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Halloween Horrors

I know, I know, detailed discussion of arena leases can incite riots of excitement, but I'll take that risk today in light of the approaching October 31 deadline that exists on the Nashville Predators sale.  The drive for local investors to purchase the team has hit a bump in the proverbial road, not due to resistance or disagreement between the parties involved, but rather the complicated legal implications of dealing with the bonds that the city of Nashville issued to fund the construction of the Sommet Center and related improvements. 
 
Basically, there are two main types of bonds that governments issue.  First are general obligation bonds, which are paid back out of the government's overall ability to tax.  The most prominent example of this type are U.S. Treasury securities, which are the bedrock of the finance industry as they are generally considered to be the lowest-risk $US-denominated investment vehicle out there, backed by "the full faith and credit of the U.S. Government."  As detailed in an analysis by Richard Lawson of the Nashville Post earlier this week, the bulk of the Sommet Center bonds are of this type.  The other category of bonds are revenue bonds, which are paid back out of the revenues of a specific activity as defined in the bond contract.  Quoting Lawson, there are also revenue bonds involved here, which are:
 
"for the building out the arena for the Predators and the franchise fee for bring the team here. The city also would issue [revenue] bonds for any capital improvements sought by the investors, which Metro is required to do under the current lease. Sales-tax and seat-use revenue pay the principal and interest on those additional bonds. "
Daniel Craig as James Bond
No, not James Bond...  Revenue Bonds
 
The problem here is that even though the Freeman group (Venture 36 Capital, which I'll call simply V36) crafted their lease negotiation request to use the sales tax and seat-use revenue to pay them an arena Management Fee (so-called "but for" funds, because they would not be available "but for" the Predators remaining in Nashville), those funds are already dedicated to the repayment of the revenue bonds, so they're simply not available to be redirected unless, under one scenario, the city called in the existing bonds and reissued new ones, which would add a huge complication to the whole setup, getting into tax liability and other murky waters.  Nashville's legal eagles have been working on how get around that issue, and they've basically come up against a brick wall on that front.
 
In interviews this week, new mayor Karl Dean has said that he's open to different approaches (not, however, using property tax money which pays for schools, police, etc.), but that the burden is on V36 to come up with a proposal that the city can work with, and more importantly, that the city needs the proper time and analysis to make a sound judgment in that area, which makes having a deal done in time for an October 31 sale increasingly unlikely, given the number of parties that would have to sign off (V36, their financiers, the mayor, the Metro Sports Authority, and the Metro Council).  The Nashville governmental bodies have put a lot of work into this effort, but the bottom line for them is that the Halloween deadline is an issue between V36 and current owner Craig Leipold, not their problem per se.  Also, since the mayor and Metro Council just took office last month, and this wasn't an issue during the election, all of these politicians have other priorities that they want to move forward on in the meantime.
 
Under the current negotiating agreement, V36 has exclusive rights to negotiate with Craig Leipold and complete the purchase of the Predators until October 31st.  They obtained those rights in exchange for a non-refundable $10 million deposit.  Could the agreement be extended with Leipold?  It doesn't appear that there's been a request from V36 for an extension, but perhaps there's room for a deal where in return for additional time, V36 ponies up an additional deposit towards the purchase of the team.
 
Jim Balsillie is, of course, still lurking in the weeds, and Leipold could simply pocket the $10 million then see what Balsillie's willing to pay at this point.  Boots Del Biaggio could also take his shot at majority ownership, rather than being a minority partner in the local group, which would seem to be a boost to those hoping to bring the NHL to Kansas City.  With Del Biaggio, however, you have the prospect of Anschutz Entertainment Group (AEG) still being brought in to run the Sommet Center, which most assumed was his goal in obtaining a hockey team for Kansas City.  AEG, with its nation-wide strength, is likely to be able to wring better performance out of arena operations, as well as bring more top-line acts and sponsorship deals to the table, making a Nashville operation much more attractive. 
 
For local fans, Del Biaggio would be the preferred alternative to Balsillie, who, despite taking down the Ticketmaster site receiving deposits for NHL hockey in Hamilton, clearly remains bent on bringing a team to his home turf as quickly as he is able.  Nobody in their right mind believes the letter that he recently had sent to the Metro Sports Authority, in which it is claimed that Balsillie previously misunderstood the Nashville market and that he is "committed to Nashville as a viable hockey market."
 
So where we stand right now, less than two weeks away from Halloween, is that V36 needs to act quickly to come up with a viable lease renegotiation that accomplishes the main goal of providing the incentive for them to operate the Sommet Center more profitably, which can be a win-win situation for both the team and the city of Nashville.  If they can't come up with an alternative deal very quickly, then they'll need to negotiate an extension to the binding agreement with Craig Leipold (and give him a good reason to do so), or risk seeing the team sold instead to Del Biaggio or Balsillie.
 
The downtown area is bustling and growing by leaps and bounds, and the Predators can act as both a foundation for that development as one of the main attractions in the city, and as a beneficiary of having more people living, working, and entertaining in the heart of Nashville.  The next two weeks are going to be an especially stressful time for local fans, as we'll probably get news updates almost every day on the progress (or lack thereof) being made.  My guess is that we won't know until the day of the 31st as to whether the binding agreement between V36 and Leipold will be extended, or the V36 deal collapses entirely.  It just seems that when it comes to these matters, major movement only occurs right at the brink of a deadline.  So stay tuned, it's going to be dark & stormy fortnight...

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