The Malik Report
by George Malik on 03/31/14 at 11:02 AM ET
Earlier this morning, the Detroit Free Press reported that Detroit's City Council wasn't thrilled with the terms of Joe Louis Arena's new lease--which had to be approved to complete the transfer of 39 blocks of land to the Downtown Development Authority, paving the way for the follow-on rink--but WDIV reports that the City Council approved a last-second vote to approve the new lease and the land transfer:
The Detroit City Council has voted to go ahead with a new lease for Joe Louis Arena, which is slated to be replaced as the venue for the National Hockey League's Detroit Red Wings.
The proposed lease with Olympia Entertainment would expire on June 30, 2015. It would be retroactive to 2010 -- when the old lease expired.
Olympia Entertainment and the Red Wings are part of Mike Ilitch's stable of companies.
The City Council has already approved the transfer of land just north of downtown and financing for a new hockey arena that could be built as early as 2016.
Update: Here's more from the Detroit News's Darren A. Nichols:
Councilwoman Saunteel Jenkins said the deal could have been better as she was joined by council members James Tate, Andre Spivey, George Cushingberry and Gabe Leland in approving the deal.
“I do think it could have been better in a bankrupt city,” Jenkins said. “We need every dollar we can as fast as we can get it.”
Some council members were concerned about a part of the deal under which the city would receive $5.17 million from the owners of the Detroit Red Wings to put to rest unpaid cable rights revenues that were estimated to be as high as $50 million to $80 million. The council’s policy staff previously noted the city was entitled to 25 percent of gross profits — in excess of $750,000 — received from the sale of television rights for events held live in either Joe Louis or Cobo Arena since 1980.
Tate said he still had issues with the cable fees, a non-compete clause and the reimbursement for police services.
“The big issue is the cable TV revenue piece. That is the question that we still don't know what the number is.”
...Last Tuesday, a state economic agency approved funding to demolish the arena once the Detroit Red Wings move to a new facility in the Cass Corridor.
The board of the Michigan Strategic Fund voted to tear down the riverfront arena at the estimated cost of up to $6 million, though $10 million is available in the fund. The money would be used solely to tear down the city-owned arena. The state contends the city can easily pay the state back with tax revenues from the redeveloped site.
Update #2: Here's more from the Free Press's Joe Guillen:
The five-year lease, which passed by a 5-4 vote, includes a controversial settlement payment of $5.2 million from the team to resolve potential litigation over cable TV money the city is owed. In the past, it was estimated the city could be owed between $50 million and $80 million.
A lawyer for Jones Day, however, told the council today that the estimate was exaggerated, and he questioned the city’s chances of winning a lawsuit to recover the cable TV money. The Jones Day law firm, hired to represent the city in its ongoing bankruptcy case, represented the city in lease negotiations.
Councilwoman Mary Sheffield, who voted against the lease, said Detroit is not getting enough out of the deal, considering it is in the midst of the country’s largest ever municipal bankruptcy.
“We are bankrupt,” she said after today’s meeting. “We are continually cutting from the working class people when there could be a $50 million to $80 million revenue,” she said.
Council President Brenda Jones, and members Raquel Castaneda-Lopez and Scott Benson also voted against the lease.
Castaneda-Lopez requested the elimination of non-compete clause in the lease that prohibited the city from using Joe Louis for ticketed events after the Wings leave. But a representative from Ilitch Holdings at the meeting rebuffed the request.
Update #3: Here's even more from MLive's Eric Lacy:
Council also expressed concern over an apparent revenue shortfall from the new lease itself. David Whitaker, the city’s director of research and analysis, said a report by his office found that there is about $3 million gap in the agreed-upon-lease compared with the previous one.
Some councilmembers were worried about the demolition of the Joe Louis Arena and the fact that they were signing a non-compete clause, meaning the city can't use the Joe Louis for anything once Olympia vacates it.
The board of the Michigan Strategic Fund agreed last Tuesday to give the city of Detroit $6 million in upfront funds to help with the demolition of the Joe Louis Arena. The city would be obligated to repay the state the money through tax increment financing (TIF) on a presumed new development at the riverfront site.
Councilman Gabe Leland said he wondered what would happen if a deal for the property would fall through, leaving the bankrupt city with an empty arena and no legal use for it.
Brian Holdwick, executive vice president of the Detroit Economic Growth Corporation, said that it would be extremely unlikely for the city not to get the upfront funds needed for demolition from the state. In regards to paying the state back with TIF money, he argued that the riverfront property is a “premier site” and could be tied into ongoing developments and conventions at the nearby Cobo Center.
In the end, Council agreed to the lease, with Councilman James Tate saying, “The proposed lease is not the worst thing I’ve seen come across this table.”
Meanwhile, Holdwich said the new arena should be built in time for the 2016 NHL season.
The 650,000-square-foot arena would span four blocks along Woodward Avenue from Sproat to Henry Street, and west to Park Avenue. It would be part of a 45-block entertainment district roughly bordered by Charlotte Street to the north, Grand River to the west, Grand Circus Park to the south and Woodward Avenue to east.
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