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September 15, 2011

Columbus panel proposes public-private bailout of Blue Jackets

One of the few good models of a privately funded sports facility may be about to get a whole lot less, uh, modely. A government task force put together to resolve the Columbus Blue Jackets' demands to be bailed out of their lease at their 11-year-old, privately built arena has come up with a plan that would go like this:

  • Columbus' Convention Facilities Authority, a combined city-county entity, would buy the Nationwide Arena from its private owners, Nationwide Insurance and the Columbus Dispatch, for $42.5 million, and take over management and operations. The city and county would pay off the purchase price with part of its share of revenue from the state's four new casinos, just as the Blue Jackets owner requested last summer.
  • The Blue Jackets would stop paying rent, currently running about $9.5 million a year. It would also extend its arena lease through 2039, which doesn't sound like much of a concession when it's a lease where you pay no rent.
  • Nationwide would buy a 30% minority share in the Blue Jackets for $52 million, as well as signing a 10-year, $28.5 million naming rights deal to keep its name on the building it would no longer own. That money would go, naturally enough, to the Blue Jackets, even though they 1) didn't build the arena, 2) wouldn't own the arena, and 3) wouldn't even be paying tenants, thanks to that whole free rent thing. Effectively, then, the team would be getting paid $2.85 million a year to play in Columbus.

So what's in this for whom, exactly? Well, the Blue Jackets, who say they're currently losing $12 million a year, would get that $9.5 million a year rent break plus $2.85 million a year in naming-rights money, effectively putting them in the black in one fell swoop. Nationwide would take a bath on its $175 million construction cost, getting only $42.5 million in return, and having to cough up naming-rights money as well. As for city and county taxpayers, they'd be giving up several millions of dollars a year in casino revenues in exchange for an arena whose primary tenant would be paying no rent — so how that works out for them will likely depend on whether it's possible to pay operations costs on an arena off of just Lady Gaga concerts and monster-truck shows.

Or, as Columbus City Auditor Hugh Dorrian put it to Columbus Business First (in the newspaper's words): "The deal will not raise taxes and won't take money away from capital projects and city operations." Oy!

The plan still has to be approved by the Columbus City Council, the Franklin County Commission, and the Franklin County Convention Facilities Authority.



So, the plan to "save" the Jackets includes the arena owners selling it's asset for 25% of what it cost to build, the main tenant no longer paying rent, and nearly $8m in casino revenues that could fund schools, hospitals or homeless shelters being funnelled into the pockets of a sports franchise owner.

"...�It would actually cost the community more not to do this because if you were to lose that economic activity, it would be much more costly than the amount of casino taxes that are being invested,� Jennison said."

Have you noticed how arena (or sports business) welfare proponents like to throw these simplistic statements around, but never actually get around to showing the math that supports the simplistic conclusion?

I wonder why that might be...

Posted by John Bladen on September 15, 2011 11:17 AM

That is just disgusting. The Columbus MSA is #32 in the US with roughly 1.8 million people. Franklin County/Columbus have about 1.1 million people.

So without all the "developer speak"...

1) Taxpayers pay $38.6/person (not household) to buy the arena from Nationwide/Dispatch.
2) Taxpayer's would also agree as part of the purchase to forgo $8.6/person/year in rent revenue.
3) Taxpayers would also forgo another $2.6/person/year in naming rights revenue.

So basically they are buying a struggling business at a cost of $120/family, giving away its two main sources of revenue for nothing, and then claiming "The deal will not raise taxes and won't take money away from capital projects and city operations.".

All this without a clear plan to turn of profit on the overall operation of the facility from the remaining tertiary sources of revenue.

That sure sounds like a deal I would want to be a part of. Where can I sign up?

Posted by Joshua Northey on September 15, 2011 11:22 AM

How about nooooo?

Does that answer *ever* occur to local governments?

Posted by MikeM on September 15, 2011 05:28 PM

They should wait this out another season. The NHL CBA will runs out at the end of the season, and one of the big issues is the salary cap basement (the minimum payroll amount, which Columbus is forced into paying) is too high. It could very well be lowered, giving Columbus some breathing room.

Posted by Dave on September 16, 2011 01:03 AM

Dave, all sports leagues should adjust their business model so that these types of corporate welfare aren't factored in.

But they won't.

Once the Jackets have managed to move the discussion from "should we" to "how will we" and "how much", there is no reason in the world for them not to proceed.

If the next CBA fixes a couple of the NHL's economic problems, who cares? The same subsidy can then go into the owner's pockets rather than be used to cover annual operating deficits.

Posted by John Bladen on September 16, 2011 12:53 PM

Wasn't Columbus displayed by the Oilers and their supporters (i.e. the Edmonton Journal) as the model for development built around an arena?

Posted by Greg on September 16, 2011 10:37 PM

Greg: Indeed it was, but not just in the Edmonton Journal. Included in their "free" game-day programs was a page called "Arena 101" which listed all the great things that have happened to cities who built these arenas. Included were the Staples Center, Nationwide Arena, Pepsi Center, Arena and a number of other places. I'm pretty sure both Staples and Nationwide were privately funded and I *think* Pepsi was as well or at least a joint project (feel free to correct me if I'm wrong).

The funniest thing about the Oilers trotting out these great stadiums and their benefits was that they were built for a fraction of what the proposed Oilers arena will cost (yes, I know about inflation and concrete prices rising but still). Wiki says the Pepsi Center says it cost $160M in but in today's dollars that's more like $211M. Even with inflated concrete prices add, what, $100-150M? Still well short of the $450M Katz is asking for.

Dave: I appreciate where you are coming from, but the NHL could ratify a new CBA where the players *pay* the owners to play like it was a glorified adult shinny/beer league and the owners would still cry that they are barely breaking even and need subsidies.

Posted by Andrew T on September 17, 2011 03:00 PM

Wow, a whole $120/family per year to keep the bars, restaurants and movie theatre around the arena (not to mention other bars/restaurants/apparel shops in the area that benefit from increased traffic) from going under? THE HORROR!!!

Posted by Ben Miller on September 17, 2011 04:30 PM


Apart from the obvious point that no taxpayer money should be used to "keep" any private business open (including Gov't motors and AIG), are you really suggesting that the only answer to failing sports businesses is (more) subsidy?

If the bars, restaurants, movie theatres and apparel shops are truly viable businesses, they will remain in operation. If they are not viable, they won't.

Like bars, restaurants and theatres in other parts of Columbus (what, they don't deserve the subsidy you approve of? Only ones near the rink?), these will have to adjust to new market conditions - just as the existing bars and restaurants did when these new ones opened up near the arena.

Posted by John Bladen on September 21, 2011 03:00 PM

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