Penguins' arena negotiations on thin ice

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The Penguins dropped the gloves in negotiations over a new arena yesterday, declaring an impasse in the talks and saying they would "aggressively explore relocation."

The decision surprised Allegheny County Chief Executive Dan Onorato and Pittsburgh Mayor Luke Ravenstahl, both of whom insisted they thought the two sides were close to a deal to keep the team in Pittsburgh.

   
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Allegheny County Chief Executive Dan Onorato comments on the Penguins' letter

Text of the Penguins' letter to Rendell, Ravenstahl and Onorato

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But Penguins co-owners Mario Lemieux and Ron Burkle painted a far different picture in a letter to Mr. Ravenstahl, Mr. Onorato and Gov. Ed Rendell, saying they still haven't been able to reach a deal even though they have agreed to pay $4 million a year toward a new arena -- the same amount demanded by public officials nearly a year ago.

"Therefore, we have no choice but to declare an impasse and to notify [National Hockey League] Commissioner Gary Bettman that we will aggressively explore relocation," the letter said. "This is a disappointing but necessary conclusion, given the uncertainty that exists as we attempt to move forward."

The decision could push the team closer to a move to Kansas City, where the Penguins have been offered the new $276 million Sprint Center rent-free with no construction costs and half the building revenues.

Toward that end, team officials may meet this week with representatives for the Anschutz Entertainment Group, which will manage the Sprint Center and share revenues with the team.

William "Boots" Del Biaggio, the California venture capitalist who has an agreement in place with AEG to run an NHL franchise at the Sprint Center in Kansas City if he can procure one, had no comment on the letter.

A source speaking on condition of anonymity said, "I just can't see them leaving Pittsburgh. I think they're still negotiating, and this is a way to get the governor's office serious about completing the final details."

AEG President Tim Lewieke told the Kansas City Star last weekend that there are dates on hold for the team, but added he would "be very surprised if Pittsburgh came Kansas City's way."

The Penguins' Mellon Arena lease expires June 30.

Declaring an impasse does not mean the team will move, and sources close to the Penguins would not rule out further talks with state and local officials.

Both Mr. Onorato and Mr. Ravenstahl vowed to reach out to the team to try to resolve the latest flare-up.

Officials were scrambling last night to try to set up a meeting with the Penguins later this week.

"At the end of the day, I think we all have the same interests in mind, and that is to get a deal done and to keep the Penguins in Pittsburgh. We are prepared to sit back down as soon as possible, and that could be as long or as short as the Penguins want it to be," Mr. Ravenstahl said.

Frank Brown, a spokesman for Mr. Bettman, said the commissioner, who has been serving as a go-between in the talks, is aware of the latest developments and is in touch with the parties.

"Any further comment at this point would not be constructive," he said.

A spokesman for Mr. Rendell, who declared the two sides "very close" to a deal last week, declined comment.

The mayor wouldn't rule out an appeal to the NHL to block a move if it came to that. He said public officials didn't believe they would have to use that option because "we feel that we have a competitive deal on the table."

"But certainly, if it's something that we have to resort to as a last-ditch effort, it's something we'd certainly consider before we let the team leave," he said.

In their letter, team owners said appeals filed by Isle of Capri Casinos Inc. and Forest City Enterprises over the Pittsburgh casino license Friday "cause us great concern." Both casino license winner Don Barden and Forest City had pledged $7.5 million a year toward the arena, but that major funding source is now tied up in litigation before the state Supreme Court.

"A project of this scope, with so many complex issues, can ill afford further delays that add more risk and more uncertainty," the letter stated. "The risk has been magnified by what we perceive as a lack of collaboration from the public sector in the negotiations."

The declaration of an impasse came even though the two sides appeared to be close to agreement on major financial terms.

In addition to the $7.5 million a year committed by Mr. Barden, the state has agreed to contribute $7.5 million a year from a gambling-backed economic development fund, an increase of $500,000 over the amount originally proposed in the Plan B funding formula.

That formula initially called for the Penguins to contribute $4 million a year, including $1.16 million annually in naming rights, plus an upfront contribution of $8.5 million.

By the time state and local officials met with Mr. Lemieux and Mr. Burkle Jan. 4, the team's share had dropped to $2.86 million a year, according to sources close to the Penguins. The upfront share would be covered by the sale of the Penguins-owned former St. Francis Central Hospital, needed for the new arena, to the city-county Sports & Exhibition Authority.

The Penguins' share later increased after local officials dropped a proposal to use amusement tax revenue to raise $1.2 million a year. That pushed the team share to $3.6 million a year, plus another $400,000 annually for capital expenses. The team also has agreed to pay $500,000 a year for a parking garage to be part of the arena complex.

Sources close to the Penguins say, however, it's not so much the financial terms as it is a perceived lack of collaboration from public officials that has led to the impasse. They said the tone from the public side has been unduly adversarial for the last two months, including a table-pounding outburst by Mr. Rendell during a Jan. 18 meeting.

The last straw, according to those sources, came Friday, when state officials refused to share interest rate information with the team regarding the financing of the arena. The Penguins believe the two pots of gambling related revenues, plus their share, should be enough to pay for a $290 million arena; state officials indicated there's still a gap.

While the Penguins complained about a lack of collaboration from public officials, Mr. Onorato said public officials have sensed the same adversarial tone from the Penguins.

"I would say that our feelings would probably be the exact same as theirs but in reverse," he said. "But I just assumed that's part of negotiation and you ultimately get to a point where both sides agree."

Neither he nor Mr. Ravenstahl saw the appeals of the casino license as a major impediment, pointing out that all three applicants had agreed to help finance an arena.

In their letter, Mr. Lemieux and Mr. Burkle said they had extended their deadline for replying to Kansas City officials by 30 days because they wanted to stay in Pittsburgh.

"Our good-faith efforts have not produced a deal, however, and have only added more anxiety to what we thought at best was a risky proposition for us moving forward," the letter stated.


Staff writers Bob Dvorchak and Rich Lord contributed to this story. Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262.


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