Free Essay

Sports Economics

In: Business and Management

Submitted By twoods32
Words 1450
Pages 6
Chris Welter
William Welch
Econ 325
25 November 2014
Joe Louis Arena Joe Louis Arena was built in December 1979 in Detroit, Michigan for a total cost of $57 million. It is host to the Detroit Red Wings and is named after famous heavyweight boxing champion Joe Louis, who grew up in Detroit. Joe Louis is the fourth oldest NHL venue and is one of few NHL arenas that are without a corporate sponsor. Joe Louis is owned by the city of Detroit and is operated by Olympia Entertainment, which is a subsidiary of Illitch Holdings owned by Mike and Marian Illitch.
The capacity of Joe Louis is between 18,000 and 22,000 depending on the type of event being held there. The arena has hosted events such as the 2006 WNBA Finals championship game, also during the 1984-85 NBA season the Detroit Pistons were relocated to Joe Louis when the roof of the Silver dome collapsed. Other events that Joe Louis has hosted include World Wrestling Entertainment events, the 1980 Republican National Convention and three NCAA Frozen Four college hockey finals. In addition, Joe Louis Arena is also a concert venue. Until the Palace of Auburn Hills was built in 1988, Joe Louis Arena was Michigan's largest indoor arena for concerts.

Joe Louis Relocating
On July 20, 2014, following the approval of a $650 million project to build a new sports and entertainment district in Downtown Detroit, Christopher Ilitch unveiled designs for a new downtown arena near Comerica Park and Ford Field to be completed by 2017, which will now seat up to 22,000+ compared to the originally thought 18,500 seating capacity. Red Wings team offices will be connected to the arena, as well as apartments, restaurants, retail, parking garages and other to-be-decided development. “Concessions will be under a glass-covered ceiling around the venue, and a special emphasis in restaurant planning is a push for up-and-coming local chefs. The lower seating bowl and playing surface will be 32-34 feet below street level which also means the building will not be a massive, foreboding facility that towers above everything else in the neighborhood, Ilitch said. The arena may stand no more than two or three stories tall, with the entrances funneling onto the concourse level” (Shea). The new arena will be home for more concerts, shows and other events than it will play hockey games.
The new arena will succeed Joe Louis Arena as the future home of the Red Wings. Joe Louis Arena will be demolished following the completion of the new arena. “On October 16, 2014, lawyers involved in the ongoing Detroit bankruptcy case disclosed in court that after demolition, which would be paid for by the city and state, the land on which the arena currently stands, along with an adjacent parking lot, would be transferred to the Financial Guaranty Insurance Company (FGIC), a bond insurer with a $1 billion claim against the city” (Shea).

Benefits for the Illitch’s for moving Joe Louis
By relocating Joe Louis arena, The Illitch family which owns the Detroit Red Wings will not have to share revenues with the city of Detroit. “For over 30 years, the Red Wings have played at the city-owned Joe Louis Arena under an agreement that gives the city 10 percent of ticket proceeds, 7 percent of suite sales, 10 percent of food and beverage concessions, 5 percent of souvenir sales and other revenue from parking at all home games” (Lacy). Illitch has said that the sale of naming of the arena has yet to be determined, but whether or not there is a sale or name change, the family under agreement with the Detroit Downtown Development Authority can sell the naming rights and keep all revenue from such a deal.
The Illitch family will construct not just a new arena, but an entire city district, which will allow a new place for new residents to live and a new way for the family to create more revenue. “Olympia Development of Michigan, the development arm of Red Wings owners Ilitch Holdings, plans call for 184 new apartment units to be built in the roughly 45-block entertainment district between the Midtown and downtown areas of Detroit” (Lacy). The layout of these new apartments will be 56 loft units, 20 studio units, 72 1 – bedroom units, 20 1 – bedroom units, and 16 townhouses which will allow a diverse customer base to live in the apartments. Not only will the Illitch’s get all the revenues from a new arena and new downtown entertainment district, the state has agreed to cover the 6 million dollar demolition cost, which will keep that money in the pockets of the Illitch’s.

Impact on city of Detroit
The move of Joe Louis arena is estimated at creating an economic impact of at least $1.8 billion for the city of Detroit and the entire project is projected at creating 8,300 construction and other related jobs in addition to 1,100 permanent jobs along with region and state through new wages, materials, taxes and additional related spending. As the proposed development made its way through City Council, several council members said they would sign off on it so long as Detroiters would reap employment from it. As part of a concession management agreement Olympia made with the DDA, at least 51 percent of construction jobs for the new arena must be filled by Detroit residents. Olympia said in a release that this will equate to more than $100 million paid to Detroit workers.
Downtown Detroit's west riverfront will be transformed with a new hotel, residential and retail complex on the site of Joe Louis Arena and its parking garage, under a deal the city and its largest holdout creditor, Financial Guaranty Insurance Co., agreed to redevelop the 8.6 acres by 2020, with a new hotel that would serve Cobo Center alongside new retail and condos, a redevelopment that officials say could open up the west riverfront to even more development in coming years (Helms). The hotel, according to court filings, would have a minimum of 300 rooms and be no taller than 30 stories. Development at the site would include "office, retail, commercial, recreation, residential and/or condominium units as shall be determined by the developer" (Helms). The deal between the city and FGIC to develop the hotel on the site of old Joe Louis, will allow the city of Detroit with 7 billion dollars less in debt and liabilities, which is crucial in helping the city get out of the bankruptcy stink the city has from the rest of the U.S. “The arena and accompanying entertainment district are to be funded with a mix of $365.5 million in private investment and an estimated public investment of $284.5 million. Olympia would contribute $11.5 million annually for 30 years toward the construction debt for the arena. The DDA would contribute $2 million a year. And another $12.8 to $15 million a year would come from property taxes paid within the city's downtown development district” (Muller).
The new arena and entertainment district also has a few negative impacts on the city. Since the Illitch's do not have to share its revenue in the new arena with the city, the city of Detroit will miss out on the money they have been accustomed to receiving for the last 30 years. Although majority of the money being used to develop these new places is being fronted by either the Illitch’s or the city, they are still asking for the public to help foot some of the bill. The public portion of the funds is primarily being funded with tax-increment financing, which captures future property tax revenue while also banking on increased real estate values. The project has taken heat from some critics who say that using state taxpayer dollars to help fund a pro sports development in Detroit amounts to corporate welfare. “City and state development agencies including the Detroit Economic Growth Corporation and the Michigan Economic Development Corporation have defended the use of public money by arguing that the project's effect on Detroit will be beneficial to all Michiganders in the long run” (Helms).
Works Cited
Helms, Matthew. http://www.freep.com/story/news/local/detroit-bankruptcy/2014/10/16/fgic-settlement-update/17319079/. n.d.
Lacy, Eric. http://www.mlive.com/entertainment/detroit/index.ssf/2014/03/detroit_red_wings_move_out_of.html. n.d.
Muller, David. http://www.mlive.com/business/detroit/index.ssf/2014/10/650_million_detroit_red_wings_4.html#incart_story_package n.d.
Shea, Bill. http://www.crainsdetroit.com/article/20140720/NEWS03/140719845/detroit-rink-city-ilitches-grand-plan-to-supersize-the. n.d.

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