Does Forbes’ Case for the Islanders Staying Make Sense?

Kevin Schultz, Islanders Point Blank:

One of the arguments that’s cropped up since Bruce Ratner won the RFP on the Coliseum has been whether or not this paves the way for the Islanders to stay in Nassau County somehow, someway.

Islanders Brooklyn HockeyRatner and Wang are business partners in Brooklyn, Mangano brought in Ratner to advise him on the Coliseum and ultimately chose him to re-imagine it. Surely, there’s got to be a way for all three to parlay this into the Islanders staying, right?

Well, not so fast. On Twitter, Chris Botta says the chances of that happening were long gone adding that Ratner didn’t lure the Islanders to Brooklyn only to let them go back to the suburbs away from the urban transportation hubs. Newsday’s Randi Marshall even talked to Ratner himself, who said that the Islanders will not move back to Nassau citing the remodeled venue as too small.

But there are still folks who believe the Islanders now have a path back. One of them is Tom Van Riper from Forbes, a place that should know a thing or two about business. Van Riper wrote on Friday that now that Ratner’s got the Coliseum, surely there’s a way to make the Islanders stick. That piece was given further credence — without additional substance mind you — by being reblogged at Puck Daddy.

So, can the Islanders stay at the Coliseum now that Ratner’s won the bid and seems to have a good relationship with both the County Executive Ed Mangano (up for reelection this year) and Islanders owner Charles Wang?

To believe that, we would have to overlook a few key points and also the basic logic of sports business in 2013.

First off, a few obvious points that we would have to suspend belief on:

  1. The Ratner Plan for the Coliseum offers the AHL’s Sound Tigers as a full-time tenant and six Islander games per year at the remodeled arena. Obviously, Ratner hoped that offering at least a small part of the Islanders would help his cause. So, if that was his plan, why wouldn’t he just promise to bring back 82-games of Islanders? Surely it’d be an easy choice for Mangano to go with the plan that featured a full 82-game slate of the Islanders, a professional sports team, over the MSG plan, which did not. So why didn’t Ratner offer up the Islanders on a silver platter initially?
  2. The Islanders have an “ironclad” 25-year lease with the Barclays Center according to Charles Wang, Islanders owner, at the press conference announcing the move to Brooklyn.
  3. Bruce Ratner plans to spend $229 million on refurbishing the area, $89 million of which will go directly to the Coliseum (more on this in a moment). The rest will be spent on the surrounding area, for non-arena forms of entertainment. By comparison, Ratner’s company is funding a $4.9 billion project in Brooklyn with an estimated $1 billion spent on the arena itself. Ratner obviously sees the Islanders as a money maker, so wouldn’t he want them making money for him in the $1 billion arena that is his crown jewl instead of the one costing a fraction of that price?

So, with all of those caveats ignored to enrich our Islanders Return Home fantasy, lets give the Forbes article a shot.

Forest City Ratner, the real estate developer run by Brooklyn Nets’ part-owner Bruce Ratner that built Brooklyn’s Barclays Center, has been selected by Nassau County as the winning bidder to redevelop Nassau Coliseum, the Islanders’ current home.

Forest City, proposing a $229 million scaled down Coliseum plan of 13,000 seats, won out over MSG Corp., which proposed a 14,500-seater. Both plans called for additional redevelopment around the arena site.  Under the agreement, the county will get 8% of gross revenue plus just over 12% of the parking, against a guarantee of $195 million over 34 years.

It’s enough to make you wonder if a deal is bound to be struck at some point to keep the Islanders at home.

Brooklyn New Arena BasketballNow Forest City has wound up as the winner. So, after Nassau County residents voted against publicly funding a new arena, a developer is coming along to do it privately. It begs the question – why do the Islanders need to move at all? Couldn’t the proposal be expanded just a bit to meet NHL standards?

Well, here’s the thing with expanding the proposal “just a bit”. The County spent countless hours negotiating the terms of the deal with both developers before a choice was made. The Request for Proposal was just that; a request for a proposal. It wasn’t a “request for something we’ll fudge around later.” It’s now going to have to be approved by NIFA, which oversees Nassau’s finances on behalf of New York State, and the Town of Hempstead, which killed the Lighthouse Project in the last decade after that project was given approval from then-County Executive Tom Suozzi. Those are two difficult tasks and you wouldn’t want some half-baked or unfinished proposal put in front of them.

Sure, there’s probably some wiggle room to make changes, but the County chose to go with a 13,000 seat arena without any luxury boxes. With how damned long it takes things to get done in Nassau — this Coliseum development is nearly two decades old — do we really want to screw with the timeline?

Oh, and about those luxury boxes. They are important to arena revenue, so much so that the Barclays Center was built with 130 of them with the most expensive selling for as much as $550,000 per year. So, we have to make another leap in faith that adding luxury boxes is just something that can be jammed in after the political approval process has been completed and that playing in an arena of 13,000, around 2,000 less than Barclays will hold for hockey makes sense (and Barclays is slated to be the smallest NHL arena as it is).

Still, with Ratner now securing a major chunk of the cost needed for an NHL arena, experts say it’s certainly feasible that a deal could be worked out in which Islanders’ owner Charles Wang , or the Nassau taxpayers (or both), kick in the rest.

OK, so Forbes just suggested that the NHL owner that has, by all indications, given up on Nassau County after years of trying to get an arena built would want to chip in the rest of the cost to bring the Coliseum up to NHL standards. That’s the same owner whose team sports a league low for player payroll. Or that — get a load of this one — the taxpayers in the county with the 4th highest property taxes as a percentage of income (link from Forbes.com!) who already voted down a $400 million bond to fund a new arena would happily foot the bill on whatever they are asked to pay. And — deep breath — the county’s finances are now being strictly overseen by NIFA, a watchdog program from New York State, because Nassau County is terrible at math.

Now, if we assume that Wang or the County pick up those extra costs — another leap! — Ratner’s “major chunk” doesn’t even have 50% of the cost covered.

Only $89 million of the $229 million Ratner is putting up will go towards re-doing the arena. The rest will be for other entertainment in the surrounding area (convention center! movie theater!). Keep in mind that with the referendum, it was a $400 million bond ($350 million for Coliseum, $50 million for minor league ball park) to completely rebuild the Coliseum. So, that leaves $261 million to get the arena to NHL standards from Wang or the taxpayers. Even if we assumed all of the $229 million Ratner is putting up was going to the arena, even though it’s not, it’s still not enough money as there’s $121 million that someone needs to come up with to fund a new arena. And I’m being a bit generous here. Those numbers are assuming the cost of a new Coliseum is the same as the $350 million that the referendum was hoping to build the Coliseum for. By comparison, it took $375 million to build Newark’s Prudential Center a few years ago. It all seems like wishful thinking.

Charles WangNow, here’s the golden part. It would probably cost more to fund the arena than anythign I’ve just described, according to an expert cited in the Forbes article.

Any Wang offer would probably need to reflect the cost efficiencies that Ratner would lose by separating the teams and losing the 40 nights (plus preseason and playoffs) the Islanders would bring to the Barclays Center.

So, those previous estimates were low as some of Ratner’s extra costs for removing the event dates that the Islanders provide to the Barclays Center would need to be made up for. Wow. Talk about not bringing supporting evidence to your article.

But [the expert Forbes went to] points out that the revenue side is typically better for a club playing as a solo act in its building, starting with sponsors that pay more for signage in that setting. And a suburban location means lots of cars and parking fees that benefit your bottom line, not subway and railroad fares that benefit the Metropolitan Transit Authority’s.

While sponsors may pay more for a “solo act” they’re undoubtedly going to be paying more for signage at the Barclays Center, located in a major metropolitan area with about 8 million people and ranked fourth in the world, rather than whatever the new Coliseum ends up being. And parking fees, while you wouldn’t get those in Brooklyn, don’t make up a significant portion of arena revenue. At least not significant enough to warrant moving the team, or cancelling a lease, or adding $150 million of funding to the Coliseum or whatever.

Say we’ve got 8,000 cars in the lot (generous, maybe) at $15 a pop and the county gets a 10% cut. That’s $108,000 per game or $4.428 million per year. A lot of money, but not a game changer. And we’re also assuming the Islanders didn’t negotiate some nice terms in the Barclays lease to cover this loss of revenue.

Then there’s the question of whether an upgrade to 15,000-plus capacity is even necessary to keep the Islanders in place. Sports arenas and stadiums have been shrinking in recent years – less supply, higher prices, and more urgency for buying tickets puts the modern emphasis on revenue per seat more than overall attendance. And those last 2,000 to 3,000 seats are the most expensive to build. “Higher up from the floor you need more concrete and other material,” says Rascher. “And they yield the least revenue.”

I’ve been saying since forever that the Islanders would be able to charge more in a smaller arena in Brooklyn thanks to supply and demand, so I can’t disagree with the above. So yes, the same theory would apply to a smaller Coliseum.

With the club now showing strong signs of improvement, a rebirth in Nassau County would seem to carry the largest potential upside. Ratner has even said he plans to host a handful of Islander games there following the move. He’s already taken the first step.

After everything I’ve laid out, I find it hard to believe that there’s “larger potential upside” to Nassau County than Brooklyn. With 100+ suites and the ability to charge New York City prices for those suites as well as signage, sponsorships and tickets there’s more money to be made in Brooklyn. The question is, as it always has been, is can they fill the arena at more expensive ticket prices? Hell, before we even talk about upside and ticket prices, who the hell is paying the extra money it’ll cost to remake the Coliseum up to NHL standards, like the Forbes article so dreams? No viable candidates were provided. That’s kind of the important part. Then there’s the political wrangling to change the proposal, throwing the lease out the window and basically ignoring that New York City has more money to spend than Nassau County, hands down (8 million people have more money than > 2 million).

Ratner is planning six Islander games at the Coliseum to appeal to a fanbase he knows he has to attract to Brooklyn. That doesn’t mean that the Coliseum, or a revamped version of it, are feasible.

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