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Things seem to be looking up for the Predators. After courting several out-of-towners to buy a team that has been hemorrhaging cash to the tune of a reported $70 million during its nine-year run, current owner Craig Leipold looks to have found his savior: a team of local investors with a $193 million bid to purchase the team. And perhaps, most importantly, a pledge to keep the Preds in town.
It’s easy to see why the group of eight businessmen would be lauded as Nashville crusaders. After all, they emerged on the scene on the heels of two men who seemed all too eager to back up a U-Haul to the Sommet Center.
First, there was Canadian billionaire Jim Balsillie—whose company makes the BlackBerry—who extended a $220 million bid to buy the team in May. But reports of an exit plan quickly sent NHL bigwigs and diehard Preds supporters into a complete hissy. Balsillie had met with city officials in Hamilton, Ontario, to forge an exclusive agreement to move the Preds there should his Nashville lease be terminated. That contingency plan sealed Balsillie’s fate, and the deal quickly fell apart.
So Leipold focused on another bidder: California businessman William “Boots” Del Biaggio III, a minority investor in the San Jose Sharks. But the problem with Del Biaggio was much the same. He was willing to pay $190 million for the team, but he already had an agreement to own an NHL team in Kansas City—that is, if he could get a team to the city via relocation or expansion. Again, Preds supporters were wary.
That both Balsillie and Del Biaggio had made attempts to uproot the Pittsburgh Penguins in 2005 didn’t exactly help convince Nashville of their intentions. Until Del Biaggio changed teams.
With Leipold’s encouragement, Del Biaggio decided to pump an undisclosed amount of money into the local investors’ $193 million bid. And the publicity switch was flipped. The Tennessean put it this way: “Predators supporters find a hero,” read the headline on an Aug. 2 story about Del Biaggio’s move.
The local group won’t say exactly how much Del Biaggio put in to cap off the deal. Del Biaggio didn’t return the Scene’s phone calls and emails to confirm a specific dollar amount, but one source close to the deal says Del Biaggio contributed $69 million. Local investors reportedly put in a total of $71 million.
Still, as news that Del Biaggio had jumped aboard became public, the local owners assured Nashvillians that he would be a minority owner in the group, and the city of Nashville breathed a collective sigh of relief. Maybe he was a good guy—after all, he had just bolstered efforts to keep the team local.
But once the sound of all that collective backslapping died down, the first details of the deal became public: an Aug. 3 letter to Metro’s outside counsel Larry Thrailkill outlining the local group’s proposed revisions for the Predators current license and management agreements.
By most accounts, the original Preds contract was already plum. In fact, Metro finance director David Manning says a performance audit of the facility several years ago said the lease was one of the most attractive in professional sports—all for a team that’s been a big money loser, and a taxpayer drain, from the start.
With Metro doling out about $13 million a year to keep the downtown arena—and the Preds—in business, it’s hard to imagine a deal that could be worse for taxpayers. But preliminary evaluations of the local group’s revised contract are in.
The verdict? Heroism doesn’t come cheap. It seems that if the group of local investors has anything to do with it, the sweetheart deal will get even sweeter. And once again, Metro taxpayers will foot the bill.
How much that bill will be is certainly a point of contention. When The Tennessean
published an Aug. 16 online article reporting that the deal could cost
taxpayers an additional $5 million each year—bringing the annual total
to a whopping $18 million—it took mere hours for the local group to
counter that claim.
The next day, the paper quoted the group’s lawyer, who said that the annual cost increase would be closer to $3 million—a number the paper has continued to report, even though Manning says it’s only a small portion of the cost Metro could incur. “I’m not clear where the $ 3 million they’re referring to in the media is coming from,” Manning tells the Scene. “We think it’s made up.”
And it’s not just that city officials think it could cost taxpayers more than $3 million extra each year to keep the Preds around. They think it could cost a lot more.
The local group has proposed that Metro alter the current lease to increase the Predators’ odds of qualifying for NHL revenue sharing. To do so, the owners have asked the city to ensure that the team meets the league’s minimum attendance requirement, which outlines that teams must average 14,000 in average paid attendance to qualify for full revenue sharing.
Translation: taxpayers could be footing the bill for unsold tickets.
But the local group left one critical aspect of revenue sharing out of its proposal. The 2005 NHL Collective Bargaining Agreement clearly states that, aside from meeting the 14,000 benchmark for attendance, a team also must show that its yearly revenue is increasing in excess of the league average. If a team can’t show that it’s making more money this year than it did the last when compared to league average, it won’t qualify for a full share.
It follows logically that the new owners would be forced either to sell more tickets or hike prices—either way, Metro could be buying up a lot of empty seats, and potentially paying more and more for them.
Plus there’s no way to estimate how much the city would be paying for the tickets, especially because no one can predict what the league average for increased revenue will be from year to year. That’s why Metro’s $5 million estimate could be on the low side—there’s no way to account for an open-ended cost.
Steve North, a member of the Metro Sports Authority, says he’s concerned about how the revenue-sharing provision could hurt taxpayers. “It ties us in for the long term with no control over how much we might end up having to pay,” North says.
Joe Hall, a consultant hired by the local group, says that revenue sharing is essential for the team. “If you don’t get your revenue sharing consistently, it’s devastating,” he says.
The thing is, the Predators have never sold 14,000 tickets. Last year’s average attendance was 13,865. But what if the new owners were, indeed, successful in meeting the mark? They’ve suggested that the sports authority pay them an “incentive payment” of a yet-to-be-determined amount for each incremental admissions ticket sold, according to the proposal.
“It’s sort of a ‘damned if you do, damned if you don’t’ situation,” North says. “If they succeed, it costs us money. If it doesn’t succeed, it costs us money.”
And the potential bill just keeps growing. Under the current contract, Manning says Metro has kicked in funds from tax revenue to offset expenses at the arena. In the last fiscal year, he says that amounted to a little more than $5 million. With the arrangement on the table now, the Predators management would pay the operational expenses and Metro would, in turn, pay them a flat management fee of $6.5 million—an amount that Manning says is “significantly higher than what we’ve been experiencing.”
Add that to the incentive payment, the tickets Metro would be responsible for buying to help the team qualify for revenue sharing—and then there is the matter of the new group’s proposal to keep all of the arena revenues, even concessions and parking—and it’s easy to see how a sweetheart deal becomes sweeter.
To be fair, Hall says the investor group is still in the early stages of this negotiation and everything put on the table is open for discussion. “We’re exploring a broad array of concepts that could potentially be part of the financial agreement,” he says. “It’s still a work in progress.”
So
what’s the trade-off for the proverbial sweetening of the deal? In
exchange for the concessions they’ve asked for, the local group has
promised that the Preds won’t leave Nashville. But if Metro can’t make
the steep payments because of a tight budget, Manning says the city
would have to default on the lease, leaving the team free to roam. “So
I don’t think that commitment necessarily means much,” he says.
And the company the local investors keep also has theories of a Preds move abounding. Although Del Biaggio has vowed to void his deal with Kansas City should Metro go ahead with the deal, he’s told newspapers that he still has a “moral obligation” to bring a team to Kansas City and that he will “do everything I need to do to lobby on Kansas City’s behalf.”
When asked if it was written into the contract that Del Biaggio would buy out local owners should the deal fall through in a few years, Herb Fritch, a member of the local investor group, tells the Scene that his “assumption is that if it’s not working out financially, that’s a likely outcome.” Fritch also says he suspects that Del Biaggio has the right of first refusal to buy the team if the deal crumbles, though he said he couldn’t say for sure.
But Fritch, much like David Freeman, the group’s leader, says that if certain changes to the lease aren’t approved, banks won’t fund the deal.
It’s really quite curious that the group would even need to finance a little less than 25 percent of the $193 million it bid to seal the deal. With a former lone bid of $190 million, it’s clear that Del Biaggio’s got the cash. But, of course, if Del Biaggio kicked in an additional 25 percent, he’d be a California businessman holding majority stake in an investors group whose “local” label is a key selling point.
“I don’t think, frankly, there’s an option to keep them in town with Metro not contributing more,” Fritch says. “And I think if [the Predators leave], Metro ends up as a loser.”
But does Metro lose either way?
Even with all the new proposed changes, the premise of the new deal seems to be a throwback to how Manning described Metro’s lease with the Predators to Toronto’s Globe and Mail in 2005: “We have an operating account down there, we fill it with money, they take it away and then we fill it up again.”
Except this time, that deposit could be astronomical, leaving Metro’s new leadership—its new mayor and a slew of new council members—as well as the sports authority to take a hard look at what the Preds mean to Nashville. And to decide when to say when.
The local investors could meet their first major obstacle next Wednesday, when the group will present its proposed changes to the lease and get feedback from the sports authority. For the most part, the local group has only courted the mayoral candidates privately to discuss the plan.
Even if the investors group is as benevolent as it’s been portrayed in the press these last few months, North says he’s going to look at the proposal with a healthy amount skepticism. “It’s not as simple a matter of ‘we all love the Predators, so therefore we ought to do whatever [to keep them here],’ ” North says. “Romantically, I think it would be great to have the Stanley Cup playoffs right here in Nashville—win the Stanley Cup. That would be nice. But I stand to be convinced that the government subsidizing a for-profit business corporation results in a net benefit to the property taxpayer.”
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