More on the possibility of a new hockey arena in the neighborhood

From the Detroit News on line
http://www.detnews.com/apps/pbcs.dll/article?AID=/20070618/SPORTS0103/706180381

DETROIT -- Mike Ilitch and the Detroit Red Wings have two months to tell city leaders whether they will exercise their option to renew for 20 years the exclusive lease -- considered the best of any NHL team -- for Joe Louis Arena and Cobo Arena.
The Aug. 16 deadline is expected to set in motion intense deal-making and negotiations that will involve the future of Cobo Arena, Joe Louis Arena -- the home of the Red Wings -- and how much money the state, city and taxpayers are willing to toss in to subsidize a new Detroit hockey arena.
"They talk to us all the time," Mayor Kwame Kilpatrick said. "They're still trying to decide whether to stay and improve the (Joe Louis) facility or move."
Ilitch, whose fortune started with a suburban pizza place in 1959, bought the Red Wings for $8 million in 1982. The team is now worth an estimated $258 million -- a value due in large part to the bargain-basement lease on the Joe. According to Forbes magazine, he is among America's richest citizens, worth $1.5 billion.
The Ilitch family, through its Olympia Arenas company, rents Joe Louis Arena and Cobo Arena for $450,000 a year. Olympia Arenas manages and operates all concessions and has exclusive rights for other events there, such as wrestling shows and concerts.
The lease expires in August 2008, and Olympia Arenas -- Mike Ilitch is president, his daughter, Denise, is vice president and his wife, Marian, is treasurer -- must notify the city this August whether it will opt out of renewing the deal, according to reports prepared for the Detroit City Council and the lease signed on Jan. 23, 1992.
Over the past decade, companies controlled by the Ilitches have acquired nearly all of the land behind their Fox Theatre and Hockeytown Café, fueling speculation they will build a new home for the Wings and move the team to the Foxtown area on Woodward north of Grand Circus Park.
No decision has been made, said Karen Cullen, a vice president for Ilitch Holdings, the company Mike and Marian Ilitch created to oversee their ventures, ranging from Little Caesars to the Detroit Tigers.
"Over the past 25 years, we have worked hard to contribute to improving the city of Detroit," Cullen said. "As we finalize our decision on Joe Louis whether to renovate or to build a new arena, either way we see this as a great opportunity to make a positive impact."
Some executives for Ilitch's companies are not sure city officials have the right deadline date. They note, for example, the team did not take occupancy for more than a year after the agreement was signed, a situation they suggest pushes the renewal date back.
Either way, a showdown is expected this summer.
Outside funding needed
Professional sports arenas experts say while the Red Wings may have the land to build in a location that would give them a near-monopoly on the post- and pre-game entertainment dollars from hockey fans, the project would still be too costly without government assistance -- especially since the Ilitches pay bargain-basement rent for control of the Joe and Cobo.
"They're going to look for help and probably considerable help" in building an arena for the Wings, said Marc Ganis, a consultant who helped engineer a new arena deal for the New Jersey Devils.
One potential funding stream, Ganis speculated, is "tax increment financing," which taxes property owners in an area to build a facility, which the city or another government entity would own and the Wings would rent.
Detroit entrepreneur and landlord Jerry Belanger, who this year opened the Park Bar one block behind the Fox Theatre, knows his bar would benefit if the Wings move nearby. "I should pay some of the cost because that's going to help me," he said. "But another business owner is going to benefit much more. That cost has to be shared fairly."
He also said if the public is asked to contribute, it should be done so those who attend games are the ones paying.
"I know there are a lot of little old ladies who don't like hockey and would probably have better use for their tax dollars than on a new arena," Belanger said.
If the Ilitches owned the building, the property tax burden would be too great to make it profitable, Ganis said.
The taxes on a $300 million building in Detroit would be $10 million a year.
Another funding stream is naming rights, which could be done for a new facility or Joe Louis Arena. Pepsi recently paid $68 million to have its name on the home of the Denver Nuggets and Colorado Avalanche.
Council doesn't like deal
So far, the Red Wings and their owners have remained quiet. The city isn't saying much, either.
The city recently sold to Olympia Development, another of the Ilitch-run companies, two vacant, tax-reverted parcels behind the Fox for $200,000. Earlier this year, the city awarded Olympia development rights for the historic GAR building nearby.
The Ilitches are known as hard negotiators. In the 1990s, Mike Ilitch threatened to move the Tigers unless the team got a new ballpark -- which it did, across Woodward Avenue from his Fox Theatre and Hockeytown Café.
This time, Ilitch is in the driver's seat, thanks to the deal brokered in 1979 by Mayor Coleman Young that kept the team from moving to Pontiac.
Ilitch will decide whether to extend the lease -- the city has no vote -- and if the pact is extended, it will become even more favorable for him and the Red Wings.
Currently, the city imposes up to a 10 percent surcharge on tickets sold to events at Joe Louis and Cobo Arena; Detroit gets a cut of concessions and luxury suites.
If the lease is extended, the city will lose the surcharge -- which brings in about $2.5 million a year -- and, in five years, its share of concession and suite revenue. Council fiscal analyst Irv Corley, in a February report to the council on the lease, said the contract is "strongly in favor" of the Ilitch companies. He called it "convoluted" and questioned whether the city was receiving its fair share of concession sales.
The lease is much more lucrative than those of other teams. For example, the San Jose Sharks pay $1.6 million a year for the building and get a small percentage of ticket sales, but the team also chips in money for capital improvements and agreed to split with San Jose any profits from naming rights.
Council members have been upset for several years about the lease arrangement, but their anger reached a new level in February, when the fiscal analyst, at their urging, probed the specifics of the arrangement between Detroit and the Ilitch-family controlled company.
"This is clearly a sweetheart deal, and if they (the city law department) don't find a way to terminate this contract I'm going to turn it over to the FBI because this is ridiculous," Councilwoman Barbara-Rose Collins said.
Councilwoman JoAnn Watson also criticized the deal. "I think we need to lift the cloud over the mysteries shrouding the Cobo Arena business," she said earlier this year.
Councilwoman Sheila Cockrel said the agreement was necessary. "They were going to move. There was little else to do," she said.
In 1975, the Detroit Lions moved from Tiger Stadium to the Pontiac Silverdome; the Pistons left Detroit for Auburn Hills in 1978. The following year, the lease was signed with the Wings.
It's unclear how much the Red Wings are worth to the Detroit economy, but the pro hockey lockout in the 2004-05 hurt the city. Revenues from the ticket surcharge dipped from an average of $2.3 million a year to below $500,000. Bars, restaurants and parking lot operators also suffered.
"Generally there is too much emphasis put on how much sport teams help a community," said Dana Johnson, an economist for Comerica Bank. "Whether or not the Red Wings are here, people have a finite amount of money they will spend on entertainment. The difference is with the Red Wings, people are spending money in downtown Detroit instead of other places in Detroit or the region."
Neil DeMause is co-author of "Field of Schemes," which questions the public financing of public stadiums.
"You're about to have a very profitable organization that is going to try to do whatever it takes to make even more money," he said. "Mike Ilitch is a very good businessman, and the city is going to do what they can do to please him."