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Keep an eye on Canes lease negotiations, but don’t panic

Remembering that a lot of negotiations are nothing more than posturing is going to be key to maintaining your sanity while the Canes renegotiate their lease.

Jamie Kellner

The Carolina Hurricanes’ lease at PNC Arena is up in five years and, as the News and Observer’s Luke DeCock wrote yesterday, the jockeying for position has already begun.

From DeCock:

Under the current arrangement, the Hurricanes pay the Centennial Authority $2.45 million in rent in return for use by the hockey team and the right to manage the arena, making money by booking concerts, conventions and the like. But the Hurricanes have never been able to generate the kind of profits envisioned operating the arena, in part because despite its growth Raleigh still isn’t at the same level as big-city metropolitan markets, in part because the team has struggled in recent years.

A bit of a history lesson is in order at this point. The Centennial Authority was originally created as a quasi-public body representing a partnership between N.C. State University, Wake County, the city of Raleigh and North Carolina state government. Planning for the arena was already well underway when the Hurricanes arrived on the scene, but since ground had yet to be broken - the first dirt was turned in July 1997, two months after the Hurricanes moved to North Carolina - redesigning the arena to accommodate the hockey team was a fairly straightforward endeavor.

Having the Hurricanes in the picture was a win-win for both entities. Instead of needing to outsource things like event booking and operations to a third party, the Hurricanes agreed to operate the arena themselves, taking responsibility for revenue surpluses or deficits while paying rent to the Authority. In other words, the team is both a tenant and an operator, but not the landlord. To that end, arena general manager Dave Olsen is a Hurricanes employee, reporting to team president Don Waddell.

But since the arena was originally proposed as a facility for N.C. State basketball, the Hurricanes’ lease with the Authority had a bit of give and take in it, most notably in scheduling: N.C. State has priority for selecting dates for games at the arena. At varying times over the past 20 years, the Authority has had to play peacemaker when N.C. State and the Hurricanes had occasional squabbles - the first of which occurred before the building even opened, when the university deemed that the original seats that the Hurricanes had installed in the arena were not the proper shade of “Wolfpack red,” in violation of the university’s agreement with the Authority.

So, it’s with that backdrop that negotiations get underway to extend the Hurricanes’ lease. Waddell, speaking with DeCock yesterday, said that the lease was fine 20 years ago, but times have changed and the Hurricanes’ business model, based in large part on their responsibilities to the Authority, needs to change with it.

“If we’re going to be a sustainable franchise in this marketplace for a long time, the lease plays an important role,” Waddell told DeCock. “The economics of the deal have to change in our favor.”

Sounds ominous, right? Let’s unpack a bit; it’s not quite as bad as it sounds.

First, this is not an issue of the Hurricanes looking for more direct funding from the Authority. To that end, Tom Dundon has been up front in saying that he would finance upgrades where prudent, and he’s done so in a few places: the on-ice projection system, the remodeled Hurricanes locker room, and the eventual upgrades to the scoreboard all came out of his pocket, with Authority approval. (Think of this as being similar to when you redecorate your apartment: if you make any substantial changes, generally your landlord needs to sign off.)

But the full-arena makeover that’s necessary benefits every tenant and event at the arena, and that’s where the Authority comes in. If the Hurricanes, via Dundon, are going to front the money to upgrade the facility, it’s not unreasonable to expect concessions from the other side in acknowledgement of the investment.

One of those concessions could be in scheduling. Former Hurricanes president Jim Rutherford and soon-to-be retired N.C. State athletic director Debbie Yow got in a spat years ago over the scheduling provisions of the arena, and the Centennial Authority had to once again step in to make everyone...well, happy isn’t the word, but at least to broker an armistice. Those issues haven’t disappeared, although the major players have, with Waddell and incoming AD Boo Corrigan now the point people in charge of making it work.

If the Hurricanes are going to operate the arena, they deserve to be given the chance to do so. That doesn’t mean that N.C. State shouldn’t be able to reserve dates; they should. But perhaps a new lease could limit the number of dates that the Wolfpack can block out from scheduling.

The Authority, as stated above, is in a good spot here. Having the Hurricanes operate the arena reduces the number of stakeholders, because if it was a third party they would have to be dealing simultaneously with the Hurricanes, N.C. State and a separate arena management company, and the likelihood of butting heads would increase exponentially.

It’s always worth remembering that PNC Arena is much more valuable with a professional sports team calling it home than it is without. The Authority will have no interest in taking such a hard line that the Hurricanes threaten to leave. It would cripple the arena and, potentially, foist the operating losses on North Carolina taxpayers - and with the Authority, at its core, a political entity, there’s zero chance they want that to happen.

Finally, always remember that this is a negotiation, and a good negotiator never starts from where they plan to finish. There is a deal out there to be made, and while making that deal requires some concessions, it doesn’t require a wholesale ground-up restart.

You know how the NHL conveniently begins hemorrhaging money once a new collective bargaining agreement needs to be negotiated? The same thing is happening here. Waddell and Dundon want to renegotiate the deal to be more favorable to them, and saying “it’s great right now but we want it to be more great” won’t get them anywhere.

Similar to a CBA, the Hurricanes’ lease with the Authority needs to have the ability to change with the times. There’s nothing wrong with that. While negotiations might occasionally spill out into awkwardness, the fact is that it’s in the best interests of both the Authority and the Hurricanes to reach a deal, and that deal won’t require major structural changes from what’s currently in place. This is all part of the process, and while it might get uncomfortable, it should ultimately end well, as long both parties are realistic in their expectations.