Tuesday, July 25, 2006
Who Benefits from a New Arena?
After months of speculation as to who would be the highest bidder for the Pittsburgh Penguins, the suspense is over. A real estate developer from Hartford, Connecticut has emerged as the winner with a bid of $175 million. His bid was $5 million more than the second place finisher—one with local ties. Who won the bidding war is not as interesting as how high the winning bid was—$175 million for a last place team. This bid arose despite the teams financial struggles for the last few years, including the post-salary cap year.
The St. Louis Blues, who finished with a record similar to the Penguins, were sold for $150 million just a few months ago. The Blues play in a facility that is only 12 years old, which was built primarily with private money, and has many of the revenue generating amenities that the Penguins’ new ownership will want. While it can be argued that the bid being offered for the Penguins is due to the young stable of players with tremendous upside, it is more of a reflection of the anticipated revenues from a new facility.
The current ownership of the Penguins has lobbied hard for a taxpayer subsidized facility so the team could be profitable. Under threat of relocation, as is the norm with the highjacking of taxpayer money, the team has secured a promise from elected officials for such an arena. Even though they are going through with the sale, the promise of a new arena has increased the team’s value tremendously. Current ownership purchased the team for $85 million in 1999 and stands to make at least $90 million in seven years—a return on investment of 105 percent.
For the new ownership group the risks are minimal. They will get a new arena and all of its revenue generating streams as well as a team with promising young players. If the arena deal falls through in Pittsburgh, they will be able to move the team to a taxpayer funded facility in another city. Either way, taxpayers end up subsidizing wealthy owners. No wonder team owners scream so loudly for new facilities: they get all the benefits while taxpayers pay the tab.
The St. Louis Blues, who finished with a record similar to the Penguins, were sold for $150 million just a few months ago. The Blues play in a facility that is only 12 years old, which was built primarily with private money, and has many of the revenue generating amenities that the Penguins’ new ownership will want. While it can be argued that the bid being offered for the Penguins is due to the young stable of players with tremendous upside, it is more of a reflection of the anticipated revenues from a new facility.
The current ownership of the Penguins has lobbied hard for a taxpayer subsidized facility so the team could be profitable. Under threat of relocation, as is the norm with the highjacking of taxpayer money, the team has secured a promise from elected officials for such an arena. Even though they are going through with the sale, the promise of a new arena has increased the team’s value tremendously. Current ownership purchased the team for $85 million in 1999 and stands to make at least $90 million in seven years—a return on investment of 105 percent.
For the new ownership group the risks are minimal. They will get a new arena and all of its revenue generating streams as well as a team with promising young players. If the arena deal falls through in Pittsburgh, they will be able to move the team to a taxpayer funded facility in another city. Either way, taxpayers end up subsidizing wealthy owners. No wonder team owners scream so loudly for new facilities: they get all the benefits while taxpayers pay the tab.
