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June 24, 2011
Nassau projections: County will make money on Islanders arena (or maybe lose money, one or the other)
Nassau County and the owners of the New York Islanders have announced their lease plan for a new $400 million (or $350 million, or $430 million — accounts vary) arena, a little more than a month before an August 1 public referendum on the project. Previously, Nassau County Executive Edward Mangano had said only that the arena would be paid for by revenues from the team and taxes generated by the arena; now, we have some more details of how that would work. According to Forbes:
The Islanders will pay $14 million a year in rent and based on a study performed by Camoin Associates, the new arena will generate $1.2 billion in additional revenue for the county.
Only not exactly. That $14 million, it turns out, isn't actually rent: Under the lease, the county would pay to build the arena, then would receive 11.5% of the revenue from it, including both Islanders games and other events. The minimum the county would be guaranteed to receive under the lease, even if the Islanders can't sell tickets and arena rock bands stop touring, would be $14 million a year.
Debt service on the arena bonds, meanwhile, would be an estimated $26 million, so the county could lose up to $12 million a year in down years. That Camoin study, though (which is supposedly attached at the Forbes site, though it won't load for me), projects $28.2 million in county revenue the first year, with receipts going up each year after that, which would produce a profit for the county.
Which brings us to problem #2: That county "revenue" includes not just money shared by the Islanders (which is already ill-defined — does it include sales of Islanders jerseys, if the Islanders ever get good enough for anyone to be seen in public wearing Islanders gear?) but "sales, hotel, and entertainment taxes generated from the new arena." So yet again, it's a form of TIF. Except that it's worse than a TIF, because there you're only kicking back the incremental new revenue over what you were getting at the old arena — here, it appears that all the taxes collected at the arena would count as "rent," which is a neat trick if you can talk your landlord into it.
So the county would be paying to build an arena and handing over control of 77 acres of development rights to Islanders owner Charles Wang, and in return would get ... somewhere between a $12 million a year loss and a $2 million (and rising) a year profit, assuming you count as "profit" taxes that any development on the site, including the existing Nassau Coliseum, would be paying anyway.
There are still tons of unknowns about this deal — among other things, I can find no public mention of whether the team or the county would be responsible for arena operating costs — but on first glance, it looks like Nassau County would be taking all the risk, in exchange for just 11.5% of the upside. There are certainly worse arena deals out there, but given the state of arena financing, that's not exactly something to brag about.
I hope this is the kind of information that gets wide distribution. So, we generate $14M for the taxpayers, but we also get a $26M bond payment.
How is it that the bond payment is always overlooked when people "examine" the balance sheet?
Words of advice to Nassau County voters: VOTE!
If it passes, I actually can live with that. But, truth in advertising too: People need to know more about Nassau County's credit rating, and how that will affect the annual bond payment.
Nassau County could have had a Coliseum without any potential tax payment if Town of Hempstead had worked with Wang to make a deal on the Lighthouse Project. Wang apparently didn't pay off the right people.
Be that as it may, the issue of a new Coliseum presents an interesting choice. The building is small, old and lacks the bells and whistles (and money-makers) of new buildings. The lack of maintenance in the 80s and 90s have taken a toll. The building is obsolete and needs a major renovation -- Wang has put some money into it, but in comparison to other facilities, it's a dump.
If the bond issue is turned down, the Isles will leave -- no question (the NHL has already said team won't stay one minute longer than it has to). Only issue is whether they'll wait till 2015 (when the lease expires) or try to leave early -- might depend on availability of another market. Wang, a Long Islander, will likely sell -- he doesn't want to have to live on the Island after moving the team.
More damaging for Nassau County and arena operator SMG is that the arena in Brooklyn is coming online within 18 months. With 4 other facilities (Brooklyn, renovated MSG, Meadowlands and Newark) in the area, concerts and shows are likely to bypass the dumpy Coliseum -- especially because Long Islanders could take the LIRR right to the door of both Brooklyn and the Garden.
So basically, this is a choice between a new building and no building. The status quo is not an option.
I think the issue of the new and upgraded buildings in Brooklyn, New Jersey & Manhattan, and the difficulty in accomplishing anything in Nassau County and the Town of Hempstead are exactly why this deal should and will go through (See how long it took them to shut down and demolish the drug dealing and prostitution-laden Courtesy Motel in West Hempstead, and see how the former K-Mart site in Levittown (A couple of miles East of the Coliseum on Hempstead Turnpike) has been shuttered for a decade). With the County Executive, Charles Wang, and Hempstead Supervisor, Kate Murray aboard, the Nassau NIMBY's have been silenced for awhile (And Murray has been the main cheerleader for the NIMBY's). As for the Democrats, and more importantly, the Nassau Financial Review Board, they know about the cases of the motel and K-Mart site, and they cannot afford the economic cost of having the Coliseum site after 2015 end up like that. Generally speaking, I am against these kinds of projects, but like Willets Point, the terrible environment and the cost of doing nothing, is worse than the cost of building a new Coliseum.
You present some interesting, well thought out points.
My only question is whether the secondary revenue streams that those in charge want to think will come to Nassau County once there's a brand new arena in place will actually come? Something tells me - and I may be wrong - that for major concerts the focus will remain on MSG and Barclay Center in Brooklyn with NJ being served third and if possible *maybe* going to Long Island.
I'm not a native so I'm actually asking here, not trying to offer some rhetorical question.
Andrew, I am a native of Long Island, and lived most of my life in a two mile radius of the Coliseum. As far as concerts are concerned, the biggest area is actually Jersey (80,000 seat Meadowlands), they had very a very successful Eminem concert at Yankee Stadium as well (You can expect more of these in the future). There are also plenty of smaller venues: Westbury, Beacon Theatre, Radio City Music Hall, Lehman College, and Lincoln Center to name a few, as well as the medium sized ones you mentioned. However, there is still a very large demand for concert and arts related facilities in New York. Here is one example of this from The New York Times: Leaders of the Theater for a New Audience, one of New York�s premier Shakespearean troupes, reached a milestone on Friday in their decades-long dream for a home as they held a groundbreaking ceremony for a $47.5 million theater..... Here is another: The Loews Kings Theatre: After having been the object of numerous proposals for its restoration over the years, the Kings Theatre is now under plans to return it to use as a performing arts center by 2014. The City of New York announced on February 2, 2010 a $70 million renovation of to be completed in partnership with a private developer, ACE Theatrical Group of Houston. The plans call for the Kings's interior spaces to be restored to their 1929 appearance. Its stage facilities are to be completely rebuilt to modern standards, accommodating some 250 performances a year. www.wikipedia.com Finally, Long Island has always been the red headed step child of the City, and if we don't move ahead, we will fall further behind.
Your comment begs the question: Why did Wang not get involved in the Atlantic yards arena project?
I know Ratner has not designed an arena that can accommodate hockey, but had Wang been willing to commit to Brooklyn earlier, I suspect he would have. Instead, Wang chose to hang his hat on a $4Bn plus Lighthouse development that was very much a pie in the sky idea. Could it have been a wonderful attraction? Sure. So could a spaceport or bull ring. It's just not very likely that it could have been built, nor that it would have made the region a true 'destination'. As you've said, there are plenty of other things to do on Long Island.
From what I have been told, Wang has all but abandoned the Islanders anyway (he puts no 'new' money into the team), so it is just a matter of time until the club is sold (and perhaps moved - we simply don't know that at this point. Perhaps the county would be more inclined to work with a different owner, as we've seen in other locations). As an Isles fan going back to the mid 70's, the thought of the team moving disappoints me. But not as much as continued ownership by this lunatic would.
Just a question to anyone who might know.
If the Islanders lose this vote, is it absolute that the new Barclay's Center lower floor level couldn't be changed....even as construction has 16 more months to run....to accommodate a hockey rink? Even if no hockey team in Brooklyn, I can't quite figure why they wouldn't have built the arena so that some sort of event larger than a basketball court could be held there.
According to Goldman Sachs, "If built as planned, the arena would need to be retrofitted to accommodate the ice-making abilities the NHL requires for its franchises." So it could be done, it would just cost money.