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Ditching ’burbs for Detroit

How the Pistons joined Red Wings downtown

Little Caesars Arena will look like the Pistons’ home and not the Red Wings’ for NBA games, part of the plan for the two franchises to both play in a building that the Red Wings have developed.
Photo by: DETROIT PISTONS (2)
Three years ago, as the Detroit Red Wings began developing their new arena, an “eerie feeling” surrounded the downtown property targeted for construction, team executive Tom Wilson says.

The area was desolate, a reflection of many empty promises over the years by would-be developers. “There had always been somebody trying to do something great, but it was always just one person with no momentum,” Wilson said.

Despite moves by the Tigers and Lions to nearby stadiums in the early 2000s, downtown Detroit was still deeply troubled. Urban blight ran rampant throughout the city, which filed for Chapter 9 bankruptcy in 2013.

But over the last two years — largely because of a commitment by the Ilitch family, owners of the Red Wings and Tigers, and Dan Gilbert, owner of the Cleveland Cavaliers and a Detroit-area native, to develop the city’s core — downtown Detroit has grown more vibrant.

Since 2014, about 100 restaurants have opened downtown and “you literally can’t find a place to live” among all the new apartments filling up in the district, said Wilson, president and CEO of the Red Wings and parent company Olympia Entertainment. When $733 million Little Caesars Arena opens in September, it will anchor a 55-block retail, entertainment and residential district.

Gores
From the suburbs, Detroit Pistons owner and Michigan native Tom Gores saw where growth in metro Detroit was headed and decided to join the Red Wings at their new facility. For the Pistons, the move represents an aggressive new approach as they leave the comfort of a building they own, the Palace of Auburn Hills, for a downtown facility in a partnership with another franchise.

But being part of Detroit’s downtown revitalization effort, along with the business opportunities that come with investing in what will be one of the biggest live entertainment districts in the Midwest, proved irresistible for Gores.

Tellem
The deal was announced Nov. 22, when the Pistons officially confirmed their plan to move about 35 miles southeast from the Palace of Auburn Hills, their home for the past 28 years. But the move was set in motion far earlier, after Gores hired former sports agent Arn Tellem as vice chairman of Palace Sports and Entertainment in August 2015.

The Pistons and Red Wings had spoken over the past few years about potentially joining forces downtown, but it wasn’t until Tellem came on board that those talks turned serious. Gores and Tellem then set upon building up trust with the Ilitch family while at the same time negotiating the deal. Tellem spent time getting to know downtown Detroit and immersed himself in the people and the culture to get a feel for the changes going on in the city.

“When I first saw the project a year ago, I thought immediately of what was happening in L.A. and what the Staples Center did for all the development in an area where everyone thought it could not be developed,” Tellem said. “[Gores’] motivation was he really wanted to contribute to the revitalization of Detroit. The key was developing trust. We were able to achieve that. That is why I am so optimistic why it will be a great partnership.”

Said Wilson: “Arn, to his credit, said to Tom, ‘Even though we have our own building, the future is in downtown Detroit.’ And as we all know for a new building, the entertainment tends to flow to it vs. the old building … all roads lead to downtown Detroit.”

The deal, more than a year in the making, covers two documents, a traditional tenant-landlord relationship and a joint venture on the facility operations side, Tellem said.

The Pistons become a tenant in a building controlled by the Ilitch family. Red Wings and Pistons executives would not discuss specific financials, but the lease revolves around the typical revenue streams such as ticketing, sponsorships and food service. Under those terms, the more revenue generated by the Pistons for their 41-plus games at their future home, the higher the rent payments are to the Red Wings.

In a separate agreement, the Red Wings gain a new business partner in the Pistons in the joint venture poised to become one of the biggest live entertainment groups in the Midwest. It connects the new arena; Comerica Park, where the Tigers play; and multiple theaters and outdoor music venues owned by both teams and their subsidiaries, and will be part of the larger entity known as Olympia Entertainment.

The joint venture, which is still to be named, will run those buildings and share booking responsibilities and revenue for those properties, Wilson said. The long-term future of the Palace, which has no other sports tenants, is unknown.

Specific changes to the teams’ business operations haven’t been determined, but at this point, the Pistons and Red Wings will maintain separate ticketing and sponsorship staffs, Wilson said.

The Pistons have about 250 total front office employees with about 80 employed in sales and marketing efforts. The Red Wings, meanwhile, employ about 60 in sales and marketing and 200 overall in the front office.

On the premium side, Little Caesars Arena’s 60 suites are sold, and the Red Wings are contacting those purchasers to expand their packages to cover Pistons games.

For those who do not want to pay the additional fees for NBA games, the Red Wings will turn to a priority list of Palace suite holders, and in that case, there could be shared suites between the two teams, Wilson said. For Pistons games, the NBA team keeps 100 percent of suite revenue.

“Arn, to his credit, said to Tom [Gores], ‘Even though we have our own building, the future is in downtown Detroit.’”
Tom Wilson
Detroit Red Wings / Olympia Entertainment

Photo by: DAVID DUROCHIK
“When we sold the suites, we didn’t know for sure [the Pistons] were coming … but we crafted it with “the other tenant” carve-out, so it was an acceptable lease,” he said.

For club seats and other premium inventory, there’s a revenue split between the two teams. On the sponsorship side, the Pistons will have their own inventory to sell at Little Caesars Arena for NBA games, Wilson said.

Digital projections on a steel shell covering the seating bowl will brand the building depending on which team is playing on a particular night. Inside the new facility, Ethan Davidson, son of the late Pistons owner Bill Davidson, leads the “curation” of Pistons memorabilia for display, Wilson said.

The Pistons leaned on the NBA to help analyze the business structure of other two-team arena deals around the league in crafting their own agreement. The Red Wings looked closely at how two-team arena deals are structured in Boston, Chicago, Dallas and Philadelphia. TD Garden and Wells Fargo Center in Philadelphia are owned by the NHL teams, and the Celtics and 76ers are largely second tenants. Joint ventures run United Center and American Airlines Center, where the NBA and NHL teams are equal partners in running the facilities.

“I think we profit from one another as opposed to being a liability, as long as you recognize they are your partner,” said Jeremy Jacobs, chairman of Delaware North Cos., owner of TD Garden, the Boston Bruins and Sportservice, the concessionaire at Little Caesars Arena. “You’ve got to be very accommodating … and the Ilitches will do that. They’re a big part of the renaissance of that city.”

Other industry insiders say the Pistons’ tenant status will always be an issue for the team.

“The way it works in Dallas is the best way, where you build an arena together and have a 50-50 partnership,” said Rich Krezwick, senior vice president of facilities for AEG Europe and a former arena manager in Boston and Newark. “It’s harder when somebody’s clearly second.”

In Boston, the biggest issue is finding the best dates for both teams that everybody can agree on without running into conflicts, Jacobs said.

At Little Caesars Arena, Detroit sports fans can expect some doubleheaders when the Pistons and Red Wings play on the same day, Wilson said, similar to other big league arenas.

“It’s all about compromise and collaboration,” he said. “If we do that, everybody wins.”

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