Lease Announcement Follow-up: Arena Improvements, New Business Model

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Published: April 5, 2012

The new lease doesn’t just keep the team here; it provides improvements to the New Orleans Arena, changes the way the team does business, and brings in some goodies.

Immediately following the announcement of the lease agreement, Hornets247 brought some clarity to what the lease is and is not, what it does and does not, and when it will and will not be in effect. Most of this was focused on what this proposed lease means for the Hornets tenure in New Orleans. The lease, however, also involves the New Orleans Arena, as it is the thing being leased. In this case, however, there’s more to it.

Highlights:

  • $50m in improvements over the two coming offseasons
  • $10m in 2013 for additional improvements or practice facility
  • Second round of improvements starting in 2015
  • Champions Square programming starting immediately
  • Guaranteed NBA All-Star Game

Details:

$50m will be used to improve the Arena over the two coming off-seasons. These improvements are centered around two goals: First and foremost is revenue generation, and second is enhanced fan experience. Read this the following way: Most of us will like the Arena more overall and all of us will pay more.

Don’t get too upset; we were going to pay more anyway one way or another. At least we are staving off PSL’s. A PSL is a personal seat license. For those who have been blissfully ignorant of these vile hellspawn, they, or whatever else they may be called, are fees paid by season ticket holders for the right to buy tickets. Yes. Really. 15 NFL teams do this, 3 NBA teams (Bobcats, Jazz, Raptors), 2 NHL teams, and 5 MLB teams. As you can see, the more expensive venues have a higher penetration rate. As the costs go up, these things are going to become ubiquitous, but keeping them far in the future is good for fans. One good sign is that not all new venues require this, such as the new Marlins Ballpark. 

Defenders of this filth will say its an asset that can be sold, they give the holder rights to tickets to other events at the venue, etc., but it’s just one more device to separate the fans who `want it’ the most from `it’ as I see it, and I hate them. I’m glad we’re avoiding them for now.

The changes were described so that they would lead to “virtually new building.” This seems like a bit of salesmanship, which is fine, but it may not be too far off. The Arena was completed in 1999 at a cost of $114m, or $159m in 2012 dollars. As a basis of comparison, the Dome was built for $579m in 2012 dollars. After 35 years, a $320m upgrade plan was implemented in 3 phases and was recently completed. This is apart from the repairs undertaken after Hurricane Katrina.

After 35 years with only minor upgrades in and major repairs that were not supposed to improve the Dome post-Katrina, 55% of the inflation-adjusted construction costs turned the 270,000 sq. ft. floor area stadium into a facility that can hold its own against more modern constructions. The 13 year old, 25,000 sq ft. floor area Arena is getting 30% of its inflation-adjusted construction costs for its upgrade. The “virtually new building” claim may not be too far off.

The exterior of the Arena will be largely unchanged. It will have a silver top and green tile exterior, so we are told. Digital media may cover more area on the exterior than it does now, and perhaps more than the combination of digital and . . . analog? . . . media occupy now. Thus, this could include multiple billboard-sized screens and more. Also, exterior lighting similar to that of the Dome is something on the table. This all seems likely. I think it is possible for minor changes to the exterior, such as sections of walls being knocked out to install more glass or to include adjacent space by expanding the Arena footprint locally. Overall, the Arena will look the largely the same.

The interior of the Arena is where the changes will be focused, which is consistent with the stated goals. The details here are scant here. It was hinted that a naming rights sponsorship deal could be incorporated into the renovations. This indicated that perhaps a naming rights deal will be struck once there is a signed lease and that it may be long-term. We shall see.

It should be noted that the seats for club patrons were replaced over the All-Star Break.

In order to fill in the blanks, Hornets247 went through considerable trouble to do research on Arenas, fan experience, branding, and the like in South Florida over the past week. A full report will supplement this piece and will be available in the coming days.

Hornets247: Where we will spend the weekend in Key West for our readers.

Back to the boring stuff . . .

$10m of separate funding can be used to make additional improvements to the Arena or to build a practice facility. For those who have been following the business of the franchise for a while will recall that a practice facility was supposed to be built for the team per the original lease, but this requirement was given up following the return after Katrina in the same amendments that implemented the attendance benchmarks and other changes. The Hornets practice at the Alario Center in Jefferson Parish.

There is talk, and just talk mind you, but talk from some trusted sources (SMG and LSED) and others that a downtown practice facility could be in the cards. It may not be a stand-alone building, but the discussion is not dead. More on this below.

More on, not moron . . . c’mon, man, give a guy a break . . .

Once these major improvements are completed, there will be a list of further improvements compiled and prioritized by the State and the franchise. These improvements will begin as early as 2014 that will be completed over a 5 year period. Additionally, the annually replenished renewal and replacement fund will increase to $1m per year over the course of the lease, doubling what it is today.

Overall, the above indicates that the State wants to have an Arena that is current and also wants the Hornets to have such an Arena. They want this to be the case now and throughout the term of the lease. The lesson from the Pacific Northwest is that the Arena is important. This lease not only locks the Hornets in to a standard NBA lease, but it makes New Orleans attractive to the NBA by proactively addressing their concerns with respect to venues rather than waiting for a crisis to hammer out a deal, such as in Sacramento.

These improvements are in some sense the public face or some semi-public changes in how the team will be doing business. This was alluded to in the prior piece. In general, the State is providing the Hornets with greater means to produce revenue for themselves. For their trouble, they pass along the risk of financial losses to the team, whereas in the current lease they essentially insured the team against some financial losses. This accommodation was likely necessary after Katrina to calm nerves while the city re-proved itself to the franchise, the NBA, and the world, but this created an environment where the team was actually disincentivized to pursue revenue on its own, such a naming rights.

Now, the team is being armed by the State . . . by us . . . and must run itself more like a traditional business to separate the fans from more of their money. Wait . . . Yeah, I suppose so. This should be good for the fans overall? Yes. This should be good for the fans overall. Anybody got some ruby slippers? This should be good for the fans overall.

I kid. This is good. We were paying them anyway. This allows the money to come from commercial enterprises more than governments and the people, saving the latter those funds. The team will benefit by convincing Rouse’s that sponsoring the team that Hornets fans will go there more than other stores for groceries they were going to buy anyway. Stuff like that.

Really, this is good. Is there a backspace on this thing? 

This is not to say that the relationship between the State and the franchise is as simple as tenant and landlord. The State will pay the franchise around $3m a year for specific benefits. These include marketing opportunities, such as advertising concerts at the Arena during Hornets games, sponsorship opportunities, and 15 events at Champions Square throughout each year. The Hornets would keep the revenue from the tickets to such events, but other related income would go back to the State. Also, certain parking and other non-gameday revenue splits will be adjusted from the current state.

This relationship makes the franchise and State more like partners than tenant and landlord. This is very important, should it bear out well in practice. The State seems to have big plans for the area around the Dome, Arena, and Champions Square. The streetcar line extension to Girod Street along Loyola is nearly complete, which will provide easy access to the district from many places in the city. The new Rouse’s is just a few blocks away with its seating, prepared food, and coffee. Restaurants have opened in the area that the Hornets have already embraced, such as Walk-On’s Bistreaux & Bar. With talk of a downtown practice facility, phase three of Champions Square, a potential end to the downtown post office, the relaunch of the Hyatt as a mini-convention center, and a permanent downtown sports and entertainment district, the Hornets stand to double the number of sporting events that draw thousands to the area provided by the Saints, and Voodoo, Tulane, NCAA Bowl games, and LSHAA events.

The potential of such a district should not only excite fans, residents, and our Krytonian hospitality workers that have been made super by Earth’s yellow sun, Sol, but it could hold the future of the professional sports in New Orleans. By providing a permanent set of amenities for event patrons that are also available to residents year round in both principle and practice, the need for a building like the Amway Center or Cowboys Stadium is lessened. By reducing the cost of the next building to house out beloved teams now, we increase our ability to provide that building and keep the team here longer.

That long-term benefit may be a bit of a snoozer, but the short-term benefits include the ability to attract major events with greater regularity. For instance, the NBA likes the proposed lease so much that has guaranteed an NBA All-Star Game in New Orleans sometime during the term of the lease. This would not be until 2015 at the earliest and would perhaps be later. These games are announced roughly a year in advance, and it would be best to hold it here after all the major improvements are made, and they are scheduled to be completed in Summer 2014.

All in all, this lease is exactly what Hornets fans should want in all the ways discussed above and in one very particular way that maybe hasn’t been made clear: it makes us normal. This is something the Hornets haven’t been since their arrival.

Finally, a chance. A real chance.

Our last chance will be a fair chance.

7 comments
whodat504
whodat504

I've also heard talks about putting a new restaurant in the Arena.

James McPherson
James McPherson

Very heady times for we Hornets' fans! The entertainment and sports district MUST deliver on the promise it holds; having 2 major sports franchises (and one historic and premium-branded dome) compete DOWNTOWN is a bonus to business that cannot be overstated. It is imperative that the ownership situation get remedied so the city and state can begin negotiating to bring the vision to total fruition. On the flip side, it has taken so long to "clarify" the ownership situation (yeah ... real clarity by Stern, eh?) that I fear the worst ... and our city hasn't really shown great leadership since around 1860 (and that didn't work out too well, did it?).

sweetpea
sweetpea

This is exciting stuff for Hornets fans. To me the most interesting aspects are the practice facility downtown and the fact that, taken as a whole, the specifics in the lease are targeted to making the Hornets a kind of equal partner to the Saints. Both Saints fans and numerous football fans from across the nation who take advantage of their teams coming to NOLA will be more aware, so to speak, of the "second" NOLA franchise ... this is invaluable good will exposure. The people who negotiated this lease really seem to have their business ducks in good order. Very encouraging all in all.

LaNative
LaNative

This puts us heads and shoulders above other cities in terms of proximity for sporting venues, food and entertainment. Finally, we're moving forward with a plan and hopefully the new owners will bring added excitement and enthusiasm. A state-of-the-art practice facility downtown is premium. We need to ensure that the practice facility is the envy of other franchises (not sure if $10M can do that). This is a golden opportunity to make a major splash and we should take full advantage of it. I wasn't for changing the teams name, but I think a name change, with new owners, a new arena and practice facility is in order. (I can't believe I just typed that).

usufruct
usufruct

Definitely need a new practice facility. The drive out to the Alario Center is one of the worst imaginable. (That's also how you drive to the dump.) If I was a free agent, that's all I would need to see to decline coming here. With downtown's vacant real estate, especially with the U.S. post office moving out, property shouldn't be a problem. I'm not sure 10 mil will be enough for a new downtown facility though.

George
George

Name change may be a bit drastic, but wouldn't be opposed to a uniform change or something like that to signify a new era for the franchise

Zombian
Zombian

I've been a Hornets fan since 94. I still find myself missing the old teal. Sometimes when MediOkafor makes a bonehead play I pine for the days of LJ and 'Zo. Sometimes if you squint when Jack stands next to a big you can pretend he's Mugsy. I like our past. That said I very much dislike the idea of a name change though I am proud of our paradigm shift. A new uniform design a la last off season's Warriors or Wizards may be kinda cool but much more than that and my nostalgia kicks in and prevents me from enjoying it.

Trackbacks

  1. […] of $114m. Now, just 13 years later, it’s getting $50m in renovations. Some of the details of the funding and motivation were reported earlier. Though the New Orleans Arena was deemed satisfactory to host basketball in 2002, 2007, and 2012, […]