Ilitches to get all revenue from new publicly-financed Red Wings arena

For more than 30 years, the Red Wings have played hockey in Joe Louis Arena under an agreement negotiated by former Mayor Coleman Young to keep the team from moving to the suburbs.With a new hockey arena on track to open as early as the 2016-17 season, the agreement between the City of Detroit and the Red Wings will disappear, and with it about $7 million in revenue the city received annually from the team's home games.Under a new deal hashed out between representatives of the team's owners, Mike and Marian Ilitch, and state and local development authorities, the Red Wings will no longer have to share 10% of ticket proceeds, 7% of suite sales, 10% of food and beverage concessions, 5% of souvenir sales and other revenue from parking. All of that money — estimated to be about $7 million annually — would belong to the Ilitches' Olympia Development of Michigan when the team moves north of downtown into a proposed $450-million arena.In addition, any future proceeds from the selling of naming rights to the new 18,000-seat arena would also go to Olympia Development. Other NHL teams have snagged corporate naming rights deals worth millions a year or more.To be sure, Detroit would be getting significantly more financial assistance for the Wings' new home ice than it did in late 1970s, when Young told then-team owner Bruce Norris that the city would build him a new riverfront arena and parking garage if he canceled plans to move the team to Pontiac. Norris ultimately paid nothing for the construction of Joe Louis Arena and rented the space from the city for $300,000 a year.Who pays for the arena?The new arena, which also will host non-hockey events, is expected to revitalize a commercial dead zone between downtown and Midtown and later anchor a proposed spin-off development of residential, entertainment, retail and office buildings worth $200 million."This will be the epicenter for sports and entertainment in Michigan," Tom Wilson, president and CEO of Olympia Entertainment, which handles the Red Wings' business operations, said at a recent City Council meeting.Olympia Development will pick up 42% of the arena's construction cost. The other 58% — the public's share — will come from a complex financing arrangement that uses school and local property tax revenue collected by Detroit's Downtown Development Authority to pay off state-issued bonds. The authority will own the arena and lease it — rent-free — to the Red Wings for up to 95 years.The 30-year bonds would be partially paid off through annual payments of between $12.8 million and $15 million from money the development authority captures from school property taxes. The state would then reimburse any shortfall to Detroit's per-pupil funding as a result of the redirected property taxes — an obligation that will put state taxpayers on the hook for the majority of the arena project's public investment.The Ilitches' Olympia would contribute $11.5 million a year to paying off the bonds. It is also responsible for any cost overruns during construction, as well as maintenance, repairs and security at the new arena.The city would not spend any money on the arena itself. Its only direct contribution to the project: the sale for $1 of three-dozen blighted parcels of Cass Corridor land to make way for construction.Publicly and privately, some residents and elected officials have questioned whether negotiators should have gotten more in the deal for state taxpayers — who are footing much of the construction costs — as well as more financial sweeteners for the City of Detroit, even though its contribution was limited to land for the arena site."It is a giveaway," said Stephanie Vaught, a legal analyst at the Sugar Law Center for Economic and Social Justice in Detroit.In defending their deal, state and local development officials told the Free Press that the proposed 58% public investment was too small for them to negotiate a share of future revenues like Young did for the Joe. They also said it's wrong to assume that any city is entitled to money simply because a sports venue is built there."We obviously wanted more," said Brian Holdwick, an executive vice president at the Detroit Economic Growth Corp., who led negotiations on behalf of the city and its downtown development authority. "Given the amount of money that the city's put into this — which is zero — it's a great deal for the city and its residents."Lucrative naming rightsWith full control over all revenues at the future arena, Olympia would not have to dig deep into its coffers to cover its minority share of the arena project's costs, according to a Free Press analysis of the deal.In a 2010 memo, DEGC President George Jackson told former Mayor Dave Bing that eliminating the city's share of ticket sales, concessions, rent and property taxes could potentially save Olympia nearly $7 million a year. That estimate, however, was based on the Wings playing at Joe Louis.More recent figures are not available, because the city has had difficulty collecting payments from Olympia since the Joe Louis lease expired in 2010, including back property tax payments the Free Press exposed in 2012. Olympia made a tax payment after the Free Press' report.The Red Wings and the city have agreed to a new lease of Joe Louis that will end in June 2015, although the team will have five, one-year options to extend the lease. Olympia will pay the city annual rent of $1 million during the team's stay at the Joe until the new arena opens, according to documents filed in the city's bankruptcy case.As for potential new revenue, the sale of naming rights to new arenas in a large metro area such as Detroit could net $4 million a year or more, according to sports business consultant Marc Ganis, president of Chicago-based Sportscorp.Comerica agreed in 1998 to pay the Ilitch-owned Tigers $66 million over 30 years to emblazon its name on the team's new downtown stadium. And Ford paid $50 million in 2002 for naming rights at the Lions' domed venue for 25 years. That money went toward Ford Field's construction, according to a U.S. Securities and Exchange Commission filing.Detroit Councilman Gabe Leland said the council did not publicly seek a share of the new arena's naming rights when it considered legislation last month to advance the project. But the topic was raised in "backroom discussions" with Olympia Development, the arena's operator, he said."It just didn't seem like they were willing to budge," Leland said.Sports business experts say it's no longer unusual for team owners to obtain 100% control over revenues from new venues that are built in part with public financing. As cities compete with one another to lure sports teams, owners can often bargain from a position of strength."Those things used to be in the '60s, '70s and early '80s more commonly shared with the public partner," said Neil deMause, an expert on stadium financing and author of the book "Field of Schemes." "But starting with the round of stadiums that were built in the early '90s, it's really been team owners wanting public money and wanting to keep all revenues."Still, some local governments have used their funding contributions as negotiation leverage. The City of Glendale, Ariz. — home of the NHL's Phoenix Coyotes — placed a $3 per-game ticket surcharge at Jobing.com Arena and obtained 20% of the annual $3 million-plus naming rights proceeds in a deal last year with the team's new owner.And Rich DeVos, the Amway cofounder and owner of the NBA Orlando Magic, agreed in 2009 for his team to pay the Florida city $1 million in yearly rent plus a $1.75-million annual fee that increases 3% every year in exchange for full control of the naming rights at Amway Center, according to news reports.In addition, the DeVos family paid $50 million toward the construction of Amway Center and spent $25 million to build five local gyms for the community.Taxpayers 'shortchanged'Holdwick said the city lacked leverage to demand arena revenues, including the naming rights, as it's no longer footing the entire bill for a new arena as it did for Joe Louis Arena."The city back in the '70s took a huge risk in building the Joe Louis Arena to keep the Wings," he said. "That revenue stream wasn't to be put into the city's coffers — it was to be used to pay down that debt."The state didn't come close to securing any share of the new arena's naming rights, according to Mark Morante, an executive at the Michigan development group who led the state's role in deal negotiations."You're not going to get a low public investment and a back-end deal," he said.Representatives for Olympia said the company hasn't made any decisions regarding the new arena's name.Nevertheless, deMause, the "Field of Schemes" author, said he examined the Detroit deal and believes Michigan taxpayers got shortchanged."It seems like basically the Red Wings said, 'Here is what we want,' and the DEGC said, 'All right, sure, as long as we're getting some development out of it, that works for us,' " deMause said.As part of the deal, the city approved the expansion of the DDA's taxing district. Local property taxes that the DDA collects within its taxing boundaries will be rolled into a separate, $2-million payment to help retire the arena's construction bonds.And state Rep. Rashida Tlaib, a Democrat who represents southwest Detroit, said she fears that the new arena deal will deprive the city of much needed money from property taxes and other revenues associated with the Wings' current home."It's not about hockey; this is about the government subsidizing a private project at a time when we can't afford to do that anymore," Tlaib said.The Red Wings declined to say whether ticket prices will be affected by the move and elimination of the city's 10% cut. The arena will have 2,000 fewer seats than the Joe but feature upgraded amenities, a larger concourse and high-end luxury boxes nearer the ice.A University of Michigan professor projects that the new arena will employ 1,100 people, or 440 more than the Joe as a result of a larger concourse and extra amenities and restaurants. Those new jobs — and their payroll taxes — would benefit Detroit."The city and the state feel pretty comfortable we're getting a pretty darn good deal," said Morante, the state's lead negotiator.By Joe Guillen and JC ReindlDetroit Free Press(MCT)©2014 the Detroit Free PressVisit the Detroit Free Press at www.freep.comDistributed by MCT Information Services