INSIDE HOCKEY

Last month, I examined some of the core issues surrounding the Columbus Blue Jackets' disclosure of ongoing deficits and the efforts to secure a long term solution. This month we go back in time to examine how a bizarre combination of circumstances and personalities resulted in both the triumph of the NHL coming to Columbus, and the economic shortcomings of the structure under which they exist.

First, as will become apparent in Part Three of the series, this is not a Phoenix situation. Columbus enjoys a strong market, solid ownership, a stockpile of young talent and a vital Arena District that would not exist but for the Blue Jackets and the courage of some prominent local fathers. All of this came at a price, however, as the club is now learning.

The saga begins in 1994, when a triad of divergent interest groups were exploring possibilities for new sports venues in Columbus. In one corner of the triangle was the late Lamar Hunt, who had just brought the MLS's Columbus Crew to the area, and was looking to establish a publicly funded soccer stadium the club could call home.

In the next corner was The Ohio State University. President E.Gordon Gee and Athletic Director Andy Geiger coveted their own state of the art arena to replace the aging St. John Arena, house the university basketball and hockey teams, and host concerts and other public events to create added revenue.

The third corner was occupied by a cadre of local businessmen and the Franklin County Convention Facilities Authority (FCCFA), who were looking for a facility that would attract professional sports to Columbus, with a specific focus on the NHL, and would also serve as expansion capacity for the Convention Center (which sits a soft pitching wedge distance from where Nationwide Arena stands today).

Obviously, the existence of a soccer stadium would not meet the needs of the Convention Center/NHL contingent, nor would an arena help the soccer club. So, both of those needed to be addressed. The stickier issue was the prospect of "dueling arenas", one operated by OSU and the other operated by the FCCFA, sitting just a few miles apart. In June 1994, Columbus mayor Greg Lashutka and OSU President Gee appointed representatives to attempt to work out a cooperative arrangement. 3 months later, the committee reported no hope of success.

OSU proceeded full speed ahead with their effort, securing $15 million in funding for design studies from the state legislature, which simultaneously rejected $1 million in funding for a feasibility study for the publicly funded effort. The legislature did indicate that state money could become available for the arena/soccer stadium project if the voters passed a sales tax increase to account for a substantial portion of the funding. For OSU's part, funding was conditioned on representations that no more than 10% of available event days could be devoted to profit making outside events, that no skyboxes or other 'premium' seating would be provided, and that it would not directly compete with an eventual downtown arena. (Ohio State has disputed the binding nature of these representations.)

In March 1995, a ten-person committee was formed to lay the groundwork for the arena/stadium proposal. Their report came in November, recommending that separate ballot initiatives for the arena and stadium be submitted to the voters on the Fall 1996 ballot. Based upon discussions with the Franklin County Commissioners, 20% of the total cost would need to come from private sources before the Commissioners would authorize the ballot initiatives.

While the private funding was being put together in early 1996, key local business leaders and Lamar Hunt received favorable input from Commissioner Bettman and the NHL, and elected to proceed with the effort to secure a franchise. The Columbus Hockey Limited Partners was established in March, with Lamar Hunt designated as the managing partner. OSU broke ground on its arena on April 2, 1996, and the $100,000 franchise application fee was submitted to the NHL in November. As the clock rolled toward New Years Day 2007, the stages was set for the fireworks to begin.

The Columbus Hockey Limited Partners made their initial presentation to the NHL in January 1997, and by all accounts received a favorable response. Though many wanted the arena/stadium initiatives to be put on the ballot in November 2007, the NHL was slated to award the expansion franchises on May 9. It was feared that the absence of a formal Arena plan would jeopardize the franchise chances, so with Lamar Hunt leading both the stadium and area initiatives, the decision was made to seek a May ballot date for a single ballot proposal, encompassing both the arena and the soccer stadium. On February 18, with Bank One, Nationwide and Worthington Industries providing the necessary private funding commitments, the Franklin County Commissioners approved a May 6 ballot date. This gave the proponents only 10 weeks to convince the voters -- a substantial challenge, given the fact that the same voters had rejected arena plans in 1978, 1981, 1986 and 1987.

Curiously, OSU President E. Gordon Gee was named to spearhead the campaign, a decision that the proponents lived to regret. Though not openly antagonistic to the arena, Gee was far from the outspoken, enthusiastic advocate that the effort required. Perhaps unwittingly, Gee's wife submitted a Letter to the Editor, published in the Columbus Dispatch,chastising the Columbus City Council for some of their arena related decisions, which most viewed as a damaging the arena effort. Gee left Ohio State for Vanderbilt University later in 1997. (He has since returned to OSU). Local anti-tax advocates were quick to pick up the scent of blood, led by Richard Sheir, who had been active in the defeat of the prior arena efforts (Sheir has since moved to Vermont).

As April dawned, a murky situation became even more complicated by the entry of Pete Karmanos, Jr. into the fray. Karmanos, the Chairman of Compuware Corporation and owner of the Hartford Whalers (now Carolina Hurricanes), swept into town broadly proclaiming his interest in moving his club from Hartford to Columbus. He proposed interim use of state fairground or airline hangar venues while an arena deal was pursued. Then, as quickly as he appeared, he was gone, finalizing his deal in Raleigh. It could not have come at a worse time, as the skeptical local electorate was now convinced it was being used as a pawn by outside monied interests.

Also in April, in an apparent effort to mitigate the damage done by Karamanos, Hunt submitted a Letter of Intent to the FCCFA, committing to a 25 year lease for both the stadium and arena, agreeing to pay $3 million in rent and a guaranteed $200,000 annual profit to the FCCFA each year for the duration of the lease, in exchange for all of the revenue from each venue. At the same time, however, Hunt confided to Commissioner Bettman that if the ballot initiative failed, he would pull out of the effort.

City fathers, in the meantime, were promoting the new Arena District that would emerge from the ashes of the abandoned Ohio Penitentiary Site, where both the Arena and the soccer stadium were planned.

Ultimately, however, the prospects for transformation of the dilapidated Penitentiary Area and promises of prosperity were insufficient to overcome the native skepticism of new taxes and the perception that Columbus was being used by outside interests. On May 6, 1997, the voters rejected the proposal for a temporary tax to support the arena and the soccer stadium, with 56.3% of the votes falling against the initiative.

Rather than accept defeat, two local leaders emerged to take up the battle. John H. McConnell, Chairman of Worthington Industries, contacted Gary Bettman and assured him that he would "find a way to get a deal done." At the same time, Dimon McFerson, CEO of Nationwide, became more convinced than ever that the arena needed to be built. Apparently believing that something could be done, the NHL postponed its announcement of the new expansion franchises from May 9 to June 25. In the interim, Bank One, who had pledged $35 million in private funding for naming rights, pulled out of the deal.

McFerson traveled to New York and met with NHL officials, outlining the barest sketches of a plan, which hinged on Nationwide stepping up and building the arena. THe NHL expressed interest, but indicated that they would need a signed lease. Calculating what he would need from the City, McFerson put a lease together and submitted it to Hunt, who was still designated as the Managing Partner for the NHL franchise proposal. Hunt did not respond.

Undaunted, McFerson presented his proposal to the Columbus City Council on June 2, 1997. It called for the City to provide infrastructure improvements for roads and access to the site, a 10 year lease for the site, with an option to purchase. It further sought for a "blighted area" declaration, so that the FCCFA could use eminent domain to acquire needed parcels, and lease those lands to the developers for 99 years. It finally called for the city to clean up any toxic waste issues at the old Pen site, and to provide a tax exemption for the site for 15 years. With some modifications, primarily designed to insure continued revenue flow to local schools, McFerson's plan was approved.

At this point, Hunt came out and rejected the lease, stating that the arrangement would guarantee losses of "$25 million per year for the duration of the lease." That day, McConnell, who passed away in 2008, asked McFerson if the lease was fair. Assured that it was, McConnell signed on behalf of the Columbus NHL franchise effort, and submitted the signed lease and an application in his own name on June 4, 1997. McConnell always maintained that he never read the lease before signing, nor did he ever read it. The NHL approved McConnel's application on June 25. Though Hunt filed suit to block the deal or force a share for him, the effort failed.

As noted in Part One of this story, the deficits the Blue Jackets face are attributable almost exclusively to the original lease deal they signed with Nationwide. Does that make Nationwide or the Blue Jackets the “bad guys” in this story? Not at all. Nationwide stepped up to the plate and filled the void left when the voters rejected funding for both the stadium and the arena. (Hunt later funded the existing Columbus Crew Stadium near the State Fairgrounds).

They had limited time in which to act, and assumed considerable risk in fronting the financing for the arena that now bears the Nationwide name, and leading the development of the now-bustling Arena District. Sure they received nice tax breaks and property at bargain levels, but the risk was tremendous. Moreover, as anyone who has walked into Nationwide will attest, they cut no corners and provided Columbus with a top-flight venue for hockey, concerts, the Arena Football League, and a plethora of other events.

Nor can John McConnell be faulted for stepping up when Hunt failed to act. Anything less would have likely cost Columbus the franchise, and McConnell did not want to see that happen. He was (and still is) adored as the savior of the Columbus NHL aspirations, and viewed the effort as a repayment to a city that had been good to him. He recognized that there are times to negotiate and times to act, and June 1997 fell in the latter category.

So, was Lamar Hunt correct when he predicted massive losses with the lease as presented? Maybe yes, maybe no. Franklin County Commissioner John O’Grady concedes that the current situation “was probably inevitable”, given the lease, and former Mayor Greg Lashutka has also opined that some form of relief was likely to be needed from the start. As Lashutka correctly points out, however – lots of other intervening events have arisen , including the Dot Com crash, 9/11 and turmoil in financial markets in general. The work stoppage that wiped out an entire season hurt expansion clubs more than the established teams, particularly in markets where NHL hockey had not previously existed.

Certainly, the losses have not risen to the magnitude predicted by Hunt. On the positive side, the organization has created a thriving hockey market that is poised to blossom further as the teams fortunes rise. The Arena District is a model of urban renovation that other cities are pointing to as an example of how blighted areas can be transformed to productive uses. The future is bright... so long as the lease issue can be fixed.

In the final analysis, the voters perhaps were correct in 1997, in that Columbus was (to an extent) being manipulated by outsiders (Hunt and Karmanos). The OSU arena was a distraction that led many to doubt the need for a second venue. Hunt always had the soccer team as his primary goal, and it was probably unwise to allow him to lead the venture. Karmanos was blatantly flashing the Columbus card to get the folks in Raleigh to take notice and up the ante. Such is life in the business world, and valuable lessons were learned.

The unique circumstances arising in the Spring of 1997 have created an anomaly in American sports – a privately funded arena, in which the tenant franchise has no ownership interest. Only the San Francisco Giants in baseball have a privately funded stadium, and the similarity ends there, as over half of the construction costs were paid for with naming rights fees, and the Giants are the owners of the stadium. In contrast, Nationwide must compete with the Ohio State Arena (opened in 1998), and more than holds its own in attracting key events.

As we will address in the final installment of this article, there are rational, easily reached solutions that can, and must be found. O’Grady, Lashutka and others all agree that the community cannot lose the Blue Jackets or permit the decline of the Arena District. Forces are at work right now to craft a solution, and most are confident that one will be found. The dynamics are interesting, and will be fully explored as we wrap up this series.