The Strategy Behind Building Sports Arenas

The conclusion that I have come to over the past four and a half years of writing pieces centered on the topic of sports arenas, is that a strategy exists in getting these deals done that is far more intricate than many would believe. These strategies involve the team ownership, the league office, as well as political and business leaders.

These strategies could involve a real estate developer if they are not already involved as part of the ownership group, and they can involve civic groups or environmental groups depending on the project.

These arena development agreements for sports can be complex and involve tax payer dollars, or they can be privately financed which inherently leads to other issues in that circumstance.

The strategy behind the building of a sports arena was on full display over the past two days with the situation in Seattle. The lack of an updated venue that met current NBA or NHL standards was the main reason why the Sonics moved out of the city about nine years ago. The city had been working with a developer for a proposed new sports arena in the SoDo neighborhood, which was proving to have too many cumbersome hurdles.

The city shifted their priority to the old Key Arena at Seattle Center and fielded development proposals to renovate, expand, or rebuild a new arena on that site. The Oak View Group had the winning proposal, and on Tuesday, the city government announced the agreement of a newly renovated and expanded world class arena on the Seattle Center site built entirely with private funds.

The residents who pined for the return of the Sonics, and the sports fans that dreamed of an NHL expansion hockey team in the Emerald City, rejoiced because they had finally a light at the end of the tunnel with this news. The last, and most important, major hurdle for the city to gain at least one, if not two, new major league teams was seemingly cleared.

The old adage: “you never know what tomorrow will bring” is certainly true in Seattle; where residents woke up the next morning to learn that the Mayor of Seattle announced his resignation amid an alleged sexual misconduct scandal, and that the arena plans for Seattle Center were put on hold indefinitely.

In addition, in a related story, Wednesday brought the news that the Calgary Flames and their new arena negotiations with municipal officials were broken off with no resolution. This situation has been brewing for several months with proposals and counter-proposals being made by both sides, with no substantive progress being made toward a functional plan.

The surprising element of this situation is that the incumbent mayor, Mayor Neshi, was publicly acting as if the new sports and entertainment arena was part of his vision for the future of the city. The Flames management held a Wednesday press conference to refute that vision by stating that Mayor Neshi has not advocated at all for a new arena, and was insinuating to the public another stance in order to win the votes of hockey fans.

The NHL league office sent a strongly worded message to the Mayor, and the components of these arena deals are riled up north of the border. This news that the Flames had put $200 million on the table toward the development of the new facility and then even changed the site from one end of the city to the other, immediately bowed to speculation that the team would relocate to either Seattle or Quebec City.

The Flames management stated that they will continue to play in the second oldest arena in the NHL, while the other teams enjoy the advantages from better revenue streams achieved by playing in a new facility. However, they also insinuated that they will keep the relocation option on the table. The Mayor does not have to change his stance because polling shows that the people in Calgary do not want to use public money on a new arena.

The relocation to Quebec City is always going to be a hot topic, as they took an entirely different approach and pulled out all the stops to build a new arena a few years ago with no guarantee of an NHL team coming there either through expansion or relocation. The NHL passed them over for expansion in this last cycle, choosing Las Vegas to expand the league into, citing the weak Canadian dollar at that point in time.

A group of NHL players were surveyed recently and the majority of them selected Quebec as the place they would like the league to expand to in the future. This was ahead of Seattle and Houston on the list of choices. Quebec will always be a popular spot because of their history in the league with the Nordiques, and the nostalgia that hockey fans have for that team and for the rivalry with Montreal to be reinstituted.

Quebec took the step of making the most difficult hurdle in gaining a new franchise, the arena, the easiest step by building it. The residents, business leaders, and politicians were all on board with getting an NHL team, now they will wait to see if that maneuver will provide the desired end result.

The New York Islanders are involved in a new arena quest as well. The main issue is that when the team moved from Nassau Coliseum to Brooklyn, they underestimated the significance of the Barclays Center being built for basketball and the impact that would have on the hockey fan experience.

The sight lines for hockey at Barclays are terrible, the scoreboard is off center in the orientation to the rink, and the ice conditions are awful because the arena does not have the right pipes to adequately keep the water temperature low enough. It is a total debacle and the team is looking at two potential sites in Queens: one near Aqueduct Racetrack, and the other next to Citi Field where the New York Mets play baseball.

The league office has completely shut down any potential for the Islanders to return to Nassau Coliseum (which was renovated completely and is now a smaller seating capacity) and pursuing the Queens options. Many people in recent polling believe that the Islanders arena, another new arena in the NY metro area is unnecessary, so it will be interesting to see how this situation works itself out.

The New York metro area is one of key significance for the NHL and with the Rangers and the New Jersey Devils, the league has three franchises in the region and has a vested interest in making sure that all of them are given the best possible opportunity to remain profitable.

The scenario with the Islanders searching for a new home is similar, yet different, to the Arizona Coyotes and their ongoing struggle to find a new arena closer to the population center of the Phoenix market. The Coyotes have had issues for years on the business side, and the dispute with the Glendale municipal government involving the arena lease terms are just the tip of the iceberg.

The ownership group of the team appeared to have a deal in place with Arizona State University for a new arena being built in Tempe, but that deal fell through in February 2017. The focus now is on a few other sites in the East Valley and this boondoggle for a new arena will continue for the foreseeable future, as will the inevitable relocation rumors.

However, relocation seems unlikely as the NHL is unbalanced and needs more teams in the West, they would not move the Coyotes to Quebec, and the situation in Seattle is murky at best. The league remains bullish on keeping a team in the Phoenix area because they are enamored with the media market size.

The Phoenix Suns are also seeking a new arena to replace their current aging home court, and the NBA league office is, of course, willing to back the team up on getting the public funds squeezed out of the government to get that accomplished.

The state and municipal level governments in Arizona are looking at a scenario where the Coyotes, Suns, and the MLB team, the Arizona Diamondbacks; are all seeking taxpayer funding for public/private arrangements to build new sports venues. The resulting idea within the state assembly there is to build a sports arena in downtown Phoenix that would be shared by both the Suns and the Coyotes in order to save the outlay of total public funds.

However, the reports out of Phoenix are that the Suns ownership is not on board with sharing a facility and want their own facility in the downtown area. The Coyotes are in a different situation, they have stayed publicly mum on the shared arena concept, largely because they would probably play anywhere other than in their current arena in Glendale. It is a situation that is complex, has a ton of moving parts with proposed arena sites on Native American tribal lands, and a host of other issues that merit watching in the weeks ahead.

The Carolina Hurricanes are the final situation with arena management and potential relocation that will be explored in this analysis. The team is about to be sold from Peter Karamanos to Chuck Greenberg but the sale is not completely finalized yet.

The arena lease is key to the sale because the team has been the source of relocation rumors for the past four or five years. Carolina does not have the corporate sponsorship opportunities of other, larger markets. The Hurricanes have not had much on-ice success in recent years which has put a subsequent drag on attendance levels.

The current arena lease between the group that controls the arena and the Hurricanes is seen as one of the most favorable lease agreements from the perspective of the team as far as being a tenant in a building. The PNC Arena is in need of some renovations and improvements which many believe will be done once Mr. Greenberg affirms that the team is staying in North Carolina.

The consensus from some within the NHL circles is that the team could relocate to Quebec, but in many ways that may not make sense from a business perspective. The ownership, in this case Greenberg, would have to pay a steep relocation fee to go to Quebec. In this case, the ownership could use that money as their portion of a public/private agreement to construct a new arena in North Carolina.

The case for a sports arena is dependent upon so many variables and involves many shifting priorities and calculated interest groups from politicians, to team owners, to the league office, and local business leaders. The case studies, individually must be taken on balance, I understand all sides of the situation.

The owners feel that the municipal governments stand to make a lot of money on the ratable tax revenue from the arena, the public feels that they should not have tax money go toward the construction of a facility of this type, and the cities that do not have a new sports / entertainment venue miss out on the latest acts or could lose a team over it. All of these variables are valid, and all of the scenarios I laid out will continue to develop from Seattle to Phoenix and beyond in the months ahead.

Oversaturation Point: The Uncertain Future Of Amazon

The financial news is buzzing with the analysis of the earnings reported from Amazon and the trendline toward potential trouble in the waters ahead. The recent acquisition of Whole Foods and the expenses on the balance sheet compared to the offset from the investor and the average consumer portends a future that is uncertain for the mammoth online retailer.

The question I find myself asking, from the perspective of one who has covered mergers and other financial news, is: has Amazon reached an oversaturation point?

The investment analysts on Wall Street are stating that investors are fatigued with the process of shelling out huge sums of money for Amazon stock shares. The consumer side of the business also seems to be displaying signs of fatigue as well. The company is starting to find out that it is difficult to grow your base membership business when the Prime subscription cost is $99 per year.

The question that Amazon should ask themselves is: should we put in place a tiered subscription structure to widen the potential consumer base of the business? The answer to that question will go a long way toward the determination of the future direction of their business.

The other solution they could determine is that they could market the Prime membership differently: instead of focusing on the $99 per year cost, they could break it out into a monthly cost. This type of marketing strategy might appeal more to a younger demographic and to families that are feeling the budget squeeze.

The stock value analysis of Amazon seems to indicate troubled waters ahead. The blue-chip stocks traded on the major indices all have “breaking points”. The averages for stock performance whether by month, by quarter, or the most common: the 52-week average; all provide a snap-shot of the financial picture around the given stock valuation for a company.

The “breaking point” on Amazon is a staggering figure of $925, according to industry analysts. That point seems to be approaching unless the trend lines change. The long- range forecast for the company, and the analysis around their balance sheets, suggests that the expenses stemming from the consolidations of Whole Foods and other businesses will impact their overall outlook.

The reaction from industry analysts and those within the financial markets has been mixed overall with respect to Amazon and their future path. These groups include a faction which maintains that the Amazon purchase and consolidation of Whole Foods will eventually have a negative impact on the company from both an expense and strategic perspective. The variables of external factors that could impact their profit margins now increased exponentially with the inclusion of a retail grocery business.

The reality is that no company is “bulletproof”, no company is immune to the outside forces driven from marketplace supply and demand. Amazon will still remain one of the most influential companies in the world, but everyone goes through a slump. The average consumer will still enjoy the convenience that their shopping experience provides, while another group of consumers will choose another site for their shopping, and still yet another group will shop primarily in brick and mortar stores.

In my view, Amazon is heading toward an oversaturation point. They should adapt, like any other business, with a strategy that addresses ways to reinvigorate their core customer base. They also need to determine ways that they can attract new customers in younger demographics both now and in the future.

The company continues to be a leader in both technology and convenience in the way we can obtain or consume a huge range of products. However, the Whole Foods acquisition has changed the overall public perception of Amazon into a type of “grim reaper” for American small businesses and the jobs that they create.

A stroll through your local Whole Foods store today will invariably include an “end cap” shelf space selling the Amazon Echo, which is a stark departure from what Whole Foods built their brand imaging around over the years. These types of changes could serve to alienate the core customers of the Whole Foods brand in the short term.

In addition, Amazon continues to grow, especially in certain states such as my home state of New Jersey. The first-hand accounts that I have been told about the negative quality of life impact that the Amazon distribution center expansion has had in the area outside of Trenton, are incredible. The constant rumbling of trucks and the increased traffic congestion and noise are just naming a few of those adverse impacts.

Those negative effects are followed by accounts of the working conditions at the New Jersey distribution centers as well as the corporate office roles which support those sites. The company culture has been exposed as one where the employees are pushed beyond their limits and that working conditions need improvement.

Amazon will have to contend with this image problem amid a rising tide of expenses as well as a potential stock sell-off if the share price drops below that breaking point. The oversaturation of Amazon in the marketplace has begun, the repercussions will have a significant impact on the retail industry space, the consumer, and the economy in the future.

Return To Football & Media Companies Protection Of Live Sports Content

The NFL preseason is already three weeks old, and college football will begin traditionally on Labor Day weekend; football is back and for many Americans that means that they have something to watch on TV again. The excitement for the start of both a new college football season as well as a new NFL football season is tempered by the continued movement of media companies to protect live sports content.

The trend towards eliminating cable television service, or “cord-cutting”, is gaining momentum each year as Americans look to trim the monthly expenses in order to pay for rising costs for other services, such as healthcare. The “cord-cutting” trend has been aided by the prevalence of streaming television products and platforms available to the consumer.

However, the consumer that is looking to still utilize “live TV” can do so through a few different pathways: HD antenna, streaming devices, and hybrid streaming services. The HD antenna is very simple: it attaches next to your TV and provides the broadcast channels within the mileage range on the box. The antenna would provide CBS, NBC, FOX, ABC, CW, and PBS as well as a few more local stations.

The antenna would provide you access to live sports broadcast on the national networks, and would not include any games broadcast on cable television. This option would work very well for NFL football, and some college football games. It would be of little use to obtain access to any other major sports, other than an occasional game.

The local baseball, basketball, and hockey games are almost exclusively aired on cable regional sports networks or on national cable sports networks such as ESPN or NBC Sports Network. This leads us to option two: streaming devices.

The streaming device route or Smart TV route can provide access to a huge amount of live sports content, but most of that content is not free of charge. The NBA, NHL, and MLB all have streaming “apps” but they require a subscription to access. The streaming device route can also support “live streaming” of certain networks but most of that would require either a cable subscription or another type of payment arrangement to access that content.

The hybrid streaming device route would be a DirecTV now, Sling box, or a few other smaller services that allow for the content available on a very large package of channels to be viewed in other rooms in your home. This would require a subscription and at least one box connected from either a cable or satellite provider. This route may also require the purchase of additional equipment.

However, this setup would enable access to a significant amount of live sports content. The other service is through Hulu which will feature a package of channels for $40.00 per month which would allow for live streaming of network and cable television, including live sports.

The networks pay such a high premium for the live sporting events that it is, in some ways, understandable that they have put in place certain measures to make it more difficult to stream the content without a cable or satellite subscription. The challenge will be in adapting their content providing platforms to attract other audience/fan base demographics.

The younger generation is conditioned toward streaming versus watching any regular television programming. The advertising around some of the streaming services and apps can be a bit misleading. Some of the sports related streaming apps will give you access to certain content for free and require a fee or cable subscription for access to the most important content: the live game or archived game broadcasts.

The NFL has partnered with e-commerce giant, Amazon, to stream 10 games this year as part of the Thursday Night Football package. This exclusive opportunity with the NFL and their coveted live game content cost Amazon $50 million. The broadcasts are free for all those with an Amazon Prime membership which runs at $99.00 per year.

This agreement with Amazon is different than the agreement they had last year with Twitter for the Thursday night games because Twitter streamed them live for free to everyone with an account, Amazon requires a Prime membership for access. It will remain to be seen if that will have an impact on live stream viewership, either positively or negatively.

The future of sports content on TV, and other content on TV is trending more toward a structure where the consumer will pay to have all sorts of content streamed on a customized basis. The consumer access to a broad range of content will require membership to a wide range of services, similar to the premium channel cable TV subscriptions currently (HBO, Showtime, Starz, Encore). It is important to note that whatever service or method you use it is like the old adage: “there is no free lunch”.

A good example of this trend is the decision by Disney recently to end their partnership with Netflix to start their own streaming service. This translates into a scenario where in order to gain access to Disney content you will have to purchase their streaming service. I think that many other major media companies are going to follow suit.

The return to football means some exciting weekends relaxing with family and friends. It conjures up memories of past football weekends with the big college games on Saturday nights, and the CBS games at 4 o’clock on the East Coast with the aroma of a home cooked dinner in the background.

It is time for many of us to watch TV again, and I hope that this piece informed you on the best options that you have to access this content. I wish you all a happy and safe football season.

The Next Proving Ground: Plans To Drill Off The Atlantic Coast

The U.S. Department of Interior over the past two weeks has advanced plans to drill for oil and natural gas reserves off the entire Atlantic coast from Maine to Florida. This plan has generated mostly negative reaction from residents along most of the coastal states effected, particularly in the Northeast and Mid-Atlantic regions.

The federal government plans to lease out areas off the coast of the entire Eastern seaboard for the planned exploration of these energy resources despite the potential risks to a massive population if there is an operational incident.

The actions of the Department of Interior have prompted the response from the state level governments which are effected by this potential new energy strategy. The most recent was in my home state of New Jersey, where Governor Chris Christie wrote a strong letter to the Department of Interior vigorously opposing any drilling or exploration efforts off the coast of the state.

Governor Christie cited the potential threat to the marine wildlife, the water, and other natural resources as well as natural habitats. The exploration for these energy sources can have a very damaging effect and the governor maintained that his position has always been against these types of exploratory methods in coastal waters.

My own view, as a resident, is that the Atlantic coast should be off limits to this type of drilling and exploration for a variety of reasons. The first of which is that the New Jersey coast line is a huge economic driver for our state; between the tourism at the beaches, to the fishing industry.
Second, the implementation of fracking (hydraulic fracturing) and other exploration methods on land have created a glut in the supply of oil and natural gas. The bigger issue now is what to do with the abundance of the supply of the resources and how to store it until the demand curve resets itself. The industry does not need more resources supplied from the Atlantic Coast, when the U.S. domestic oil and natural gas industry has other areas which currently provide supply.

Finally, I agree with the governors of the Atlantic coast states, the population density especially in the Mid-Atlantic and Northeast/ New England would create an environmental catastrophe in the event of an incident in an exploration operation. The sheer volume of people and the pollution potential for such a huge area is a high-risk scenario.

We have a responsibility to protect our natural resources and in this case, the Atlantic Ocean should not be explored for energy reserves in this manner. The risks far outweigh the return. It is my hope that the residents and the state governments can appeal to the federal government on this important matter.

I have grown up at the beach in New Jersey and I have seen the first-hand impact of pollution on the shore. I have also seen the impact of a storm like Hurricane Sandy, which a similar storm system in the future could have a disastrous impact on an off -shore drilling operation.

The Atlantic coast has been immune to exploration for this long a period of time, I do not understand what there is to gain by opening it up for oil and gas exploration at this point. I am hoping that the other side of this debate can make that argument in the coming months. I am hoping that the residents will band together and inform our representatives on both the state and federal level that we are not interested in this type of activity taking place on the Atlantic coast.

The Next Chapter For Rite Aid or Is it the Last Chapter?

The past few years have featured some major mergers and consolidations across a variety of business segments. It is rare to have a proposed “mega merger” result in a change of course, but in the case of the Walgreens deal to merge with Rite Aid in the retail pharmacy space, that is exactly what transpired.

Walgreens, after repeated attempts to find ways to satisfy the anti-trust regulators, announced that they had disbanded their pursuit of a merger with Rite Aid. The most recent proposed framework of the acquisition had Walgreens and Rite Aid both selling store locations to a Southeastern based retail drug store and discount store chain, Fred’s, done in pieces through a series of transactions.

The proposed framework left regulators and industry analysts concerned that Fred’s could essentially double the size of their company overnight and not sustain any major setbacks.

The proposal also left many in the government regulatory positions feeling unsettled with the potential size of the combined Walgreens/Rite Aid chain and the impact that could have on the consumer. The combined entity would also have tremendous influence with pharmaceutical distributors regarding price and other factors, which made interested parties in the pharmaceutical area very concerned as well.

In the end analysis, Walgreens determined that it was no longer a viable pathway to grow their business, and the proposal with Rite Aid was terminated. The transactions with Fred’s never took place, and the whole deal fell apart very rapidly. The natural next question is: what is the next step for Rite Aid?

Rite Aid has sustained five straight losing quarters and their stock has lost a significant amount of value. They will receive $35 million from Walgreens in a termination fee because the merger was scuttled. Rite Aid also announced it will sell about half of their store locations in their current business footprint. Many of those stores will be sold to Walgreens, which is a strange turn of events because regulators were concerned about Walgreens getting bigger if the merger was approved.

Walgreens stands to gain more store locations in certain markets because the merger was scrapped. Some investment analysts maintain that Rite Aid could turn their business around because they will have streamlined their operations to focus on just half the amount of store locations than they have in their current footprint once the sale of the store locations becomes final.

Conversely, some investment analysts and industry experts are concerned that Rite Aid has serious issues and that the company will still fail, despite the efforts to streamline their business operations. The sale of some of these locations will relieve some of the debt load for Rite Aid, but they still have some significant hurdles to overcome.

The strategic decision by Rite Aid to sell all their locations in certain marketplaces will certainly help the company to remain focused on their core customer bases in the Northeast and along parts of the East Coast. The distribution systems should improve in this streamlined approach, and the distribution network will be far more targeted which will also provide cost savings.

Rite Aid is a staple brand in the retail drug store channel, especially in the Northeast. The future of the company is reliant upon their marketing efforts to reconnect with their core customer base in that geographic market. They will also face external pressures from much larger competitors such as CVS/Caremark, Wal-Mart, and Walgreens.

The opportunity for Rite Aid to merge with another competitor is still a possibility, but the best opportunity for their brand was to merge with Walgreens. It is going to be difficult to find another partner that would not want to just swallow them whole, and the other chains are essentially too small to make an impact on their competitive position in the industry segment.

The decision to streamline their operation will, at the very least, buy them some time to reevaluate their options. The next chapter for Rite Aid appears to be a return to their roots, and to focus on their key strategic markets in the Northeast. It remains to be seen if this change in strategy can be enough to bring the company out of the slump that they have been mired in for several months.

It remains to be seen if this next chapter is the last chapter for yet another iconic American brand in an increasingly competitive retail landscape.

Merger News: Discovery Purchases Scripps Networks

During the past four years here on Frank’s Forum I have focused on mergers in the business world, television ratings/business side of television, and news that impacts the consumer. The news on a Monday morning that Discovery purchased Scripps Networks combines elements from all three of those sub-themes.

First, the merger itself is worth over $11 billion and will combine the networks under the Discovery umbrella (Animal Planet, TLC, Discovery, ID network, and a stake in the OWN Network) with that of the Scripps portfolio (HGTV, Food Network, DIY Network, and Travel Channel). This merger will give the new Discovery Communications ownership of about 20% of the “basic cable” landscape.

This will provide them with leverage when negotiating carriage rights with the cable and satellite providers because they will have much more content and be able to split the channels up into different packages to promote to those providers in order to attract new customers.

Second, the ratings side is a big component of this deal as well. The ratings for basic cable programs are held to a different metric than the national broadcast or premium cable programs, but ratings are still crucial. This is made even more significant by the decreasing viewership levels for cable television programs due to the large number of consumers cancelling their cable service.

The ratings for certain programs that air on Scripps channels are significant, and the combination of the two entities helps their overall combined ratings compared to if they remained two separate units. The reality series, Fixer Upper on HGTV is the #2 rated overall cable program, so that is a huge addition to the Discovery Networks stable when the time comes for contract renewals with the cable and satellite providers.

This ties in nicely to the third component: the impact for the consumer. The combined Discovery/Scripps unit will now be able to offer more content and more value to the cable /satellite providers. They will also be offering their channels in different bundle packages which will benefit the consumer. These factors should lead to lower costs to the consumer for those particular channels.

The additional benefit will most likely be that the content from the new Discovery Networks combined entity will become more readily available in the “On Demand” functions of your cable or satellite provider.

The last component which impacts both the consumer and the business side of the television landscape is that the Discovery executives have discussed the development of their own streaming application. The proposed application would feature a range of content from this newly formed group of popular cable channels.

However, some industry experts remain skeptical of Discovery creating their own streaming service application because it is expensive to develop properly. Many of those same experts also counter that the combined Discovery/Scripps is going to cost more to operate because it is going to be a larger company with more expenses. That is going to require some adjustments by the senior management structure to run efficiently.

In the end, the merger of Discovery with Scripps Networks is an indication of the direction that those types of media companies are going to take in the future. The trend toward consolidation is going to be a necessity in order to compete with NBCUniversal (Comcast), Disney/ABC, and AT&T (DirecTV) especially with AT&T set to purchase Time Warner.

The management at both Discovery and Scripps knew that in order to survive in this new world order in cable television they had to combine forces. The increase in streaming content and consumers trending toward “cutting the cord” with cable services is going to further consolidate the industry in the years ahead. The landscape will change and only the strong will survive.

This merger should have a few benefits to the consumer especially if Discovery could get a streaming application launched. The changes will continue and how it will all turn out in the end is anyone’s guess, we will all just have to stay tuned, literally.

NBA Expansion Update: Commissioner Silver Puts Seattle On The Short List

The undeterred vision for those in Seattle that have pushed relentlessly for years for an NBA basketball franchise to return to the Emerald City received a huge boost last week. The NBA Commissioner, Adam Silver, gave an interview when he was asked about the expansion of the league in the future.

The response to the question, I am paraphrasing here, that the expansion of the NBA due to the huge growth in revenue and popularity of the sport is inevitable. He added that when the league begins to the expansion process that Seattle is on the short list of cities that they will consider.

This should come as no surprise to many basketball fans because the Sonics had a deep history and still have a loyal fan base that long for a return of the franchise to the city. The NBA would be wise to expand to Seattle because the most difficult component for a new expansion team in a new market is to establish loyal fans.

The expansion to Seattle would put a franchise in a market that has very good demographics for television/new media, has a reputation for supporting their teams, and has the nostalgia factor from the first version of the Sonics.

The second most difficult task for a newly minted expansion team is to move merchandise and corporate sponsorships. The placement of an NBA expansion team in Seattle would clearly be a positive for the league because Seattle retained the rights to the name and colors of the Sonics and will sell a ton of merchandise based on the previous support those products enjoyed. The corporate business community will embrace the return of the wildly popular Sonics to the region.

The community and the government are supportive to bringing basketball back to Seattle. The NBA left because the arena was seen to be outdated and a new arena has remained the biggest hurdle to the city gaining a team to return. That hurdle, at times seemingly insurmountable due to a variety of factors, is moving closer to being cleared.

Seattle recently announced that they have reached agreement with a developer to begin a privately financed renovation of the old Key Arena at Seattle Center. The developer will keep the historic roof of the arena and other architectural elements that the public wanted to remain intact.

The renovation project will completely renovate the interior of the building by constructing a new concourse and other elements underground below street level. It will then reconstruct the entire interior of the existing facility as well. The newly renovated arena would be designed to meet all the specifications for the NBA as well as the National Hockey League (NHL) in the hopes of gaining an expansion hockey team for Seattle.

The city is about to enter negotiations on the actual MOU of the development project, so the city council retained the services of a firm that specializes in negotiating terms of these types of development and construction projects for major entertainment and sports venues.

It should come as no surprise that the NBA is interested in a return to Seattle because that city has a captive audience of fans that are nostalgic for the return of the Sonics. The NBA will gain new fans with younger people who have parents who told them about the Sonics, and they can attend games together as a family.

The NBA has a know entity in the Sonics and that is the key to both sides eventually getting this done. The arena renovation will be the last component in what has been a long saga, and then the path should be cleared for Seattle to finally get their basketball team back again.

The New Hierarchy of The New York Knicks

Many people have asked me over the past week or so what my thoughts are regarding the new regime in the Knicks front office. The team announced changes to their basketball operations leadership following the debacle that was the three-year run of Phil Jackson steering the ship.

My answer has been very honest: I really do not know, it is a mixture of emotions. I do not know much about Steve Mills, I know he is loyal to owner James Dolan and that he has been in the front office for a long time, both before Phil Jackson, and now in the “post-Phil era”.

It is my opinion that Mills overpaid to get Tim Hardaway Jr. back in an offer sheet to pry him from Atlanta. The Knicks paid him about four times more money than the next closest offer, this after initially drafting Hardaway Jr., then trading him away, only to pay him $71 million to come back. That is a player acquisition that is just so typical of the Knicks, what a total mess.

The appointment of Steve Perry as the new General Manager is a move I do find positive, if they give him some authority to make certain personnel related decisions. Perry is smart, politically savvy, and well respected around the NBA. He did great work in a short time with the Sacramento Kings, and the move to bring him in from California made a great deal of sense to me and others within the media that cover the team.

Mills and Perry in their introductory press conference towed the new company line that they want to rebuild the team around a young core, they want to reshape the team into a more athletic club. That sounds nice, but it disregards the fact that they have half the salary cap for the entire roster tied up in three veteran players: Carmelo Anthony, Courtney Lee, and Joakim Noah.
Then, they committed huge dollars to Hardaway Jr. and he is essentially the same type of player as Courtney Lee. I am not sure if they could trade Lee without taking back a “bad contract” in return. The issue with Noah is that he is coming off major offseason surgeries and has a prohibitive contract that Phil Jackson doled out to him. The move to trade Noah would be “selling low” because of the injuries, so the Knicks will most likely have to hold on to him for the time being.

Then, there is the Carmelo Anthony saga, with a contract that pays out a ton of money to a player that Jackson tried to make completely miserable. The Knicks had been attempting to move him to either Houston or Cleveland, according to reputable reports, and then paused that process when they named Perry to the GM post.

The Knicks new regime was said to have been looking to mend the relationship with Anthony to bring him back into the fold. Several sources around the league state that Anthony is done with the dysfunction of the Knicks and wants to be traded to Houston to play with Chris Paul and James Harden.

However, trading Carmelo will be complicated because he has a no trade clause (which he has lifted to move to either Houston or Cleveland) that the Knicks front office has reportedly asked him to expand that list so they have more viable options to trade him. He also has a 15% “trade kicker” in his contract that will increase his salary cap hit to the team that obtains him, and the right amount of money has to be sent back in order to meet the regulations of the NBA for trading players.

All of this when taken together means that the Knicks need a fourth team to be involved in a multi-layered deal that ultimately would get Anthony to Houston, would provide the Knicks with cap relief, and also would provide the other two teams in the deal some other assets or cap space to make the deal worthwhile for them. It seems unlikely that will happen at this point because the Rockets will probably wait until closer to training camp to leverage the Knicks into a deal that is better for Houston’s interests.

The Knicks have some talent on the roster and they do need to start the rebuild because they have been spinning their wheels for the past four or five years. The fan base is getting restless, and rightfully so, but as I wrote in the past, the Knicks will continue to sell tickets because tourists want to see games at the Garden. The Knicks will continue to be a money machine because of the allure of playing in New York, which makes the impetus for actually rebuilding the roster a difficult thing for their front office to actually accomplish.

The new hierarchy of the Knicks brings me mixed emotions, I am not sure how much Mills will interfere with Perry trying to make bold moves to revamp the roster. I am not sure how involved James Dolan will be, and if Perry will have his hands tied in trying to improve the team. I guess only time will tell, they have a great deal of work ahead of them.

In the meantime, Knicks fans will wait and see if this new front office will be able to make the moves necessary or if it will be business as usual in the Garden.

Mergers & Acquisitions Roundup

The mergers and acquisitions (M&A) activity in this quarter was slow compared to the two most recent quarters in the financial world. The total amount of the deals was reportedly higher in dollar volume than the prior quarter, but the overall M&A picture is overshadowed by the unknown impact of new antitrust policies coming from Washington.

Those policies remain unrevealed to the public by the White House, and has placed most of the potential M&A activity on hold until further details emerge. However, amid all those changes some pending deals made progress and others fell apart. The past few months were still busy when it came to consolidations and other types of acquisitions.

Amazon Enters The Grocery Aisle

Amazon made a bold move into the retail grocery channel by acquiring Whole Foods in an all cash deal in June. The deal will give Amazon a foothold into an industry they have been trying to tap into for a long time without having to spend major capital on leasing or building store locations, training management and staff, as well as developing a distribution network specifically for those stores.

The addition of Whole Foods is going to make Amazon an even greater threat to the other players in the fresh grocery business segment. Amazon plans on keeping Whole Foods operational strategies mostly intact with retaining their business headquarters in Austin and keeping the brick and mortar store experience largely the same.

Walgreens Proposed Merger With Rite Aid Shelved

In the opposite direction, the M&A area was dealt a blow when Walgreens and Rite Aid announced that their long-pursued foray into merging together was being abandoned completely.

This proposed marriage of two of the largest retail pharmacy chains in the U.S. was riddled with issues from the outset. The regulatory boards involved have consistently been concerned with the fact that Walgreens and Rite Aid both had to divest a certain number of stores to meet antitrust requirements. This was further complicated because the industry contains a lack of suitable buyers for those locations.

Walgreens/ Rite Aid identified Fred’s, a largely Southeastern U.S. based chain of both pharmacies and discount type dollar stores, as the partner to absorb the locations that they both would have to sell off in order to meet approval on the merger. The regulators were not sure that Fred’s could double in size basically overnight and survive, especially expanding into the Northeast and other areas where they had no previous presence.

The sheer potential size of a combined Walgreens and Rite Aid ultimately doomed this proposed M&A transaction. Walgreens now has to determine another consolidation strategy in order to compete with CVS Caremark. Rite Aid, while pretty healthy overall with their business, has to be concerned about the tough competition from CVS and Walgreens in the Northeast. They also have to be concerned that another company is going to try to obtain them and absorb them in the short term.

The Big Get Bigger

In perhaps the most under the radar move of the year, AT&T is poised to become even bigger than they are currently with a proposed $85 billion acquisition of Time Warner. This is not just the cable television unit of Time Warner, this is the entire company.

This merger is expected, according to analysts close to the deal, to close and meet all final approval metrics within the next 60 days. This is a controversial merger in the eyes of many in the general public who have justifiable concerns about a multimedia conglomerate with that much influence.

AT&T and DirecTV are the same company, and they will now have control over broadcast channels such as TBS, TNT, CNN, and HLN. This represents a monopoly which can exert pressure upon advertisers and control the message in the media in a way that could be very dangerous.

Some consumers will feel that this is a conflict of interest with AT&T controlling a major satellite television platform as well as a full stable of broadcast channels.

New Rules Coming Soon

The White House will announce some sort of new rules for M&A activity that could make it potentially easier to consummate some of these mega deals. The Dow – DuPont merger looks like it is going to meet regulatory approval regardless of these future changes to the antitrust regulatory requirements.

The rules could allow for less oversight of potential monopolistic deals and could lead to a road where all the consumer is left with are very small “mom & pop” type stores or a store owned by some giant conglomerate with nothing in between.

The Dow-DuPont merger would be one of the largest in history and would be a very complex deal that would eventually create a corporate structure with separate divisions running as autonomous companies based on their shared specialty.

The analysts expect that the Dow-DuPont approval coupled with the regulatory changes could create conditions where M&A activity will ramp up significantly.

The “Q” Gobbles Up HSN

Liberty Interactive/QVC announced on Thursday that they have purchased the remaining stake in HSN (Home Shopping Network) to complete the acquisition of the network. QVC, or “the Q” as it is known in shopping circles, now has control of their top competitor, HSN, and the company is touting the cost savings from the shared core synergies for both networks.

It stands to reason that the systems for ordering and shipping will be upgraded to a unified platform. The knock on HSN is that the ordering process could be more cumbersome and the return process more complicated than that of the processes used by QVC. An improvement to any of those processes at HSN would be a real win for the consumer. This deal is also an indication of how robust the online competition from Amazon and other sites have been to the sales for twenty-four-hour home shopping networks.

Those networks, QVC and HSN respectively, were the advent of online shopping. They provided the first convenience factor of shopping from home, before the genesis of eBay, Amazon, and Craig’s List. Some feel that this merger could be seen as a monopoly, but the reality is that it is a necessary move for the survival of home shopping networks amid intense marketplace competition.

Berkshire Bets Big On Electricity

Berkshire Hathaway and their high-profile owner, Warren Buffet, announced on Friday that they have purchased Oncor, a Texas based power grid leader, for $9 billion in cash.

The acquisition is one of the largest that Berkshire Hathaway has ever undertaken. They are intrigued by the steady demand for electricity and the continued importance of electricity infrastructure in the future.

This move also pulls Oncor out of bankruptcy and into a stable of other companies and brands owned by Berkshire which could provide opportunities for strategic partnerships in energy delivery in the future.

Europe Cracks Down

The news on Thursday that the E.U. has reviewed the M&A activity of certain major players and decided to take punitive steps came as a surprise to some, and as no surprise to others within the business world.

The E.U. is investigating whether GE mislead their regulatory compliance process when the consumer products giant purchased a wind farming operation. The line of defense for GE, according to their spokespeople, is that the company did nothing to intentionally misguide the process. The E.U. law is written in a way that GE should they be found guilty of any wrongdoing would have to pay a fine in excess of one billion dollars.

The E.U. is also investigating Merck (the German company not the American pharmaceutical titan) for a similar matter in a completed merger where the valuations might have been altered to mislead the regulatory powers involved. They also face a hefty fine and the potential for an increased level of scrutiny whenever they decide to consolidate in the future.

The E.U. is also investigating electronics giant, Canon, for some alleged deceptive practices during their purchase of Toshiba’s medical imaging business unit. It would not reverse the acquisition, but it would be a significant fine if guilt is established. The reputation and corporate image of Canon could also take a hit in this situation as well.

The M&A activity has been largely put on hold in recent months. However, some of the largest merger activity could become reality in the next few months. These transactions will have an undeniable impact on the average consumer and will have influence over entire industry segments moving forward. It is important to understand how they can impact you and your family from the way it can impact costs of goods and services. The future will bring more of the same, so stay prepared.

DuPont &Tainted Water Allegations In Wilmington

The reports of the tainted water supply from a chemical plant in Wilmington, North Carolina are both alarming and shocking in nature. The Cape Fear water supply is infected with large levels of a chemical agent called GenX.

This chemical has been linked to numerous health conditions which have been exhibited in residents living in that area which utilize the Cape Fear water supply. The incidents have been staggering, and the report from CBS News states that evidence exists that could indicate that the chemical has been present in the water supply for decades.

The chemical plant is operated by Chemours, which is a spinoff company of the agricultural chemical giant, DuPont. The company formed and split off Chemours as part of the steps taken for regulatory approval of DuPont to merge with another goliath in the industry, Dow Chemical.

This particular chemical, GenX, is a replacement component used in the process of making Teflon. It is has been linked to potential cancer causing effects and is present in the drinking water supply of Cape Fear River which serves tens of thousands of people. The substance has been in the water supply for 37 years because there is no standard for measuring or testing for that chemical.

GenX is a processing aide and replaced a substance called P.F.O.A. which had a long history of safety issues itself. The process of making Teflon received largely unnoticed media coverage as the company moved forward with production utilizing GenX in the formulation.

DuPont insisted to the public that the substitute was safe, yet had issued over fifteen documents behind closed doors that cited concerns over health and safety of the chemical. The “to make matters worse” segment of this article is that Chemours, according to local news reports, will not commit to stopping the release of further GenX into the river.

The municipal government response is almost tragic in that they will not state that GenX is safe to consume but they will not state that it is unsafe either. The recent fallout legally from the horrendous water crisis in Flint should give these local officials pause when dealing with these issues. The official response from the municipal level is that they are deferring to the county for further direction.

The local area residents, most of them at least, are understandably very upset. The fact that toxic material has been in the water for decades and undisclosed is yet another example of corporate distrust in the American public perception. The reports I saw referenced some other area residents with the opinion that the river is contaminated from all sorts of chemicals and that should be common knowledge for a local person.

The news will have little to no impact on the proposed merger between Dow and DuPont because Chemours was spun off and is technically a separate entity at this point from DuPont. The DuPont merger with Dow would initially create one huge company that then will be split in legal terms into five smaller companies, or units.

It may not damage the chances for the merger to be approved, but this situation in North Carolina still connects DuPont to a tainted water supply, which is damaging in the court of public opinion. That can be a force that should not be underestimated.

The recent developments out of Flint, Michigan which were referred to earlier in this piece also could play a role in the way that the situation in North Carolina gets handled from both a government and a media coverage standpoint. The disaster in Flint has gripped the nation and the consensus opinion drawn from that tragedy of contaminated water and government cover-ups is: this can never happen again. The situation with Chemours and the Cape Fear River can get some significant backlash because of the timing of the whole situation.

The direction of the situation could evolve into a similar one to Flint, where an investigation into who knew about the effects of GenX and when did they know become significant findings. It could also become a scenario that proves difficult to build a case because so many people can claim ignorance on the effects of the chemical.

This tragic situation is evolving and will continue to do so in the coming weeks and months ahead. In the meantime, there will be more questions raised than there are answers available. The lives of residents and the quality of life of families from all backgrounds and demographics will hang in the balance. This will all come together around another American corporation trying to defend itself from what it knew a long time ago: that putting these chemicals into the river would have consequences.

It is inconceivable that we could have another situation like Flint in our future, but it appears that at the very least this Cape Fear River debacle is on the surface a very significant public health threat, and what lies beneath that surface is what we are all bracing for in the near future.