Thirty-Year Lease Dilemma: Why Stu Sternberg Should Read This
In the final days of his tenure as Major League Baseball Commissioner, Peter Ueberroth told MLB owners not to sign lease agreements for stadiums for more than 20 years. Ueberroth's term as commissioner ended in 1989 roughly at the same time baseball owners began to realize potential benefits of new stadiums. Under the 1986 federal tax code revision, an owner who played it smart could get up to 92 cents out of every dollar generated in a facility and owners began playing cities against one another in looking for the best possible deal.
It was in that atmosphere that St. Petersburg decided to build a domed baseball facility even though Ueberroth told St. Petersburg officials not to. Chicago White Sox owner Jerry Reinsdorf's team was playing in a turn of the 20th century facility and was looking for a modern ballpark. He played St. Petersburg against Illinois and eventually got a White Sox's park with modern gadgets designed to spruce up revenue streams. St. Petersburg was left at the altar.
Eventually, the Florida Suncoast Dome did get a tenant, a 1998 expansion team partially because Major League Baseball had a stadium offer in Phoenix and needed two teams to join. The Phoenix stadium funded was nearly ready to disappear when Major League acted in 1995. St. Petersburg had a team and the owner Vince Naimoli signed a thirty year lease agreement to use the dome between 1998 and 2027.
Naimoli didn't heed Ueberroth's advice in 1989 and would eventually sell the team to a group led by Stu Sternberg. Not only did Sternberg's group get the team but they inherited a 30 year lease, a lease that some in the sports industry may argue is among the worst leases in all of sports.
What happens when a team signs a 30-year lease?
The New York Islanders National Hockey League franchise is probably the poster child for everything that can go wrong with a bad lease. The franchise is finishing up the lease in 2014-15 and then will move west to Brooklyn and it is a relocation that has excited a good many people within the National Hockey League including the National Hockey League Players Association Executive Director Donald Fehr who thinks the rebranding of the franchise in Brooklyn will do wonders for the league and the team.
Brooklyn's arena is really close to Wall Street and corporate wealth. The New York Islanders present location in Uniondale has some wealthy people nearby but the team has been awful for decades and some of that can be blamed on a 30 year lease signed by owner John O. Pickett in 1985. Pickett's mistake was giving much of the revenue generated in the building away to Nassau County and the management company running the Nassau Coliseum and signing language that made it almost impossible to relocate the franchise.
Pickett and the National Hockey League signed off on the lease but all seemed fine because Pickett got an enormous cable TV deal from Cablevision's Charles Dolan. Pickett and Dolan saved the franchise from going under in the late 1970s when Pickett bought the team from Roy Boe and Dolan gave him a pretty good cable TV deal.
Boe was undercapitalized and never did get financial footing after the National Basketball Association-American Basketball Association deal that allowed Boe's New York Nets to join the ABA for $3.2 million and also pay a large fee to the New York Knicks for "invading" the Knicks territory. Boe would sell the Nets in 1977 and the team ended up in New Jersey.
But the Islanders owner decided to not use the cable TV money for the team and as salaries went up, the Islanders franchise could not compete financially. Pickett withheld the TV money and didn't want to pay the going rate for players. The arena revenue was not enough to keep the Islanders franchise financially competitive.
Pickett would sell the team to John Spano, a con man who almost pulled off the deal. Spano ended up in jail. Pickett sold the franchise and the cable TV deal to Howard Milstein who tried to invalidate the lease citing safety concerns. Milstein even threatened to move the team to Cleveland but couldn't. He even tried to work out a deal for a new building in the late 1990s but that failed. He sold the team to Charles Wang in 2000.
Wang inherited the lease and has lived with it since then although there was a modification of the lease in 2009 which gave Wang more control of events in the building.
Wang attempted to build an arena-village on the 77 acres of Nassau Coliseum property but was derailed by the Town of Hempstead Supervisor Kate Murray and in 2011 lost a referendum for a new arena.
In 2012, Wang signed a deal to move the franchise to Brooklyn.
A bad lease can kill a franchise. With the move to Brooklyn, the money spigot for players may be opened finally for Islanders fans who have not been able to understand how a bad lease crippled the team on ice for almost 30 years now. There will be complaints that the Brooklyn building has bad sight lines and that driving to the building is impossible. But the Brooklyn building is loaded with events and people use mass transit to get there. The problem facing the Long Island Islanders fans especially from Suffolk County is distance and more than likely ticket costs. The tickets will skyrocket in Brooklyn and the fan base will be changed.
Stu Sternberg has been looking for a new facility for quite a while for his Tampa Bay Rays. He inherited a 30-year lease. A look at the last 30-year lease, the Islanders-Nassau County-SMG agreement, may not bode well for Rays fans looking ahead if history is an example. As sports evolves newer and newer revenue streams are needed or the franchise becomes the Islanders. The revenue is just not there.
Without a negotiated buyout, Sternberg is stuck until 2027. The other teams in need of new, revenue generating venues, the Oakland A's, Oakland Raiders, San Diego Chargers, St. Louis Rams and Milwaukee Bucks have short leases, some year to year and others for another few years.
Ueberroth, who is a very smart man, warned owners don't tie yourself up for 30 years back in the late 1980s. That has changed a bit as teams have equity in venues and a stake making a 40 year agreement easier to sign. The Islanders lease is a testament to Ueberroth's wisdom. He was right.
The 30 year lease was bad.
Evan Weiner can be reached at[email protected]. His e-book, The Business and Politics of Sports, Second Edition is available (https://www.smashwords.com/books/view/365489) and his e-books, Americas Passion: How a Coal Miners Game Became the NFL in the 20th Century, (https://itunes.apple.com/us/book/americas-passion-how-coal/id595575002?mt=11), From Peach Baskets to Dance Halls and the Not-so-Stern NBA (https://itunes.apple.com/us/book/from-peach-baskets-to-dance/id636914196?mt=11) and the reissue of the 2005 book, The Business and Politics of Sports (http://www.barnesandnoble.com/w/business-and-politics-of-sports-evan-weiner/1101715508?ean=2940044505094) and reissue of the 2010 e-book The Business and Politics of Sports, Second Edition (https://itunes.apple.com/us/book/business-politics-sports-selection/id771331977?mt=11) are available from e-book distributors globally. 2014 e-book, sports business 2010-14(https://www.smashwords.com/books/view/393652). The e-books are available from e-book distributors globally