Follow Up: MLS To Austin Gets Real – McKalla Place Proposal

It is shaping up to be a real Texas showdown: the MLS and Precourt Sports taking on some factions of the residents in Austin who do not want a soccer stadium or team in their city. The original piece here on Frank’s Forum focused more on the mechanics around relocating a team, in this case, the Columbus Crew of Major League Soccer (MLS) would move to Austin.

The capital city of Texas is an attractive destination for MLS because of the growing numbers of young professionals and young families, two key demographics for the league. The relocation to Austin is not without controversy, as the Crew are an original MLS franchise; causing factions in Ohio to attempt to keep the team, and factions in Texas who do not want a soccer team .

The stadium is the centerpiece for any MLS team, so the potential relocation to Austin hinges on the location and terms of that central component to the operation of a franchise. The executives at MLS league offices in New York and Precourt Sports have been working with officials in Austin for about nine months now on a stadium site.

The two sites that are on the table, so to speak, right now are the Circuit of the Americas or COTA site and the McKalla Place site. The two sites are very different and present various positives and negatives regarding being selected as the site of a soccer specific stadium.

The Circuit of the Americas is a racetrack just outside of downtown Austin which already has infrastructure in place such as adequate parking and space for a stadium. The soccer stadium would help keep the overall operation of the site busier, it would become essentially a year- round cycle of activity between the racetrack events and the MLS season

The entertainment and other options are somewhat limited at the COTA site. The site is reported to have a pastoral feel to it. The reports in local news out of Austin is that Anthony Precourt (operator of PSV which is the operator of the Crew franchise) has no interest in the COTA site even though some within the Austin political structure favored that location.

The more detailed reporting and some excellent journalism on this topic was done by The Austin Statesman so definitely check out their site as well.

The McKalla Place site is essentially the largest piece of city owned land remaining in the greater Austin city limits. It is located in North Austin but within the downtown core, which is preferable to MLS for a stadium site. That location has entertainment, dining, and hotel options nearby. It is not completely ideal, but it is the best location available within the downtown limits.

However, McKalla Place does not have any infrastructure at all, it is basically an open set of lots. It would need lighting, parking, and utilities to be installed from the ground up. The residents who oppose the soccer stadium have been ramping up the pressure and formulating alternate plans to the City Council.

These alternate plans have no stadium development in them and focus on other needs that the city has such as affordable housing, green space, retail space, a hotel, and buildings to support arts as well as music.

The political side to this scenario is that the city is divided over the land use and the vote will be very close. The Mayor of Austin is in favor of the MLS team coming to town and playing at McKalla Place. The council needs 6 of the 11 members to vote straight up or down on the proposal for the land to be used for a soccer stadium.

Those representing the North Austin district on the council are not in favor of the stadium construction. They are adding amendments to the measure that the Mayor, according to local news sources, has called “poison pill” amendments to try to derail the soccer stadium. The meeting Thursday night postponed the vote until August 15th.

The other proposals for the land have not gained much traction. In my experience covering sports business matters of this type, when a proposal has moved this far and the competing proposals have not been mentioned, it is pretty certain that a stadium is going to get approved in one way or another.

The bigger items around the actual reality if a stadium is voted onto the site are a bit murky. The plans for the site show a mass transit station hub there which is estimated to have a cost around $12 to $15 million. One of those amendments seeks to attach the cost of the transit station to have PSV be responsible for it.

The lease terms for the stadium and how much PSV will pay to rent the facility are on the original terms sheet. The rental fee that PSV will pay is in the range of $400 to $500,000 per year. The city officials put a significantly difficult clause in to block the team from relocating and leaving Austin in the future.

The dissenting members of the council are seeking amendments to the term sheet to double the rent the team would pay to around $900,000 per year and seeks other financial commitments from PSV. The meeting last week contained now debate on those amendments and made no changes to the original terms sheet.

The stark reality here is that Anthony Precourt is a billionaire “operator” of a franchise seeking a sweetheart lease deal without any willingness to commit other money toward infrastructure or mass transit improvements. He is going to end up looking bad in the court of public opinion and perception, but that is probably viewed by both he and MLS as collateral damage in getting the deal that they desire from Austin.

The impact of the vote on August 15th is going to resonate in two cities: it will shape the future of Austin and bring uncertainty to Columbus. The Ohio capital will certainly struggle to find a full-time tenant for that soccer stadium that they are still paying off debt on, and will most likely become a bargaining chip for other cities looking to leverage their current market into a better stadium deal.

In my view, I can understand some of the sentiment in Austin with the residents who are opposed to the soccer club relocating to their city. It will certainly impact the neighborhood in which McKalla Place sits in North Austin, in a way that can be perceived as negative: traffic, environmental impact, noise, and congestion on game dates.

Conversely, the clubs that constitute MLS conduct so much charitable and community service work. These types of efforts would benefit Austin greatly in the years to come, should they become a franchise host city within the league. It may be a “money grab” by Precourt, but I always look at the silver lining in how many jobs it will create and how many people will have positive changes to their lives through sports.

The vote on Wednesday will clarify a very complicated situation and set the course for two cities in the weeks and months ahead. Stay tuned.

(Some background information courtesy of The Austin Statesman, Fox 7 Austin, & Austin Business Journal)

Disconnected: Rite Aid and Albertsons Merger Update

The proposed merger between Rite Aid and Albertsons faces a key crossroads type moment on Thursday, August 9th, when a pivotal vote will be made by the Rite Aid shareholders. The proposal on the table would give the shareholders of Rite Aid a reported 30% stake in the new company.

The prior piece on this merger focused on the transition of the pharmacy / drug store channel and the healthcare landscape. This landscape has adjusted further with the entry of Amazon into healthcare with their acquisition of Pillpack and their partnership with Xealth.

A report in Forbes describes a scenario where the Albertsons merger could be done just strictly out of fear of the impact of Amazon’s entry into the marketplace. The merger proposal is for $24 billion to bring the two companies together to compete against CVS (who is in the process of combining with Aetna), Walgreens (a giant company with Alliance Boots growing their presence in Europe), and Amazon.

A report by Bloomberg states that Rite Aid is set to announce a 2019 net loss of $125 million to $170 million, which far exceeds the numbers in the original guidance that they had reported earlier in the year. The speculation is that the people behind the scenes at Albertsons leaked this information ahead of the crucial vote on Thursday. The thought process being that the fear of the loss of value in Rite Aid will force the hand of their shareholders to vote in favor of the merger.

The Amazon partnership with Xealth provides them access into healthcare networks. The pharmacy side of Albertsons and Rite Aid also have clinics that they operate, which if the merger was approved would create a network of 319 clinics nationwide.

The detractors to the Rite Aid merger feel that the company could compete well on its own in the new landscape. The sentiment from some of the shareholders remains that the proposal from Albertsons does not place the proper valuation on the Envision Rx piece of the Rite Aid business model.

Envision Rx is the pharmacy benefit manager (PBM) piece of Rite Aid which has always been a sticking point in this proposed merger. This is a unique attribute of Rite Aid, which many maintain is an undervalued asset of the current proposal. This all comes at a time where two major investment consultant type groups have issued reports that caution the Rite Aid shareholders to consider rejecting the merger proposal.

There is a disconnection between factions of the Rite Aid shareholders over the Albertsons deal. The one side of the scenario is that Rite Aid is a much smaller company now that they have transferred so many store locations to Walgreens. The management of Rite Aid is stating that they feel that they are better positioned now because they will no longer be tied up with the sales of the locations to Walgreens and can focus on improving operations. The central message is that they can survive and compete as a smaller, leaner company without merging.

The other side of the scenario is the faction that feels that Rite Aid must “grow or die” with the “bigger fish” of CVS Caremark (Aetna), Walgreens, and Amazon. The merger with Albertsons will provide a combined company with 4,345 pharmacy locations, which will allow for a much more competitive company in the new landscape of the industry in the future.

Furthermore, there is the reality that Rite Aid stock has lost 77% of its value in the last two years. The Albertsons people are circulating a message that essentially is that Rite Aid will have no other interested parties for a potential merger if this falls through.

In truth, that is probably an accurate assessment because the government shutdown the Rite Aid merger proposal with Walgreens, CVS has no interest in acquiring Rite Aid, and there are not really any other suitors out there in the industry.

Another argument is one that is against the merger which in brief, is that Rite Aid and Albertsons are both struggling in low-margin businesses (pharmacy/drug store and grocery channel) and merging them together will not remedy those core issues related to being niche focused in industry channels that have low profitability.

The grocery channel could potentially provide a regional partner for Rite Aid that could be interested in buying their Northeast and Mid-Atlantic based locations such as Royal Ahold (parent company of Giant, Eagle, and Stop & Shop grocery chains). This is pure speculation on a potential future course for Rite Aid because so many within the financial industry believe that the Thursday vote is going to sink the merger with Albertsons.

This potential merger between Albertsons and Rite Aid has been a mess from the beginning. The path forward for both companies if this merger does not materialize is unclear. Albertsons could shift their focus to an acquisition within the grocery channel, a regional sort of consolidation move to grow the company.

Rite Aid could move forward alone and try to “keep swimming” in the industry without a larger merger partner. They could maximize their revenue streams by executing a strategy around their clinics and with marketing Envision Rx.

The harsh reality is that the pharmacy channel is running scared from the entry of Amazon into their market. The potential for Rite Aid to make it on their own while being squeezed by larger competitors could spell the end for the iconic American drug store chain.

The merger vote on Thursday will impact both the grocery and the drug store channels and could drastically alter the course of the strategic growth for two companies in the future. The consumer will be impacted by a lack of choice and a lack of competition in the industry which will force many consumers into a situation where they are facing increased out of pocket costs for pharmaceutical products in the years to come.

(Some background information and statistics courtesy of Forbes, Bloomberg, and Supermarket News)

Music Modernization Act: Fate Hinges on Amendment

The Music Modernization Act (MMA) had been on a fast-track pace through Congress with the next stop set to be vote on the Senate floor. The legislation seeks to redefine copyright laws for songwriters, song publishers, and song producers in the age of digital music content.

However, the fate of the bill is now in doubt because of an amendment that an interest group from within the industry seeks to attach to the legislation. This amendment has the aim of creating a “collective” of songwriters who would negotiate their fees as a group. This development throws a wrench into the process for this bill and could send it back to “square one”.

The original intent of the MMA was to have Apple Music, Spotify, Amazon, and other streaming music services work with publishers to manage the licensing process of music in a collaborative way. The main issue being that in the age of streaming music, songwriters are leaving the industry in droves because they make literally no money.

The antiquated laws around the licensing of songs resulted in songwriters being paid pennies for material that they produced. It has resulted in a situation in the music industry that is in dire circumstances and in need of reform. It is estimated that 80% of songwriters have left the industry. The royalty rates for streaming are drastically lower than the royalties made back when an artist recorded the song for placement on their respective album. The archaic laws prohibit songwriters from reconfiguring contracts or entering new arrangements with streaming services to potentially earn a higher royalty.

My own experiences in writing music reflect that, I chose to not pursue the industry after copyrighting several songs because the return on the investment was just not viable. The current conditions in the industry make it very hard for a new songwriter to gain traction because the income scale is completely imbalanced. The writer also has to pay self-employment taxes on the little income earned in the process of publishing the song and marketing it to be recorded.

This scenario also has spawned a feature length movie titled “The Last Songwriter” which was featured at the Nashville Film Festival winning several awards in the festival circuit. The film was produced by Netflix and sheds light on the current state of dysfunction within the music industry as it relates to paying the songwriter.

The argument can be made that the “big time” established songwriters will make out very well if the MMA is passed into law because they will receive larger royalties for their hit songs. The less established, or new entrants into songwriting will still face difficulties staying in the industry with bills to pay and families to support.

The emergence of this amendment, which some claim will help “level the playing field” and others claim will make the situation more acrimonious; in the end analysis could cause the Senate to vote the bill down. A week ago the MMA looked like a “sure thing”, that it was going to sail through passage and change the way the music industry operates with respect to the pay scale for the songwriters, publishers, and producers.

It is a sad state of affairs because the songwriter is the backbone of the industry, without the songwriter the artist has no material with which to work. The songwriter generates the material which then becomes a finished product. It is similar to eliminating the source of a key ingredient like wheat and expect a baker to make bread.

The music industry is struggling to adapt to the changing ways that people are listening to content, and the lack of legislation like the MMA only exacerbates those problems. The listener wants “on demand” and customizable approaches to music, nobody listens to the traditional radio for the most part, and the rights to songs cannot be scaled the way they were twenty or thirty years ago.

Please learn more about this legislation and contact your local Congressional representatives, contact your Senators. The fate of the music we all enjoy hangs in the balance.

(Some background information courtesy of Billboard.com, Rolling Stone, Digital Music News, and www.congress.gov)