Baltimore Blast soccer team owner Edwin F. Hale Sr. and a billboard company stand to make more than $1 million a year by covering the city-owned 1st Mariner Arena in Times Square-style signs, experts say, but the cash-strapped city probably would not see a dime.
Hale and Clear Channel could sell ads on 14 large billboards, up to four stories tall, for $1.2 million to $1.7 million a year, some industry experts predict.
Yet Hale and Clear Channel would pay the city's private arena manager, SMG Inc., just $200,000 a year plus 10 percent of ad sales over that threshold. And it's likely none of that money would go to Baltimore under the city's existing contract with SMG.
"It does sound low, doesn't it?" said Dan Langdon, a vice president at Viacom Outdoor, a rival of Clear Channel. "I'd have come up and put up the signs and given the city half."
Guy Tamberino, a city employee who is the arena's comptroller, said the sign deal with Hale, which he did not negotiate, is "not great" for Baltimore.
"The better they do, the better they do," he said of Hale and Clear Channel. "We're getting a measly 10 percent, and they're getting 90 percent. Which would you rather have, 10 cents on the dollar or 90 cents?"
Other experts say the arrangement is good for the city, even if the dollars are not great.
"The reality is it's a guaranteed $200,000, and the city doesn't have the responsibility to go out and sell this on their own," said E.J. Narcise, a partner in Team Services, a sports marketing firm of Bethesda.
Lucrative deals primarily benefiting sports teams are not new. In 1999, now-bankrupt PSINet agreed to pay the Ravens $105 million for naming rights to the publicly financed football stadium. In Pittsburgh, the Penguins hockey team keeps all proceeds from ads sold at Mellon Arena.
Hale, chairman of First Mariner Bancorp, separately negotiated a deal with Baltimore to pay the city $75,000 to name the city's arena after the bank.
SMG says a main reason for also selling ad rights to Hale was to keep the financially struggling indoor soccer team from moving or folding. The Blast, which plays 22 regular-season home games, is the only major tenant and had sought lower rent.
SMG now sells about $125,000 per year in ads inside and outside the arena, using a handful of exterior signs. The company concedes it could have marketed the big billboards itself, which would have meant more money for it and potentially for the city.
But SMG Vice President Hank Abate said "that defeats the whole purpose of why we got into that to begin with. That is, to save the soccer team from leaving the building."
Abate said he has not studied the market potential: "I don't know what kind of numbers those outside advertising panels will bring in."
The deal hinges on City Council approval of legislation creating an exception to a citywide billboard moratorium. Mayor Martin O'Malley and City Council President Sheila Dixon support the legislation.
Hale said the ad revenue will only offset his team's financial losses at first. "I have a long way to go before I make anything on my investment," he said. He did not quantify those losses. The idea that the signs might bring in millions of dollars is "ridiculous," he added.
Although SMG's city contract technically allows it to sell the ad rights without city approval, the company sought and received the blessing of the mayor's office last year, the company says.
O'Malley said Friday he was personally not involved in the deal and knew few details. But he noted that Hale, one of his early supporters, has made improvements to the antiquated arena.
Asked why the city would not try to extract more money from billboards on a public facility, the mayor spoke of other priorities.
"Aren't we having a hard enough time getting kids educated and getting the drug dealers off the street?" he said. "It just didn't seem like something we should be engaged in."
The oversize signs, known as "spectaculars," will be made of mesh vinyl, aluminum or fiberglass. Unlike typical billboards, these may have neon and pieces jutting a few feet from the wall, though no blinking or moving parts will be allowed. The biggest signs will be 45 by 54 feet.
The signs, if approved, will cover the Howard Street, Baltimore Street and Hopkins Place sides of the arena, a 40-year-old structure widely viewed as outmoded and unattractive. They will take up three-quarters of an acre.
On average, each sign could fetch $7,000 to $10,000 a month, estimates Baltimore ad executive Bob Leffler. Viacom's Langdon said that when the economy improves, one large sign could bring $20,000 a month.
Clear Channel Outdoor, Hale's partner, has slightly less lofty expectations. It figures an average of $5,000 per billboard per month, or $840,000 for the first year, assuming they are all sold, said Joseph Kunigonis, a company real estate manager. Start-up expenses cut into the profit margin, he said; a lighting system could cost $100,000.
"The profit really arises in the second, third and fourth years," he said.
The arena sign agreement is set up to give Hale and Clear Channel most of the potential benefit.
Here is how it would work if arena ads generated, say, $1 million per year:
Philadelphia-based SMG would get $200,000 off the top, and its 10 percent share of the rest would equal $80,000, for a total of $280,000. Hale and Clear Channel would divide the remaining $720,000, minus overhead expenses.
Just what, if anything, the city would glean is unclear because of its complex agreement with SMG, which is paid based on how well the arena does. If the arena were to turn a profit -- it usually loses about $200,000 a year -- the profits would mostly go to SMG, with the chief benefit to the city being a lower management fee to SMG.
But if Hale and Clear Channel were not in the picture and billboard sales reached the same hypothetical $1 million, it would boost the arena's bottom line to the point where the city almost certainly would net at least a portion, with SMG still getting the lion's share.
The city's management contract with SMG, which limits the city's costs to $450,000 a year, expires in June.Copyright © 2015, The Baltimore Sun