High-Speed Trader’s Hockey Team Seeks Bond Bailout: Muni Credit
Vincent Viola, whose high-frequency trading firm plans to raise millions of dollars in an initial public offering next month, is seeking tax dollars to help cover the bills for the Florida Panthers hockey team he bought six months ago.
Viola asked lawmakers in South Florida’s Broward County to use $64 million in taxpayer funds for arena bond payments owed by the team, which says it’s losing money as attendance has fallen to a 14-year low. Officials in Broward, which encompasses Fort Lauderdale on the Atlantic Coast, disagree on how to proceed, with some saying that if they don’t pick up the tab, the team may move and leave taxpayers with $225 million in debt and an empty arena.
What’s unfolding in Florida shows how team owners seek an advantage in negotiating stadium deals with municipalities banking on the venues to help power their economies. Localities from Atlanta to Glendale, Arizona, have given out more taxpayer money when facing the prospect that teams may relocate.
“If we lose the Panthers and the arena operators, we would devalue our asset,” said Broward Mayor Barbara Sharief, referring to the $220 million BB&T Center arena near Fort Lauderdale. “The building could stay vacant for six months out of the year. That’s a significant loss.”
The value of the 20,000-seat arena would drop 70 percent if the Panthers fold or relocate, Sharief said. The arena would probably lose its concert promoter, Live Nation Entertainment (LYV) Inc., and forfeit a $2 million annual state subsidy if the team left, she said.
At least 10 professional sports franchises are pursuing taxpayer-backed stadium deals in Florida, including the billionaire owners of the Miami Heat basketball team and Miami Dolphins football team.
Viola, 58, didn’t respond to requests for comment through Justin Copertino, a team spokesman. The fifth Panthers owner in 20 years, Viola is a Brooklyn native who graduated from the U.S. Military Academy at West Point. He was chairman of the New York Mercantile Exchange from 2001 to 2004 and co-founded Virtu Financial Inc. in 2008. The New York-based company, an automated market-maker, says it provides quotes in more than 10,000 securities and contracts on more than 210 venues in 30 countries.
Virtu, which announced plans last month to sell shares, won’t start marketing the offering until after April 20, later than anticipated, two people with knowledge of the matter said this month. The delay came amid scrutiny of high-frequency traders. “Flash Boys,” the Michael Lewis book released last month, argues that high-speed traders, Wall Street brokerages and exchanges have rigged the $23 trillion U.S. stock market.
The company was seeking a valuation of about $3 billion, a person familiar with the matter told Bloomberg News last month. Viola is majority owner, according to another person who requested anonymity because the stock sale hasn’t taken place.
The team, in its current location since the 1998-99 season, was sold to Viola and Douglas Cifu, Virtu’s chief executive officer, in September for $250 million, according to the South Florida Sun-Sentinel. Team Chief Executive Officer Rory Babich declined to comment on the sale price.
The team is losing $25 million annually, according to a county review.
Viola’s purchase included Sunrise Sports & Entertainment, which controls the Panthers and operates the arena.
Events at the facility helped generate annual profit ranging from about $4.1 million to $9.6 million during the past five fiscal years, county records show.
Broward Commissioner Chip LaMarca cited revenue from events as a reason not to give the Panthers more tax money.
“The entertainment side is going well, but the hockey team isn’t,” he said. “I don’t think we want to subsidize the operation of the team.”
Sunrise Sports pays about $4.6 million of the arena’s annual debt service of $14.6 million, with the remainder coming from county hotel-tax revenue and state funds. If the arena generates more than $12 million a year of profit, Sunrise Sports gives part of the excess to the county. That’s happened once, according to the county.
Investors in the tax-free bonds that paid for the arena say the debt is backed by hotel-tax revenue and a county promise to use general revenue if that falls short. The securities are insured.
“We’re not really concerned,” said Duane McAllister, a Milwaukee-based money manager at BMO Asset Management Corp., which oversees $4 billion in munis, including the stadium debt. “The county is obligated to support the arena and make up any shortfall.”
Broward County revenue bonds sold to refinance arena debt and maturing in September 2026 traded at an average yield of 1 percent April 2, data compiled by Bloomberg show. In the past six months, investors demanded about 1.47 percentage points of extra yield on average over top-rated debt, down from about 1.8 percentage points the previous half-year. The bonds are rated Aa3, fourth-highest, by Moody’s Investors Service.
Bailouts and bankruptcy weren’t contemplated in 1996 when Florida’s second most-populous county agreed to levy a 2 percent tax on hotel stays to build the arena.
Broward projected at the time that profit-sharing would have returned $76.6 million to taxpayers by now. The county has received $331,000.
The Panthers finished this season with the second-lowest point total in 30-team team National Hockey League. They drew an average of about 14,200 fans per home game, beating only the Phoenix Coyotes, according to Walt Disney Co.’s ESPN.
In comparison, the BB&T Center set a record Jan. 11, when a Billy Joel concert drew 20,700 fans.
Even fewer people watch the team on television, according to a February ranking by SportsBusiness Journal, a trade publication, that put average viewership at a league-worst 4,000 households. The Chicago Blackhawks drew 159,000 households on average, the highest. Viewership is used to set advertising rates.
With more tax money, the Panthers could recruit better players, said Babich, the team CEO. The county could share the profits, he said.
In addition to taking over bond payments, which would be made over the next 14 years, the team wants concessions that would cost county taxpayers another $14 million in the same period.
Babich wouldn’t say whether the team would move if it doesn’t get a bigger subsidy. He said the team expects to reach a “satisfactory” resolution with Broward.
The county commission hasn’t scheduled a vote on the request.
“I’m going to support what I can,” said Commissioner Lois Wexler. “I’m not going to give away the store.”
Broward has a $1 billion general-fund budget this year and projects revenue growth of 3.5 percent next year. With 1.8 million residents, it has $2.6 billion in debt and its general obligations get top grades from Moody’s, Standard & Poor’s and Fitch Ratings.
The county levies a 5 percent tax on hotel stays, of which 40 percent goes toward arena debt. As tourism rebounds from the 18-month recession that ended in 2009, hotel-tax revenue available to repay arena debt has reached about $18 million, from $9.1 million in 1997, according to county records. Those proceeds are being used to rebuild beaches and lure tourists.
“Those taxes have generated more than had been originally projected,” Babich said. “What we’re requesting is a portion of that excess amount.”
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