The Arena Chronicles or What’s Going on in Columbus? – Part I

Columbus Blue Jackets and Their Ugly Nationwide Arena Lease

Part I – Where We Are Today  (the next 2 installments will be posted later this week)

This season saw the Columbus Blue Jackets make their debut in the Stanley Cup playoffs, after GM Scott Howson and Coach Ken Hitchcock engineered a major overhaul of the roster. Despite a first round sweep at the hands of the Red Wings, the atmosphere at Nationwide Arena was electric before, during and after Game Four. With the upcoming draft and free agency prospects, a possible Calder Trophy for goalie Steve Mason, and the projected re-signing of Captain Rick Nash, the future for the on-ice product has never been brighter.

In late April, with the roar from the final playoff game still reverberating in the ears and minds of the CBJ faithful, the Blue Jackets released a study commissioned jointly by the club, Nationwide (the owners of Nationwide Arena) and the Franklin County Convention and Facilities Authority, and performed by the John Glenn School of Public Affairs at The Ohio State University. The study documented an impressive transformation of the “Arena District”, created by the arrival of the Blue Jackets and the development of Nationwide Arena, including the creation of thousands of jobs, and new investment, increased sales, and appreciating property values measured in the billions of dollars.

While the magnitude of the impact may have surprised some, the overall positive influence of the Blue Jackets and the Arena was obvious to anyone who remembered the days when the area’s prime occupant was the dilapidated, abandoned former Ohio Penitentiary. The news was trumpeted in the business and tourism sectors, but received muted public attention. However, the studies appeared to serve as a resounding validation of the concepts that Arena and NHL proponents had posited in attempting to garner public support in 1997 — a professional team and a first-class venue can revitalize significant portions of the local economy.

In late May, news broke that the Blue Jackets had lost an aggregate of $80 million dollars since 2002, and (in cooperation with Nationwide) were working with state legislators and local officials to craft a deal where the County would assume ownership of the Arena from Nationwide (at a substantial discount), issue bonds to complete the acquisition, and repay the bonds through imposition of a “sin tax” on beer and alcohol sales in Franklin County. As initially reported, the legislation would have authorized the tax to be imposed without a public vote. The Blue Jackets could then negotiate a more favorable lease, which would largely remedy the financial concerns.

While nobody appears to take “credit” for the manner and timing of the initial disclosure, reaction was swift and decisive. Anheuser-Busch and related “sin industry” lobbyists turned up the heat and vociferously opposed the plan. State legislators demanded an unqualified statement of support from the County, but heard only silence. County Commissioners unanimously balked at the idea of a tax increase, particularly without a vote. Blindsided hockey fans and other similarly minded individuals began speculating about a team relocation, and comparisons to the Phoenix situation began to circulate in the blogosphere.
For context, one needs to appreciate that there are few places on Earth more proficient than central Ohio at unfounded speculation and detection of perceived consipiracies. This is particularly true among the hockey faithful, who have had to live in the shadow of The Ohio State University and overcome second-class status in the community. That hockey has taken a firm hold in the hearts and minds of the central Ohio community is a credit to the Blue Jackets organization, and the leadership of Nationwide in spearheading the Arena and Arena District. So, anything threatening the newly found stature of hockey in Columbus is viewed with the utmost disdain.

The same holds true for those who don’t care about hockey, arenas or community development in general. They perceive an equal degree of conspiracy any time the “tax” word is bandied about, and view the devotion of any public money to non-essential functions as anti-American. It is the definition of “essential function” that often generates lively debate.

The initial reactions of both camps were stark, visceral, and not necessarily grounded in fact. It was clear that the idea of a tax was DOA, and the Blue Jackets quickly abandoned the plan. In an effort to get a handle on the public debate, they then took the unusual step of assembling several bloggers dedicated to covering the Blue Jackets for a briefing on the relevant issues from Sr. VP and General Counsel Greg Kirstein, assisted by Public Relations VP Todd Sharrock.

Discussions with Kirstein, Sharrock and County Commissioner John O’Grady, combined with review of relevant documentation, ranging from the Glenn studies to the court filings and rulings in the Phoenix Coyotes’ bankruptcy proceedings, helped to frame the real issues. As the discussions continue, it is important to keep the following in mind:

1. Nobody affiliated with the Blue Jackets has raised the prospect of moving the club out of Columbus. The only mention of moving has come from media questioning. In response, Blue Jackets brass have uniformly denied any interest, discussions or plans to move, pointing out that the steps they are taking are intended precisely to avoid that eventuality from ever arising.

2. The key issue is Nationwide Arena, not the Blue Jackets operations. Kirstein went to great lengths to emphasize this point, and he is correct. For reasons examined more closely in Part Two, revenue available to most clubs has not been accessible to the Blue Jackets. Independent analysis of the CBJ operations found the club to be financially sound, except for the arena lease. According to the review, the lease terms place the team $12.1 million upside down on an annual basis. Payroll has more than doubled, and attendance is off somewhat from the early years, but shows signs of trending upward after a playoff debut. As a newer club, the Jackets were hurt more by the lockout, and the financial losses were increased by the late John P. McConnell’s noble refusal to lay people off during the stoppage. Former President/GM Doug MacLean pegs those losses at $17 million, just for that year. Kirstein could neither confirm nor deny those numbers. However, it is apparent that if the arena numbers can be reversed, the team is on solid footing.

3. The Columbus situation is not comparable to Phoenix. While clearly the McConnell family does not want to (and likely cannot) continue to bleed red ink, the two circumstances are vastly different. In Phoenix, Moyes has poured over $300 million into the team over the past six years, and annual losses have exceeded $36 million since 2006. The market is soft, attendance is low, and the surrounding Westgate City development has not taken off in a manner comparable to the Arena District in Columbus. On the ice, the team has floundered, and while some new blood was brought in at the trade deadline, there was no “wow” moment to provide encouragement for significant improvement. Columbus, in contrast, has an exciting young team that is on the upswing, a solid hockey market that is growing and solidifying, and a single, defined economic issue — the Arena. Even Jim Balsillie, desperate to bring the NHL to southern Ontario, concedes that Columbus is not a target: “They’re not moving. The market’s too good.” Similarly, Commissioner Gary Bettman has affirmed the league commitment to Columbus, and does not even characterize the situation as something on the league’s radar.

4. After the initial hyperbolic reactions, a greater sense of calm has returned, and cooperation is the mantra of all concerned. Kirstein and the Blue Jackets have been calling for a “public-private partnership” since the issue emerged, noting that virtually all professional sports stadiums and arenas have some level of government involvement. Only Nationwide Arena and AT&T Park in San Francisco have been exclusively private endeavors, and the S.F. situation is difficult to compare, as more than half the construction cost was paid for through naming rights. The Giants also own that facility. After some ambiguous initial press releases from the County Commissioners, a more positive tone has emerged. Commissioner O’Grady acknowledged the positive impact of the team on the local economy and is interested in forming the “right kind of public/private partnership.” He has had discussions with Nationwide representatives, and urged Nationwide and the Blue Jackets to come together, then determine what public assistance is needed. The County Administrator has also been tasked with exploring options for County participation. O’Grady remains optimistic, stating “We will get it fixed.”

5. Much of the passionate response was centered around the tax proposal, and the perception that the Blue Jackets were attempting to make an end run around the voters. The County Commissioners squelched this idea from the outset, but did nothing to quell the “end run” impression that some received. As Kirstein noted, the proposal to the state legislature would have allowed a tax without a vote, but did not require the tax without a vote. The proposal was modeled after the mechanism used to fund the stadiums in Cleveland, where a vote was conducted. This was another example where ill-timed and incomplete communication triggered an angry response. O’Grady noted that initial communications to his office were overwhelmingly against the tax, but that recently the communications have been overwhelmingly focused on encouraging a solution to be found. Overall, he characterizes the public input as “about even.”

While the economics in Columbus require attention, the club is nowhere to be found on the critical list. President Mike Priest and GM Scott Howson have indicated that hockey operations are proceeding as normal, and the club will be “fully engaged” through the draft and free agency processes. In the meantime, discussions will continue among the key players to find a solution to the arena issue and enable the focus to return to hockey.

Parts Two and Three will focus on the historical events that have combined to create both the successes and challenges in Columbus, as well as the key figures and options available going forward. [coming in the next few days]

Part II of The Arena Chronicles

Part III of The Arena Chronicles

Jeff Little

Fan of hockey at all levels, with focus on the Blue Jackets, Miami RedHawks and the business side of the game. I try to bring a rational, even-handed analysis to my writing, wtih just a touch of snark. I use my legal background to bring some more insight on the business side. Love family, travel, hockey, golf and curling.