taxes, or PILOTs, to the city.

The PILOTs cover the debt service on the $511 million in tax-exempt bonds that helped fund the Atlantic Yards development. The law requires PILOTs be less than or equal to the property taxes that Forest City Ratner would pay on the arena.

In other words, FCR’s PILOT payments are going to pay off FCR’s own arena debt — mostly in order to give FCR a whopping big savings from using tax-exempt bonds. So you’d think that if anything, FCR would be fighting for a high assessment in order to justify the tax break on the bonds — as was the issue with the New York Yankees‘ similarly constructed deal.

So, WTF? Was this an attempt at some even more byzantine tax dodge? The answer arrived late Friday night, and it couldn’t have been more awesome:

On Friday developer Forest City Ratner withdrew its challenge to the city’s appraisal of the Nets home, claiming it made a mistake…

In a letter sent to the city’s Law Department and Finance Department on Friday, FCR said it goofed on challenging the appraisals of the Barclays Center and other developments on the 22-acre Atlantic Yards property.

“In challenging the assessments on Forest City properties, petitions on its arena and B2 sites were inadvertently included,” the letter said. “Forest City has instructed our attorneys to discontinue these petitions immediately.”

So basically, either some FCR lawyer filed a kneejerk challenge to the property valuations of every one of the company’s properties, in hopes of shaking loose a better deal, without checking to see if they were actually paying any taxes on them; or some FCR lawyer filed a challenge without realizing that it wasn’t to their advantage to bring down the valuation of the Nets arena. Either way, as Norman Oder of Atlantic Yards Report notes, “these people are professionals–they’re supposed to do better than this.”