Do the Red Wings Owe the City of Detroit $70 Million?

Bruce Bennett

City documents indicate that the Red Wings could owe the soon-to-be-bankrupt city of Detroit a large sum in uncollected tax money.

The Detroit News' Christine MacDonald put up an article today outlining an internal Detroit city audit that claims the Red Wings owe Detroit more than $70 million in unpaid back taxes and fees related to Olympia Holdings' lease of the Joe Louis Arena. Here are the basics:

A little-known provision in Olympia Entertainment's lease of city-owned Joe Louis Arena and Cobo Arena promises Detroit a 25 percent share of cable television rights for live events. That's been the deal since 1980, but Detroit hasn't been able to collect a dime, according to city documents obtained by The Detroit News.

One rough estimate from finance staffers last year estimated the city is owed $70 million, but a national sports economist cautioned it's likely much lower.

Additionally:

The debt is among many bills Olympia could owe the city.

Since its lease expired in 2010, the company hasn't paid millions of dollars for items such as rent, concessions and other revenue and property taxes, according to city documents obtained by The News.

In 2011, officials claimed the unpaid debt was $6 million that year, according to one city document.

MacDonald goes on to cover the issue very well, explaining that Ilitch Holdings is currently negotiating new lease terms with the city and that the unpaid amounts owed to the city as part of a continuation of an expired lease are included in the ongoing negotiations. I highly recommend reading the entire thing.

Also, in case you're wondering whether there may or may not be some Hollywood Accounting going on with the Red Wings' ownership, here's an interesting tidbit: When a city auditor discovered the complete lack of cable television payments from Olympia Entertainment, a company vice President, Robert Carr responded to the finding with a claim that it was because Olympia Entertainment never created any television dollars; instead, he claimed, the dollars being created belonged to the Red Wings.

This is the fun part of the corporate finance world. Ilitch Holdings is the main parent company; they own both Olympia Entertainment and the Detroit Red Wings (as well as a bunch of other assets). Olympia Entertainment and the Detroit Red Wings are two completely separate companies. As they are legally separate, they "negotiate" sub-leases as they see fit. The Red Wings lease the Joe from Olympia Entertainment. I don't have either the Olympia lease from the city or the Red Wings lease from Olympia, but the indication from Carr's comments are that the Red Wings retained the rights to have their games televised, although the games are happening at an Olympia venue. Therefore, dollars coming in don't belong to Olympia and the city can't charge the 25% tax on that money as stipulated in the Joe Louis lease.

Can they do that? I don't know. Like I said, I don't have those leases and I lack the legal expertise to fully comprehend them even if I did. Ultimately, the City of Detroit was aware of this back in 2007; MacDonald indicates very little public discussion came from this and zero legal challenges from the City have done so either. Of course, as the city nears bankruptcy, questions like this are going to come to light (especially as those in charge try to continually attempt to dodge blame for problems and setbacks in the city's economic recovery).

Unfortunately, that's mostly what this entire situation feels like. I personally don't distinguish in leases made between sister companies when they're owned by the same parent and feel that any unpaid amounts pertaining to the television rights should be paid (as well as the other unpaid portions owed since the expiration of the Joe Louis lease in 2010), but there's a heavy dose of disappointment in the last-minute timing of these complaints when it seems that the larger part of this issue could have been resolved years ago.

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