Tuesday, March 06, 2007

What a difference a day has meant for the future of the Pittsburgh Penguins

Was it just 24-hours ago the pages of SportsBusinessNews.com declared the Pittsburgh Penguins was a good news story for the National Hockey League, a dramatic about face. The pages of this publication have long-held the belief following the failed casino bid from Isle of Capri for the only casino license awarded by the Pennsylvania Gaming Control Board awarded to the City of Pittsburgh the Penguins would be on the move to a new city after the current NHL season.

However, except for what was an uneventful visit to Kansas City in early January, the Penguins seemingly have focused all of their attention on securing an agreement to build a state-of-the-art arena in Pittsburgh. Over the last few days Pennsylvania Governor Ed Rendell suggested in no uncertain terms the two sides where very close to finalizing their agreement. At the same time, Rendell was the person doing all the talking. As was stated in Monday’s Insider it did seem strange the City of Pittsburgh and the Penguins weren’t adding to Rendell’s sense of optimism. Yet it did appear the Penguins would be staying in Pittsburgh and for sports version of the ugly step child (better known as the NHL) that was good news. However, all of that changed late Monday afternoon when Mario Lemieux and the Pittsburgh Penguins served noticed they had reached an impasse and were ready to play elsewhere next year.

The Penguins refusing to make the letter public (offering a terse no comment to any media requesting a copy of the letter) didn’t stop The Pittsburgh Tribune Review from obtaining a copy. The letter suggests the Penguins have agreed to pay $3.6 million a year in rent, plus another $400,000 a year in capital expenses, for an annual contribution of $4 million, for a new arena. That’s $120 million over the 30 years of the agreement. As well, the Penguins have agreed to cover all costs overruns and have agreed to pay $500,000 for a parking garage to be built as part of the arena complex.

"Unfortunately, we still don't have a deal and are faced with mounting uncertainty that an agreement can be reached in a time frame that is realistic for our organization," the letter states. "Therefore, we have no choice but to declare an impasse and to notify NHL Commissioner Gary Bettman that we will aggressively explore relocation."

What the impasse is over remains between the two parties. On the surface the deal “appears” to offer all of the benefits to the Penguins and little if any of the risk. The Penguins have reportedly agreed to cover all cost overruns. The projected costs of the arena have been pegged at $290 million. The Penguins (assuming the team retains all of the revenues from the facility) will generate between $120 million and $150 million for the naming rights. That would mean the Penguins contribution to build the building will be covered by the naming rights, the Penguins are getting the keys to a brand new building and not spending any of their money to get that building.

"Our good faith efforts have not produced a deal, however, and have only added more anxiety to what we thought at best was a risky proposition for us moving forward."

Two factors according to the Pittsburgh Post Gazette brought this to the boiling point in the past few days. Public officials refused to share interest rate information with the team regarding the state's financial assumptions and the two losing Pittsburgh casino license bidders (one being the Isle of Capri) are moving forward with an appeal of the Pennsylvania Gaming Control Board’s Pittsburgh decision.

"After reading the letter, it sounds like they're frustrated, but they didn't close it all down," Allegheny County Chief Executive Dan Onorato told The Pittsburgh Tribune Review, suggesting he believes there is still room to negotiate. "We'll keep moving to get this done. My goal is to get this done. I thought it was close. I thought we were moving in the right the direction."

The Kansas City Star reported that William “Boots” Del Biaggio III, a San Jose, Cal., businessman who has an option to own whichever NHL team plays at the Sprint Center, declined comment and referred questions to NHL commissioner Gary Bettman.

In a statement to The Star, Bettman said: “We are aware of the developments and have been in touch with the parties. Any further comment, at this point, would not be "Any further comment, at this point, would not be constructive."

Before anyone in Kansas City starts getting too excited, the first order of business is for the Penguins to make sure the offer that was made by the Anschutz Entertainment Group, which will manage the new Kansas City, for the $276 million Sprint Center that’s scheduled to open in October still stands. The framework of that agreement suggested the Penguins would play rent-free in the new building and would share in all arena revenues with no up-front costs.

At least on the surface it would appear the better business choice is for the Penguins to take the deal that is being offered in Kansas City. Mario Lemieux has an opportunity to not only move the team and not pay rent in that facility, but he also has a potential buyer in Kansas City. If he stays in Pittsburgh he doesn’t have a buyer (he might be able to find one but having one and finding one are two very different business decisions) and he’s reached an impasse with his “proposed” arena deal in Pittsburgh. An Associated Press report indicated Del Biaggio III is ready to offer Mario at least $200 million for the Penguins.

Late Monday Houston might be jumping back into the mix according to a report in The Houston Chronicle.

"First I've heard of it," said Houston Sports Authority board member Billy Burge, who's often privy to such information in advance. "I'll have to make some phone calls to see what I can find out."

There was speculation in Pittsburgh that the team was only resorting again to posturing, re-employing a tactic similar to when it allowed the news to be leaked in late January, around the time of the NHL All-Star Game in Dallas, that a visit to Houston by the team's executives to check out the Toyota Center was imminent. Lemieux and the Penguins cancelled that so-called planned Houston visit. Les Alexander the owner of the NBA Houston Rockets told the Chronicle last year he had met with NHL Commissioner Gary Bettman in June 2005 about his interest in bringing an NHL team to Houston. Given that Alexander has shown any real interest since, it’s tough to believe he’s a serious player if Houston hopes are based on his lukewarm interest.

The news the Penguins are near deaths door in the city of Pittsburgh comes on the heals of a report in Monday’s Pittsburgh Post Gazette that offered at long last proof the Penguins have captured the attention of Pittsburgh sports fans.

Fourteen of the past 16 home games have been sellouts, bringing the total to 21 of 32 home dates after the 4-3 shootout victory against the Philadelphia Flyers Sunday. A huge influx of single-game buyers means that only one remaining home game -- Buffalo April 3 -- had more than 1,000 tickets available as of early Sunday, and those aren't expected to last long. Should those go, it would give the Penguins 30 sellouts, tying the number from the 1992-93 team that won the President's Trophy for compiling the most points for victories and ties. The only three seasons with more sellouts were the 32 in 1991-92, the second Stanley Cup year, and the 34 apiece in 1988-89 and 1989-90.

More than half their season-ticket holders, in the four weeks since plans became available to them, have purchased 12-game playoff bundles ... without a single post-season spot clinched yet.

"It's a great time for Pittsburgh hockey," Ray Shero, the Penguins' executive vice president and general manager, said amid a busy day of trading last Tuesday.

"If you didn't have that kind of support, you wouldn't be talking about getting a new arena around here," said Penguins winger Ryan Malone, who grew up in Upper St. Clair.

"It has been a frenzy," added Tom McMillan (the exec refusing to deal with the media Monday on arena related issues), the team's vice president for communications. "It's been fun. After the last four years ... it's very nice.

"We've had some unique things here: Mario's comeback. Winning the lottery with Sidney ... But this is building on not just one single event. This is building a foundation on an exciting young team that's bursting at the seams with potential. If you notice the Penguins' sellout records, they weren't the Cup years, they were before the Cup years. [Paul] Coffey came in 1987, and you could see something build, an anticipation. You can see that anticipation building now."

One of keys to the Penguins success this year has been their aggressive pricing of rush tickets, tickets that otherwise would have gone unsold to games at the Melon Arena. While it appears a pretty safe bet the Penguins are going to sellout their remaining home games earlier in the season the Penguins decided any tickets that weren’t sold on the day of each game would be sold at discounted prices to students – a bid to not only fill their remaining ticket inventory, but to build their future fan base.

"By no means do you take it for granted," said Mr. McMillan from the front office in The Pittsburgh Post Gazette report. "We're a team that's been on both sides of the spectrum. We know what it's like to have tremendous ticket demand and frenzied interest; but we also know about struggling and being in last place and trying to get people into the building. This motivates you to work harder."

Yet amid all of the so-called demand in Pittsburgh, it all appears for naught. McMillan told the Post Gazette in the last two months alone the Penguins have moved more than 5,000 T-Shirts at their team shop in the Melon Arena. It now appears the team is about to start a fire sale – half off and collect your Penguins merchandise before the team leaves town in a few months. So much hope, so much passion, so much joy – oops we’re not getting quite enough so we’ll go across the street (in this case Kansas City) for a better deal. Aren’t sports a wonderful business?

For SportsBusinessNews.com this is Howard Bloom. Sources cited and used in this Insider Report: The Pittsburgh Post Gazette and the Kansas City Star

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