Friday, August 15, 2008

Mario: I duped you

"We had to do a few things to put pressure on the city and the state, but our goal was to remain here in Pittsburgh all the way. Those trips to Kansas City and Vegas and other cities was just to go, and have a nice dinner and come back."
I'm glad Pittsburgh got its building and hockey will be staying in the city, but it was always very difficult in recent years to imagine a scenario where that didn't happen. And the whole saga left many with a bit of a bad taste in their mouth.

The Penguins have what appears to be a pretty sweet arrangement whereby the team pays only about $4-million a year and yet receives a $300-million, state-of-the-art rink and all of the revenues that come with it.

The remaining funds come in the form of $15-million from "gambling-related pots," half of which is via a state development fund.

It'd be interesting to know just how much Lemieux stands to benefit from the arrangement, as we don't know exactly how large his ownership share is in the team. What is clear is that Penguins co-owner Ron Burkle is a very, very wealthy man with a net worth of $3.5-billion.

If the 307th richest man in the world can't fund an arena project, who can?

What the new rink will do is boost the value of the Penguins franchise, which really hasn't been able to reap the rewards of the team's rise in the outdated Igloo. That won't be a problem now — and 2010 could bring a license to print money.

Given the mess the team was in when Lemieux took over, maybe it's not such a bad thing he'll finally be rewarded.
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18 Comments:

At 5:05 AM, August 15, 2008, Blogger dave said...

It's important to point out that Lemieux was promised an arena by the city when he took over ownership of the Pens. As far as Burkle paying for the arena, yeah, he could afford it, but public funding has pretty much become a given in building pro sports facilities.

Hell, aren't the Yankees even getting help on new Yankee stadium?

 
At 5:20 AM, August 15, 2008, Anonymous Anonymous said...

I wonder, with so many cities being economically squeezed, how much longer public financing will pass without comment to help multi-billionaires build a facility for their own business while school districts defer needed maintenance, teachers are laid off, and other departments continue to see their resources vanish - especially if they rely on property taxes from a market with so many foreclosures.

He got what he wanted - it wouldn't have been a bad idea to not point out that it was all a show to enable the team to "print money" in the future.

 
At 7:15 AM, August 15, 2008, Blogger Russell Lucas said...

It's weird to think about how this could have turned out. I love Mario, but while the KC and Vegas flirtations might have been gamesmanship, nearly selling the team to Boots Douchebag-io and entering into a LOI with Jim Balsillie weren't negotiation posturing, and it seems pretty clear now that both of those guys are franchise-movers. Balsillie would give all sort of lip service to staying, but he'd have packed the trucks the second he got a chance. And all that stood in the way of Balsillie owning the team, if the published reports are to be believed, was the NHL telling him that the franchise was staying put. Given how long it took the governmental officials to make good on their promise to fund a new arena, I can understand why Mario was frustrated and just wanted to wash his hands of the whole thing. Still, I can't help but think that if the NHL and (as much as it hurts to say this, Bettman) hadn't stepped in to make the team immobile, this story would have ended differently and soured the relationship between the city and its greatest athlete. Mario could be Art Modell.

 
At 7:41 AM, August 15, 2008, Blogger FAUX RUMORS said...

1) Mario can say all he wants that those trips were to get free/nice dinners, but come on. Negotiating ploys? Perhaps to some extent, but big dollars were on the line and he and the other investors needed to line up other options should the Pittsburgh casino option not come to fruition
2) Agree with Russell that IF the city/state didn't step up there is little doubt that the pens would have been sold and moved. As the NFL already found out, if an owner wants to relocate its impossible for a league to stop them

 
At 8:34 AM, August 15, 2008, Blogger Hooks Orpik said...

I think it was a ploy, but a necessary one.

The county/city/state had been dragging it's feet on making real progress for years and years. Mario starts talking to out of town interests and--what do you know--Pittsburgh finally steps up.

 
At 9:47 AM, August 15, 2008, Blogger Sooska said...

Of course. Mario "duped" the public. We needed to be duped. He needed to engage the fans in a big way to gain a loud voice to pressure the politicians to fulfill promises made.

I, for one, voted against public funding of any stadium or arena in Allegheny County. However the politicians defied the public and gave the Steelers and Pirates (there's a pro franchse for ya) beautiful new facilities. As a hockey fan I was willing to suck it up to get the Pens a new arena. These days pro sports are essential to the regional image. And I wanted them to stay - no matter how.

Additionally, Mario was one of a very few bankruptcy saviors anywhere in the world who actually paid back every penny of every debt that Howie Baldiwn et al ran up. This type of follow through in a bankruptcy is unheard of.

As for Delbaggio (sp?)and Balsilie- as soon as it became eminently apparent that either would move the team Mario and the NHL backed out of the deals. Both were jokes -and every Pens fan knew it then and the rest of the world knows it now.

Mario did what he needed to do, as always. Go Pens.

 
At 10:03 AM, August 15, 2008, Anonymous shamelessfandom said...

faux, hooks, soosa are right, Mario did what he needed to do to get something he was promised. Hopefully, he'll be rewarded for his risk when the redevelopment of the old arena site gets underway in about three years. There's going to be about 30 city blocks of potential goldmine there, and i think Mario and the other owners get first crack at and/or obliged to develop it.

also, if anyone hasn't seen it, look for the governor's speech from the ground breaking ceremony -- a nice nod to the power of fandom towards the end.

 
At 10:14 AM, August 15, 2008, Blogger Dennis Prouse said...

I know this is a divisive topic amongst sports fans, but I am dead set against public money paying for what are essentially private interests. It is funny how this issue seems to cross political boundaries -- I am as right wing as they come, and yet on this issue I find myself in agreement with people from the left of the political spectrum. At a time when infrastructure such as sewers, water treatment plants, roads and bridges are in serious disrepair in almost every city, the notion of taxpayer money going into a new arena is nauseating. That goes double when the owner is a billionaire who could easily finance the project himself.

It is worth noting that the four newer Canadian arenas in Vancouver, Toronto, Ottawa and Montreal were all built privately, and are all doing very well financially. If the project makes economic sense, then there will be no shortage of private financing options. If it doesn't, then it shouldn't be built. There is something seriously wrong with the business model if you need taxpayer dollars to prop up a business whose average employee makes over $2 million a year.

Economists will tell you that entertainment spending is relatively fixed, so the notion that a new stadium will somehow stimulate economic growth is false. (During the lockout, for example, the media went hunting high and low for hard luck stories about businesses that were going under, and found precious few.) They also don't cure urban blight -- the new arena in New Jersey was supposed to transform that part of the city, but it is still a dump, just with a new arena plunked in the middle of it.

 
At 10:25 AM, August 15, 2008, Blogger Adam C said...

...and to prove Dennis correct, I'm not right wing at all and I agree with him completely (although it should be pointed out that the Leafs are very good at getting public money to pay for their various facility construction - at least by Canadian standards).

It should be pointed out, too, that "entertainment expense" tax deductions go a long way toward driving up ticket prices and subsidizing those million dollar salaries.

 
At 11:56 AM, August 15, 2008, Blogger Dennis Prouse said...

That's very true, Adam. It always annoys me to see the sons and daughters of high rollers sitting down in the high rent district, knowing that daddy's company has claimed 50% of the cost of the tickets as an "entertainment expense". The problem with that tax break, though, is that it exists in both Canada and the U.S. Both countries would have to move simultaneously to dump it, which is difficult to imagine.

You used to be able to claim a much higher percentage of the ticket costs (it was either all of it or 80%, I can't remember which). When it was cut to 50% a number of years ago, the restaurant lobby screamed blue murder.

Like you, though, I often wonder what would happen to the economics of sports if there was no longer a tax incentive for businesses to buy season tickets and boxes.

 
At 12:08 PM, August 15, 2008, Blogger bradley said...

Dennis, while agree with much of what you're saying, you can't automatically discount the effect it has on an area. Prudential is too new to have much of an effect now, but it will after a few years. Look at the area around Verizon center in DC as an example of this. That part of town is so much nicer now than it was 10 years ago, and it's because of development that was set in motion in no small part due to the arena. A nice venue will, eventually, bring other development to an area.

Now, how much a city should value that is another question entirely. Is it worth taxpayer money to do all that?

 
At 1:29 PM, August 15, 2008, Blogger Hooks Orpik said...

"At a time when infrastructure such as sewers, water treatment plants, roads and bridges are in serious disrepair in almost every city, the notion of taxpayer money going into a new arena is nauseating"

Dennis, for the record NO local taxpayer money is going to the arena. It's mainly state government contributions from the gambling revenue that will fund the majority of the arena, along with the Penguins themselves footing some of the bill.

There's no doubt some of that money in Pittsburgh could have gone to public works like you state (or to more money for the fire and police departments, their budgets are hurting in Pittsburgh). But I think it's important to point out that unlike the other two new Pittsburgh sports stadiums, the average taxpayer isn't footing the majority of the bill on this one.

Overall, I think your point rings true, but a new arena can breath life into the re-development of part of a city and I think places like Columbus and Washington can attest to that.

 
At 1:59 PM, August 15, 2008, Blogger J. Michael Neal said...

Dennis, while agree with much of what you're saying, you can't automatically discount the effect it has on an area. Prudential is too new to have much of an effect now, but it will after a few years. Look at the area around Verizon center in DC as an example of this.

Maybe, though these effects are usually drastically overstated. To the extent that it happens, though, these aren't additional businesses that are making the whole region better off. As Dennis pointed out, the amount of money spent on entertainment is pretty much fixed. If you see a whole bunch of new places spring up right around an arena, then that is investment that isn't being made somewhere else. Stadiums don't increase the amount of economic activity.

Pretty much every serious economist not paid by sports organizations or very localized business interests will tell you this. I recommend Andrew Zimbalist and Roger Noll.

 
At 2:02 PM, August 15, 2008, Blogger J. Michael Neal said...

Dennis, for the record NO local taxpayer money is going to the arena. It's mainly state government contributions from the gambling revenue that will fund the majority of the arena, along with the Penguins themselves footing some of the bill.

State money counts as a subsidy, too. It could very definitely be used to fund infrastructure projects. If the gambling money is coming through the state, they could just as easily hold on to it for some other use. If that constitutes a majority of the money being spent, then the average taxpayer is footing the bill. The only difference is that a lot of those average taxpayers are in Philadelphia, Scranton, or State College, which I'm sure makes them thrilled about subsidizing a private business in Pittsburgh.

 
At 2:05 PM, August 15, 2008, Blogger J. Michael Neal said...

There is another answer to provide those who insist that building a stadium will help the local economy. It is that, by this justification, the government ought to just go ahead and subsidize every company. There isn't anything special about sports teams.

In fact, it's the other way around. Even if you go by the bogus numbers that the supporters of public stadium funding use, you get very little bang for your buck. Per dollar of public spending, the return of economic growth and jobs created is much smaller than it would be using the same money to subsidize almost anything else you can come up with.

 
At 4:06 PM, August 15, 2008, Blogger Hooks Orpik said...

"I'm sure makes them thrilled about subsidizing a private business in Pittsburgh."

The Penguins (though they are in charge of the design and construction) do not own the building. A government agency does, and they will recruit circuses, music performances, etc. also. The Penguins are obviously the primary tenant and the reason for the construction, but the state subsidies are going to more than solely a private business

 
At 4:16 PM, August 15, 2008, Blogger Art Vandelay said...

The people who live near the hockey arenas in Edmonton and Calgary would like to know when their respective neighborhoods are going to enjoy this revitalization we hear so much about.

 
At 6:28 PM, August 15, 2008, Anonymous Anonymous said...

I think that the discussion is obscuring the real issues.

-Providing publicly subsidized real estate to make unprofitable franchises profitable for their billionaire owners is morally repugnant.

-How much more effectively could hundreds of millions of dollars be spent if it was spent directly on the civic revitalization instead of indirectly by building an arena to attract rebirth? This is a fallacious argument forwarded by the pro sports industry that the public buys into from the mouth of their elected representatives.

If pro sports teams are such a boon to the economy, why can't they at least pick up their own tab?

I love the teams that I cheer for, but its been a long time since one of them has gotten a discretionary dollar from me. I think its ridiculous that average income people would voluntarily subsidize millionaires playing for billionaires. Shame on our elected officials for pandering to it in the effort to piggyback on the hysteria surrounding the home side.

Lunacy.

 

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