Canes, Centennial Authority Face Off Over RBC Lease
Posted December 19, 2007
Raleigh, N.C. — Negotiations between the Carolina Hurricanes and the state authority that owns the RBC Center over an extension of the team's lease at the arena are on thin ice.
The Canes are seeking an immediate reduction of their annual rent at the arena from $3 million to $2 million in exchange for adding five years to their lease agreement. The current lease runs through 2019.
"We've asked for assistance. It's fallen on deaf ears. We continue to negotiate, but it really hasn't happened yet," said Dave Olsen, vice president and general manager of Gale Force Holdings, the management team for the Canes and operators of the RBC Center.
Aside from the Canes' Stanley Cup season two years ago, Gale Force has lost money every year since moving to North Carolina in 1997, Olsen said.
Mike Amendola, the Canes' chief financial officer, said the hockey team lost between $4 million and $5 million last season. The team made between $5 million and $10 million the year they won the Stanley Cup, he said.
Olsen said Gale Force lost an additional $1.8 million last year on arena operations, putting Canes' owner Peter Karmanos' total losses for the year at more than $6 million.
"Our insurance since 9/11 and utility costs since 9/11 have gone up substantially. We continue to run the building at a deficit," Olsen said.
Annual utility bills at the RBC Center, for example, have jumped from abut $1 million to $2.7 million, he said.
"You have to sell a lot of sodas, a lot of beers, a lot of hot dogs, a lot of parking to cover those costs. We just can't get there," he said.
The Centennial Authority recently pledged $47 million in improvements at the RBC Center, including a new sound system and vending machines that accept credit cards. The authority would use its own revenue, hotel and meal taxes from Raleigh and Wake County and money from North Carolina State University, which also uses the arena, to pay for the upgrades.
"Anything you take away from the rent is obviously taking away from improvements that we can do to the building," authority member Reef Ivey said.
The five-year lease extension was initially part of the agreement for the arena improvements, Ivey said. But the authority struck that provision after Gale Force balked, he said, and chose to negotiate the extension separately while proceeding with the improvements.
"We're willing to make the building what the Hurricanes think it needs to be. But in order to do this, (they) have to tell us that (they're) going to be here ... over period of time so that we can recoup our investment," Ivey said.
Gale Force also would like to recoup something on its hockey and arena operations, Olsen said.
"When you're the only entity in a three-party agreement that continually loses money, you have to take a look at that, and you have to look at other partners and wonder why is that," he said.
If the Canes were to pack up their sticks and pucks and leave in 2019 – there's a hefty penalty for breaking their lease earlier – the arena deficit would likely more than double and area taxpayers would have to foot the bill, he said.
"We are a valuable commodity," Olsen said. "We're not taking advantage of that. We just want what's fair, not only as a tenant but as a party in this three-sided agreement."
Both sides said they expect to reach some sort of agreement eventually on the lease extension and the rent payments.
"There's nobody looking, certainly in our organization, that we're leaving here or want to leave here. But the business has to work," Olsen said.
"We don't want them to leave, and this is just kind of a normal negotiation between a landlord and a tenant," Ivey said.