Taxpayers are under attack from many fronts. Municipalities and school districts are raising millages to cover budgets while legislators and the governor argue on how best to extract more taxes to bail out the state's education system, US Airways, and the city of Pittsburgh. Now comes the latest assault, from the Pittsburgh Penguins, who claim that if taxpayers don't cough up money for a new arena, they will waddle out of town for good.
The claim is that the Mellon Arena is too old to host hockey games. But the age of the facility is a diversionary issue. Mellon Arena has not been declared unfit to host events, it is structurally sound and fits the purpose of hosting hockey and nonhockey events.
The real issue that needs to be addressed is the team's finances. The Penguins, like a great many professional sports franchises, lost money last year and are expecting to lose money next year. They argue that a new arena is the only way to secure greater revenues.
A quick glance around the National Hockey League indicates that new arenas will not necessarily cure financial woes. During the 2002-03 NHL season, the Ottawa Senators (Corel Centre built in 1996) and Buffalo Sabres (HSBC Arena, 1996) declared bankruptcy while the St. Louis Blues (Savvis Center, 1994) and Los Angeles Kings (Staples Center, 1999) reported substantial losses in the last few seasons. Four more teams, none with an arena more than 10 years old, are for sale.
Team finances are hurt by unfavorable contracts at the Mellon Arena, rising player salaries, a general lack of fan support and tiny revenues from television. Moreover, they receive little or no revenues from nonhockey events and concession sales. A new arena with better contracts could allow the team to gain more control over all revenue streams from both hockey and nonhockey events.
What the Penguins actually want is for taxpayers to subsidize their ability to increase revenues. Under a plan offered by the Allegheny Institute, the Sports and Exhibition Authority could borrow enough money to construct a new facility by setting aside some of the anticipated revenues from streams such as permanent seat licenses, naming rights, advertising and luxury box sales.
This plan allows for minimal risk to the taxpayers while providing the team increased revenues. A subsequent plan from the SEA also called for the use of revenue bonds in arena construction. The team has dismissed both plans on the grounds that they call on it to put forward substantial amounts of money either up front or through diversion of arena revenues to retire debt.
Team officials claim that since their sporting brethren on the North Side received new facilities at taxpayer expense, they are entitled to one as well. But taxpayers, already bracing themselves for whatever new taxes come out of Harrisburg, are in no position to pay for the team's "arena envy." However, a new arena is just one way to solve the team's revenue problems. We offer two other possibilities:
One possible solution that addresses the team's revenue problems, and does not require a new arena, is for the Penguins and the SEA to negotiate a long-term lease for the Mellon Arena for $1 per year. Turning complete control of the arena to the Penguins would allow the team to increase revenues by tapping into nonhockey events and increasing its take of advertising and concessions. It would also provide the team with the incentive to market the arena more aggressively for concerts, ice shows and other nonhockey events, tapping into revenue streams previously unavailable to them.
Another possibility is for the team to directly appeal to the community for money. If the Penguins are truly a valuable asset for the Pittsburgh area, then there must be corporations and individuals who benefit substantially from the presence of the team. The Penguins should take advantage of the value they provide by offering nonvoting shares to the public at $50 per share (perhaps a minimum of 10 shares for individuals, 1,000 shares for corporations). Those shares could be redeemed at market value if the team is sold and moved out of Pittsburgh.
Increasing revenues in the face of hard economic conditions is a tough challenge for anyone. Many firms in the Pittsburgh area are struggling hard to make ends meet and are doing so without help from taxpayers. The Mellon Arena could provide ample revenue streams for the Penguins if managed properly. Team ownership, if given the appropriate incentive, could operate profitably in the current environment. It is not the responsibility of taxpayers to subsidize private, profit-seeking sports franchises.
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