Posted May 30, 2013

The ‘lunacy’ of DePaul’s new arena plan

Big East, DePaul
Oliver Purnell's Blue Demons have been poor for a long time, but that may not keep them from a new stadium. [Robin Alam/Icon SMI]

Oliver Purnell’s program is atrocious, but the school still may get a publicly funded arena. [Robin Alam/Icon SMI]

When news first broke about a proposed new arena in Chicago that would house DePaul basketball, with the city contributing around $100 million of the estimated $170 million construction cost, my old finance ears perked up. It’s well-established that almost any public financing for a sports venues is a boondoggle, but this project seemed particularly galling.

First, DePaul is a terrible basketball program long removed from its glory days under Ray Meyer. The program definitely needs a different arena setup; the Blue Demons’ current home, Allstate Arena, is 15 miles away from campus and on the edge of O’Hare Airport. But it’s hard to defend new construction with DePaul as a primary tenant when the program went 7-83 in the old Big East over the past five seasons. Years of awful basketball have made the program an afterthought in a city dominated by pro sports. DePaul was offered 10 years of free rent (plus all ticket revenues) at the United Center, but turned it down.

The much more curious part of this, though, is Chicago is under massive budget pressure. The city recently decided to close 50 public schools in an effort to battle dwindling enrollment. That decision was made because many buildings are at far lower than capacity and is designed to cut costs, as Chicago Public Schools are currently facing a $1 billion (yes, that’s with a B) operating deficit for this fiscal year. And that’s without considering a teachers’ union claim that refurbishing the existing schools will cost almost the same as what the city claims it will save through the closings.

Despite all of this, the city seems eager to push forward with the arena plan as part of a larger redevelopment project around McCormick Place, which is still approximately 50 blocks from DePaul’s campus and significantly farther from the school than the United Center. It seems a reach on almost every level, and that’s before Crain’s Chicago Business started really digging into the plan.

In a story released on Wednesday (free registration required), Crain’s wrote that it had gained access to DePaul’s actual attendance headcount numbers, and that the Blue Demons drew approximately 2,900 people per game. That’s well below the published attendance numbers, which were almost 8,000 per game this past season. Over the past three seasons, DePaul claimed attendance of over 127,000 while the actual headcount in the arena only totaled 41,771, according to TicketMaster scan data.

Crain’s notes that the discrepancy comes from tickets sold versus actual people who show up, which isn’t an unusual practice in sports, although DePaul beefs up its ticket count by included tickets the school itself “buys” for students, who can attend any games for free as long as they pay a modest semester fee. In short, no one’s coming to watch, and that’s an issue in terms of projections for the new arena.

City officials have claimed the arena will break even in the first year of operations and then be profitable going forward, but that’s assuming that DePaul draws more than 9,000 fans a game. That’s an increase of more than 1,000 per game from existing “ticket sales,” even if the school continues to foot the bill for a chunk of seats reserved for its students. With a nice new arena and maybe an improving product, that jump isn’t impossible, but the projections also rely on money spent by that attendance figure.

The numbers put forward are reliant upon people actually attending the games and spending money, both at the arena and at the external businesses surrounding it. It also call for people from outside the city limits to day-trip in for games and assumes hotel use as well. If very few actual people are coming to the games, there’s no way for these projections of additional spend to come good. With the actual attendance figures in place, there’s no way DePaul basketball will hold up its share of the projection, meaning the arena will lose money unless it can significantly overshoot projections for other events in the building.

According to this Chicago Sun-Times column, local stadium expert Marc Ganis referred to the plan as “lunacy” and “sheer folly.” And Ganis was just getting started there.

“As someone who has worked on projects like these for decades, I can tell you there is absolutely no way for this to make any sense in any way. It is not in the realm of possibility,” Ganis said.

I also reached out to a friend of mine who remains in the business. After taking a quick look at the plan, he replied “the assumptions underlying the economic impact study are questionable.” He does not live in Chicago and isn’t involved in the project in any way.

So what’s going on here? Why would a city drowning in budget debt think tossing in $100 million to finance a new arena with a private school as the lead tenant would be a good idea? Why would DePaul, even with the ability to recoup some of its expenditure through a naming-rights deal, want to become a rent-payer in an arena far from campus when the United Center, with its pro amenities, was offered for free? Can DePaul, with its recent basketball track record, correctly rationalize a deal with more risk but more upside, even if the city is helping subsidize that gamble?

Municipalities across the nation are suffering from the quixotic whimsy of their elected officials when it comes to publicly financed sports venues. When you mix in this particular city’s budget, this particular team’s fortunes and the way these numbers don’t seem to make any realistic sense at all, it’s understandable why people in Chicago are upset.

12 comments
Chicago_Joe
Chicago_Joe

"The arena plan calls for $70 million in construction costs to come from a McPier bond fund supported by hotel taxes and $70 million from DePaul. The city would pay for land acquisition costs with about $33.5 million from a city tax increment financing district, in which a portion of property tax revenue is set aside for economic development."

So, basically there's no money out of pocket from the city.  What's the big deal?

Kp
Kp

Universities should fund their own buildings, no matter the sport played. I've no problem with them sharing a facility used by another school or professional team, but if they want their own palace, construct it on your own dime. 

DePaul, being private, absolutely has no business expecting taxpayers to foot their bill (and, I'm both Catholic and a grad of a Catholic high school and university, so I'm certainly not biased - like that idiot prez of tOSU would be)  Worse is the news that the United Center offered DePaul a 10 year lease, rent free!  A responsible school would jump at that offer, then save up and organize their plan of action and, 7 or 8 years into the lease, would begin constucting their own on (or near) campus facility.

Or, perhaps DePaul should simply move down to Division 3 (or scuttle their program all-together). 

hellsbells
hellsbells

According to some, this is payback for the union concessions the Mayor put through during the McCormick contract negotiations a year or two ago. They say this may have resulted in an agreement that the unions would cut back on their requirements at McCormick Place if they promised them more projects in the vicinity to offset the job losses.

Regardless it's insane. Chicago is a complete mess and this proves it - as if we needed more proof.


ChrisSmith4
ChrisSmith4

It's not like the Sacramento Kings, who can threaten to move.

maggie_oakshot
maggie_oakshot

Denial of Chicago tax money the current chicago way.

Teachers, NO.

Schools, NO.

Library, NO.

Brings up the question, how did DePaul get anointed for TIF Chicago people's ready money. How did a private, rich school--who bragged about fundraising millions- get the public money? Who is sleeping with---?

RayHuggyBearYoung
RayHuggyBearYoung

Yet when the Mayor of Chicago is asked why the civil servants can't receive fair contracts he says the city has no money.  Yet DePaul needs a place to play and he finds money.

The Chicago Way.

TwitSpif
TwitSpif

There are very few places to eat and drink near the proposed sight, so even if 5000 DePaul students went to games, they'd go back to Lincoln Park to party after the games. The LP has good party infrastructure already in place. 

wax_eagle
wax_eagle

It should also be mentioned that the Cubs were unequivocally denied any public money from Chicago for a stadium refurbishment plan that actually *would* have netted the city new revenue.

Tonedeaf
Tonedeaf

@Kp  Youre silly Depaul is simply a anchor tenant for a 10k seat sports arena/convention center . Its a money maker for the city 

doghockey
doghockey

@hellsbells Not a shocking turn of events given that Barack Emanuel is the sitting mayor.

Tonedeaf
Tonedeaf

@maggie_oakshot They didnt get the public money a CITY OWNED convention center got the money Depaul is  just an anchor tenant . This is the mayor trying to think longterm and get the city an source of revenue which it desperately needs . . The convention ,concert and tourism dollars this project will bring is desperately needed . 



Tonedeaf
Tonedeaf

@TwitSpif  They are building a huge hotels and will have clubs and stores as well and I wouldnt discount the casino