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Pens would be main lease holder if new facility is built

| Saturday, Jan. 13, 2007

Even if the Penguins get a new Pittsburgh arena, it will be managed by Philadelphia-based operating company SMG through at least 2012.

Under the proposed lease terms for a new arena and the remaining two years at Mellon Arena, the Penguins would become the main lease holder while retaining SMG as manager.

SMG has held the lease at Mellon Arena since 1991, said Hank Abate, SMG's vice president of arenas. The lease expires in June.

"It flips from us owning the lease to them owning the lease," Abate said. "We'll be paid a fee, instead of the arrangement now that has us getting some of the non-hockey revenues."

That changeover could mean at least $2 million a year for the team's bottom line from items such as concessions, on-site parking and non-hockey events.

Any additional money the Penguins could make at Mellon Arena offsets the profits the team could earn by relocating to Kansas City and moving into the new $276 million Sprint Center.

Team co-owners Mario Lemieux and Ronald Burkle met this past week in Pittsburgh with Gov. Ed Rendell, Allegheny County Chief Executive Dan Onorato and Mayor Luke Ravenstahl to talk about how to pay for an arena.

The sides are trying to arrange a second meeting for next week. Public officials are looking to sweeten their original offer, often called Plan B, which includes $14.5 million a year in gambling money and contributions from the team.

The city-county Sports & Exhibition Authority owns Mellon Arena, and SMG pays the operating costs but no rent. The Penguins pay rent to SMG.

The Penguins play 43 home games a season. The arena hosted 85 non-hockey events in 2006.

According to Doug Campbell, who served as Lemieux's lawyer during the team's bankruptcy hearings in 1999, SMG and the Penguins negotiated to transfer the lease at Mellon Arena per an arrangement that stemmed from Lemieux's group taking ownership.

"Those negotiations were brutal," Campbell said. "We called it 'Groundhog Day' because we'd argue the same points over and over. Eventually, though, they agreed to give us control over the arena in 2007 -- but they were never going to give it up as soon as we wanted, not without some compensation."

Under that agreement, the Penguins were granted options to buy out SMG. The club declined in 2004 to take over the arena lease. The annual operating costs then were estimated at about $5 million.

The arrangement is not without risks for the team. The Penguins would have to cover any losses at Mellon Arena, which opened in 1961.

Operators typically need 175 to 250 dates to make money on an arena, said Dean Bonham, president of The Bonham Group, a Denver-based sports entertainment firm that negotiated the naming rights for PNC Park.

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