The Malik Report
by George Malik on 12/26/12 at 01:59 AM ET
When Ilitch Holdings and Olympia Entertainment chose not to renew Joe Louis Arena's lease with the City of Detroit in 2010, they did so in order to allow Cobo Hall to revert back to the City's management, and that's worked out very well for the City as Cobo's renovation will allow the North American International Auto Show to grow over the next few years.
In return, in theory, anyway, any outstanding debts toward the City, Wayne County or any other potential assessor were going to be revisited and renegotiated once Olympia both secured some City/county or State subsitization toward building a follow-on rink (which has happened) and said plans had been firmed up (which hasn't happened yet), thus allowing Olympia and the City of Detroit to negotiate terms regarding the Ilitches' lease on Joe Louis Arena until their follow-on rink's completed at some point in the future.
As the City of Detroit is hovering particularly precariously close over out-and-out bankruptcy, and as the Ilitches did recently receive state approval for some subsidization of their as-yet-unfinished plans to build the Red Wings' next rink, taxes and any other monies which the Wings' parent organization may or may not owe the City have taken center stage, and today, the Detroit News's Christine MacDonald suggests that the Wings may owe the City as much as $70 million via a cut of their cable broadcasting revenues, though the dean of sports economists, Andrew Zimbalist, believes that the Wings owe the city more around the lines of $10 million for a tab that the city never attempted to collect upon to begin with--until now:
Mayor Dave Bing pledged last week to get tough on the city's debtors, but he and other mayors have never collected on tens of millions of dollars that could be owed by the owners of the Detroit Red Wings.
A little-known provision in Olympia Entertainment's lease of city-owned Joe Louis Arena and Cobo Arena promises Detroit a 25 percent share of cable television rights for live events. That's been the deal since 1980, but Detroit hasn't been able to collect a dime, according to city documents obtained by The Detroit News. One rough estimate from finance staffers last year estimated the city is owed $70 million, but a national sports economist cautioned it's likely much lower.
The revelation comes as Olympia — led by Red Wings and Detroit Tigers owner Mike Ilitch — wants to use up to $12.8 million a year in tax dollars to help fund a new downtown arena. Critics say it's time to pay up.
"The Ilitches are a multibillion-dollar operation, and they are inside a city that is sinking," said City Councilman Kwame Kenyatta. "(Mike Ilitch), I am sure, knows about this and should be forthcoming to help the city. Help us by writing a check, not by negotiating a new lease."
The debt is among many bills Olympia could owe the city.
Since its lease expired in 2010, the company hasn't paid millions of dollars for items such as rent, concessions and other revenue and property taxes, according to city documents obtained by The News. In 2011, officials claimed the unpaid debt was $6 million that year, according to one city document.
But before everyone and their mother declares Olympia and the Ilitches to be corporate "scofflaws" (for the record, the line that the Detroit Economic Growth Corporation's new subsidy for the follow-on rink would be taking money from "schoolchildren" was inflammatory as it was inaccurate), it should be noted that, just as was the case regarding any potential property taxes owed to the City,
It's unclear why the city failed to get the money, but political consultant Eric Foster blamed incompetence.By the time the cable industry exploded in the late 1980s, the provision may have been overlooked because of turnover at City Hall, he said.
"It gets into a black hole never to be heard from again," Foster said. "If the city doesn't send you a bill, why are you going to pay it?"
The article continues, and it's more than worth your time not only because MacDonald goes into superb detail outlining what the Wings may or may not owe the City, but also because she captures the atmosphere surrounding the City's bankruptcy perfectly:
Put simply, while the City may be owed significant amounts of money by more than a few of its corporate partners and anchor tenants, the combination of previous administrative neglect, the statuses of the Wings' lease for the Joe and its outstanding debts as "to be determined" after giving Cobo back to the City...
And evidence of rampant and systematic corruption at every level of government (the frickin' library just got busted by the feds for entering into ridiculously expensive contracts that ended up lining its administrator and business partner's pockets) all seem to indicate that the city has more to worry about than simply going over every business agreement with a fine-toothed comb to come to the Ilitches or other companies, demanding that debts it didn't know existed must now be paid in full for the sake of delaying an all but inevitable state takeover.
That doesn't make the monies the Ilitches owe the City any less valid, but it's not as simple as telling a tenant that's been operating a facility under a gentleman's agreement for the past three years that the bills that would be owed under the previous agreement are now not only valid, but also immediately payable. That's not how business agreements tend to work, and attempting to collect on debts via expose-via-newspaper accounting doesn't take away from the fact that the City's finances are a mess.
"Well, under lease parameter X, sub-paragraph Y, we should be entitled to Z amount of dollars today!" makes for a great headline, but the city's insistence that the State owes them almost a hundred million dollars hasn't changed the fact that corporate and private donations are the reason the fire department has sufficient amounts of paper products and mattresses that aren't ten years old.
There's no magic wand to wave here, and the reality is that the Mayor's office and City Council have engaged in professional-level bickering, ego wars and ridiculous delay tactics while the city's residents and the people who are supposed to provide basic services for said residents have been suffering. Could'ves and should'ves don't solve the larger problems plaguging the City, nor do they minimize the dire nature of Detroit's economic circumstances. What the Ilitches may or may not owe the city won't change the city's financial realities.
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The Malik Report is a destination for all things Red Wings-related. I offer biased, perhaps unprofessional-at-times and verbose coverage of my favorite team, their prospects and developmental affiliates. I've joined the Kukla's Korner family with five years of blogging under my belt, and I hope you'll find almost everything you need to follow your Red Wings at a place where all opinions are created equal and we're all friends, talking about hockey and the team we love to follow.