Hat Trick

Three stadiums north of downtown Detroit, including a new $450-million arena for the Detroit Red Wings, will do what ‘The Joe’ never could — create an annual $900-million economic powerhouse.
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This spring, as the Detroit Red Wings break ground on a $450-million, 18,000-seat stadium at the northwest corner of I-75 and Woodward Avenue, the team now owned by Mike and Marian Ilitch will attempt to recreate its distant past. The franchise, founded in 1926 as the Detroit Cougars (they played their first season in Windsor), was part of a year round cavalcade of events at Olympia Stadium, which opened on Oct. 26, 1927 at the corner of Grand River Avenue and McGraw Street, initially with 11,500 seats.

Olympia Stadium, designed by famed architect C. Howard Crane, benefitted from being one of the few venues in Detroit that could accommodate all manner of hockey games, concerts, rodeos, Ice Follies, boxing matches (Muhammad Ali vs. Joe Frazier on March 8, 1971), circuses, conventions, festivals, even lacrosse games. The only competition for entertainment, apart from open-air Briggs Stadium, was the Michigan State Fairgrounds Coliseum, a 5,600-seat venue that opened at Woodward and Eight Mile in 1922.

When Olympia Stadium closed for good in late 1979 following the Wings move to Joe Louis Arena in downtown Detroit, it was the end of a golden era. The team’s owner at the time, Bruce Norris, was being wooed to Pontiac, which had offered to build a hockey arena. But then-Detroit Mayor Coleman A. Young stepped in with a deal to build Joe Louis Arena and lease it to the team at a third of the cost that Pontiac had offered.

Three years after The Joe opened, in 1982, Mike and Marian Ilitch bought the team from Norris. However, by that time, the competition for sporting events, concerts, and related entertainment had changed. Cobo Arena, built in 1960 with 12,000 seats — which Norris operated as part of the deal to move from Olympia — competed against the Joe. What’s more, Pine Knob Music Theatre (today DTE Energy Music Theatre) opened in June 1972, while the 80,000-seat Pontiac Silverdome made its debut in August 1975.

In 1988, Detroit Pistons owner Bill Davidson, who acquired the franchise in 1974, partnered with a handful of investors and privately-funded the Palace of Auburn Hills. The debut, by all accounts, changed the game. With luxury suites available a few dozen rows from the action, along with upper boxes, the added revenue could be plowed back into the team. The revenue stream from close-in suites was also used to help sweeten the pot for top acts like Bill Joel and Fleetwood Mac.

“What Bill Davison did with the Palace of Auburn Hills was to secure the parking and the concessions, along with the lower suites, where The Joe had no lower suites and the Ilitch’s had to share parking and concessions with the city,” says Jim Bieri, principal of Stokas Bieri Real Estate in Detroit. “Because of that, Davidson was able to offer richer contracts to book concerts and entertainment, and that’s why The Palace, even today, is among the most successful venues in the country.

 

As a result, when the new arena in Detroit opens for the 2016-17 hockey season, the Palace will have a major new competitor. “The Pistons and Red Wings play at the same time of year,” Bieri says. “There will be all kinds of competition to book summer acts, plus what you can fit in during the winter. You could even see something creative with one of the automakers from the North American International Auto Show revealing concept cars at the new arena. I think the people who win are the fans, the stadiums, and all of the nearby hotels, bars, and restaurants.”

Knowing the deal Davison and his partners orchestrated, the Ilitch family made sure in its negotiations with the city and state to gain control of all parking and concession sales in and around the new arena.

“It was a deal breaker,” says George W. Jackson Jr., president and CEO of Detroit Economic Growth Corp., who served as the city’s point person in the negotiations. He retired on March 31; the very day the City Council approved a new lease between the Detroit Red Wings and Joe Louis Arena. “If they couldn’t get parking and concessions, more than likely they never would have moved,” Jackson says. “On the other hand, if we didn’t negotiate a new lease (for The Joe) and address all of the outstanding issues, there would be no (new) arena.”

The negotiations between the Red Wings and the city went on for several years, spanning four mayors, two governors, and multiple city council members, county commissioners, development officials, lawyers, and financial experts. One major issue was the expiration and renewal of the lease for Joe Louis Arena.

The original lease and parking arrangement expired on June 30, 2010. Subsequent to an extension to June 30, 2015, which Olympia Development can renew for up to five additional years, the team agreed to an annual rent of $1 million as well as nearly $5.2 million to settle past issues over cable TV fees and other matters (payable in six equal installments).

To usher the deal through, Jackson met consistently with a range of interested parties, including Tom Wilson and Chris Ilitch from Ilitch Holdings Inc., numerous city officials, legal teams for Detroit emergency financial manager Kevyn Orr, Wayne County Chief Economic Development Officer Ray Byers, the Wayne County Commission, and Mike Maronte, senior vice president of development, finance, and capital markets at Michigan Economic Development Corp., among others.

“We all knew we needed to get the lease wrapped up while at the same time plan for the new arena,” says Tom Wilson, president of Olympia Development of Michigan, part of Ilitch Holdings in Detroit. “The new arena will be the exclamation point for everything that is happening in downtown right now.”

 

Under the final deal, the new venue will be 58 percent publically funded ($261 million), mostly with the state, and 42 percent privately funded ($189 million). Given the city is in bankruptcy, among the only thing it could convey to the deal was more than three dozen lots it owned in the multi-block hockey arena district, roughly bordered by Woodward, I-75, Cass, and Temple. All told, the value of the land the city contributed was $2.9 million.

“No money came out of the city’s general fund,” Jackson says. “If they produce (the estimated 1,100) jobs at the new arena, along with all of the hockey players that come to town as well as the entertainers, you capture income taxes. Not to mention all of the new business that will come to the area bars and restaurants. The city will get that money back in no time.”

Still, like most stadium deals, the city will forgo property taxes. The Detroit Downtown Development Authority, a public body, will own the arena. Just like Comerica Park and Ford Field, which are owned by a public stadium authority, the Red Wings won’t pay property taxes at the new site (the team paid a portion of property taxes at The Joe).

“Look at it this way, would we have been better off not building Comerica Park and Ford Field?” Jackson asks. “Tiger Stadium was falling apart, and the Lions were not competitive relative to their home at the Silverdome. To keep the Tigers and get the Lions back, I’d take those deals and run with them every time.”

In addition to the $450-million arena, Ilitch Holdings has committed to developing a $200-million mix of residential lofts, retail, office, and entertainment venues north of the Red Wings complex, either on their own or in partnership with private real estate companies and other investors.

“When you look at Comerica Park and Ford Field, The Joe wasn’t able to capitalize on all of the latest amenities fans now expect,” Wilson says. “But with the new arena, we can take advantage of what everyone else has done whether in Detroit, Dallas, or New York and put it into the new arena.

“The other thing is people now love living, working, or visiting downtown Detroit, which is becoming a great economic multiplier. When you put together the Fox Theatre, Comerica Park, Ford Field, and the new arena you’re looking at 500 events a year playing in a four-block area. That’s (attracting) 7 million to 10 million people per year.”

 

Overall, Wilson says the new arena will have between 100 and 150 event nights annually, up from 70 event nights at The Joe. In addition, Wilson anticipates many non sports-related gatherings consisting of conferences, meetings, reunions, and chartable dinners. “We will be a player for every national tour, and we will do a tremendous amount of private events,” he says. “The arena is really the last piece of the puzzle (at the north end of downtown). It’s like the positive perfect storm.”

As of mid-April, Wilson says many of the design issues had yet to be finalized, including the position of the stadium relative to the site, the interior layout of the seats, the location of the suites and concourse areas, exterior design, and parking.

On April 9, the Downtown Development Authority approved the construction team for the project, which includes Barton Malow Co. in Southfield, White Construction in Detroit, and Hunt Construction Co. in Indianapolis.

To maximize the potential for naming rights — Wilson says no final decision has been made relative to overall branding — the longer portion of the oval-shaped arena will likely run parallel to I-75, though it will be set back from the service drive by several dozen feet. Under that scenario, the hockey nets would be at the east and west ends of the stadium. At least one parking deck is planned, most likely built west of the arena. Both a skywalk for suite holders and a tunnel for the players will connect the deck to the arena.

The construction of the entire arena, or events center, including the residential and commercial mixed-use district, is projected to create approximately 8,300 jobs. The building of the arena alone will create approximately 5,500 jobs, with more than half of those construction jobs being filled by Detroit residents and over $100 million being paid to Detroit-resident workers.

Once open, there will be a projected 67 percent increase in the number of jobs at the new events center than currently exist at Joe Louis Arena, according to Olympia Development. It is estimated that the project’s economic impact in Detroit, the region, and the state will be $1.8 billion, says Mark S. Rosentraub, a professor at the University of Michigan Center for Sports Management in Ann Arbor.

“If the Red Wings did not exist, the region would largely be unaffected as people would spend their discretionary dollars elsewhere,” says Rosentraub, who has written three books on the private and public relationships of sports teams, including Major League Winners: How Some Cities Turned Subsidies for Sports and Culture Into New Downtowns. “But when you do have a sports team, it is the most powerful tool in moving economic activity, especially urban activity.”

 

He adds that no other city, with the exception of New York, has committed to hiring as many construction workers for a stadium project. “Chris Ilitch has committed to having 51 percent of the construction workers be Detroit residents, which is unheard of,” Rosentraub says. “If you look at New York, there are 8 million residents and around 3.5 million workers, but when you look at Detroit there are 725,000 residents and around 300,000 workers. That pool of workers in Detroit is going to have access to a great economic stimulus.”

Taking the issue further, when Rosentraub studied the potential draw of construction workers to the project, he looked at 15 counties in southeastern Michigan and northern Ohio. Of those workers, only 4 percent are Detroit residents, he says. “Here you have a very good example of how a major sports investment can move economic activity from a region into the city,” he says.

Another factor is the future disposition of The Joe, which is scheduled to be torn down following the team’s move to the new arena. Under the deal, the Michigan Strategic Fund will extend up to $6 million for the demolition provided the city could arrange for a commercial development of the site in excess of $24 million. The Detroit Brownfield Redevelopment Authority will repay the $6 million from taxes it will collect from whatever succeeds The Joe.

Whether the replacement of The Joe is used to expand neighboring Cobo Center is anyone’s guess. Later this year, Cobo Center, which is operated by the Detroit Regional Convention Facility Authority, will complete a $299-million renovation and expansion, including the conversion of Cobo Arena into a ballroom, conference rooms, and atrium.

 

By most accounts, Detroit’s image is about to change in a decisive way. The city is positioning itself to engage visitors and even investors on the upside by leveraging its champion tradition as a sports town.

“People will look at having year round events in Detroit and say, ‘Yes, I can put a bar or restaurant in and have consistent business,’” Wilson says.

Because the new arena represents a third major sports stadium within easy walking distance of Comerica Park and Ford Field, total estimated economic impact of the three sports venues acquires added value. Because they link tightly with each other, they join an existing, profitable “Big Three” grouping of downtown Detroit casinos, providing daytime and nighttime entertainment.

The economic impact of trading The Joe for a new arena is likely to be significantly accentuated by a growing critical mass of easily accessed stadia to public and private transportation and by nearby modernization and expansions of the Detroit Medical Center, Wayne State University, and Henry Ford Hospital. The intersection of major arterials of roads and highways servicing traffic from all directions within metro Detroit, along with the planned Woodward Avenue M-1 Rail line makes the city a better, faster, and cheaper option for visitors and residents.

By itself, the new Red Wings arena would preface revenue flows from 41 sold-out regular season games (plus an average of six games in the playoffs) with 18,000 tickets per game, parking fees, and concession purchases.

In addition to 60-plus concerts, rodeos, and ice shows, along with $200 million in neighboring lofts, stores, offices, and entertainment venues, the estimated total annual spending impact for Detroit, with multiplier effects from ripples of original spending, could reach $389 million in 2017.

At the same time, baseball games at Comerica Park have generated north of 2.5 million ticket sales annually since 2006. What began as a $300 million construction project in 2000 with 42,000 seats has now, in 2014, expanded to 45,000 seats (including standing room tickets) with an updated field layout and new features like box seats in right field.

 

Annual revenue encompasses 81 games per season along with two to three concerts and various private events. Each gathering, which includes the cost of tickets, transportation, concessions, and promotional materials, should reach estimated total spending (including multiplier) of $330 million.

Ford Field for the Detroit Lions, meanwhile, has 60,000 seats, all of which are sold over the course of 10 games (including two preseason games). The stadium also hosts a dozen or so major events like concerts for an estimated spending impact, with multiplier, of $180 million.

When including all three stadiums together, annual spending by fans, along with all associated construction activity, should tally some $900 million in 2017, more than 75 percent above this year’s expected $506 million.

What’s more, synergies evolving from a judicious concentration of sports facilities and their infrastructures (e.g., lighting, roads, transportation, security) can improve probabilities that more enterprises — restaurants, hotels, entertainment, and recreation — will locate near the three stadiums.

“If you want to look at the impact that stadiums can have on Detroit, look at what happened on Opening Day,” Wilson says. “We had 45,000 people come to the game, and another 50,000 people who came to see the excitement. Now you add another 100 to 150 events (annually) to the mix, and there’s an energy you haven’t seen downtown in a long time. That not only changes our profile locally and nationally, but internationally as well. Who else will have three stadiums so close together?” db

 

ON THE RECORD Q&A

George W. Jackson Jr., President and CEO, Detroit Economic Growth Corp., 2002-2014 (retired March 31)

You did what?
I got the job no one wanted. There were six economic divisions (when I was at DTE Energy in 1984), and one no one wanted Detroit. But I was excited. Some people thought I had rubbed someone the wrong way. The beauty of it was I got the last laugh. Don’t get me wrong, it was hard. But I loved it. It allowed me to take the skill sets from my last job at Detroit Thermal (and Midtown plants), where I was in charge of all business processes. Everything from budgets, administration, union arbitration, case materials, public service commission (requirements); you name it. It was a heck of a resume builder. There was also security, basically anything the engineers didn’t do. It was a tough job. It wasn’t glamorous, but it was a life changer.

Your first job?
Playing the saxophone, clarinet, and what I call the mad keyboards. I was born in Detroit, went to Fitzgerald Elementary, Post Middle School, and Cooley High School. I graduated in 1970, went to Oakland University and earned a bachelor’s in human resources, and then a master’s in business management at Central Michigan University. I didn’t play (college) sports. So I was in bands all the way through college, which helped pay my way. I played in orchestras. You pay, we play (laughs). The music was fairly diverse — I was classically trained so we did classical, rock, jazz, and R&B. It was fun. The other thing was it taught me how to get up and perform before the public.

Hardest job?
I joined the Navy on August 31 of 1972 and came out on September 12, 1974. Out of boot camp, where I played in the band, I went to California and was assigned to the Navy jet fighters on the (supercarrier) U.S.S. Kitty Hawk. Sometime in the middle, after seeing some interesting parts of the world like the Philippines, Hawaii, Singapore, Hong Kong, and Kenya, I was selected to work in a special program as a racial awareness facilitator. It was a special assignment that required special training, including counter group discussions on race relations. We did encounter group sessions. It was very draining. You could only work two-and-a-half days a week (among other duties).

Your favorite project?
The riverfront (laughs). I was always really into civic affairs, and I took an interest in it very early. And I wondered at an early age, really before high school, why isn’t the riverfront open to the public? It was in other cities. When I negotiated (with the three cement silos along the Detroit River), the people on the other side were pretty open to the idea of moving. They knew they were in the way of a new era in Detroit. You know, it was the first time the riverfront had been opened to the public since the day Cadillac came here. It was transformational.

How about the new hockey arena?
I don’t want to say it was my swan song. I really had thought of taking it easier, and looking at other roles such as consulting. But, yeah, the hockey deal took years. All that training from DTE Energy really paid off, plus at the DEGC. If you look at the overall deal, the city is paying a fraction of what it paid for Joe Louis Arena ($57 million in 1979). The new arena puts you in a very competitive position relative to the rest of the country. We had to bring all of the outstanding lease issues to resolution, which wasn’t easy. It was like a 10-ring circus.

To your critics?
People tried to go around me when they couldn’t get their way. My thing was if you have the capacity to close a deal, and I’m talking about having all of the financing in place instead of stringing things along for months on end, then we’d be happy to look at the deal. It was never about politics. It was always about getting the best deal on the table. If it wasn’t there, we waited.

Best business moment?
Well, I guess this came about because of my dream of playing professional baseball. I was a pretty good second baseman, and I played every minute I could. During the summers, I always had a class in archery or music in the morning, and then in the afternoons it was all baseball. Well years later I was talking to Ernie Harwell, and we were at Comerica Park. Well I started talking to him about baseball, and he just blurted out, “You played second base.” I couldn’t believe it. It brought back all of those dreams of playing for the Tigers, but it never worked out.

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