Month / June 2017

by Frank Maduri

Pushing The Easy Button: Staples Sold To Sycamore

The sale of office supply retail giant, Staples to a private equity firm, Sycamore Partners, is the most recent in a string of merger activity in the retail sector. It is no secret that Staples has had difficulties recently competing with online retailing behemoth, Amazon, who has taken quite a significant chunk of the market share away from Staples.

This transaction represents yet another major American retail brand taking the first of many options along the “decision tree” to retail survival. The key to this sale is that Staples will transition from a publicly traded company on the stock exchange into a privately held enterprise.

This is a huge distinction because, quite often, companies make decisions on any number of matters based upon how it will potentially impact the valuation of their stock, or how it will “play” with the analysts on Wall Street, or their shareholders perception of the decision.

Conversely, a privately held company has none of those same considerations. These types of enterprises can make decisions based upon what is good for the overall health of their business. In this case, with Staples, the company that once touted the “easy button” for solutions to home office or small business needs; the company pressed the button to solve their overall issues.

Staples initially attempted the “get bigger” strategy by attempting to purchase one of their largest competitors, Office Depot, but the proposed acquisition was rejected by regulatory anti-trust officials.

Staples remains the largest brick and mortar retailer of office supplies in the United States, and this is after shutting down hundreds of underperforming locations to free up more cash flow. That is the advantage they have over Amazon and other retail competition, is the in-store option. They have to play that to their advantage and refocus their brand on what they do very well particularly in the service area of copy and print.

The investment from the perspective of Sycamore is a reasonable one at face value because they obtain a recognizable brand with a huge network of retail stores that could own that space if they recalibrate themselves correctly.

Staples could weather the storm here by going into private hands, it is certainly going to make the transition to fighting Amazon easier without having to answer to “The Street”. It remains to be seen whether they make the correct course adjustments to their business to stay relevant in an extremely price sensitive marketplace with much more savvy and well informed consumers.

by Frank Maduri

Follow Up: Flint Water Crisis – Officials Criminally Charged & The Fallout Ahead

In a follow up to previous articles on this tragedy, the Flint, Michigan water crisis is back in the mainstream news cycle. A total of five government employees have been charged with manslaughter including the head of the Michigan health department.

These charges stem from their role in the water crisis where lead contaminants left residents deathly ill. The residents got sick from Legionnaires disease, which is a respiratory condition and type of pneumonia that is caused by a few factors, but was connected to the lead contamination of the water supply in Flint.

The news media was speculating about who may be charged next in this investigation into one of the worst public health disasters in American history and whether those charges would reach the Governor of Michigan. It is not known how much the Governor knew, or when he was informed of certain developments surrounding the crisis with the water supply in that beleaguered city.

The water crisis in Flint represented a calamity on so many levels between the negligence being alleged, the lack of adequate training for local city water officials, and then the steps taken when the problems with the contamination were verified. The result is a massive problem with the water supply of an entire city and reports of illness across the demographics from the elderly, to women, teenagers, children, and babies.

It is a very public example of failure of public governance in the area of public health and safety. That is the key message behind the charges handed down to the five public officials accused of these serious offenses. The fact that the water from the Flint River supply source was not treated properly caused lead to be emitted from the older pipes in the system. The damage is costly with estimates running at around anywhere from $55 to $95 million to replace all of the pipes which provide drinking water to residents and other structures in Flint.

Most of that money is going to come from lawsuits filed by the residents against the EPA primarily and the state has pledged to replace the water lines that connect to the main distribution and pipe systems for 18,000 homes by 2020.

That is all well and good but the question remains: what will residents do in the interim? The water crisis has decimated an already depressed market for real estate in Flint. In essence, nobody wants to move there and the residents cannot sell their homes to relocate elsewhere. It is a total mess, with the fallout so far – reaching it is hard to fathom.

There have been accounts of government officials concealing evidence regarding the toxicity levels of the water, which is greatly concerning for obvious reasons. The entire situation has both frustrated and saddened Americans across the country as well as triggered the investigation into lead levels in other cities and counties.

The situation in Flint is tragic and heartbreaking and is unique to other public health issues that came before it for a variety of reasons. First, it was widespread and encompassed an entire American city which is rare for a public health issue which are usually confined to a specific area or neighborhood.

Second, it was so intricately covered up for years by different levels of government from the local, county, and state level as well as involving the EPA. The levels of lead and other toxins in the Flint River have now been well documented. The situation with that water supply was so bad that General Motors stopped using that water supply for their factory in Flint.

The final main component of this whole disastrous situation, at least in the scope of the general public, is that the damage is already done. The water supply has made many people sick with some unable to work, children have been so ill they have dropped out of school, and some people died in relation to the contaminated water supply.

The city and state level of government can issue all the statements they want about how the water supply has been changed back to the Detroit water supply which Flint used for decades before the cost-cutting switch to the local supply took place. The damage has already been done, just because the supply has changed, the pipes are still leaching chemicals and lead so they must be replaced.

The people who are sick and who have sick children or sick parents from tainted water cannot be cured by a switch in water supply or by issuing statements about correcting the problem three years from now. They are sick, that damage has been done, and there is no going back.

Some within the media have dubbed the situation in Flint as the “crisis with no end in sight” because of the sheer scope of the problems caused by the tainted water and the brazen way that the government tried to prevent the people from knowing about the problems which existed.

The attorney general for the State of Michigan has vowed that he is not done with the investigation they are conducting into this disaster. He stated after these first four arrests were announced that they will have more charges handed down to others involved in the coming months.

The federal government has taken no responsibility for helping the effort to be resolved, and some feel that they should provide some type of funding more than the band-aid funds sent about a year ago.

The “crisis with no end in sight” will continue on in a variety of levels in Flint between the government, the public health implications, and the restoration effort for their water supply pipe system. The investigation into this horrible tragedy has a long way to go before it is concluded. In the interim, thousands of American families have had their lives altered in terrible ways and also see no end in sight.

by Frank Maduri

Flag Day and The Cost of Freedom

In marking the observance today, June 14, of Flag Day I join with my fellow Americans to commemorate the anniversary of the Second Continental Congress adopting our nation’s flag back in 1777. I put up the flag this morning outside the house here under sunny skies, grateful for another day of freedom living in America.

The events of this morning with the shooting in Northern Virginia as well as the workplace shooting this afternoon at a UPS site in San Francisco serve as stark reminders of the way that freedom can be used for evil in an open society.

I saw other acts of kindness today that also demonstrate that freedom can be used to achieve so many positive things, so much good in our world.

In addition, I am reminded always when I look at our American flag, of the cost of freedom. I think of all those who have served our country and have died defending that flag, both at home and abroad. I will forever be grateful for their service and their sacrifice.

The events of today can serve to make some people lose hope. I will remind them that good always triumphs over evil, light always conquers the dark, and our American values and ideals will endure. Freedom will outlast tyranny.

May God bless you all and May God Bless the United States of America.

by Frank Maduri

The Politics of Sports: The Seattle Arena

The politics of sports has been on display fully over the past week with the announced plans for the Seattle arena. The city decided that their best option at this point is to move forward with the proposal from Oak View Group (OVG) which involves a complete renovation of the old Key Arena at Seattle Center.

This option was chosen and recommended by the Mayor and other politicians involved over the proposal from Seattle Partners, which also had a plan to renovate “the Key”. However, their plan contained some elements that concerned some key people in the city government. They officially “withdrew” their proposal ahead of not being chosen just before the announcement was made late last week regarding the arena plan for Seattle to gain either an NBA or NHL franchise.

The other option on the table is the SoDo arena concept pushed by Chris Hansen and his group of investors, which he has spent huge sums of his own money obtaining land in that part of the downtown area with the goal of getting the Sonics NBA team back to the city. The plan involves the vacation of a roadway which is very unpopular with the politicians as well as a location that is close to the Port of Seattle and the major outdoor stadiums for their other professional sports teams.

This location coupled with the change to the roadway grid and the potential for traffic congestion near the Port, all are factors that are stacked against the SoDo arena concept. Those factors outweighed the amended proposal from that investment group that stated that they would develop the site and construct the arena completely with private funds.

The renovation of the Key Arena at Seattle Center will be a public/private partnership arrangement for the financing, which is admittedly unpopular with some Seattle residents. The OVG proposal involves keeping the iconic roof structure of the facility intact while essentially gutting and rebuilding the entire existing interior structure. It will reconstruct the entire seating bowl and their plan for the site involves digging below ground to expand the footprint of the building while maintaining structural integrity. It will also be an environmentally friendly building project, with LEED certification processes involved in the various aspects of the construction of the renovated facility.

NHL Response

The NHL was contacted almost immediately after the news that Seattle was moving forward with the OVG renovation project for an arena that would meet NHL standards. The NHL Commissioner, Gary Bettman, issued a statement that essentially stated that the NHL has had no contact with Seattle and has no plans to expand the league at this point.

The politics of sports on the professional stage was in full effect here as well. It is no secret that the NHL has interest in expanding to Seattle. The demographics of that market make so much sense for the league in several metrics, that they would be foolish not to explore the option. The OVG proposal added two partners that are keen on getting professional hockey to Seattle, which was noted in the press release of the announcement.

Bettman is playing his cards here because he does not want to discourage other markets interested in potential expansion from thinking that Seattle has any sort of inside track to what will probably be the last slot available in the NHL for a very long time. The NHL has a conference alignment issue with 16 teams in the East and 14 teams in the West. The league took one step toward correction of that imbalance with the addition of Las Vegas as an expansion franchise beginning next season.

The assumption is that they will add one more team in the West to balance the two conferences and the league for scheduling and other purposes in the somewhat near future. The OVG group stated that the proposal is still pending approval and they will need at least 2 years probably closer to 3 years to get the entire renovation at Key Arena completed.

Design Concerns

Some area residents are not happy because they did not want another major sports team or teams playing in that neighborhood. This is a very political issue and the design of the building and the mass transit plan for light rail access is part of the proposal from the city level to alleviate traffic concerns.

The design of the building was also a point of concern for residents of that neighborhood. Some concerned parties did not want a monstrous new arena going into that Seattle Center site. The trend in sports arenas is for larger footprint buildings packed with amenities for fans and concert attendees.

The OVG plan for Key Arena accomplished providing more amenities without dramatically increasing the overall footprint of the facility by proposing to dig below ground and implementing those amenities in areas below the current street level. The plan for the renovated facility also calls for improvements to the park area around the Seattle Center, which should be viewed favorably by the residents.

NBA: “Cutting the Pie”
The return of the NBA to Seattle is an entirely different situation. The topic of expansion for hockey has been an active one, with Las Vegas set to join the circuit and with the imbalance of teams alluded to earlier. The NBA is in a different stage in their life cycle as a league. The owners and the league office just agreed recently to a new TV and media rights deal that will reap them significant economic revenue which is divided up among each member franchise.

The NBA owners are currently not eager to “cut the pie” into more pieces by adding more franchises. The amount of the expansion fee would be offset by the amount that the new team gets as their portion of basketball related income. The NBA also has no franchises in a situation where relocation is being discussed.

These factors, when all are taken into account, amount to the fact that the Key Arena renovation, if approved, is going to take approximately three years to complete from the point that permission is given for renovation work to begin. The NBA is not planning to expand any time soon. The NHL has other interested cities in expansion, but they may never expand to Seattle for a variety of reasons.

The politics of sports in this situation leaves the SoDo arena proposal in serious jeopardy. The time, effort, and money spent by that group is going to upset some powerful people in that city if that proposal is rejected by the political groups involved.

Up In Flames

The politics involved in the Seattle arena decision also could become a leverage play for another team: the Calgary Flames. The president of that hockey team, Brian Burke, commented to a group of business leaders at a team function recently that the franchise could move out of Calgary if it does not get a new arena.

He continued his comments reportedly by stating that the Flames had relocation cities under consideration if they were to ultimately decide to move the team out of Calgary. In that scenario, once relocation is brought up, Seattle is not very far behind. It is no secret that Seattle wants an NHL team, and the opportunities for relocating an existing franchise are very unique and infrequent.

The Calgary Flames have presented their vision and plan for a new arena and entertainment district with other real estate development around the new facility that has been deemed “unsustainable” by the political powers that be in that city. This is where the friction between the city and the team began.

The Flames play in the SaddleDome which was built when Calgary hosted the Olympics in 1988. It is among the oldest arenas in the league, a fact that supports the team ownership and their contention that it needs to be replaced. The Mayor and other politicians have stated that they do not support using taxpayer money to fund a new arena. This could get very sticky, and the speculation over the future of the team in that city will follow suit.

It is doubtful that Calgary will leave a city that they have an established fan base within and have over 30 plus years of history. It could be that Seattle is a leverage play, as I mentioned before, or it could become seriously considered for their future. The primary issue is that Seattle lacks a suitable arena for at least three years.

Another option to watch is the Flames using Quebec City as either a chip to secure their own new arena deal, or for a real alternative should the political situation with Calgary become untenable. Quebec is a whole different scenario because they have an NHL ready arena built and fully operational, they just lack a team.

It is all part of the politics of sports and it has played out in two places, Seattle and Calgary, in a week. Those two situations are just a drop in the bucket, wait until next week, and the next potential issue with politics and sports will be right around the next bend.