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.

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.

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.

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.

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.