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Islanders’ move to Brooklyn leads to unique business partnership with Barclays Center

Stu Hackel
By: Stu Hackel
Jul 19, 2015

Barclays Center (Bruce Bennett/Getty Images) Author: The Hockey News

News

Islanders’ move to Brooklyn leads to unique business partnership with Barclays Center

Stu Hackel
By: Stu Hackel
Jul 19, 2015

As part of the Islanders’ move to Brooklyn next season, the franchise will enter into a business partnership with the Barclays Center that will see the team hand over business operations to those in charge of the arena.

The Islanders’ move from suburban Nassau County to Brooklyn, New York City’s largest borough, means more than a new venue in a new town for the up-and-coming club. It also has serious implications for the team’s existing Long Island fan base and presents an opportunity to develop a new one. What is little known, however, is that the move ushers in a different and unique business model for owner Charles Wang and his partners, Jon Ledecky and Scott Malkin, one that offloads the team’s entire back-office operation to the Barclays Center staff. Essentially, the hockey team no longer administers or controls its own business operation, a highly unusual situation.

The agreement to move the franchise includes the provision that the arena pays Islanders ownership an annual sum to play at Barclays Center and, in exchange, Barclays Center acquired all ticket and suite sales, sponsorships, marketing and promotions and their revenue. That arrangement was confirmed by Brett Yormark, the CEO of both the Barclays Center and the NBA Brooklyn Nets, the original team in the building, in a late June conversation. Yormark added, “Charles made a promise to us and he’s delivered a very good team to us, and we’re going to monetize it.” The Islanders declined comment on the agreement. And no one would confirm how much the Islanders receive, although last year The New York Post reported that Barclays has guaranteed the Islanders
$50 million annually. Yormark told The Hockey News the maximum guarantee is contingent on the revenues his organization generates and claims it is a relatively easy target. “We did make a revenue guarantee – I’m not going to discuss what the number is – but the number, when we hit it, would only put us 20th in the NHL in revenue,” he said. If so, that number would be around $100 million, using
Forbes’ most recent listing of the 30 NHL club revenues. After that number is reached, Barclays Center ceases sharing and keeps the surplus. This isn’t how most pro sports franchises function. They generally control the business side and through it, the team’s finances. Under this new model, the Islanders control none of the business revenue and that share they do get from Barclays is essentially capped by the agreement. Will this work for Wang and his two partners (who will become the majority owners in the 2016-17 season)? Considering his
long-standing annual losses at Nassau Coliseum, Wang is likely quite happy. This not only provides him and his partners a degree of financial certainty, but they’re probably no longer swimming in red ink. “For him, it’s better than losing $20 million a year, or whatever he was losing playing out of the Colisuem,” said
Glenn Gerstner, chairman of the Sports Management Department of St. John’s University in New York, and a longtime Islanders fan. Gerstner, whose background is in economics, also points out that ownership’s bottom line increased by outsourcing the team’s business department. “The savings for Wang is that he just cut his overhead,” he said. “If there has been another arrangement like this (in sports),” Gerstner added, “I am not aware of it.” This unusual business model is not likely to be replicated by other franchises. "It was a unique deal structure that was driven by a unique set of circumstances,” said NHL deputy commissioner Bill Daly. It’s unusual even for the Islanders, who have some history of unusual ownership structures. In the early ’90s, for example, owner John Pickett sold 10 percent of the club to a quartet of area businessmen and gave them operational control, but Pickett maintained a partnership with the quartet in the club’s business operations. (This arrangement ceased when Pickett sold – or tried to sell – his share to John Spano. But that’s another, sadder story.) A major question remains: will this new setup provide Ledecky, Malkin and Wang, enough funds in the future to finance the hockey operation -- paying the players, the GM, the coaches, scouts, trainers, support staff, travel, etc -- without going too deeply into their own pockets? Unlike traditionally-run teams, the Isles won’t benefit from the ability to raise ticket prices if they need to boost player payroll. There doesn’t seem to be any provisions in the agreement for Barclays Center to increase their payments to the club should the salary cap rise precipitously. It appears however, the Islanders’ revenue picture has improved and after making rough estimates from various published reports, the hockey side of the operation should be adequately funded – at least in the near term.
Forbes’ most recent estimate of the Islanders revenue at Nassau Coliseum was $83 million and they set Wang’s losses at $2.5 million. In 2012,
The New York Times reported an estimated operating deficit of $8 million. Under the new setup, not only will the Isles get their presumed $50 million share of Barclays Center revenue, they also have their very lucrative,
long-term local TV rights fee from MSG Network (perhaps worth $20 million annually, and reportedly maxing out at $36 million when the deal ends in 2030). Then there’s their share of NHL-generated revenues – and
the 30 teams share $633 million a season in national TV revenues alone, around $20 million a team (although
currency fluctuations in Canada could play a role in slightly decreasing this sum). Plus there’s national sponsorship and licensing fees. That could all total around $90 to $100 million annually in revenues for Islanders ownership this season, which would wipe out their annual losses. That upper end is obviously a good chunk more than $83 million – and all without the overhead of maintaining a marketing and sales department. The 2015-16 Islanders player payroll as of mid-July, according to the website
GeneralFanager.com, stood at slightly under $67 million. (Additionally, the Isles would share in NHL expansion fees. If reports are correct that an expansion team would sell for $500 million, the share to each existing NHL club could amount to an additional $15 million for each new club -- and, unlike those other revenue streams, the owners do not share half of it with the players, although expansion fees are one-time payments.) The foundation for the Isles maximizing their revenue from the Barclays Center deal is ticket sales and that appears off to a good start. Yormark characterized early season ticket sales as being “in great shape,” actually exceeding his expectations. He told The Wall Street Journal in early July they had sold over 8,000 full season ticket seats. Yormark says Islanders tickets at Barclays Center are roughly twice the price of a ticket at Nassau Coliseum, although the premium tickets include free food and other inducements. But just who is buying Isles tickets in Brooklyn? Yormark told The Hockey News about 25 percent of sales at Barclays come from the established Long Island fan base, a larger percentage than he expected. Many of them will now have to travel greater distances to see their team. More tickets have been sold to Brooklynites, however, 33 percent of the total, while another 21 percent have come from Manhattan, just across the East River. Although the Islanders have had a presence throughout the New York metropolitan area since their inception and their fans come from all over the region, Long Island was ground-zero for Islanders Country. The fate those who overwhelmingly made up the home crowd and supported the team since 1972 is among the bigger issues involved with the move. Both Wang and Yormark have taken great pains to help the team keep as much of its original identity as possible, including not changing the Islanders name or its colors, and honoring all the team’s championships and honored members with banners in the rafters. Additionally, Yormark has engaged the Long Island Railroad to add trains
from Jamaica to the Atlantic Yards station on game nights for fans in Nassau and Suffolk County. It remains questionable, however, whether they’ll be happy about waiting on the platform in Jamaica on a winter night to change trains for the ride home. It has traditionally been a family-oriented fan base, and the club did its initial ticket sales push last winter exclusively to Long Islanders. But when the Isles home schedule was released this summer, those fans noted that the Isles play a weeknight-heavy schedule with just four home games on Saturdays -- the final two in April – and just three Sunday or holiday Monday matinees. “That’s geared for a corporate crowd,” said Jim Johnson, who worked for the Islanders in the ’80s and ’90s, including six years as the team’s director of marketing and ticket sales. “It seems they took their best shot on Long Island but then went to Plan B. Their objective now is to bring in a whole new audience and build off the legacy of the championship years and the good faith derived from last season.” Consequently, while the Barclays Center is only about 25 miles from Nassau Coliseum,
there has been some sadness and even hostility toward the move from a segment of those long-time fans in Nassau and Suffolk counties. The regional antagonism between the suburbs and the big city to the west – and the fact the Isles always embraced their Long Island identity – will not be easy for some Long Islanders to overcome. “At the end of the day, you’re not going to please everyone,” said Yormark of those angered by the move. “The only thing we can do – and by the way, I don’t think there are lots of angry fans, but a smaller group who are very verbal about it – is give them many reasons to sample us. Then, if it’s the experience of the Barclays Center or the product itself -- whatever the reasons are -- we hope we can give them enough of a reason to say, ‘You know what? I’m going to give it a shot.’” Equally to the point, the convenience factor and the habit of driving to game the has vanished -- replaced for many by a train ride that, if families are involved, will be far more expensive than piling everyone into the car for the drive to Uniondale. Also lost will be
the tailgating tradition in the Coliseum’s parking lot. “The feedback I’ve heard from those who live in Eastern Nassau and all of Suffolk has not been favorable to changing the culture that was 42 years in the making of driving to Nassau Coliseum,” said Johnson. Gerstner, a Long Island resident, sees it another way, believing Long Islanders may eschew the train for the car trip to Brooklyn. “People from Long Island like to drive,” he reasoned. Regardless, Gerstner and Johnson agree that these fans won’t emotionally abandon the Islanders. “People in New York have an allegiance to one team or the other,” Gerstner observes, “and they don’t switch.” “I think they love the team,” Johnson concurred. “It’s similar to people in Hartford who still walk around wearing Whalers shirts. “The people (on Long Island) got spoiled,” he added. “They could be home from a game in time to watch the highlights package. But it’s still their team. It’s just not as convenient. They’ll still go to games -- just not as often.” That leaves the Barclays Center courting a new fan base, one right in their neighborhood. “That’s what happened with the Nets,” Gerstner said. “People from Brooklyn said, ‘Hey, we’ve finally got a team.’ People who were ambivalent about buying a ticket to game (featuring the Knicks in Manhattan) now say, ‘Hey, let’s go support
our team.’ You might get that same effect with hockey in Brooklyn. Maybe they’re not huge hockey fans but they’ll say, ‘This is our team, let’s go support it.’” That’s what the Islanders and the Barclays Center are banking on.

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Islanders’ move to Brooklyn leads to unique business partnership with Barclays Center