Friday, June 26, 2009

Ilitch not renewing existing lease on Joe Louis Arena

6.26.09

Ilitches not renewing old Joe Louis lease, negotiating for new deal

By Bill Shea

The statement today that the owners of the Detroit Red Wings aren’t renewing their expiring Joe Louis Arena master lease leaves it unclear if they will pursue a new hockey arena or renovate their 30-year-old city-owned home.

The owners say they now plan to negotiate a new lease for Joe Louis, which could be a long-term commitment and what insiders say would be a $150 million renovation job, or it could be a shorter deal that buys them time to arrange financing for a new venue that could cost $300 million to $400 million.

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Olympia Entertainment, which manages Joe Louis and Cobo Arena under a single lease and is owned by team owners Mike and Marian Ilitch, was required to notify the city by Tuesday of their intentions with the contract, which expires on July 1, 2010. Otherwise, it automatically renewed for 20 years.

The statement from Olympia today says the lease isn’t being renewed to allow the city to forge ahead with an expansion of Cobo Center, which is managed by the city but includes the Ilitch-run Cobo Arena.

The city needed Ilitch-owned Olympia Entertainment to renegotiate the master lease because it includes language that gives Olympia say over any project that would significantly impact Cobo Arena.

Not renewing basically turns Cobo Arena back over to the city, paving the way for the long-debated control and expansion of Cobo Center — something needed to prevent the loss of the annual North American International Auto Show.

Olympia has been negotiating for years on the lease with the Detroit Economic Development Corp., and the statement Friday said the Ilitches will continue to pursue a new lease for just Joe Louis.

“The existing lease was crafted more than three decades ago by individuals no longer associated with either Olympia Entertainment or the city,” Ilitch Holdings Inc. President and CEO Chris Ilitch is quoted as saying in the statement. “It does not fully contemplate one: the evolution of the sports and entertainment industry; two: the current economic environment in which both the city and Olympia Entertainment are operating and; three: the infrastructure replacement and repair needs of a 30-year-old building in order to meet the competitive industry standards of today.”

The statement notes that Joe Louis Arena is the fourth-oldest venue in the National Hockey League. Teams seek new arenas because modern facilities provide deeper revenue streams than older facilities.

Ilitch spokeswoman Karen Cullen said no comment would be made on the specifics of the new lease talks.

The Ilitches bought the Red Wings from former owner Bruce Norris in 1982 for $8 million, and today it’s valued by Forbes.com at $303 million.

Wayne County Executive Robert Ficano has said he’s been approached by the Ilitches about financing a new arena, but has declined to say more.

Both Comerica Park, where the Ilitch-owned Detroit Tigers play, and Ford Field, home of the National Football League’s Detroit Lions, are owned by the Detroit-Wayne County Stadium Authority, a quasi-public board of city and county appointees, and are leased to the county and then subleased to the teams.

The authority, along with the DEGC, also partially financed both ballparks.

Any use of tax dollars to subsidize stadium construction — either in the form of a direct levy or by extension of current taxes — generates fierce criticism that it’s nothing more than welfare for rich owners and players.

Speculation is that a new hockey arena would be built on Ilitch-owned land in the Foxtown area or between Grand River and Cass south of I75.

Not renewing the master lease means the Ilitches give up a cap on property taxes at Joe Louis, which limits them to $252,000 annually. Without the cap, the taxes would be about $1 million. While the city owns Joe Louis, the lease called for the Ilitches to pay the property taxes — something that could continue under a new lease, or be changed.

The lease, first negotiated under Mayor Coleman Young after the Detroit Lions and Detroit Pistons left for the suburbs, has drawn criticism, including from the Detroit City Council, that it tilts too far in favor of the Red Wings.

Detroit gets a cut of tickets, concessions, corporate and suite sales at both venues, which would have been lost if the lease was renewed. New surcharges could be negotiated under a new lease, and at a new arena.

If the Ilitches, who have a year to work out a new lease, decide to pursue a new arena, financing options include particular-use taxes, use fees built into ticket prices, new lottery games, or the city and/or county issuing revenue bonds. Private money from the owners and from corporate investment, especially from naming rights, also will finance any new stadium.

Building a publicly owned stadium and leasing it to the team, which was done for the Tigers and Lions, is also an option — but one that carries political risks because it would require tax dollars in economically tough times.

Debt financing by the team is also iffy because banks are hesitant to loan money at the favorable rates from even a year ago, something that’s hampered stadium projects elsewhere in the country.

A new short-term lease at Joe Louis buys time for the markets to improve.

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