Summary: Anyone who actually
thinks the Pittsburgh Penguins are seriously considering relocating the
franchise to Kansas City are delusional. KC is simply being used to shake
down folks in Pittsburgh for a better deal. One consultant even went so
far to call KC a "thoroughly mediocre market."
Link:
http://www.post-gazette.com/pg/07012/753298-61.stm
Penguins' lease can be rent free next
season
Other revenues also available if
team exercises extension here
Friday, January 12,
2007
By Mark Belko, Pittsburgh
Post-Gazette
The Penguins won't have to skate off to Kansas City to play in a rent-free arena
next season. They can get the same deal at Mellon Arena.
Lost in
the discussion over Plan B is that the Penguins can exercise a short-term lease
extension for Mellon Arena this summer that would give them more control over
building revenues without paying any rent, perhaps while a new facility is
constructed.
Under the proposed extension, the Penguins would become master tenants of the
arena in place of SMG, a property management group that specializes in running
publicly owned facilities. SMG would become building manager.
With the change, the Penguins would stop paying rent to SMG, estimated at close
to $2 million a year, and would have greater access to such building revenues as
concessions and parking, for both hockey and non-hockey events. Those could
generate close to $20 million in gross revenues annually.
But there are costs associated with such an extension as well, including a $5
million payment due to SMG when the switch is made. The Penguins also would pay
SMG to manage the arena at an amount to be determined.
The arena management changes, negotiated as part of the team's 1999 bankruptcy
filing, could give the Penguins interim relief during construction of a new
arena, which won't be finished until at least 2009, assuming the franchise can
reach a deal with state and local officials over funding.
They also could serve as the framework for a long-term lease for the Penguins in
a new building. With gambling proceeds financing the lion's share of the
construction, state and local officials have said they have the ability to offer
the team virtually all arena revenues.
The Penguins have until next month to exercise a proposed one-year lease
extension, but it's unlikely that they will sign on unless they have reached a
deal with Gov. Ed Rendell, Mayor Luke Ravenstahl, and Allegheny County Chief
Executive Dan Onorato on funding for a new arena.
The extension would kick in at the end of June, at the same time the team's
current lease expires, leaving the franchise free to move elsewhere.
Mellon Arena is the oldest venue in the National Hockey League, and the Penguins
have long insisted that they need a new home if they are to stay competitive
with other franchises.
Marc Ganis, president of Sportscorp Ltd., a Chicago sports business consulting
firm, said a Mellon Arena lease extension, even under more favorable terms,
would work "only on an interim basis."
Even if the team is getting all of the arena revenue, it's "still playing
catch-up" compared to clubs in newer, bigger facilities that generate more
revenue.
"[An extension works] only as an interim step and only if they have a new arena
deal or expect a new arena deal shortly. It is not something you would look at
on a long-term basis, just as a bridge," he said.
Although the Penguins wouldn't have to pay rent in the switch with SMG and would
get most arena revenues, including parking, they would be responsible for the
building's operating costs, which is not unusual for teams that have control
over money streams.
As part of the deal negotiated in the 1999 bankruptcy, the Penguins also would
have to make the $5 million lump sum payment to compensate SMG for building
assets and for the change in management. SMG originally was to serve as master
tenant until 2012.
The $5 million payment would be in addition to a management fee paid to SMG. The
amount is not known but is believed to be in the hundreds of thousands of
dollars.
The $5 million payment also may have to be accounted for in some fashion in the
negotiations on a new arena. Even if a deal is reached, the Penguins still would
have to play in Mellon Arena for at least two more seasons and most likely would
want building revenues and the same rent-free offer they have from Kansas City,
which opens the $276 million Sprint Center in October.
Neither the Penguins nor SMG would comment about a possible extension on the
arena lease. Mr. Onorato also wouldn't talk about a possible extension
yesterday, saying through a spokesman the issue is related to the Plan B
negotiations on which he has not been commenting.
State and local officials have been working diligently to put together a deal
under Plan B after a meeting last week between Mr. Onorato, Mr. Rendell and Mr.
Ravenstahl and Penguins owners Mario Lemieux and Ron Burkle.
They would like to reach an agreement before the end of next week. The Penguins
have said they want to make a decision by early February between Pittsburgh and
Kansas City.
Under the original Plan B, the Penguins were required to make an upfront payment
of $8.5 million and contribute $4 million a year, including $1.16 million
annually in naming rights, toward the construction.
However, state and local leaders presented a somewhat sweetened version last
week. Although the exact details aren't known, the Penguins' annual contribution
likely will end up closer to $2.9 million, the same the Pirates paid toward PNC
Park.
The $8.5 million payment may be accounted for in the sale of the old St. Francis
Central Hospital on Centre Avenue to the city-county Sports & Exhibition
Authority, which needs it as part of the new arena site. The Penguins purchased
the property for $8 million.
Mr. Ganis sees the Penguins remaining in Pittsburgh, assuming they can reach an
arena deal with very little capital costs to the team and decent revenue
streams.
Despite the much heralded rent-free
offer in Kansas City, Mr. Ganis views it as an "above average deal and that's
it. The reason for that is it's not a great market.
"As it stands right now, I don't see it as a great relocation opportunity other
than a building being under construction right now. But it's a thoroughly
mediocre market," he said.
Another factor that could work against
Kansas City is that naming rights already have been accounted for and flow to
Anschutz Entertainment Group. The Penguins would have the ability to cut their
own deal in Pittsburgh, one likely to generate at least $2 million a year for
the team.
Prudential announced this week it would pay $105.3 million over 20 years to put
its name on the New Jersey Devils' new arena, although no one expects a bid that
high for the Pittsburgh rights.
