New arena hopes advance on 2 fronts

Site preparation work to begin while Penguins haggle with local officials

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The city-Allegheny County Sports & Exhibition Authority is pressing ahead with preparations for a new arena even as state and local officials get down to the nitty-gritty of trying to cobble together a deal to keep the Penguins in Pittsburgh.

A day after Penguins owner Mario Lemieux had a "very positive" meeting with state and local leaders on an arena funding plan, they must translate those sentiments into a package competitive enough to prevent the franchise from skating off to Kansas City, where a rent-free arena awaits.

No formal negotiations have been scheduled but the two sides already have started to exchange information and to follow up on issues raised at Thursday's 75-minute session at the State Office Building.

While the Penguins and representatives from the city, county and state get down to haggling out the details of a potential agreement, the SEA is starting the advance work to prepare the arena site, bordering Fifth and Centre avenues.

An SEA-hired contractor, Precision Environmental, begins work Monday removing asbestos from buildings in the corridor to clear the way for demolition, which is expected to start next month. In September, the arena construction is to start, with completion set for fall 2009.

One other point to be negotiated under Plan B is the sale of the St. Francis Central Hospital, which is needed by the SEA as part of the arena site. The building was purchased for $8 million by the Penguins to hold it for an arena.

Interestingly enough, if the Penguins were to get at least $8.5 million for the building in a sale, it would cover their upfront contribution under Plan B.

Following Thursday's meeting in Pittsburgh, Mr. Lemieux, who long has been at odds with local politicians over funding for an arena, called the session "very positive" and said he was optimistic about the prospects of keeping the team here. He added local elected leaders seem to be "willing to step up and talk about some issues that were a big concern for us going back seven years."

But whether that optimism can be transformed into a deal remains to be seen. Both sides are hoping to reach an agreement within the next two weeks, well in advance of the 30-day deadline set by the Penguins in deciding between Pittsburgh and Kansas City.

The Kansas City deal could be hard to beat.

It gives the Penguins a rent-free $276 million Sprint Center arena, no construction costs, no upfront payments, and a 50-50 partnership with Anschutz Entertainment Group to derive profits from all revenue streams, including suites, club seats, ticket sales, advertising, concessions, parking, and naming-rights fees, according to the Kansas City Star newspaper.

AEG, which invested $54 million in the Sprint Center, to open in October, also dropped a requirement for a $27 million buy-in by the Penguins to be equal partners in the building.

And during a breakfast meeting Thursday, more than a dozen Kansas City business leaders, including executives from Sprint, Farmland Industries and UMB Bank, turned out to pledge corporate support in ticket sales and sponsorships, the Star reported.

In Pittsburgh, Gov. Ed Rendell's Plan B is the starting point for negotiations. In its initial form it would have required the Penguins to contribute $8.5 million upfront and roughly $4 million a year, including $1.16 million annually in naming rights, toward construction.

But during Thursday's meeting, state and local officials offered a somewhat sweetened version of Plan B, although the exact details are not known.

Mr. Rendell had said before the session he was prepared to modify Plan B based on team financial losses over the last several years. Mayor Luke Ravenstahl characterized the offer as "very competitive" with Kansas City.

As part of negotiations, there's also a chance that local and state leaders may be willing to work out an arrangement that would give the Penguins more revenues from Mellon Arena during the interim period between the negotiation of a deal and the completion of the arena in 2009.

"Informally I know that point has been raised," said state Sen. Wayne Fontana, an SEA board member.

Such a concession may be important because the Penguins would have the ability in Kansas City to begin generating revenues from a new building as quickly as October, not two years from now.

At Mellon Arena, the team currently must share revenues with master tenant SMG. The arrangement would change at the end of June, when the Penguins would become master tenant and SMG the arena manager. Of course, the Penguins' arena lease expires at the same time, giving the team the ability to move elsewhere.

Nonetheless, despite the sweetheart deal being dangled by Kansas City, Mr. Fontana described himself as "real optimistic" about keeping the team in Pittsburgh.

"This is a hockey town. There's no question about it. It has the history and the track record. That in itself gives us the edge, but I think the deal itself is superior to Kansas City," he said.

"There might need to be some modifications here and there, but I think that when you look at the whole package, I don't see why you go to a town that had a hockey team and lost it."


Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262.


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