AEG looks to add NorCal to its empire

A very clever strategy is emanating from facility operator Anschutz Entertainment Group. It’s a two-pronged affair based in Sacramento and Oakland. The movement draws upon what can be considered serious deficiencies in both markets in their inability to attract certain types of events and visitors. Most importantly, it offers hope to both cities, which are both in danger of losing their respective pro sports franchises.

For San Jose Earthquakes fans, AEG may as well be a four-letter word. The company owned the Quakes franchise as part of its initial MLS holdings. When AEG was unable to forge a new stadium deal in San Jose, the team was abruptly moved to Houston in 2006, making the parent company persona non grata in the South Bay. AEG came back in 2008 with a small move, taking over for Live Nation as the operator of The Warfield in SF.

In Sacramento, AEG is seen as the facilitator for the Railyards Entertainment and Sports Complex. The backing out by the Maloof family has for now killed the plan, though it’s possible that AEG could resurface as a key driver with or without the basketball Kings. Should Sacramento lose the Kings, they’d have the option of building an on-spec arena, similar to former Kings home Kansas City when it built the Sprint Center. That’s a far different scope from Oakland, which is looking to keep three franchises at home via at least two new venues plus a convention center and hotel. Oakland’s model is the AEG-run LA Live complex and LA Convention Center.

AEG is the premier arena operator in the country, with Staples Center as its crown jewel. It has the experience to make cities listen when they come calling, and the weight to make cities cower when threatening to attract a team, as evidenced by AEG’s NFL pursuits. While dangling its own success in front of potential suitors, it forges ahead with its plans to expand its SoCal empire by working on a football stadium-cum-convention hall. While not a short-term likelihood, the threat and possibility remains into the future, and would hugely benefit AEG in two key ways: it would make LACC more competitive with San Diego and Las Vegas for conventions, and it would create the ultimate flexibility for all of its LA venues, which happen to be within blocks of each other.

AEG's Downtown LA operations provide great flexibility and huge traffic

To understand what make LA Live unique, it’s important to look beyond Staples Center. LA Live has two venues of its own: the 7,100-seat Nokia Theatre and 2,500-person Club Nokia, both of which are essentially auditoriums. They slot in below Staples Center for booking concerts, which is necessary because Staples is home to three pro teams and at least 126 home dates per year. In most other cities an arena operator would use a curtain system to reduce capacity at a large arena. AEG doesn’t need to do this sort of “half house” setup with Staples much, instead it can push a show to the Nokia Theatre. Staples famously hosts the Grammys every year, while Nokia hosts the Primtetime Emmys, MTV VMAs, and the finale of American Idol. Club Nokia mostly serves as a venue for up-and-coming and smaller acts. The Convention Center churns plenty of day business and drives demand to local hotels. Both convention and entertainment visitors benefit local restaurants and bars, some of which are in LA Live. It boils down to the equivalent of the population of the Bay Area visiting downtown LA every year, spread out among 2.5 events per day.

Oakland wants this kind of traffic, so they’re looking to drop SMG like a bad habit then partner up with AEG now and into the future. It’s going to be difficult to pull off. A third of AEG’s visitors come from the convention center. To build a competitive center in Oakland, the facility would have to surpass Moscone, San Jose, and Santa Clara in terms of space. It would require at least one, probably two anchor hotels attached to the convention center. A thriving commercial and retail district wouldn’t hurt attracting people and conventions. Oracle Arena is a good, modern arena thanks to the 1996 renovation, and AEG is promising to maximize utilization of the arena to its full potential and provide consulting for the Coliseum City concept.

The inherent risks are timing and cost. AEG built Staples Center prior to the 1999-2000 NBA and NHL seasons. The Nokia Theatre didn’t open until 2007, after Staples as AEG responded to market conditions. Club Nokia opened the following year. For AEG to be that involved and willing to invest in Oakland, it would have to recognize similar market potential and a chance to dominate the market the same way it does in LA. The arena part will be difficult to pull off as Sharks Entertainment will always be competitive with HP Pavilion. The Warriors could build an arena in SF, relegating Oracle Arena in the process. Another Planet Entertainment controls several smaller theaters throughout SF and the East Bay, providing natural competition in the process. There is no proper 7,000-seat auditorium in the Bay Area, pushing shows of that size to the arenas unless AEG sees fit to build one (the Bill Graham Civic, as historic as it is, is really a gym). Plus there is no shortage of 2,500-seat venues in the Bay Area: Fox Oakland, Paramount, Warfield, SF Masonic Auditorium, and the San Jose Center for the Performing Arts. AEG isn’t going to bring a fully-formed Coliseum City on Day 1. It would have to be phased in over many years, with no guarantee that much of what’s being promised will be built.

For AEG, the best part is that in making these deals, it’s getting exclusivity for usually a year or more for a very small price while making a little money to boot. AEG has been willing to invest in venues to some degree as it did with Sprint Center. However, Phil Anschutz is not about giving away the farm, as witnessed by his hardball dealings with the NFL and the contribution cap AEG paid for Sprint Center. Maybe something will happen, maybe not. Either way AEG is the first one in and keeps competition out, while getting a better understanding of how to exploit a particular market. As great as LA Live is, it shouldn’t be considered easily repeatable. Sprint Center is a more realistic and perhaps cautionary example. The arena is the second busiest in America according to Pollstar and is highly profitable by AEG’s standards, though it’s a $13 million annual drain on the city’s coffers. Sprint Center is well integrated with KC’s $850 million Power and Light District development. There remains no major pro team. AEG appears to be happy with whatever business model works best for it whether it’s three teams or none, civic pride not being a great priority.

One other curiosity about AEG: as interested it is in the NFL and as extensive as its holdings are in hockey (LA Kings), basketball (Anchutz’s minority share of the Lakers), and soccer (LA Galaxy, Houston Dynamo), there’s one glaring omission on its resume: baseball. Does AEG care about baseball at all? It doesn’t operate any ballparks, nor does it own a minor league team. It doesn’t seem to have any relevant experience with baseball. Its new AEG Sports division has no baseball interests at all. Judging from AEG’s track record, I have to think its priority list would look like this:

  • Concerts
  • Soccer
  • Conventions
  • Hockey
  • Football
  • Basketball
  • Baseball?

Judging from that, maybe AEG would be more interested in bringing a MLS team to Oakland than in keeping the A’s there. In regards to the A’s, AEG’s presence is similar to Larry Ellison in that certain factions would love for either of them to be interested in the A’s, but neither has shown any sign of interest to date. A clause in the Coliseum management contract dictates that AEG can’t talk to teams about moving, which I suppose might have teeth if a team were bound to a long-term lease (only the Warriors are). It gives a new twist on the Coliseum City exercise being a feasibility study.

20 thoughts on “AEG looks to add NorCal to its empire

  1. I hope Oakland doesn’t get coerced into another Raiderish kind of deal from AEG. As I had also proposed way back when, I think CC is going in the right direction, however without an actual tenants or financing plan (team subsidies included) to back this up, it might be just another smokescreen from the politicians.

  2. So, the Coliseum would AEG’s first stab at operating an open-air giant stadium?

  3. @Briggs – Sure, but not for lack of trying. AEG’s built smaller stadia (30k or less) and besides the LA stadium project, they also tried to partner with Tottenham Hotspur on the London Olympic stadium.

  4. How does operating the venue impact team revenues? Is AEG paid by the Lakers/Clippers to run Staples? By the City?

  5. So how would a switch to AEG affect Aramark? I believe they like to work with Centerplate at their venues. Is the Aramark contract separate from the SMG contract? Would a switch half-way through the season be viable? If the switch is made and Aramark is on the way out, say at the end of the year, would service drop below already sub-standard levels as they ride it out?

  6. @Jeffrey – In developing new venues, the NBA usually asks for the moon and that adversely impacts arena operators, unless the operator also owns a piece of the team. That’s a reason why KC doesn’t have a team – AEG has little incentive to make it happen even though they promised it. Staples Center is owned entirely by AEG, so it can cook the books (with cooperation by the tenants) however they please.

    @LS – I’m sure it would continue to be an open bidding process unless AEG wanted to invite labor-related blowback. They’d still probably go with Centerplate at the end. I have to point out that Aramark does well in other markets. In Oakland it’s very much a you-get-what-you-pay-for approach.

  7. @ML – Who pays for Aramark at the Coliseum? Is it the same contract for handling football too?

  8. @LS – I believe Aramark is a subcontractor under SMG’s contract. It’s all one package.

  9. Doesn’t AEG also own a portion of the Lakers?

  10. I have no idea what to make of this, but it sure makes things more interesting.

  11. @Dan – Phil Anschutz does personally. AEG does not.

  12. @ML–who is going to operate the ’9ers new stadium–they going it alone like the Sharks or is it still TBD?

  13. screw you selig and mlb. what you’ve done to the a’s org and especially a’s fans is freaking unexcuseable. i can’t believe any other franchise would get screwed over as much as the a’s have over the decades from it’s own league’s leadership.

    very well could wait another year before any decision is made which would make it at least 4 years and counting since the pos brc started their “study” on the whole matter.

  14. Now, Wolff has to start thinking about negotiating an extension to stay at the Coliseum. Thanks, Selig, other owners. That should be a fun process.

  15. Hate to say it but the Giants have won. Selig doesn’t have the votes to move the A’s to San Jose and he’s not going to get them. Paranoia about the Rays moving to NJ (which will never happen) means just enough MLB owners would rather lose tens of millions of dollars in Oakland every year than make money hand over fist in San Jose. The A’s will rot in the Coliseum until investors from another part of the country present a stadium plan. Just give it time. There’s no reason to believe any new ownership group in Oakland would come to a different conclusion than Schott or Wolff: It won’t work in Oakland, under these conditions. Oakland would have to pony up bigtime public $$ for a new ballpark, which would be political suicide because the city simply doesn’t care enough about the team and has voted in anti-baseball pols over and over again.

  16. At the August Owners’ Meeting, I’m positive they’ll address the skyrocketing price of hotdog buns. Dis all srs bsnss.

  17. I didn’t even read the article but by reading your posts, I’m just nodding my head in disgust. I hate Bud Selig.

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