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The entertainment district doesn’t make the Red Wings new arena any easier for Detroit

new arena

(I previously said the Red Wing arena was $86 million too expensive. After doing more research I may be underestimating things.)

“Jobs. Housing. Hoops.”

It became a slogan in Brooklyn, one officials used to sell residents on using state and city funds to build a $1 billion new arena.

The Barclay’s Center would only be a piece of the development deal, they said. It would anchor a district that would also have affordable family housing, something residents have been craving, they said.

The arena opened last year. The housing projects are yet to break ground. The first building will include about half of what was promised in terms of low and moderate income apartments.

In Kansas City, the plan was to build the new Sprint Center through taxes on hotels and rental cars. The city would then build the Power and Light District next door, spurring economic activity downtown. Officials calculated costs and revenues down to the dollar. Expenses: $489,632,115 over the next 25 years. Revenues: $506,437,961.  The city’s windfall: a whole $16 million.

Today, the Power and Light District averages about $5.5 million in revenue annually. It’s debt payments are $19 million a year. (According to AEG, the company that owns the Sprint Center, the arena has made money for the city through a profit sharing agreement.)

Look at the plans for this new Red Wings Arena. Do you trust the Detroit Development Authority (DDA),  more than those developers in Brooklyn? This is the same organization the same body that refused to meet with senators to discuss Tigers Stadium and wouldn’t allow Chevy to maintain the field pro bono. Is Detroit, the city that holds as much as $20 billion in long-term debt and is under an emergency manager, really smarter than Kansas City?

The entertainment district isn’t going to save Detroit in this arena deal.

Crain’s Detroit acquired the memorandum of understanding. A conveniently worded “estimated $284.5 million” of public funds will go to the arena. Olympia Development of Michigan (Red Wings owner Mike Ilitch’s company) will pay for the rest, then either invest or find other private companies to invest another $200 million dollars into the entertainment district. If they do that within five years of the arena opening, the DDA will kick another $62 million back to Olympia, putting the grand total of public funds at $346.5 million.

Forgone property taxes — the DDA will own both the arena and the land in the entertainment district — plus the infrastructure and operations needed around the arena and the district will add to the public’s true cost of the development. In other cases, these have increased expenses as much as 25 percent. 

But the claims are the arena and district will generate $1.8 billion in economic activity. It will create 8,300 jobs. That’s not a bad return on a $346.5 million (and then some) investment.

If only it was true.

“It’s very easy to come up with pretty much any number you want to estimate the impact of a facility,” said Neil deMause, author of the book and blog, Field of Schemes. “You have to overlook a lot of things.”

Like that most of the impact is the same money that was being spent at Joe Louis Arena, or the Palace, or at a nice dinner, or a movie theater. It’s not new economic activity at all.

“There have been innumerable studies to try to figure out what the actual economic impact of sports facilities,” deMause said. “Study after study after study the (conclusion) is, ‘Well there might be some positive impact but it’s too small to accurately measure.’ It’s certainly not billions of dollars.

“Regardless of how much Ilitch is putting in, the question is, it is worth that much money for the City of Detroit or the State of Michigan — depending on how you look at it — to get the project done? Or are there better uses of the money?”

Those questions remain unanswered.

The DDA’s $64.5 million must be used on economic development, although few are sure what exactly falls within that scope. Previous money has been used on housing, office building and retail, most centered around parks.

The other public money comes from the House Bill 5463, passed last year. It allowed the DDA to take anywhere from $12.8 million to $15 million in tax captures intended for the State School Aid fund, which provides money to public schools. The money had to be used on a “catalyst project” worth $300 million or more.

“The actual revenue and expenditure impacts would depend on the specific characteristics of any property affected by the bill, as well as whether the development project would occur absent the bill.” (emphasis mine) — The financial analysis on the bill, done by an independent contractor and distributed to all senators.  

What if the DDA teamed up with the other billionaire in town, Dan Gilbert, and created an entertainment district without the stadium? Would that be better for the city financially? What if it pumped more money into the developments they’re already working on?

Would Ilitch move the team if he only got $100 million in the public funds? Would he have just sat on his wasteland of vacant property?

“It seems like this is rushing ahead without a lot of look at what the costs and benefits are,” deMause said. “All too often the officials don’t see this as negotiations. They’re engaged in more of a, ‘Oh, this is what they want from us. How can we get it for them?’ “

There is good news. This still may not be one of those times. The memorandum of understanding sill has to be approved by a number of entities, including Wayne County and the State of Michigan.

Maybe if you make enough of a ruckus, or maybe they’ll make a sound business decision.

But when’s the last time you’ve trusted them to do that?

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One comment on “The entertainment district doesn’t make the Red Wings new arena any easier for Detroit

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