Power Play

By
From the October 2013 issue of Columbus CEO

During any of 41 home games throughout the Columbus Blue Jackets’ 2013-14 season, a 135-foot light tower will illuminate the sky from the top of Nationwide Arena. It’s a far cry from the searchlights that scanned the valuable acreage years ago, when the Ohio Penitentiary was the main landmark in the now-posh Arena District.

The district’s transformation, and the National Hockey League team that spurred it, are part of a complex and ongoing saga, the central fixture of which is the arena itself.

The Franklin County Convention Facilities Authority (FCCFA) purchased the arena in March 2012 for $42.5 million, prompted by the ongoing financial troubles of the Columbus Blue Jackets and the financial losses the venue was accruing.

The news that Columbus would get an NHL franchise, in an arena not funded by tax dollars, was largely hailed as good news when the announcement was made in 1997 (see timeline). But by 2009, it was clear the Blue Jackets were in trouble, off the ice as well as on. After years of operating at a loss—a situation blamed largely on the team’s pricey arena lease—majority owner John P. McConnell made it clear that if the Blue Jackets didn’t find relief, the team would consider moving away from Columbus.

Together with city, county and state officials, Nationwide and the Blue Jackets worked for two years on the complex deal that took Nationwide Arena from private to public ownership. (Prior to the sale, Nationwide owned 90 percent of the arena and The Dispatch Printing Company, parent of Columbus CEO, owned the remaining 10 percent.)

“We are very pleased with where we are headed going into the upcoming season,” says Mike Priest, president of the Columbus Blue Jackets, via email. “The arena ownership model is operating as it was intended. We understand we still have a great deal of work to do, but we are very encouraged and excited about the direction in which we are heading.”

The ownership change eliminated the team’s $9.5 million annual lease expense, a savings expected to “make CBJ more competitive financially with other teams and, in turn, more competitive on the ice,” according to the 2011 Nationwide Arena proposal financial report outlining the deal.

The Lockout

After finishing the 2011-12 hockey season with the worst record in the NHL, the Blue Jackets faced criticism from fans who clamored for management changes and improvement on the ice. The arena deal was to have buoyed the Blue Jackets, giving the team an advantage going into the 2012-13 season. The icing on the cake: The NHL had selected Nationwide Arena to host the 2013 All-Star Game. It was a prime way to win taxpayers over to the new public ownership agreement.

“These events that come to town, the games and concerts and things, certainly drive people to restaurants and hotels and taxis and convenience stores, all those types of things,” says Xen Riggs, chief operating officer of Columbus Arena Management, the private organization that manages the arena under the county’s ownership. “It helps in that regard. Jobs—we provide a lot of jobs.”

However, on Sept. 16, 2012, the NHL entered its second player lockout in less than a decade. The truncated season and cancelled All-Star Game led to lost dollars—and déjà vu—for Arena District businesses, some of whom had already endured the cancellation of the entire 2004-05 season.

“No question, the lockout hurts the restaurants in and around the area—not only the restaurants that happen to be our tenants, but many, many restaurants and small businesses throughout downtown Columbus,” says Brian Ellis, president and chief operating officer of Nationwide Realty Investors (NRI). NRI, the development arm of Nationwide, oversaw the creation of and owns much of the district. (Capitol Square Limited, the commercial real estate arm of The Dispatch Printing Company, owns a 20 percent stake.)

Many of the 15 or so restaurants and bars surrounding the arena depend on business generated by Blue Jackets games, says Ellis. To lessen the financial ripples of the lockout, NRI provided a 50 percent rent reduction during the affected months to those tenants. “Unfortunately, this is the second time we’ve had to do that, but we’ve done it both times and I think it’s been helpful,” says Ellis. “It doesn’t solve the problem in my mind, and it was never intended to solve the problem. But it’s a show of support, and I think it helps them hang in there.”

Linda Logan, executive director of the Greater Columbus Sports Commission (GCSC), says the lockout had a detrimental effect on some businesses. “I think everyone would say that there were lost jobs, lost revenue or maybe income,” she says.

Part of the financial losses stemmed from the loss of the All-Star Game, which the GCSC had successfully rallied to bring to Columbus. The lockout torpedoed the game and the visitor revenue it was expected to generate. Though the NHL has informally committed to host the 2015 All-Star Game in Columbus as reparation, Logan says the city “definitely lost business, and we have a hole in our [hotel] occupancy for January of ’13 that we can’t make up.”

Better Days?

The lockout ended in January 2013, leaving enough time to salvage part of the Blue Jackets’ season. The next month, the team upped its game by hiring European hockey veteran Jarmo Kekalainen as its new general manager. Kekalainen—hand-picked by another relative newcomer, president of hockey operations John Davidson—oversaw a 29-game rally from February until the end of the 2012-13 season. The Blue Jackets posted a 24-17-7 record, the highest winning percentage in the team’s 12-season history.

Davidson was out of town and unavailable for comment. But Kekalainen says now that the lockout is over and the Blue Jackets are no longer burdened by a lease, the team is focused on its long-term goal: bringing a championship home to Columbus. “We have to make the playoffs. And when we do that, then we should be ready to compete for the Stanley Cup,” he says.

The team has already increased ticket sales heading in to the 2013-14 season. The front office set a goal of 8,000 season tickets, which it has already surpassed. The team sold 8,500 full season ticket equivalents as of early August, higher than both the 7,000 season tickets sold in 2012-13 and the roughly 7,700 sold in 2011-12. “For teams located in similar markets to ours, anywhere from 55 to 70 percent of revenue comes from ticket sales, and we are in the neighborhood of 15 percent ahead of a year ago,” says Priest. “We also expect modest improvement in our corporate partnerships and from a team perspective.”

Increased team revenue doesn’t mean a return on investment for the county, however. “We don’t expect the arena to turn a profit, but if they did, we would expect it would be a fairly small one,” says Bill Jennison, executive director of the FCCFA. Any profit would likely go into capital improvements, says Jennison.

The lockout contributed to the $704,000 operating profit Columbus Arena Management (CAM) reported in May. “We had less expense because of the lockout, but we also accelerated some projects and spent dollars that we wouldn’t have had time to spend to do some maintenance and upkeep on the building,” says Riggs.

Because 100 percent of the ticket, merchandise and related sales revenue from Blue Jackets games goes to the team (which now uses the arena rent-free), the arena depends on concerts and non-hockey events to balance its budget. With at least $2.4 million in receipts from those other revenue streams, Riggs says 2013 has been pretty solid year to date in the unpredictable live entertainment market.

Though CAM had about $1.2 million in reserve as of August, Riggs warns that the arena could easily have a year “where that could disappear.” The arena’s total $5,013,296 annual budget for 2013 is split into two parts: operating dollars ($3,942,071) and capital expenses ($1,071,225). While the operating budget is on track, lower-than-projected casino revenue has CAM concerned about the capital expense budget those gaming dollars go toward. CAM includes representatives from the FCCFA, Nationwide, the Blue Jackets and Ohio State University; the latter three are responsible for covering any future financial shortfalls at the arena.

“At some point, we’ll be at a point where we’ll have to make some tough decisions on how and what we do as far as trying to maintain the building,” says Riggs. “Right now, we’re showing a loss of, I think it’s $239,000,” in 2014.

The FCCFA borrowed $43.3 million from Nationwide to fund the arena purchase as well as operating expenses and capital expenditures; an additional $10 million loan from the Ohio Department of Development funded the balance.

The obligation will be repaid from Columbus’s and Franklin County’s shares of the new casino tax revenue stream. The agreed percentage begins at 25 percent in 2013 and increases 1 percent every year starting in 2016 until it hits a 32 percent cap in 2022. The payments are expected to end in 2039, depending on the rate of casino revenue generation.

Also as part of the deal, Nationwide purchased a $52 million, 30 percent stake in the Columbus Blue Jackets. (Wolfe Enterprises Inc., a subsidiary of The Dispatch Printing Company, also owns a 10 percent stake in the team. The other minority owners: Ron Pizzuti, founder of the Pizzuti Companies; the Crane family, owner of the Crane Group; and Horn Chen, a Chicago businessman who ran the now-defunct Columbus Chill hockey team.)

For an additional $28.5 million, Nationwide secured arena naming rights for 10 years. The team agreed to make Nationwide Arena its home through 2039.

Looking Back

From the day the Ohio Penitentiary was closed by judicial order in 1984 until the casino was voted out of the Arena District in 2009, those 75-plus acres have been viewed as the key to the city’s urban vitality. The progression from prison to NRI’s Arena District master plan was interrupted by objections from preservationists, lawsuits between the Blue Jackets’ original investors and also a public unwilling to finance a pro-sports team.

In 1996, then-Columbus City Councilman Michael Coleman called the original 22-acre pen site the “most important and potentially most valuable single site in downtown Columbus,” arguing against a proposal to construct Columbus Crew Stadium there.

The NRI arena proposal that finally won city approval was about more than bringing professional hockey to Columbus, says Ellis. NRI conceived of the arena as a catalyst to drive development Downtown; once the NHL agreement was signed and the proposal was approved in June 1997, NRI began acquiring surrounding land from the city and other entities. NRI unveiled its master plan in 1998 and has been focused on its execution ever since.

From 1998 to 2000, the city contributed an estimated $67.8 million in demolition, cleanup and infrastructure costs associated with the arena parcel, which was sold to Nationwide for $7.9 million, according to a 2008 economic impact study by Ohio State University’s John Glenn School of Public Affairs—the main study cited in public discussion of the arena’s impact on the city.

Nationwide Arena cost NRI more than $150 million to construct after voters shot down a sales tax levy to help fund the venue. At the May 1998 groundbreaking, representatives of the team’s private investors—Worthington Industries founder John H. McConnell and son John P. McConnell, Pizzuti, The Dispatch Printing Company’s John F. Wolfe, then-Nationwide President and CEO Dimon McFerson and Ellis—left their handprints in the cement alongside Coleman and then-Mayor Greg Lashutka.

“We felt like we had an opportunity, a once-in-a-generation opportunity, to bring the NHL to Columbus,” recalls Ellis.

NRI never expected to earn more than a “treasury bill kind of return” on the arena investment, says Ellis. The company looked at the development as a benefit for Nationwide employees and as a boost to its ability to attract and retain talent. The investment was primarily an investment in the city, says Ellis—one that would help generate returns on NRI’s future commercial development in the district.

According to the 2008 impact study, the Blue Jackets, Nationwide Arena and the now-defunct Columbus Destroyers Arena Football League team generated direct spending of $850 million during the first decade of operations. Between fiscal years 2002 and 2008, the teams and visiting opponents generated a combined $3.8 million in local income tax revenue. Between 2000 and 2008, the arena employed an average of 159 full-time and 972 part-time employees, not including players or third-party vendors. Visitor spending from beyond Central Ohio in area hotels and restaurants was estimated at $159.6 million from 2000 to 2007.

“We’ve gotten tremendous reception in the community and also really, really strong support from the business side of things,” says Ellis. Since the arena opened in 2000, it has anchored the district’s development. “Each and every phase has been high quality and has added value to the whole,” Ellis says.

One key plot that remains to be developed is the 25-acre parcel that was slated to be used by Penn National Gaming to build Hollywood Casino Columbus. As part of the deal to move the casino to the West Side, NRI bought the land, located at the end of Nationwide Boulevard behind Huntington Park, for $11 million. NRI has not committed to a plan, says Ellis, but is partnering with the city to upgrade the infrastructure in preparation for development. Ellis anticipates the land will house a mix of apartments and condominiums, along with a park that connects to the riverfront.

What the Future Holds

Today, the Arena District has developed into the city’s central entertainment corridor. The Lifestyle Communities Pavilion hosts an average of 120 concerts and special events every year and drew more than 300,000 attendees in 2012. Dallas-based Studio Movie Grill took over the Arena Grand cinema space, which it is now renovating. In 2012, Huntington Park had attendance of 611,223.

Likewise, the area remains a hot ticket in the commercial real estate market. Businesses have eagerly relocated to the district’s 1.5 million square feet of class A office space. Tenants include the FBI’s Columbus field office, the U.S. Small Business Administration’s regional office, Ice Miller, GBQ Partners, Turner Construction Co., Experience Columbus and a number of smaller companies and retail and service providers.

Columbia Gas of Ohio will relocate its headquarters from Civic Center Drive to a new 280,000-square-foot building across from Huntington Park. The company will be the district’s single largest tenant when it begins a 20-year lease in late 2014, says Ellis. The building is the last of those outlined in NRI’s original master development plan. Columbia Gas will benefit from a 10-year, 75 percent property tax abatement on the building. NRI did not receive tax abatements for any of its previous commercial buildings in the district, Ellis says.

The majority of Nationwide’s workforce is located in the Arena District, including 1,000 employees who moved from Dublin in 2012. That move was prompted by the same amenities that have drawn other businesses to the area, says Ellis. “It was, I think, really good for the employees,” he says. “The building functions very, very well, it’s in just the right location and it also supports our broader initiative in terms of Downtown development.”

To the north, the Arena District connects to a long stretch of Park Street bars and the North Market; from there, it’s a short walk to the Short North and the upscale restaurants on the Interstate 670 cap. In many ways, it has grown into a self-sustaining neighborhood. Yet the major players remain wary of losing the anchor for which the district is named.

The biggest return on the county’s investment is the sound financial footing it provides the team, says Jennison. “It’s allowed the Blue Jackets to move forward without the burden of having to subsidize the arena,” making it a long-term successful franchise, says Jennison. “[That] helps to bring more energy, more activity to the Arena District and support the businesses that have located there.”

The consensus is that the Blue Jackets will stay in Columbus beyond the end of their contractual obligation to play in Nationwide Arena. “Hopefully we’ll do a renewal long before 2039 and keep them here forever,” says Jennison. “That would be the expectation: They’re a successful hockey franchise, and Columbus is their home.”

The Jackets have already made strides on ticket sales goals, and Kekalainen expects those fans will see the team come back even stronger than when players left the ice last season. “I think that there’s a positive vibe going on in the city, and I think the team’s had a big part in it and earned respect through the performance and the hard work they had last year,” he says. “It’s a young team that’s going to keep improving and getting better. So we hope they’re in for the ride.”

Kitty McConnell is a reporter for Columbus CEO.

 

Arena District Timeline

1834 - The Ohio Penitentiary opens, housing 189 prisoners on 22 acres along West Spring Street between West Street and Dennison (Neil) Avenue.

1925 - The Ohio Farm Bureau Federation founds the company that becomes Nationwide in 1955.

April 1930 - An Ohio Penitentiary fire kills 322 inmates.

December 1976 - The first Nationwide employees move into the 40-story, 1.328-million-square-foot tower at One Nationwide Plaza.

1984 - The Ohio Penitentiary closes on U.S. District Court orders.

1993 - The 600,000-square-foot, $43 million Greater Columbus Convention Center is built at 400 N. High St. In 1999, it was expanded to 1.7 million square feet.

October 1996 - Ron Pizzuti announces that local investment group Columbus Hockey Limited has applied for a National Hockey League expansion franchise.

January 1997 - Nationwide Realty Investors (NRI) forms.

May 1997 - A proposed three-year, 0.5 percent sales tax to fund a Downtown sports complex to serve an NHL team and the Columbus Crew is defeated by Franklin County voters 56 percent to 44 percent.

Nationwide announces plans to finance a $150 million-plus Downtown hockey arena.

June 1997 - Columbus City Council approves a private arena development plan to be funded and owned by Nationwide (90 percent) and The Dispatch Printing Company (10 percent).

The NHL board of governors grants Columbus a hockey franchise to begin playing in 2000-01.

November 1997 - The NHL team is christened the Columbus Blue Jackets, a nod to Ohio’s Union army soldiers; Stinger makes his debut as the CBJ mascot in 1999.

May 1998 - Ground is broken on Nationwide Arena.

March 1999 - The Historic Union Station Arch moves from Front and Hickory streets to the park now known as McFerson Commons in the Arena District.

October 2000 - The Columbus Blue Jackets play their first regular season game against the Chicago Blackhawks.

October 2001 - PromoWest Productions opens the country’s first indoor/outdoor concert venue, PromoWest Pavilion (now Lifestyle Communities Pavilion).

2004-05 - NHL lockout cancels the CBJ season.

April 2009 - Huntington Park, home of the Columbus Clippers, opens in the Arena District.

November 2009 - Ohio voters approve a constitutional amendment to allow casinos in Cincinnati, Cleveland, Columbus and Toledo, with the majority of tax revenue to be distributed to counties, public school districts and host cities.

May 2010 - Ohioans approve Issue 2 to relocate the planned Columbus casino from the Arena District to the West Side. In August 2011, NRI purchases the 25-acre former casino site in the Arena District from Penn National Gaming for $11 million.

September 2011 - The Franklin County Convention Facilities Authority (FCCFA) introduces a plan to purchase the money-losing Nationwide Arena.

October 2011 - City council approves the arena purchase plan.

March 2012 - The FCCFA purchases the arena for $42.5 million.

September 2012 - The second NHL lockout since the CBJ came to Columbus begins.

October 2012 - Hollywood Casino Columbus opens along West Broad Street.

January 2013 - The lockout ends but results in a shortened season (from 82 to 48 games) and the cancellation of the 2013 NHL All-Star Game, which had been scheduled at Nationwide Arena.

February 2013 - The Blue Jackets hire Jarmo Kekalainen as the team’s third general manager and the first European GM in NHL history.

October 2013 - The CBJ season opens against the Calgary Flames at Nationwide Arena.

2014 - Columbia Gas of Ohio will move to its Arena District headquarters; it is the last building from NRI’s original master plan.

 

Sources: The Arena District: A Neighborhood 170 Years in the Making; the Columbus Blue Jackets; The Columbus Dispatch; the Greater Columbus Sports Commission; Nationwide Realty Investors