Category: New Jersey Devils

The New Jersey Devils are not, in turns out, being taken over by the NHL. Rather, they’re being sold by broke former Lehman Brothers exec Jeff Vanderbeek to not-yet-broke former Drexel Burnham Lambert exec (and also Philadelphia 76ers owner) Jeff Harris, who will reportedly pay $320 million for the privilege of owning the team and operating rights to Newark’s Prudential Center.

The Bergen Record calls this “a stunning price for a team that has been mired in debt,” but read a bit further and it’s actually not all that stunning: Harris isn’t taking on Vanderbeek’s $200 million in debts, just allow him to pay them off and still have a nice chunk of change left over. And the team itself looks like it’s been at least breaking even since moving to Newark in 2007-08, so while this is a high price, it’s not a crazy-high one.

The big question here is how lucrative the arena management rights will be once they’re owned by somebody with the cash flow to actually book concert acts. Things are very different in the NYC arena world than they were in 2007 when the Prudential Center opened: Brooklyn’s Barclays Center has opened, Madison Square Garden has just completed a $1 billion renovation, and even Nassau Coliseum is about to have a redeveloper announced later today. (The Devils’ former home, the Izod Center, is still hanging around too, though from a look at its upcoming concert calendar, it may not be for long.) The New York City metro area is huge compared to any other U.S. city, but even it can be susceptible to arena glut if you have too many venues fighting over too few acts.

If nothing else, the upcoming four-way competition is likely to make concert promoters really happy, since they’ll be able to play arenas off against each other for the best deal like never before. This hopefully won’t have any dire effects on either concertgoers’ or taxpayers’ wallets — just on the bottom lines of guys like Harris — but it’s probably best to keep in mind the saying about the elephants and the grass just in case.

One league-owned NHL team leaves, another enters? No sooner had the league finally divested itself of the Phoenix Coyotes than it looks like it’s going to have to take over running another cash-strapped franchise:

The New Jersey Devils are likely to be taken over by the National Hockey League around the time the season begins next month when teams begin cutting payroll checks unless a buyer for the team quickly steps up, according to multiple sources…

The Devils have $230 million of debt and team owner Jeff Vanderbeek missed the first payment on a recently restructured bank loan. The team’s annual debt payment is around $15 million a year and in the past the Devils have already used prepayments of future revenue streams to pay bills. Andrew Barroway was poised to buy the hockey team and operating rights to the Prudential Center, but withdrew his offer within the past two weeks after getting a closer look at the team’s books.

That’s Michael Ozanian writing in Forbes yesterday, after which NHL commissioner Gary Bettman immediately retorted that it was lies, nothing but lies:

“I haven’t seen the Forbes report, but if the suggestion is we’re going to take over the Devils, which is what I’ve heard the report says, it’s not accurate,” NHL commissioner Gary Bettman said today following a Yankee Stadium news conference to promote the two outdoor games to be played there – Devils vs. Rangers on Sunday, Jan. 26 (12:30 p.m.) and Islanders vs. Rangers on Wednesday, Jan. 29 (7:30 p.m.) Although Forbes reported that a group headed by attorney Andrew Barroway had dropped out of the bidding, two sources insisted that group was still heavily involved and trying to buy the team. That group has already invested more than $30 million in the Devils in beginning the process of buying at least a controlling share of the team from current owner Jeff Vanderbeek.

So, you know, who the hell knows?

The interesting thing here is that the Devils just got a new arena, the Prudential Center in Newark, that was supposed to solve all of their money problems. But apparently Vanderbeek’s money problems — he made his fortune as an executive at Lehman Brothers, which turned out not to be the most secure career path — have landed him in so much debt that he can’t even make money off a brand-new building that taxpayers fronted most of the money for. Writes Ozanian:

Non-NHL events are down at the Prudential Center, also hurting Vanderbeek’s financial situation. One reason: arena operators prepay a portion of the money they are going to pay acts, like rock bands and the circus, and sources say the Devils do not have the cash to book events. During the first quarter of 2013 the Prudential Center was not among the world’s top 50 busiest arenas. The prior year it was ranked 11th-busiest. In the mid-year ranking the Pru is ranked 33rd.

Having cash flow is important, but it’s also worth noting that in 2012, the Prudential Center didn’t have to compete with Brooklyn’s Barclays Center, which is now the nation’s busiest arena. Even in a metro area like New York City’s, there’s a point at which the arena business becomes a zero-sum game, and you have to wonder if Newark has now been leapfrogged by Brooklyn as concert acts’ preferred second stop in the tristate area after Madison Square Garden. Which makes it all the weirder that the owners of MSG and the Barclays Center are fighting over the right to revamp Nassau Coliseum, but maybe they figure better to take over a superfluous arena yourself than let it go to the competition.

It’s been a while since we dropped in on the New Jersey Devils and their refusal to pay rent on their taxpayer-built arena because they said it wasn’t finished on time. But now we can rejoice, for an agreement has been reached for a new lease that all parties claim should make everyone happy:

• Newark will build a new parking deck next to the municipal courthouse (cost not detailed in the NJ.com reporting), and the Devils will rent a guaranteed number of spaces (payments not detailed). The city will also pay the team $2.7 million a year from parking revenue for other lots near the arena.
• Newark will impose a 1.37% tax surcharge on tickets to all games of the Devils, Seton Hall University, and New York Liberty (for as long as they play in Newark, which is about three more months until Madison Square Garden is done being renovated), plus a $1.25 per ticket fee on concerts that it will share with the team.
• The Newark parking authority will take over from the Newark housing authority as arena landlord.

And let’s see, there had to be something else … oh, right, all that unpaid back rent! As it turns out, a panel of arbitrators ruled last year that the amount the city owed to the Devils owners (that share of parking revenue, plus money for an arena capital fund) is more than the team owed the city, so no back rent for you, Newark. City officials told NJ.com that they should see about $2 million in new revenues from the ticket taxes and new garage, but it’s not clear whether that accounts for the cost of building the parking deck and the loss of future parking revenues from last year’s ruling.

Without more numbers, then, all we can conclude is: Newark got hosed when it built the arena, agreed to a lease that caused it to get hosed again last year, and now has agreed to a new lease that may or may not have reduced its hosing somewhat. But at least it now has a hockey team on sound financial footing … oh.

The Wall Street Journal ran an article last week on the “spurt of activity” in downtown Newark near the New Jersey Devils‘ Prudential Center, including two new hotels and several restaurants. This contrasts with my own reporting, in which I referred to the arena existing in “a wasteland of half-shuttered stores.”

My last trip to the Prudential Center was last September, and I don’t recall seeing an overwhelming change in the surrounding neighborhood, which is dominated by the largely delapidated Market Street and Broad Street shopping strips. That said, I didn’t walk the entire neighborhood, and with the Prudential Center being very active, it’s certainly conceivable that some more businesses might have sprung up to capitalize on the visitors. (It’s long been noted that arenas, which can operate 200+ nights a year, can provide at least a small local economic boost, especially compared to stadiums that are dark all winter.)

Any Devils fans out there who do more than walk from their cars to the game who can comment on how much of the Journal’s description is real and how much real estate hype? (Note that this appeared in the real estate section.) If not, guess it’s time for me to go take in a Liberty game…

Newark city officials are debating selling the Prudential Center, home of the Devils (and, for the next two seasons, the Nets), to help close the city’s budget gap. Two city councillors say a sale could bring in between $80 million and $200 million, plus put the building back on the property tax rolls, while Mayor Cory Booker says a sale is “not feasible” until the Devils’ ongoing rent dispute is resolved.

While in the abstract a sale sounds like a great idea, you have to wonder why, if the arena currently isn’t making any money (thanks in part to that Devils lease), any private investor would want to pay $80 million to buy it and agree to pay property taxes to boot. That may be a sad statement about a building that cost more than $500 million to build just three years ago, but there it is.

The New Jersey Nets may or may not relocate temporarily to Newark on their way to Brooklyn, but apparently there could still be an increased ticket tax at that city’s Prudential Center. The Newark city council voted last Wednesday to explore a 5% ticket surcharge on all events at the Rock, which would raise an estimated $3.9 million a year for the city treasury.

Teams signing leases on new buildings typically include a clause ruling out such after-the-fact tax increases, precisely because it’s such an easy back-door way for local governments to try to recoup some of their costs once concrete has been poured — and indeed, the Devils‘ lease says it can deduct any ticket taxes from its rent. However, as Joan Whitlow notes in the Newark Star-Ledger, the Devils have been withholding rent for their entire three years at the Prudential Center:

Newark ponied up more than $300 million to build the arena. The Devils have not paid rent for two years, going on three. The first year the team said the arena was not ready in time. Yes, the city was slow on some of its road and infrastructure work, but those things were ready for opening night. The Devils, however, were in charge of arena construction and Newark spent extra on fire patrols and other safety measures because of work the Devils did not get done. In any case, “not finished” certainly didn’t apply to the second year’s rent.

A ticket tax, then, could at least be a way of breaking the rent deadlock. (And for fans who are worried: Most economists agree that ticket taxes come mostly out of teams’ pockets, not fans’, since ticket buyers are only willing to pay a certain face value, taxes included.) Given the Newark city council some credit: They learn from their mistakes.