Thursday, December 24, 2009

A New (Sub) Lease on Life

Nassau Veterans Memorial Coliseum
Our traditional Festivus airing of grievances continues in the previous thread (please feel free to add your own), but we have more important things to deal with.  Late last night, news broke (from behind a paywall) about a new lease agreement that could give the Islanders control over parking, concession, and other revenues from Nassau Coliseum.

B.D. and I got wind of this earlier in the night, and he pinged me, cryptically saying "Source says Suozzi is working on a new lease with SMG."  We initially barked up the wrong tree, concerned the outgoing County Executive had gone insane and was attempting to extend the horrific lease agreement that has crippled the New York Islanders and the facility at which they play for decades.  The news has thrown many people off-guard, and Islanders Country is scrambling to figure out what this means for the Lighthouse Project in general, and the team specifically.

I have spoken to some people in the know, and this is what I have so far:
  • This in no way shape or form means Charles Wang is abandoning the Lighthouse Project.  It is dangerously misguided to go down that road and assume "just an arena" is now suddenly acceptable.
  • It shows, as I have said numerous times, that Mr. Wang is very serious about getting a deal done on Long Island.
  • This is the big news: this is not a new lease agreement.  Tom Suozzi compelled a sub-lease between SMG and the New York Islanders/Lighthouse Development Group.
Last things first:

What Exactly Happened 

There are 3 main parties involved with Nassau Coliseum: Nassau County, which owns the building, Spectator Management Group (SMG), which manages the facility, and the New York Islanders, who play their home games at the facility.  The lease agreement was originally signed in 1979, and it only covers the County and SMG.  The Islanders play their home games at the facility, and they are entitled to what amounts to financial crumbs.  It is by far the worst lease deal in sports, and it has resulted time and again in the Islanders losing money as a franchise.  It was widely known that SMG would either be bought out or not invited back once the agreement expired, something the Lighthouse confirmed to me in February, given their abysmal handling of the arena.

This move is a bit of political genius because it addresses the money issue without touching the initial contract.  This is a good plan because contracts in the United States are largely considered sacrosanct, and it is very difficult to break them.  In this case, the Islanders/Lighthouse Development Group entered into an agreement with SMG that complements the original document signed with Nassau County.  This allows SMG to relinquish its right to some of the revenue streams, an action that benefits the Islanders financially.  At the same time, it does not subject the agreement to County approval, because the County is not a party to the agreement.  The only issue is for the County Executive to sign off on the deal, which Mr. Suozzi has now done (while he still holds the office).

To make matters even more interesting, this move almost certainly prevents Ed Mangano from canceling the agreement once he takes office.  He would have to compel the Islanders to relinquish their financial right, a move I simply do not see happening.

After reviewing all the information, I think I've figured out why SMG signed the agreement: they were likely forced.  Mr. Suozzi probably confronted them with 3 options: condemnation of the lease, a lawsuit for breach of contract, or signing this new sub-lease.  If that happened, it would make sense that SMG would sign the agreement.

Lighthouse Implications 

Some believe this bit of news means the Lighthouse Project is abandoned, and that is a misguided line of thinking.  This shows, as I have said all along, that Charles Wang's first choice - by far - is to get something done on Long Island at the site of the proposed Lighthouse Project.  This agreement frees up revenue streams the New York Islanders never enjoyed, and it will at worst stop the constant bleeding of money the franchise has experienced since Mr. Wang bought the team almost a decade ago.

At the same time, it will likely eliminate a major obstacle to the Lighthouse Project being completed.  SMG, according to the lease agreement, retains the right to manage any new/renovated arena built on the property, and, given the state of the relationship, they were likely to be excluded from the new arena (and the money to be made) once the deal either expired or was bought out.  That could have created a legal headache, but this seems like a win-win.  The Islanders get an expanded revenue stream, and SMG likely retains the ability to participate in a bidding process for the renovated building.

On the other hand, this may - MAY - be clearing the way for a renegotiated project.  I have shown through calculations why there is a Lighthouse Project, and anything built on the site would have to make more money than that which is spent on the arena renovation.  Opening up new revenue streams could be a potential way of accomplishing this.  Since the deadline passed on October 3, this is by far the most substantive action the Lighthouse Development Group has taken to show its commitment to the area, and, given the issues surrounding the project, it could not have come at a better time.

Political Fallout 

You can never accuse Tom Suozzi of being a passive politician.  In many instances - such as his election kick-off rally, which was held in front of Republican headquarters - the outgoing County Executive has enjoyed sticking it to his rivals, and this is no exception.  Much like Tom Gulotta rammed through an 11th-hour extension of the SMG lease through 2015 (aiding a company with close ties to Al D'Amato) before ceding his office to Suozzi, our outgoing County Executive had one last trick up his sleeve.  However, I do wonder if this could have been done earlier and was held back in the name of political expediency...

Naturally, Republicans in the Town of Hempstead and Mangano camps are livid, claiming this is an end-around by Suozzi and prevents the incoming administration from having a say in the issue.  While they may not like it, they do not seem to have any legal recourse.  This has occurred in American politics since John Adams' infamous appointment of the "Midnight Judges," an action which led to the landmark Supreme Court Case Marbury v. Madison and the establishment of Judicial Review.  Ed Mangano won the election, and he will take the oath of office January 1, but until that happens Tom Suozzi is the County Executive, and he is entitled to all the duties and benefits of that office.

That isn't to say that the issue could be completely out of the woods.  This move, and the Lighthouse Project's past close alignment with Democrats, could harden the incoming and entrenched Republican policy-makers against the proposal.  We've also established that other developers have been heavily donating money to Ed Mangano in an apparent attempt to curry favor in case the Lighthouse Project fails.  This move makes it more likely the project will happen, and some operatives may be disappointed.

At the same time, reader Jimmy makes an excellent point: these actions could be part of a campaign to make sure the Lighthouse Project is a top priority for Ed Mangano, who endorsed the project in his interview with me, once he takes office on January 1, 2010.

A Town of Hempstead source had immediate reaction last night, telling B.D. that the move needles Ed Mangano and could possibly signal the death knell for the Lighthouse Project.  If the Lighthouse resumes payments to F.P. Clark, fulfills its legal requirements, and properly finishes the environmental review, we could see a very good end to this process.  At the end of the day, it will require something that has been too often missing from the process: communication.

Bottom Line 

This is a bit of good news, but it remains to be seen how it will play out once the Mangano administration takes office.  We now see clearly that Charles Wang wants to make it work (despite those saying for certain that Brooklyn is all but done) right here, on Long Island.  The Lighthouse Project is now more likely to pass than it was as recently as last week.  If nothing else, from an Islanders perspective, this is a nice Christmas present.  Let's enjoy it for now.

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  1. Just wanted to say thank you to guys like yourself and BD Gallof for staying on top of this issue. Newsday leaves a lot to be desired and as an Islanders fan living in northern Westchester I have been given no recourse but to scour the Internet for any and all Islanders new arena news. Thanks for stating things clearly so that even the layman when it comes to politics and finances can understand.

    @GreenLanternJet (on Twitter)

  2. Oh, would you look at that? Someone who actually made sense of the whole situation, certainly better than Newsday, and I realize their job is to report and not speculate, but giving an inkling to what it could mean for the Isles' future would've been nice.

  3. Does this mean Wang and the LHP have full control of the Coliseum now? as in what events go on there as well. They could have plenty of leverage if all those expos, concerts, Warped Tour, and the Circus, that bring revenue to the town and county are say not allowed there? Seems to be they could be saying, Oh you don't want the LHP? thats fine, take your kids and yourselves to Atlantic Yards for some entertainment. Is this possible?

    -Pete (@mywakinglife)

  4. Pete, I genuinely don't know that. A few politically-connected friends are trying to get more information, but you and I both know there won't be anything until after the Christmas holiday.

  5. I think this is just an effort by Charles to improve his bargaining power in negotiations with Prokhorov. It definitely makes the team more attractive to Proky until Barclay's is ready and could increase Charles's asking price. I do not see how a major development project can happen at that site with Charles in charge. It is clear that the TOH and GOP leadership hate his guts, and I think the feeling is mutual. The Mondello mafia wants their boys in charge, and there's nothing Charles can do to change that (unless he wants to grease their palms).

  6. DOes this this sublease agreement between Isles and SMG allow the Isles to get out of the NVMC before 2015?

  7. Mikey - there does seem to be a level of dislike there. I hope they can work with the new administration - and maybe let Rechler take the lead, since everyone at TOH respects him.

    I didn't reach the same conclusion, but it's a potential other perspective.

    Jae - I don't think so. Suozzi talks about a disincentive to move, and I think this sub-lease is simply an agreement between 2 parties under the larger lease, which still runs through 2015.

  8. Thanks for the info - this really helps clear things up. hopefully this can impact the isles sign a good FA or two.

  9. i know almost nothing of lease agreements and related issues and i'm still perplexed about a couple of things. i'm also hesitant to take any of the parties in this completely at their word and wondering about what we don't know, which obviously is a lot. but it does seem like you did a pretty good job of sorting this out nick, so thanks for that. i'm one of those on the brooklyn bandwagon for some time now, and mostly for selfish reasons i admit, but i honestly feel it's a great idea for a lot of reasons. at the same time part of me has always hoped the team will stay where it is. at this point no outcome would shock me. i assume people on the nay side are trying to get a grip on all this presently and will come up with a move or moves of their own. it really is the homestretch now and as you note, there clearly is no done deal yet. in fact, a lot can happen on the homestretch, and i suppose this could still get a lot nastier than it's been before it's done.

  10. and mikey up there seems to have a pretty good grasp on the overall.

  11. I think this will definitely help them in this struggle, and I know I seriously appreciate Suozzi doing it.

  12. Oh and Newsday will report this after they read it and steal it from your piece

  13. Shame on Mangano..Instead of congratulating Wang for getting the Isles franchise out from under that crippling lease with SMG so he can possibly make some friggen money and possibly keep the team here he condemns the move..This is a good thing and Mangano looks like a selfish jack off, imho

  14. Hopefully the latest development means that Wang is telling TOH and Ed Mangano to **** off and leave Nassau county altogether

  15. Nice write up Nick! Can you please clarify if this move would generate additional revenue for Wang for ALL Coliseum events, not just Isle games?

  16. Anon - please see the above answer directed to Pete. I'm not sure about that, and given the holiday there is no chance of reaching anyone at the County until at least Monday.

    Jae - interesting perspective...what leads you to believe that?

  17. Hi Nick, I initially believed that Wang wanted to tell Republicans to **** off because the current sublease agreement hammered out by Suozzi does not involve TOH and have greatly angered the Republicans. Would they really get upset if they lose 500000 a year from the Islanders home games based on the % they use to bribe each other? Or will they get upset if those ticket proceeds disappear altogether by the Isles leaving before 2015? Also this sublease did not involve TOH, which is controlled by Republicans

    I will give you the following link:

    You can verify if this story is true.

  18. Nick just to clarify the % thing. When SMG was raking in 40% of single season ticket sales from the Isles, the Republicans were probably siphoning off a lower percentage of the Isles ticket proceeds to pay off each other (as Nassau county was getting 50% of single season ticket sales from the Isles). Also, SMG was likely bribing these Republican crooks as well. However, as the SMG can't bribe these crooks as much as they're used to due to the current sublease agreement, the crooks can siphon off a higher percentage os the Isles ticket sales that Nassau County receives to make up for the difference. A shortfall of 500000 probably wouldn't be a big deal, compared to tens of millions they could be losing by the Isles leaving before 2015.