Friday, June 26, 2009

Ilitch not renewing existing lease on Joe Louis Arena


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.

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 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.

Highlights of exisiting lease Ilitch holds on Joe Louis & Cobo Arenas



The Ilitch family’s lease for its Red Wings to play at Joe Louis Arena expires in a year, and will be replaced by a new deal. The current lease includes:

    • The city provides free police and landscaping services, including snow removal, for both the Joe Louis Arena and Cobo Arena, and up to $500,000 annually for capital improvements for the hockey venue.

    • The Ilitches pay property taxes on city-owned Joe Louis, but they are capped at $252,000 annually. Without the cap, the tax would be about $1 million.

    • The Ilitches pay $25,000 monthly rent for Joe Louis and $12,500 for Cobo.

    • Detroit collects a 10 percent ticket tax for Joe Louis events and a 7.5 percent ticket tax for Cobo events.

    • The city collects a surcharge of 10 percent on concessions and 7 percent on suite sales.

    • If the lease is renewed, the city immediately loses the ticket taxes and in five years loses the surcharge on concessions and suites.

    • A new arena would mean the city could charge for police and snow services and collect full property taxes on the venue. The city also could lose its ticket, concession and suites surcharges. All this depends, of course, on a new lease or stadium deal, its financing and who owns the new venue.

Monday, June 22, 2009

10,000 fans a game reject Detroit Tigers after Ilitch hiked ticket prices


10,000 fewer Detroit Tigers fans fill seats each game
'08 heartbreak, weak economy are blamed


Boosted by their World Series appearance in 2006, the Tigers drew more than 3 million fans to Comerica Park for the first time in 2007, and topped 3.2 million fans in 2008, when expectations ran high.

But the Tigers, with a disappointing finish last year, combined with a collapsing economy, saw a plunge in ticket sales this year. The Tigers are averaging about 28,000 fans per game this year, down from 38,000 per game at this time last season...

...The Tigers have troubles beyond about 10,000 more empty seats per game this year than last. Forbes magazine, in its annual ranking of sports teams' values, put the Tigers in 21st out of 30 Major League Baseball teams, with a total value of $371 million. That estimate marked a 9% decline in value from the year before.

Moreover, the Tigers have one of the most expensive payrolls in baseball, with first baseman Miguel Cabrera signing a $153-million, 8-year.contract last year, breaking the $75-million, 5-year contract signed by outfielder Magglio Ordóñez in 2005. Combined with lower ticket sales, the team is losing money this year, Forbes estimated.

Meeting that payroll is one reason owner Mike Ilitch raised ticket prices this year.

"With the auto companies imploding and discretionary income plummeting for many fans, Ilitch's strategy looks like it has backfired," Forbes suggested earlier this year

Being privately owned by the Ilitch family empire, the Tigers do not release hard financial data. But Gilette said that absent a second-half collapse by the team (which, in fact, has failed to generate much offense lately despite its first-place standing), the Tigers should muddle through this season. (Complete Story)

Treasury Department holding would-be Harsens Island Developer's property

Discovered among the Michigan Department of Treasury's "unclaimed property" inventory:

Property Number: 10367064
Transferred from: FIFTH THIRD BANK

Lucky 7 Development L.L.C. was formed in 1996 by Denise Ilitch and other members of her family. In 1999, attorney William Serwer filed papers signed by Denise Ilitch transfering control of Lucky 7 Development to his client Michael J. Malik, Sr.

Malik is the longtime casino and real estate development partner of Denise Ilitch's mother Marian Ilitch. Nearly all fo their affiliates are registered at the same Foxtown address in Detroit that is the headquarters of Ilitch Holdings, Inc.

Lucky 7 Develoment/Grande Pointe Development LLC appears to have title to nine parcels on Harsens Island (former Boys Club property) that have a total 2009 equalized value of $1,224,500. Lucky 7 Development failed to pay its 2008 taxes on those parcels and appears to have delinquent tax bills totalling $9,417.57.

For two decades, Malik and various affiliates have attempted, without luck, to develop a marina and other commercial and residential properties on that Harsens Island property.

See detailed 15-page DEQ application for permits.

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