Skip to main content

Barclays Center more prominent than profitable: was first year a loss leader?

Well, I wrote last month that the Barclays Center was less profitable than hoped and not expected to achieve revenue "stabilization" by 2016, when the New York Islanders arrive. Also, I noted they were moving the goalposts: as of March 2012 Forest City Enterprises executives were predicting stabilization by 2014, the second year of operation.

But Eliot Brown of the Wall Street Journal crunched the numbers and found that arena revenues significantly lag projections, in Brooklyn Arena Is Glitzy, but Profits So Far Aren’t Golden: Profitability of Barclays Center Raises Questions About Similar Projects in Other Cities.

While Forest City Ratner in bond documents projected "more than $76 million of operating income in its first year of operation, according to bond documents," the first nine months add up to $19 million, on pace to produce $25 million, well below the $29 million in annual debt service.

From the bond offering statement
Updated and corrected: I'm told the the naming rights agreement and sponsorship agreements. *are* part of the operating income.

Loss leader?

The Journal reports:
Forest City executives say the shortfall is largely the result of their spending more than expected to make a big splash in the first year, investing heavily in marketing, customer service and securing top acts. They point out that Barclays was ranked the top U.S. concert venue for ticket sales in the first nine months of 2013 and second globally, and that the arrival of the New York Islanders hockey team in 2015 should help. They added that fourth-quarter operating income is expected to be stronger.

“We’ve made an amazing first impression,” said Forest City Chief Executive MaryAnne Gilmartin, who predicts annual operating income will be $70 million by 2016. “Now, we turn our efforts toward calibrating the operating expenses.”

But arena experts say boosting income by that amount will be difficult. There are tight margins in the concert business, and the arena faces a competitive marketplace, particularly from Madison Square Garden, which has been closed since the early summer for a renovation.
What to blame

The question then is whether the Barclays Center cost too much to build or to operate, or whether it's offering lucrative deals to performers.

The article hints the arena, "wrapped with rusty steel," may have spent too much. Maybe. It cost $54 million and was made, as Forest City executive Bob Sanna would say, "for public reasons" (in other words, to win over critics), so there was a calculation there.

It clearly cost more to operate than it will in the future--the article hints at a few relatively minor cuts, and reduced expenses of some 15%, which I'll discuss tomorrow.

“We can easily reduce our expenses by 15%, if not higher,” said Brett Yormark, CEO of the Barclays Center, adding the arena’s first 12 months have “exceeded my expectations.”

(He's said the arena need not market as much in the future, which surely makes sense. Some of the spending on acts and other flourishes might be considered a marketing expense.)

Those 2000 $15 Nets tickets are now $25--which adds up to only $900,000 a year, but there are many other increases.

I suspect--but can't be sure--that the major drag on revenues was, as the WSJ put it, " generous deals to woo big names, either by offering low rent or by guaranteeing a performer a high portion of ticket sales."

That in many ways may have been money well-spent--the arena was the highest-grossing, and busiest, American arena, even if Madison Square Garden earned more per ticket. That means acts would be more likely to come back to play, and the Barclays Center could then drive tougher deals.

When the Islanders come

The Islanders' arrival seems to be correlated to revenue stabilization, but, as the WSJ reports, the Islanders bring risks, since arena owners "have guaranteed the Islanders an unspecified annual payment to move them there, according to a report from Standard & Poor’s," a sum unidentified sources say "runs in the tens of millions of dollars a year" but which Yormark calls a “conservative” deal.

The value of delay 

Yormark, in a Last Look interview this week with City&State, talks about how "the transformation of our [Nets] brand has exceeded all our expectations. I think much of the credit, believe it or not, has to do with the delay in getting to Brooklyn. It enabled us to see the brand in Brooklyn, to create incredible amounts of anticipation. This is a borough that had been underserved in the area of sports entertainment since the Dodgers left in 1957. They were craving with their own home team... It gave us some traction.. .to be ready for the big moment."

The Nets, he said, launched in April 2012 "as a bit of a lifestyle brand... we wanted to give people a multitude of reasons to like us... with Brooklyn.. first home team... align to the world of entertainment." Now they're aiming to have an even better product on the floor.


Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.