Halo

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GAMESMANSHIP
Blanco, Benson face off over state's shortfall on money due Saints Blanco: Wants to defer payments and renegotiate deal. Benson: Says pay up, but might consider compromise for new stadium

Thursday, June 03, 2004
By Jeff Duncan
Staff writer

Sports marketing expert Dan Barrett prepared a detailed 18-page report that meticulously outlines the state's financial dilemma in its $186.5 million incentive deal with the New Orleans Saints.

Tim Coulon says it's not all that complicated.

"The Saints want their money, and the state doesn't have the money to pay them," said Coulon, the former Jefferson Parish president who chairs the Louisiana Stadium and Exposition District commission recently appointed by Gov. Kathleen Blanco to evaluate the situation. "The governor simply can't write a blank check to balance it out."

Under a deal signed in 2001, the state is obligated to pay the Saints $15 million by July 5 or risk defaulting on its contract. Right now, it's $7.1 million short, largely because of a decrease in hotel-motel tax revenue. If the state defaults, it would have 75 days to address the matter or the Saints would be free to leave Louisiana without paying a $75 million exit penalty.

Coulon said the state is hoping to restructure the deal and avoid such a scenario.

"At no point in time have we discussed a default," Coulon said. "The governor has never said we would not honor our commitment. What we're asking them for is some short-term help. Obviously something has to be done."

That something is shaping up as a politically charged face-off between two of Louisiana's most influential power brokers: the governor and Tom Benson, owner of the state's most popular professional sports franchise.

Though Blanco and Benson have remained quiet since an initial one-hour meeting May 21 in New Orleans, sources on both sides expect a spirited debate in coming weeks. Blanco and Benson are scheduled to meet again today, two sources told The Times-Picayune.

Blanco wants Benson to agree to defer the July payment, accept the state's offer to renovate the Superdome and let the governor find new sources of revenue for the long term and for the renovation, spokeswoman Denise Bottcher said Wednesday. The Saints want the state to commit to making this year's payment and begin negotiating a deal extending beyond 2010 that includes a new stadium, two sources said.

So far, the Saints have shown little sympathy for the state's problem. Benson's message to Blanco during their one-hour meeting two weeks ago was straightforward: The state agreed to the deal in place and should honor it.

"Mr. Benson is of the opinion that we have a deal, and he hasn't deviated from that," Coulon said.

Benson, through a team spokesman, has declined comment. Arnold Fielkow, the Saints' executive vice president for administration, said Wednesday that the Saints negotiated the deal with the state in good faith.

"We certainly hope an agreement that's less than 2 years old would be honored and complied with," Fielkow said.

But NFL observers see a clash coming that may be difficult to resolve.

"It's not a pleasant situation," said Marc Ganis, president of Sportscorp Ltd., a Chicago sports consulting firm. "From Tom Benson's perspective, he feels he's signed a deal. From the governor's perspective, she doesn't have the money. It's tough for both of them. The key question is: Are they going to continue to go through this every year?"


Caught in a downturn


State officials thought they had settled this issue three years ago when they reached a 10-year, $186.5 million deal with the Saints that promised to keep the team in New Orleans through 2010.

The cornerstones of the deal are annual inducement payments designed to keep the Saints, who play in one of the NFL's smallest and poorest markets, competitive. The yearly subsidies started at $12.5 million in 2002 and escalate throughout the life of the contract to as much as $23.5 million in each of the final three years.

Three revenue sources were identified to finance the inducements: hotel-motel taxes from Orleans and Jefferson parishes; a naming rights deal for the Superdome and New Orleans Arena; and self-generated revenue from the Superdome and the arena.

The deal was signed Sept. 26, 2001, two weeks after the Sept. 11 terrorist attacks. In the ensuing months, tourism plummeted. Insurance costs soared. Tech companies, many of which had pursued naming rights deals, closed.

Most of the state's revenue streams tied to the agreement, which had been growing steadily for years, slowed to a trickle or dried up completely in the economic downturn.

"We would not be having this conversation right now if not for 9/11," said Dan Barrett of Barrett Sports Group LLC, a Manhattan Beach, Calif., sports consulting firm commissioned by the state to analyze the deal. "The underlying economic formula of the state's deal changed as a result of 9/11. It was impossible to predict that."

Before the Sept. 11 attacks, the hotel-motel tax had increased at a rate of 8 percent a year for the previous nine years. When the deal was negotiated, state officials projected a 7 percent increase into their revenue calculations. Instead, the tax revenue dropped 4.5 percent in the year after the attacks.

The state also was short last year, making up most of a $6 million shortfall in last year's $12.5 million payment with a $3 million grant from SMG, the private company that operates the Superdome for the state, and $2.3 million from a fund normally funneled for Superdome capital repairs. In return, SMG received a six-year extension of its contract with the state.

"It's clear the financing didn't materialize," Coulon said. "Not only did the hotel-motel tax not grow, it decreased.

"I'm not much into the blame game. It is what is it. Obviously the deal didn't put much risk on the part of the Saints. The deal is flawed somewhat from that respect, and we're going to have this problem every year for the lifetime of the agreement unless it's renegotiated."

The deal has had residual effects.

Money normally targeted for other uses has been redirected to the Saints to make the payments. Raiding $2.3 million of the Superdome's renewal and replacement account, for example, took money typically used to update and maintain the stadium.

And that has an effect on New Orleans' ability to attract major sporting events. The Superdome's lack of modernization, along with its limited number of lower bowl seats, was cited as a reason why New Orleans was passed over last year when the NCAA awarded Final Fours from 2008-2011.

The Greater New Orleans Sports Foundation also has taken a hit. More than $1 million normally used to finance operations has been channeled to the Saints, forcing drastic cuts in staff and operations. President Jay Cicero said his staff has shrunk from 22 to 13 and that the foundation has cut in half the number of events its sponsors annually.

"We simply can't afford to do the things we used to do," Cicero said.

The structure of the Saints' deal, featuring guaranteed annual cash subsidies, made it unique in the NFL and caused some industry experts to compare it to the city of San Diego's much-maligned ticket guarantee with the Chargers. Under its 1995 lease, the city guarantees the Chargers revenue equivalent to the sale of 60,000 general admission seats at each home game. The deal runs until 2007.

"Any deal that has an annual appropriation is not healthy for the team or the government," Ganis said. "A deal that is subject to annual budgetary constraints is undesirable and fundamentally flawed for both sides."


Seeking a compromise


In their presentation last month to Benson, state officials reminded him of previous lease concessions they made to his benefit, first when he bought the team in 1985, and again in 1994.

The 1994 renegotiation helped the Saints' profit margin by capping the team's rent at $800,000 a year until the lease expires in 2018, increasing his take of game-day concession sales to 42 percent, up from 35 percent, and eliminating his in-stadium game-day expenses. The deal kept in place revenue streams flowing to the team, such as 100 percent of game-day parking, 100 percent of Superdome tours year-round, 100 percent of annual box suite revenue, and 100 percent of game-day Superdome advertising.

The state has recommended several options for new financing, most involving proposed tax increases on hotels and motels, car rentals, cigarettes and ticket sales.

New Orleans Mayor Ray Nagin said Wednesday that he will continue to follow the governor's lead in trying to find a way to pay the Saints and resolve the long-term issues.

"I'm supporting whatever the governor decides," said Nagin, who called the matter a "state deal." "She's looking at a number of options."

Though Nagin said Blanco is considering increasing the hotel-motel tax, he said such an increase is a secondary option. Nagin said he has not yet met with local tourism leaders regarding the issue.

"This is a very delicate matter," Nagin said. "There's no concrete source that has the money right now."

The Greater New Orleans Hotel & Lodging Association issued a statement Wednesday opposing any increase in the hotel-motel tax.

"We recognize the importance of the Saints and the Hornets to the community, however the Greater New Orleans Hotel & Lodging Association can not support an increase in the existing tax," it said. "The current business climate is unpredictable, and research has proven over and over that increases in local hotel taxes are detrimental to a tourism economy."

Another recommendation calls for a $150 million renovation of the Superdome to add more suites and other amenities that would generate about $12 million to $15 million in additional annual revenue for the team. A stadium study also done by Barrett Sports Group says this type of renovation is more cost effective than building a new stadium.

In the past, though, Saints officials have preferred that the state not make major upgrades to the Dome, opting instead for direct payments to the team. But this time state officials may see revenue-producing stadium improvements, which could help solve the long-term financing problem, as a critical component of any renegotiated agreement.

"What the governor is saying is, 'Mr. Benson, you came to us a few years ago when you needed help,' " Coulon said. " 'Now we're asking you to do the same thing until we can find a solution to the problem.' "

Based on the Barrett report, Blanco is focused on the Dome renovation, according to Bottcher, her spokeswoman. It would be tied to a new agreement and a long-term commitment by Benson to keep the team in New Orleans.

"The bigger picture is a newer, renovated Dome," Bottcher said. "The general fund is only a last resort."

If Benson agrees to renegotiate, Coulon said the state plans to pursue two options to honor its commitment to the Saints: Seek legislative approval to make a one-time exception to dip into the general fund for the $7.1 million, or ask Benson to agree to deferred payments to give the state time to seek new revenue sources.

Although Blanco has said she will not use dollars from the general fund to pay the team, state officials think she might be able to land legislative approval for a one-time payment if Benson agrees to renegotiate the existing deal.

Saints officials, in turn, are expected to seek a more lucrative long-term deal that includes a commitment to build a new stadium by the end of the next decade.

"We agree with that," Coulon said. "But it has to be a long-term deal that is mutually beneficial."

A long-term deal, which would commit the team to the area for the next two decades, is at the heart of a proposal team officials presented to Gov. Foster last summer. The long-term deal included a modest upgrade of the Dome and a commitment from city and state leaders to build a new stadium by 2020.

Fifteen NFL teams have built or have approved plans to build new stadiums since 1998. The Superdome, which opened in 1975, is the third-oldest stadium in the league.

Throughout his tenure, Benson has reiterated his desire to keep the team in New Orleans. At the same time, he has remained resolute in his quest for a new stadium.

However, a report by Barrett Sports Group says a major renovation of the Superdome would be more cost effective and produce more revenue than a new stadium.

But if Benson doesn't get his stadium or a long-term deal, he can always use relocation as leverage, as he did in 2001 when he at one point discussed getting a stadium built in Mississippi.

For any NFL team looking to move, however, a more likely destination is Los Angeles. NFL Commissioner Paul Tagliabue last week said the league hopes to pick a stadium site in the Los Angeles area within a year and plans to have a club ready to play there by 2008.

In the past, Tagliabue has said it is possible the league could award an expansion team to Los Angeles. But while league owners would figure to cash in on an enormous expansion fee, which could be as much as $800 million according to some estimates, there doesn't appear to be sufficient support among league owners to add an expansion franchise in Los Angeles. The introduction of a 33rd team would create major scheduling problems for the league as well as the question of which of the NFL's eight four-team divisions would get a fifth team.

The Saints, along with the Chargers and Indianapolis Colts, are mentioned as the likeliest candidates among existing franchises to move to Los Angeles if the league settles that market's stadium issue.

"New Orleans and Louisiana do have ways to opt out of this situation: by committing to a long-term deal with a renovated Superdome or a new stadium," Ganis said. "Either way, it's going to take a substantial amount of money to do it.

"It would be stupid to look at this as only a short-term economic situation. The community needs to decide how important the Saints are to the fabric of the community. The community needs to decide if the Saints are a priority. It's a decision the community needs to make rather than go through this Chinese water torture every year."

GumboBC

I read this earlier. Man, I just can\'t understand Blanco. The State of Louisiana has a legal binding contract with the Saints. They need to honor that contract. By not doing so, they are making themselves look bad.

At the very least they should make the payment to the Saints THIS year and THEN renegociate if that\'s what they want to do. And I don\'t want to hear all that crap about they don\'t have the money. They can ALWAYS find the money.

I\'m really not too concerned about it. I think in the end that everything is going to work itself out. Of course this is a high profile story for the media and they are going to run with it.

I see no way Blanco or anyone else is going to let it get to the point of where the Saints can leave New Orleans.

Halo

Funny thing is when Avondale\'s deal was on the table, which also includes financial compensation from the State, the Governor jumps right on that and that deal must be completed and paid.

The Saints have over 400 employees and has an economic impact of over 400 mil annually, and after the pay outs, the State banks 15 mil in the general account without doing anything. Without the payouts to the Saints the State banks tons. Benson wants his share of what his company brings in to compensate what he does not make up in revenues because New Orleans is a small market. The money generated is generated by the Saints.

All anyone from outside New Orleans can say is, \"the Saints don\'t win\" which has nothing to do with anything. If a ship from Avondale sinks, no one cares, it doesn\'t matter- they bring revenue to the State. If this is a \"New Orleans issue\" and the State does not support the team, then all the revenue the Saints produce should ONLY be used for the City of New Orleans and the rest of the State should not benefit from its use.

GumboBC

There\'s no question that the money the Saints generate helps the whole State of Louisiana. It\'s not just NOLA that benefits.

It\'s also a \"no brainer\" that the State benefits without having to do anything.

I think what it boils down to is Blanco feels Benson is getting too good a deal from the State. She views the Saints as a different type of business that someone like Avondale and sees Benson as a fat cat getting fatter off the State of Louisiana.

I\'m sure the State of Louisiana is having some money problems. But I think she was looking for an opportunity to renogciate the deal. It\'s obvious she doesn\'t support the deal that Gov. Foster made.

I think she\'s trying to make a hard line stand, but she had better be careful. Benson is no dummy. I think when push comes to shove, Blanco will cave under the pressure.

WhoDat

Guys - on this I agree that the State should pay up and probably do some major renovations to the Dome (at LEAST $150 Mill worth).

However, the basic question remains the same: \"The key question is: Are they going to continue to go through this every year?\"

That\'s the important thing. When I read this, I see ALL these concessions that the State is making to boost income for the Saints. Reducing rents, giving larger portions of the Dome\'s revenue, paying the team directly...

Why? Is Benson just a greedy old man? I don\'t think that is the case. The sad truth is that the NO economy is shrinking or at very least stagnant. It has been that way for 20 years since big oil left. At some point you have to wonder what it will take for the State to keep the team... and unfortunately, at some point, they will not be able to justify $25 million in direct payments, and concessions in a variety of other areas, all for what amounts to less than $25 million in taxes paid directly back to the state.

I know, I know. I don\'t like it. I don\'t think it is right, but the bottom line is, unless the city and State can improve the economic conditions surrounding the team so that Benson can generate larger revenue streams from corporate sponsorship/involvement and increased merchandising, this team WILL eventually leave. I\'m sorry, but that is the case. Bottom line - Louisiana is too stupid and too poor to continue to support the Saints long-term. That\'s not a knock - I\'m born and raised - but when you rank last in education every year, when you have one of the lowest standards of living in the country, and when your chief industries come from a port on a river that is trying to turn and tourists who are increasingly scared to travel or have other cleaner newer options - eventually, something will give.

[Edited on 3/6/2004 by WhoDat]

\"Excuses, excuses, excuses. That’s all anyone ever makes for the New Orleans Saints’ organization.\" - Eric Narcisse


\"Being a Saints fan is almost like being addicted to crack,\" he said.[i]\"You know you should stop, but you just can\'t.\"

saintz08

What it boils down to is , Blanco is a woman and women love to argue . They love to get a deal too ....

Halo

They had a press conference today and it wasn\'t said but what it appears to boil down to is if the State is going to go through this every year, they want assurances that the team will not leave anytime in the near future. They want to go ahead and do the renovations to the Dome asap because by 2020 the Dome will have to be re-renovated or a new stadium wil have to be built. She is trying to get them to commit through 2020 or so and have the Dome renovated sooner if possible. I think it\'s a good thing. Benson appears to be happy.

GumboBC

I think I\'m just going to give up trying to make any sense of this situation.

According to Benson he told Blanco that the State must honor the original agreement

Who knows? I hope you\'re right Halo. I hope Benson is happy. I\'ve read conflicting articles on the meeting today.

[Edited on 4/6/2004 by GumboBC]