Question About the Pens and Plan B

[Mad City Mike]

Okay, we all agree that the IOC plan seems to be the best for the city. Obviously Governor Pigbreath disagrees. That is the sad reality. So, given that reality, why aren't the Pens willing to look at a Plan B like Pigbreath wants? If they truly want to stay in Pittsburgh, then they need to explore this option, rather than putting all their eggs in the IOC basket. Why can't they work with the state on a plan that would only happen if IOC doesn't get the slots license? If they truly want to stay in Pittsburgh, then should have a Plan B, C...Z in mind in the likely event that the slots license is fixed. That seems like smart business to me. Or maybe they only want to stay if the slots license works out, otherwise the franchise is worth more to a buyer if it relocates???

[BurghThing]

The way I understand it, contractually they cannot talk to anyone now that they have signed on with IoC. Gov Pigbreath can spout all he wants about wanting to talk to the Pens but where the **** has he been for the last 7 years when the Pens wanted to talk to somebody but nobody gave 2 ****s?

[MWB]

Right, contractually they are not allowed to work talk about another plan.

This slots plan is their plan B,C,D....Z. They have been trying over the years to find a way for a new arena. They didn't just sit around and do nothing for 6 years then have the slots pop up and say, "Gee, this might work..... I guess we should do something now." Their attempts in the past have been in vain because of many factors. The only time Rendell said anything about getting a new arena was after the Pens had this agreement. Where was he before now?

[Stoosh]

http://www.post-gazette.com/pg/06032/647434.stm

http://www.post-gazette.com/pg/06027/645224.stm


With the arena being the lynchpin to the Isle of Capri's bid, my guess is that IoC put this in as a safeguard to the integrity of their plan. If a Plan B is available, it could damage their chances of getting the license. I can understand IoC covering their own interests here. But I was wondering the same thing myself...as they say, luck favors the prepared, and while I agree with the people who say the IoC plan is the best plan and there's no reason for a Plan B, you never know when you leave it to the decisions of a select few, especially when the select few can be influenced.

I'm more curious about this...last night, Rendell was a guest on both Stan Savran's show (Fox Sports Radio 970) and Junker & Crow (ESPN Radio 1250). In each interview, he stated almost defiantly that the arena as proposed by IoC is not a "free arena", as many supporters have claimed. Rendell said that the revenues for the arena will not go back into the city, and seemed to allude that they will go to Isle of Capri or the Pens.

When Savran responded by saying that IoC and the Pens would turn the lease on the arena over the Pittsburgh Sports & Exhibition Authority, Rendell did not respond. He only maintained his assertion that the arena under the IoC's plan would not generate the money for the city that a publicly-funded arena would.

Junker and Crow also asked him directly why Lemieux has been told over the years from local officials that no public money was available for an arena. Rendell simply said that he was not privy to those conversations since they occurred with local officials. I see his point, but that's a cheap cop-out.

I wish they would've asked him about his own statement about a year ago that no state money was available, either, and his subsequent recommendation that the Pens pursue the slots license.

[schreibdog]

Okay, we all agree that the IOC plan seems to be the best for the city. Obviously Governor Pigbreath disagrees. That is the sad reality. So, given that reality, why aren't the Pens willing to look at a Plan B like Pigbreath wants?

Could it be that the Pens don't want to reveal another option to satisfy Rendell? If they come up with a plan B, Rendell can give the license to another applicant knowing that the Pens have another plan. Without having a Plan B, I think this places more pressure on Rendell and his crew to award the slots to IoC

[Draftnik]

The IoC and the Pens will give ownership of the proposed arena to the SEA. The SEA owns the Mellon Arena,. PNC Park, and Heinz Field. This is done for tax reasons. If a private FOR PROFIT entity such as the Pens, Steelers, etc owned their own venue they would be subject to millions of dollars annually in property taxes.

The Pens are proposing the same deal the Steelers and Pirates get from the SEA. They will pay the SEA a flat fee to lease the arena. The Pens in turn will pay all operational costs for the arena, but also will control all revenue streams from the arena, so they will be able to make $$$ off all 200+ annual arena events.

[dboss]

The IoC and the Pens will give ownership of the proposed arena to the SEA. The SEA owns the Mellon Arena,. PNC Park, and Heinz Field. This is done for tax reasons. If a private FOR PROFIT entity such as the Pens, Steelers, etc owned their own venue they would be subject to millions of dollars annually in property taxes.

The Pens are proposing the same deal the Steelers and Pirates get from the SEA. They will pay the SEA a flat fee to lease the arena. The Pens in turn will pay all operational costs for the arena, but also will control all revenue streams from the arena, so they will be able to make $$$ off all 200+ annual arena events.

Exactly!! Its the SAME deal the Steelers and Pirates got. Except that this arena would not have been paid for with ANY tax $$$.

[Jerez]

last night, Rendell ... stated almost defiantly that the arena as proposed by IoC is not a "free arena", as many supporters have claimed. Rendell said that the revenues for the arena will not go back into the city, and seemed to allude that they will go to Isle of Capri or the Pens.

When Savran responded by saying that IoC and the Pens would turn the lease on the arena over the Pittsburgh Sports & Exhibition Authority, Rendell did not respond. He only maintained his assertion that the arena under the IoC's plan would not generate the money for the city that a publicly-funded arena would. [emphasis added]

Junker and Crow also asked him directly why Lemieux has been told over the years from local officials that no public money was available for an arena. Rendell simply said that he was not privy to those conversations since they occurred with local officials. I see his point, but that's a cheap cop-out.

I wish they would've asked him about his own statement about a year ago that no state money was available, either, and his subsequent recommendation that the Pens pursue the slots license.

Someone needs to really call Rendell out on the obvious duplicity here. He's doing the typical swaggering politico thing -- he just needs a big old cigar hanging out of the side of his mouth, belly stuck out a mile -- and stating everything he wants people to believe is true as if it's just plain fact, when in truth it's completely baseless. And he thinks if he states it with authority people will believe him. Unfortunately, many of the 90% will believe him -- unless someone else is out there with the facts showing he's not being honest!

Oh, I wish I still lived in Pennsylvania. I'd be more than happy to write a million letters to the editor, call in to the radio shows, write letters to all the politicians, go to rallies and hand out flyers with the FACTS on them. But no one will listen to me now because I'm no longer a constituent of any kind.

[MWB]

The Pens are proposing the same deal the Steelers and Pirates get from the SEA. They will pay the SEA a flat fee to lease the arena. The Pens in turn will pay all operational costs for the arena, but also will control all revenue streams from the arena, so they will be able to make $$$ off all 200+ annual arena events.

Are you sure about this? I knew they were turning over the arena to SEA, but did not think they were controlling the revenue streams coming out of it. Would they get a percentage or all?

[dboss]

The Pens are proposing the same deal the Steelers and Pirates get from the SEA. They will pay the SEA a flat fee to lease the arena. The Pens in turn will pay all operational costs for the arena, but also will control all revenue streams from the arena, so they will be able to make $$$ off all 200+ annual arena events.

Are you sure about this? I knew they were turning over the arena to SEA, but did not think they were controlling the revenue streams coming out of it. Would they get a percentage or all?

Per the PG:
The Penguins will take no profits from the casino or have any equity role in its ownership. The team would, however, operate and keep the revenue from the new arena, in an arrangement similar to one the Pirates and Steelers have at PNC Park and Heinz Field. Like the stadiums, the arena would be owned by the city-Allegheny County Sports & Exhibition Authority.

http://www.post-gazette.com/pg/05356/626343.stm

[Jerez]

Per the PG:
The Penguins will take no profits from the casino or have any equity role in its ownership. The team would, however, operate and keep the revenue from the new arena, in an arrangement similar to one the Pirates and Steelers have at PNC Park and Heinz Field. Like the stadiums, the arena would be owned by the city-Allegheny County Sports & Exhibition Authority.

http://www.post-gazette.com/pg/05356/626343.stm

And let's not forget Rendell said the city would get more money from Station Square. Why? Because the slots parlor would be bigger (but likely same number of slot machines)? Because all those rich young Pittsburghers will be clamoring to live in those "luxury condominiums"? Yeah, right.

Correct me if I'm wrong, but won't the city be getting revenue from a new arena? Not only will the Penguins be paying a lease (that's revenue, isn't it?), but the city will be getting entertainment taxes, parking taxes, people coming in to stay in hotels, eat in restaurants, etc etc etc. And what's a true cost:benefit analysis without taking into account the lost revenue from the Penguins leaving and a rapidly decaying arena bringing in fewer and fewer events?

Yikes, somebody needs an economist to show people the big picture...

[randy]

Jerez:

Isnt the reference "old scratch", from, um Shakespeare?

Hint hint wink wink

[Draftnik]

The Pens will make their pitch in due time. Rendell said last night the license probably won't be awarded until November at the earliest. I think the 1 year clock still hasn't started yet on the license applications being deemed complete, but I suspect it will start soon since a couple of proposals were rejected yesterday.

Also, the valuation of the Pens will be higher in Pittsburgh that any other city. This is why Lemieux, Burkle, etc will be MOTIVATED to sell the Pens to buyers wanting to keep them in Pittsburgh. They will make a BIGGER PROFIT on selling the Pens to buyers keeping them in Pittsburgh.

The valuation of the Pens will be based on their future revenue streams. If the Pens get an arena deal where they control all revenue streams, not just hockey streams plus a $10M local RSN contract they will be worth much more playing here than playing in a place like KC where AEG will control revenue streams to make back their $50M plus the RSN deal would likely be less than $5M. The Pens will be worth much more in Pittsburgh than a place like Houston where they will not get to run the Toyota Center and their RSN deal would suck.

Even if the IoC deal does not go through the Pens current and/or prospective owners would be very motivated to get a deal like the Steelers and Pirates got by doing some sort of Plan B with state and local leaders. There is no logical reason for the Pens to quickly sell and move out of town if the IoC deal does not go through. They could be leaving a big pile of $$$ on the table by doing that.

[MWB]

I think for the current ownership it comes down to how much haggling and hassling do they want to deal with for a new arena. The more time that goes by without an arena deal, the more time there is that they lose money in Mellon Arena. It may come to a point where the sell to the highest bidder no matter where the team goes. I don't think they just want to sit and wait long.

Take this scenario. You're the current Pens' ownership. Say someone from KC has a deal on the table for you, ready to go once the slots isn't awarded to IOC. Do you take the deal or do you sit and wait and hope that another plan will be developed? Do you waste more time and energy in the process? If it were me I'd be ready to wash my hands of the whole mess.

Maybe someone will come along to buy the team and keep them here. But I really doubt that will happen unless an arena is already in place. An up to date arena with a poor agreement is better than an old arena with hopes of a better deal.

[Draftnik]

I think for the current ownership it comes down to how much haggling and hassling do they want to deal with for a new arena. The more time that goes by without an arena deal, the more time there is that they lose money in Mellon Arena. It may come to a point where the sell to the highest bidder no matter where the team goes. I don't think they just want to sit and wait long.

Take this scenario. You're the current Pens' ownership. Say someone from KC has a deal on the table for you, ready to go once the slots isn't awarded to IOC. Do you take the deal or do you sit and wait and hope that another plan will be developed? Do you waste more time and energy in the process? If it were me I'd be ready to wash my hands of the whole mess.

Maybe someone will come along to buy the team and keep them here. But I really doubt that will happen unless an arena is already in place. An up to date arena with a poor agreement is better than an old arena with hopes of a better deal.

I'm not sure what your background is in Finance, but the sale price of the Pens will be based on projected revenue streams over long term period. That is why most arena leases typically are for 25/30 year periods. The rate of return on an investment in the Pens will be calculated the same way. That is why the price will be higher keeping in in Pittsburgh with a new arena. Even if the Lemieux group wants to "dump" the team in order to cut losses, buyers will be motivated to buy the team and keep it here because they will make much more $$$ running a new arena with the Pens than they will getting screwed by AEG in KC. AEG already owns the LA Kings. They can't buy the Pens. There is no logical reason to think some group is going to come along and buy the Pens and move them to KC so they can prop up AEG's white elephant while leavings tens if not hundreds of millions of dollars on the table in arena and RSN $$$ over a 30 year period.

This scenario isn't like some person haggling over a few thousand dollars on selling a house. Emotion is not part of the equation. All parties are advised/represented by investment banking firms that logically calculate values and make decisions based on revenue/profit streams. There is no impulse buying and selling.

[MWB]

First, my finance in background is zero.

Second, you missed my point. There is no guarantee of a new arena so I find it unlikely that somone will buy just hoping to get one. Or just waiting to get one. That's why I said that someone won't buy the team without an arena plan set in stone. It comes down to how long this arena plan takes to develop.

[Bowser]

Draftnik - I believe you are being overly optimistic about the future of the franchise in Pittsburgh. Tell me, where the city, county, and state can come up with the public funds to pay for an arena?

I've heard it mentioned a "Plan B" would be 60% public money. That breaks down to $180 million from a dying region with a dead job market, decaying roads, and corrupt education system.

It would be safe to say the $90 million line item from the state would be released in such a plan. Where is the city, county and state coming up with ANOTHER $90 million?

This state is taxed enough. If Rendell, O'Connor, and Onorato want to have a political future, they would be wise to avoid hiking taxes and creating new ones.

Now, where is the $120 million coming via the Pens ownership group?

Arena naming rights ($50 million), seat licensing, and some unicorn?

Plan B is just a means and way for ROC to play the political game and build on their agenda to raise taxes for the middle class and cut taxes for the rich.

[Scott]

The way I understand it, contractually they cannot talk to anyone now that they have signed on with IoC. Gov Pigbreath can spout all he wants about wanting to talk to the Pens but where the **** has he been for the last 7 years when the Pens wanted to talk to somebody but nobody gave 2 ****s?

The pens can in fact talk to others about a plan b. They just cant sign anything binding.
thw way things are looking, they better be working on a plan b if in fact they really want to keep the team here.

[Draftnik]

First, my finance in background is zero.

Second, you missed my point. There is no guarantee of a new arena so I find it unlikely that somone will buy just hoping to get one. Or just waiting to get one. That's why I said that someone won't buy the team without an arena plan set in stone. It comes down to how long this arena plan takes to develop.

Nobody would buy the Pens and wait years hoping to get a new arena, but on the odd chance the Pens are sold before the slots license is awarded the buyers would not move them the day after losing the bid. The valuation of the Pens will be incredibly hard to set until the IoC saga is settled. I don't know if you follow the papers or not, but Boots had a very telling comment last week about the Pens allegedly setting a very high price on the value of the franchise.

If IoC doesn't get the license, the Pens won't be sold the next day. Deals like this take months to structure and close. If Rendell opens up the State purse strings as he has intimated an arena Plan B deal could come together quite quickly. The gaming commission could require the Station Square group to donate some proceeds to a new arena as a condition of the license. The RAD $$$ currently going to Mellon Arena could be renewed to go to the new arena. Add naming rights and a deal is in place.

This is a very high stakes game of poker. The only card (leverage) the Pens have to play is the threat of relocation so they will play that to the hilt. Station Square already said they are open to talking about $$$ for a new arena, but as in poker there is no reason for them to show their hand early and make their best offer. Bettman and the NHL also want to maximize the sale price of the Pens because that is Bettman's #1 objective (maximum franchise values) as NHL commissioner, so they will definitely exhaust every available means and amount of time to keep the Pens in Pittsburgh in a new arena because that will result in the highest sale price.

We can agree to disagree on this. Scaring the public with worst case scenarios is the only card the Pens have to play, but in terms of the objectives of Pens ownership and the NHL it is not an attractive option.

[MWB]

The pens can in fact talk to others about a plan b. They just cant sign anything binding.
thw way things are looking, they better be working on a plan b if in fact they really want to keep the team here.

[/quote]


Seems to be more than that, according to the article posted above:
"Penguins consultant David Morehouse confirmed that the agreement with Isle of Capri prevents the team from discussing anything but the slot machine plan."

[Draftnik]

Draftnik - I believe you are being overly optimistic about the future of the franchise in Pittsburgh. Tell me, where the city, county, and state can come up with the public funds to pay for an arena?

I've heard it mentioned a "Plan B" would be 60% public money. That breaks down to $180 million from a dying region with a dead job market, decaying roads, and corrupt education system.

It would be safe to say the $90 million line item from the state would be released in such a plan. Where is the city, county and state coming up with ANOTHER $90 million?

This state is taxed enough. If Rendell, O'Connor, and Onorato want to have a political future, they would be wise to avoid hiking taxes and creating new ones.

Now, where is the $120 million coming via the Pens ownership group?

Arena naming rights ($50 million), seat licensing, and some unicorn?

Plan B is just a means and way for ROC to play the political game and build on their agenda to raise taxes for the middle class and cut taxes for the rich.

$90M state
$100M slots from Station Square
$50M RAD
$50M naming rights

The slots $$ and RAD $$ would be amortized over 25/30 years so it isn't that much. The $$$ would have to be discounted for future value, bond interest, etc so it isn't exact, but the State $90M would essentially put the structure for a deal in place.

Like I said above, we can agree to disagree on this. The Pens have to raise people's fears to accomplish their objectives, but the Pens moving is an extremely unattractive and less profitable option for all parties involved.

[Bowser]

Draftnik - I'm not arguing the option is much better for an owner to keep the Pens here, if they get the arena. I guess we'll agree to disagree about the city, county and state coming up with $180 million and where the Pens come up with $120 million....

[Draftnik]

Draftnik - I'm not arguing the option is much better for an owner to keep the Pens here, if they get the arena. I guess we'll agree to disagree about the city, county and state coming up with $180 million and where the Pens come up with $120 million....

The RAD $$$ is already on the books. It will expire, but it is not improbable to think it will be renewed. Like I said above, this is poker. There is no reason for RAD City/County to put their cards on the table until the final call. Station Square already is on record as saying they are amenable to discussing $$$ for a new arena. They are playing poker and obviously are not going to lead with their best offer until the final call. These scenarios are not far fetched or ideas I hatched.

[dboss]

The RAD $$$ is already on the books. It will expire, but it is not improbable to think it will be renewed. Like I said above, this is poker. There is no reason for RAD City/County to put their cards on the table until the final call. Station Square already is on record as saying they are amenable to discussing $$$ for a new arena. They are playing poker and obviously are not going to lead with their best offer until the final call. These scenarios are not far fetched or ideas I hatched.

Is the gaming board even allowed to negotiate with applicants? If Forest City receives the license, they would not have any incentive to just offer money for a new casino out of sheer kindness.

[Bowser]

The issue or problem for Plan B and getting behind the scenes discussion is the Pens making the dumb decision to sign an agreement not to negotiate for another means for an arena.