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PrintSaving the Blue Jackets
With a deadline looming that threatened the existence of the city’s NHL franchise, some of the biggest players in town pounded out a controversial deal two years in the making. Here’s the inside story on a “gargantuan task of immense proportions” that involved the city, county, state, Nationwide, the new casino and many others.
Shari Lewis
Alex Fischer, as is often the case, was in the middle of a civic battle. The president of the powerful Columbus Partnership, Fischer spent several weeks persuading state officials to join the effort to rescue the Columbus Blue Jackets. A state grant would be the last piece of a deal some two years in the works. Fischer appeared to be making solid progress—and a press conference was even tentatively scheduled to announce the proposal. Then, on cue, the whole thing fell apart. Once again, an unexpected twist had derailed the saga to save the team.
On a Friday evening in early September, Fischer got a phone call from a state staffer. Legislative uncertainty had killed the idea to use state capital funds to help the Franklin County Convention Facilities Authority purchase Nationwide Arena—a big element in saving the Columbus
Fischer broke the news to the key players—Nationwide, the Blue Jackets, the city and the county. “We worked on Friday night, just getting everybody on notice, until about 11 o’clock,” he says. The group gathered over the weekend to game plan for an emergency meeting scheduled for Monday with state officials. “It was kind of 24/7,” Fischer says.
What’s more, a crucial deadline hung over the talks. Worthington Industries CEO John P. McConnell, the majority owner of the Blue Jackets, had shown great patience since the team went public with its financial woes in the spring of 2009, even as it continued to bleed money, including a reported $25 million loss during the 2010-’11 season. But McConnell couldn’t wait any longer. A group of banks (both national and local) were to decide whether to renew a line of credit in a few days, say Fischer and Tim Keen, the Ohio budget director. The banks wanted to see a plan to fix the team’s money problems in place before they re-upped with the Blue Jackets. Without that financial lifeline, it was possible McConnell and his minority partners—including the Dispatch Printing Company, the owner of Columbus Monthly—could lose control of the team, a development that probably would mean the end of major league hockey in Central Ohio.
At the Monday meeting, Fischer, Brian Ellis, president of Nationwide Realty Investors (owner of the arena), and John Rosenberger, the lawyer hired to represent the city and the convention authority, made the case for the Blue Jackets. The state’s delegation included Keen, Ohio development director Chris Schmenk and her top assistant, Kristi Tanner. Fischer got off to a bad start: He arrived late because he went to the wrong building, the Riffe Tower instead of the Rhodes. But when he finally made it to Keen’s 34th floor offices, Fischer discovered he had a strong supporter in the budget director.
Keen suggested converting the state’s contribution into a $10 million loan, an idea that Schmenk and Tanner also endorsed. The development department would provide the money, half of which would be forgivable. The group then spent a couple of hours hashing over the details and shook hands on the final piece of the deal to save the Blue Jackets. “We understand the economic impact the Blue Jackets have in the Arena District and Columbus, and we wanted to be helpful to the extent that we could,” Keen says.
Two days later, the plan was unveiled at a press conference. The announcement came in the nick of time—12 hours before the bankers’ deadline. “The only way something like this gets done is with a gun to your head,” says one insider.
Imagine this scenario: A man—let’s call him Rip Van Lashutka—falls into a deep slumber in September 2000. Eleven years later, he wakes up, opens his morning Dispatch (they’ve been piling up on his front porch) and reads the headline, “Arena deal looks good to folks in high places.” He scans the article and learns that the public is about to buy the privately owned Nationwide Arena, which opened to acclaim just before Rip dozed off. The move comes even though 56 percent of Franklin County residents rejected using public funds to build the arena in 1997, the fifth time they’d turned down using taxes to pay for a sports venue since the late 1970s. What’s more, Rip learns about the lousy state of the economy, how government leaders chose to bail out a dreadful hockey team while everyday folks continue to suffer through something called the “Great Recession.” And the people who personally stand to gain the most—Nationwide (the main developer of the Arena District), the McConnell family (the majority owner of the Blue Jackets) and the Dispatch Printing Company (minority investor in both the district and the hockey team)—aren’t exactly scraping the bottom of the barrel. The deal might make a lot of sense to “folks in high places,” but poor old Rip is more than a little confused.
So what happened? How did an idea with so much baggage, so much going against it, actually end up getting done? It wasn’t easy, that’s for sure. The complex deal—a team of lawyers was putting the final touches on it in mid January—required a delicate alliance of five key partners (the Blue Jackets, Nationwide, the city, the county and the state), many of whom didn’t always see eye to eye. They battled through political missteps, nasty litigation and budget fights to put together a deal that Columbus Mayor Mike Coleman calls a “gargantuan task of immense proportions.” Says Coleman: “I don’t think anyone has done a deal like this before.”
The mayor is on occasion prone to hyperbole, but it appears not this time. Those involved—including people behind some of the biggest deals in recent years in Columbus—say they’ve never been a part of a public/private partnership with so many moving parts. “Honestly, it was a whole series of dominoes that had to kind of fall into place,” says Franklin County Commissioner Paula Brooks.
The key to the deal, of course, was a windfall no one saw coming when the Blue Jackets first asked for help. In November 2009, Ohio voters approved casinos for Columbus and three other cities. The ballot issue gave city and county officials a new lucrative tax revenue stream to tap—an unprecedented opportunity to assist the team without shifting precious resources away from other badly needed services at a time of economic difficulty. Though the idea was just about perfect, other obstacles stood in the way—foremost, a legal battle over annexation involving city officials, the Dispatch Printing Company and Penn National, the developer of the Columbus casino.
But perhaps just as important was a more subtle strategy. It might have been political suicide for city and county elected officials to back a bailout of the franchise in the middle of a budget-crunching recession. But the idea was much more palatable if the focus shifted away from the team.
In interviews with Columbus Monthly, people behind the plan all say nearly the same thing. Brooks: “This is not a bailout of anybody. This is a buttressing of a wonderful economic development model.” Franklin County Commissioner Marilyn Brown: “This deal is about more than the Blue Jackets. This is about the entire district.” Franklin County Commissioner John O’Grady: “This is about potentially 10,000 jobs in the Arena District.” Columbus Auditor Hugh Dorrian: “This is not a Blue Jackets issue. This has always been an economic development issue.” Bill Jennison, executive director of the convention authority: “It really would cost the community more to lose the team than to keep it.” (Nationwide and Blue Jackets officials declined to be interviewed for this story.)
The unprofitable Blue Jackets, as the argument goes, are a loss leader necessary for the sake of the Arena District, an economic engine that fills government coffers with sales, income and property taxes. Indeed, there is no doubt that the district, the former site of an abandoned prison, has thrived since the arena opened in 2000, though just how much impact the Blue Jackets have had on the region’s overall economy remains debatable (more on that later).
“Those who believe that it’s a bailout of the hockey team don’t support it,” Coleman says. “Those who believe, as I believe, that this is more about protecting jobs and economic development . . . they say, ‘All right. It is what it is.’ ”
Still, Coleman and others didn’t arrive at that conclusion overnight, nor did they find the right recipe the first time they entered the kitchen. “If this was a bowl of soup, there was a new ingredient added to it every week or so,” Coleman says with a laugh. He estimates backers went through about 200 versions before they arrived at the right plan. “Everybody kind of came together, but I tell you, it was very complicated and took a lot of time and a lot of effort and nobody really knew it was going to happen until it did.”
In the spring of 2009, Blue Jackets officials botched their first attempt to get public help. They proposed a “sin tax” on beer, wine, liquor and cigarettes in Franklin County to help the convention facilities authority buy the arena and get the Blue Jackets out of a costly lease with Nationwide. Team officials, however, did so without securing the support of local public officials first, and the idea died in the legislature as Franklin County commissioners spoke out against the proposal. “Commissioners were mad,” says Ty Marsh, then president and CEO of the Columbus Chamber. “The General Assembly members were confused. It just ended up not good.”
Marsh decided everyone needed to start over. “Just because it didn’t work didn’t mean the key issue had gone away,” Marsh says. His idea was to focus everyone on what the Blue Jackets mean to Columbus. With that in mind, the Chamber hired Stephen Buser, a retired finance professor at Ohio State, to document the Blue Jackets’ money problems and the economic benefit the team provided to the region. Buser spent the next three or so months combing through team financial reports and regional economic data and comparing the Blue Jackets’ lease with those of other
When the report was released in November 2009, it offered two key conclusions. First, it documented the economic growth in the Arena District since the Blue Jackets started to play hockey in 2000: $630 million in investments, 170 businesses employing 5,500 workers, property values increasing by 267 percent. “The loss of the team likely would result in significant negative economic impact including loss of jobs and tax revenue,” Buser wrote. Second, Buser concluded that the team’s lease put it at a significant economic disadvantage—roughly $12 million per year—compared with other
The findings were eye-opening to civic types. “The Buser study was really the first building block in the community conversation over the problem,” says former Dispatch associate publisher emeritus Mike Curtin, who represented the media powerhouse in civic affairs until recently leaving the company. (He’s now running for the Ohio House of Representatives.)
A month after the report’s release, the city and the convention authority hired Rosenberger, the veteran attorney and dealmaker. Rosenberger, the former head of Capitol South, the nonprofit agency that developed City Center, began to work closely with several city and county officials: Coleman, Jennison, Dorrian, O’Grady, Mike Reese (the mayor’s chief of staff), city councilman Andy Ginther (he became council president in 2011) and county administrator Don Brown. The mayor, who formed the group, ordered them to find a solution that included “substantial private sector contribution” and didn’t rely on sales or income taxes. The group then formed a finance subcommittee consisting of Rosenberger, Dorrian and Jennison to further explore Buser’s ideas, as well as to open negotiations with Nationwide and the Blue Jackets.
Insiders say Nationwide came on board quicker than some of the other partners. With a lot at stake as the main developer of the Arena District, the company may have bended the most in the negotiations: agreeing to sell the arena to the county for $42.5 million (although it cost about $150 million to build 11 years ago) and then chipping in $28.5 million for naming rights and another $52 million to become a 30 percent owner of the hockey team. What’s more, Nationwide agreed to loan the county $43.3 million to pay for the arena, as well as to cover any shortfalls that might occur if casino revenue comes in less than anticipated. “Nationwide from the very onset knew they were going to have to finance the deal, and they did not resist that,” Dorrian says. “That, obviously, kept things moving very well.”
In April 2010, a small piece of the puzzle was put in place. Following up on a recommendation in Buser’s report, Ohio State, owner of the Schottenstein Center, agreed to take over the management of Nationwide Arena. The arrangement would lower administrative costs and eliminate the competition that pitted the two venues against each other. Then, less than a week later, voters overwhelming approved the move of the Columbus casino from the Arena District to the former Delphi factory site on the west side.
City and county officials went to work on capitalizing on the pool of tax revenue from the four casinos. Projections put the yearly totals at $16.2 million for Franklin County and $24.3 million for Columbus, including up to $8 million for being a “host city.” (Some observers, however, suspect competition from newly approved video lottery terminals at Ohio race tracks might lower the projections.) Dorrian came up with the idea of allotting a percentage of casino funds to pay for the purchase of the arena. The move—along with Nationwide’s commitment to serve as a financial backstop—assures that the county and the city wouldn’t have to dig into their general fund budgets if casino revenue came in below expectations.
Then a nasty public battle broke out over tax incentives. In October 2010, Penn National asked the city for up to $40 million in aid to help the company absorb the costs of switching from the Arena District site to the one at West Broad Street and Georgesville Road. City officials declined, but the gambling company had a powerful bargaining chip: annexation. The former Delphi plant was in Franklin Township. If Penn National refused to annex the site into Columbus, the city would lose the host-city bonus. Without that money—as well as the income tax on the projected 2,000 casino employees—it would be harder for the city to justify using casino tax revenues to help the Blue Jackets. “If there was no annexation of the casino, there was no deal—period,” Dorrian says.
The Blue Jackets rescue plan went into a holding pattern as the dispute between the city and Penn National spilled into the courts (the litigation ensnared Franklin County, too, but it was a minor player). The legal battle was then complicated by the Dispatch Printing Company, a nuisance to Penn National since 2009. The media company filed a counterclaim to an existing lawsuit in Franklin County Common Pleas Court to compel Penn National to annex. What’s more, a Dispatch subsidiary took the unusual action of buying a vacant lot next to the casino site to allow the company to protest a Penn National zoning request.
Curtin, the former Dispatch associate publisher, was one of the leading voices against the 2009 ballot issue that allowed casinos in Ohio. In a conciliatory move, he joined forces with Penn National to lead the campaign for the May 2010 initiative that moved the Columbus casino to the west side. Curtin claimed Penn National broke a campaign promise to annex into the city of Columbus. “I thought our word was on the line, and we had a moral obligation to do whatever is possible to make sure that development would be annexed into the city of Columbus,” Curtin says. Penn National denied it made any promises and countered that the city was backing off a pledge to provide financial incentives to the company.
Meanwhile, the clock was ticking for the Blue Jackets. Fischer, the president of the Columbus Partnership, says McConnell expressed concerns to him. “Privately, at points he was very frustrated, but he didn’t let that bleed over into irrationality,” Fischer says. “Never once did I ever think John was going to throw up his hands and say, ‘Forget it. I’m out of here. I’ll wash my hands of all of this.’ ”
The competing interests and motives added another layer to the litigation. Though they weren’t talking about it, city officials needed to end the annexation dispute to make progress in the Blue Jackets rescue plan. What’s more, the Dispatch Printing Company—uniquely positioned with its Arena District and Blue Jackets interests, its central role in the annexation fight and its standing as the most powerful media voice in town—added a new wrinkle after the city and Penn National officials reached a tentative settlement in May 2011. The agreement ended the incentive dispute—Penn National would receive about $15 million, less than half of what it requested—but the company also wanted the Dispatch Printing Company to promise to stop interfering with its plans. Dispatch officials balked, putting the settlement in limbo. In late July, the pact was finalized once Penn National dropped the provision and Nationwide Realty Investors bought the gambling company’s Arena District property for $11 million (another contingency that had slowed the process). Bob Tenenbaum, the Penn National local spokesman, declined to comment on the Dispatch Printing Company’s role in the annexation fight. “We are focused on getting the thing built, getting it open, creating the jobs,” he says. “In our view, there is nothing to be gained by rehashing this.”
The July resolution re-energized the Blue Jackets talks. “People rolled up their sleeves on the final business issues,” says Rosenberger, the attorney hired to represent the city and the convention authority. They also encountered a different financial environment. State officials had slashed aid to local governments. Facing nearly $33 million in state cuts for 2012, Franklin County commissioners no longer could do a tentative funding plan worked out in 2010 before the annexation delay.
Commissioner O’Grady organized a meeting in early August at the Franklin County courthouse for city and county officials to discuss the shortfall. Among those in attendance were Dorrian, Jennison and Ginther. At the session, O’Grady suggested getting the state involved to help fill the gap. “I wasn’t sure if we could do that or not,” he says. Earlier, officials from then-Gov. Ted Strickland’s administration had rejected a request for money, an insider says.
State participation made sense on several levels, city and county officials say. Ginther says it was helpful to have the Republican Kasich administration at the table. “It was important to us to show that this really isn’t about partisan politics; this is about what is best for Columbus,” says Ginther, a Democrat, along with every other elected official at City Hall and all of the county commissioners. Some also believed the state had an obligation to assist. It stood to gain a lot in sales and income taxes if the Arena District stayed healthy. Plus, state budget cuts caused the shortfall in the first place. “We were feeling their pain,” Brooks says.
Fischer says the county’s reversal caused “anxiousness” among stakeholders. “It certainly would have been easier if the county never introduced it,” he says. O’Grady says his stance didn’t please some folks from Nationwide and the Blue Jackets, though he adds he’d been talking about the threat posed by state budget cuts since John Kasich was elected governor in November 2010. “There was some shock, and there was some urgency,” he says.
But everything worked out in the end. State participation allowed the city and the county to lessen their burdens. According to the deal, the two entities will provide 25 percent of their annual casino revenues in the first three years of the deal (beginning in 2013), with the yearly sum then increasing annually by 1 percentage point until it tops out at 32 percent. Originally, the two were to provide a flat 32 percent from the start. “The deal got better as a result of the conversations,” Fischer says.
Robert Baade, a professor of economics at Lake Forest College in Illinois, has spent the past three decades studying the public financing of sports stadiums. Whenever communities push for using taxpayer dollars to build a venue or bail out a struggling team, he says, they often use the same argument: Professional sports help the local economy. One problem, Baade says. They’re wrong.
In the late 1980s, Baade looked at every city in the U.S. with a professional sports presence. The examination of metropolitan economic data showed that the franchises provided almost no benefit for their communities. Since then, other economists have followed up on his findings. “They just confirmed what I found in that initial study,” Baade says. “It’s a rare area in which economists agree.”
Many people are misled by the economic activity that surrounds sports teams, he says. The crowded bars and restaurants, the jersey sales, the packed arenas—they’re all real, to be sure. But if that game day activity goes away once a team leaves, Baade says, the money rarely disappears from the regional economy. Instead, folks spend it elsewhere—maybe on movie tickets, concerts, meals at restaurants closer to their homes instead of in an entertainment district surrounding an arena. In the study sponsored by the Columbus Chamber, Buser cited the
Add to the mix the challenges unique to hockey—weak broadcasting revenues, a smaller fan base than the other major pro sports—and the Blue Jackets’ bailout looks even shakier. “You’re swimming upstream on this one,” Baade says. “The question is: Is this an application of Gresham’s law, which in laymen’s terms is, ‘Are you taking good money and chasing something bad?’ ”
Yet Baade can find common ground with Blue Jackets backers in one area. In his report, Buser argued that the Blue Jackets have added vibrancy to the city. Losing the team, Buser wrote, “would reinforce the traditional image of Columbus as simply a large college town.” Baade doesn’t dispute that. He says professional sports can boost a city’s quality of life. “The more honest approach would be to say, ‘Look, we’ll feel better about ourselves if we have a professional sports team,’ ” Baade says.
And that psychological benefit might be meaningful. Columbus, hardly a hockey mecca, went crazy for the Blue Jackets when they first hit the ice in 2000. Certainly, the slick shot-blocking of Ron Tugnutt didn’t fill Nationwide Arena every night back then. It was the thrill of being one of the few cities in North America with an
In late December, Brian Klein and several other members of the Arch City Army—a Blue Jackets supporter group—were at the Arena District’s R Bar, a favorite place for hockey fans to gather before home games. Klein moved to Columbus from Dayton about seven years ago looking for work. Soon, he began to follow the Blue Jackets and has been a loyal fan ever since. “Seeing what Columbus has to offer, I wouldn’t consider moving,” says the 32-year-old German Village resident. “And the Blue Jackets have made that an easy decision.” If the team were to leave town, he says, Columbus would lose something special.
Klein has nothing to worry about anymore, of course. The Jackets committed to play in Nationwide Arena through 2039 in exchange for the bailout. The team is here for the long haul, good or bad.
Dave Ghose is an associate editor for Columbus Monthly.
