When last we visited Brooklyn’s Barclays Center, it was losing millions of dollars a year, and arena (and Nets) owner Mikhail Prokhorov was threatening to evict the New York Islanders in 2019 because he thought he could do better without them. Now, Forbes’ Michael Ozanian reports (or not! see below) that the arena is losing even more money since the Islanders moved in:
Brooklyn Arena LLC, the arena arm for the Nets that operates the Barclays Center, post an operating loss of $45.6 million last season, according to the 2015-16 financial statements. That was the first season the Barclays Center hosted the NHL team.
The prior year Brooklyn Arena LLC posted an operating loss of $38 million.
Now, keep in mind that “operating loss” doesn’t actually mean “loss”: More than $30 million of that figure is for depreciation, which is just a way of telling the IRS that you should owe less in taxes on your building because it’s getting older. Assuming the depreciation figure has stayed roughly the same, and using Atlantic Yards/Pacific Park Report’s Norman Oder’s earlier estimate that the arena had lost $5-6 million the previous year, this would up the arena’s actual red ink to about $13 million after the Islanders arrived.
The reason for this is pretty clear once you look at the arena revenue figures that Oder reported on last week:
In short, the Barclays Center only really brings in any significant revenue from concerts — everything else is almost a wash. (Though it’s interesting that sporting events got more profitable the year the Islanders arrived — assuming that’s not just tricksy bookkeeping.) So you can see why it might make sense for Prokhorov to give the heave-ho to the Islanders and their deal in which the arena owner pays the team a flat fee ($37.5 million, per Ozanian) in exchange for its ticket-sales revenues, in hopes he can do better booking more concerts.
In any case, it’s clear that the deal to bring in the Islanders has pretty much sucked for Prokhorov, thanks to wildly overoptimistic assessments of how many Islanders fans want to go see games in a too-small arena a long train ride from where most of them live. It seems to be working out significantly better for the Islanders owners, according to Forbes figures, which raises at least the possibility of a lease renegotiation, at least a short-term one, that guarantees the Islanders owners less money. Though it’s hard to predict this early in the game, especially since there’s an arena sucker born every minute.
URGENT UPDATE: Michael Ozanian screwed up, and Forbes doesn’t employ fact-checkers:
I was wrong. The exact opposite is true. The Barclays Center posted an operating profit of $46 million with the Islanders for the year 2015-16, versus an operating profit of $38 million in 2014-15.
I inadvertently inserted minus signs instead of plus signs. A spokesperson for the arena operating company gracously called me today to point that out.
Okay, first off, apologies for not double-checking Ozanian’s numbers, but I (wrongly) assumed that the dude literally in charge of the most important sports business coverage in the country could read a spreadsheet. Or somebody else at the magazine could.
I could try to backtrack and figure out what we now know about the Islanders’ worth to the Barclays Center and vice versa, but I want to actually have time to spend quality time with the numbers before saying anything more. Meantime, go stare at the “event profit summary” that I reposted from Norman Oder above, since he’s a professional and actually knows what he’s doing.
Is this a reversal where the team (Nets) is more profitable than the arena?
Your description of depreciation leaves out an important fact: if an asset is depreciable that means that THE IRS DIDN’T ALLOW THE OWNER TO CLAIM THE ASSET ON HIS/HER TAXES. (Hello) Don’t act like having depreciable assets is some type of bonus for companies. In reality, the Nets got screwed by not being allowed to claim the value of the stadium during the year(s) when it was actually built.
If they’re simultaneously claiming arena construction bond payments and depreciation costs as losses, then they’re double-dipping for bookkeeping purposes, if not for tax purposes. (That’s why Forbes and other outlets generally use EBIDTA, earnings before interest, tax, depreciation, and amortization, to determine profitability.)
I started to look at the Barclays Center financials to tell you if that’s what they’re doing, but it’s such a rat’s nest of subleases and overlapping ownership that it’s impossible to say without a deeper understanding of what’s going on. Maybe if Norman’s reading this he can explain further?
Both the IRS and GAAP require business to capitalize and depreciate their assets; the Nets are measuring profit/loss the same way every other business does.
Right, but normal humans don’t have to look at their book losses when we can look at their actual losses.
Can you explain the statement “the Nets got screwed by not being allowed to claim the value of the stadium during the years when it was built”?
I am not clear on how having to follow the same taxation rules as every other private for profit company in the country resulted in them getting “screwed”.
There’s no such thing as “claiming assets on your taxes”. Amortization, depreciation, expenses – yes. Assets, no.
Odd in that they don’t break out hockey separately. College basketball and boxing get split out but NHL hockey playing 41 dates a year is buried in with “other sports”?
And it’s tough to make sense of the numbers for hockey/other sports. The Islanders started playing there in Sept. 2013. 2013-14 isn’t a whole lot different numbers-wise than the year before. But then in 2014-15 (the Islanders second season there) the numbers all explode. Expenses more than double but revenue also almost doubles. But then the next year everything falls off markedly again.
And what the heck was going on in 2014-15? Not only are revenue and expenses sky high for “other sports” but check out how “family shows” and “other” also explode just for that one year. Given how concerts takes a nosedive that year it looks like for that one year they tried breaking concerts out into sub-categories but then went back to doing it the old way.
The most interesting item to me is the expense amounts related to sporting events listed in Mr. Oder’s summary.
2013 $1.05m
2014 $1.26m
2015 $4.07m
2016 $1.71m (which I assume runs to Dec 31/2016 only)
Most critics of inflated arena management agreements suggest that a reasonable amount for managing an arena for one sporting tenant would be around $2m. Expenses in 2015 likely would have included extraordinary items related to accommodating the Islanders move into the building (although most of those should have been capitalized). Costs for 2016/17 should be lower (though likely still in the $3-3.5m range).
Puts the Glendale $15m arena management fee in perspective doesn’t it? And this is not capital costs, of course, just day to day building management and routine maintenance/setup/tear down.
A couple of quick points.
1) Oder’s charts do NOT include revenue for the Islanders or the Nets; it’s third party events, like wrestling, something that’s easy to see if you look at the other chart he posted, which tracks number of events and attendance at those events. The sporting event revenue in the chart here is based on 9 total events — which also explains the increase in profitability since there were only 4 such events the previous year. So none of this is really informative re: the Islanders and Barclays.
2) However, as to the value of the Islanders to Barclays, Oder wrote about that this past summer, when figures became available as part of the bond refinancing — revenue of nearly $1.2 million and costs of just over $1.1 million per game. Extrapolating that to a little over $800K over 49 games (preseason, regular season and playoffs), a figure of close to $4 million of operating profit seems reasonable, which depending on what the Nets contributed to the bottom line makes the team either the second or third largest contributor to the arena’s operating profit last year — at least if my back of the envelope calculations are correct.
Thanks, Dennis. Do you have a link to Oder’s bond refinancing article? I’d love to read it.
http://atlanticyardsreport.blogspot.com/2016/08/revising-official-figures-new-report.html
The excerpt is at the bottom of the post
That helps a ton because I was wondering how expenses stayed so close to the pre_Islander years. “Other sports” expense are only about $500K higher than they were in 2013-14 which would have led you to believe they took on 41 dates of hockey without much changing.
I guess with this and the other issues it’s about time to just delete this article and start all over with it!
Sending published articles down the memory hole is *extremely* bad journalism practice. I’ll add another note to the lede, though.
Thanks Dennis, knowing that helps a lot…
Norman just sent me a link to this analysis:
http://atlanticyardsreport.blogspot.com/2017/02/is-barclays-center-dumping-islanders-or.html
If I had to sum up his findings, it’d be: Neither Barclays nor the Islanders is doing terrible on this lease deal, but neither is doing great, either.
And honestly that’s what your gut would have said probably was the case. Every time I heard how bad a deal this was for Barclays I wondered how they accepted that bad a deal in the first place. They run an arena–nothing about this should have been that tough to project money-wise. And 40+ new dates a year drawing an average of 13,000 people SHOULD generate something. Sure, the deal could always be better and it’d be rosier if the Islanders weren’t near the bottom of the league in attendance, but that’s still a fair chunk of new business for them.
Having the Islander seemed more like a quantity over quality deal. If you were sure you could book 40 big concerts or other events that would draw more, then yeah, the Isles would get the boot, but 40 guaranteed dates, is a nice thing to have on paper.