Joe Guillen

Detroit Free Press

The city of Detroit may have missed out on millions of dollars from Olympia Entertainment as part of revenue from the Detroit Red Wings cable TV agreements, according to documents obtained by the Free Press.

A 1999 sublease between Olympia and the Detroit Red Wings states that the Red Wings would be responsible for paying the city a 25% share of the team’s annual cable TV revenues, under certain conditions.

During years of contentious discussions before a 2014 settlement, Olympia consistently maintained that it owed the city no TV revenue, since the TV deals were with the Red Wings and not with Olympia. Legal experts say the existence of this sublease might have weakened Olympia’s claims.

Detroit officials may have never known about the sublease as the city and Olympia, for a period that stretched seven years beginning in 2007, debated cable TV revenue payments. The city in early May rejected a Free Press Freedom of Information Act request for a copy of the sublease, stating that the city did not have a copy in its files. Olympia was required to file the sublease under its master lease of Joe Louis Arena with the city.

Neither Olympia nor the Red Wings ever paid Detroit a share of the team’s cable TV revenues.

The accumulation of any debt Olympia or the Red Wings had with the city from their decades-long occupancy of the publicly owned Joe Louis — including any missed payments for cable TV revenues — was settled in 2014 during the city’s bankruptcy, under the direction of then-emergency manager Kevyn Orr, for $5.2 million.

Olympia’s response during the settlement negotiations was consistent with that of previous years when Detroit asked about the cable TV payments: Olympia owed nothing because the Red Wings are a separate legal entity, despite Mike and Marian Ilitch’s common ownership of both companies. Although the Wings are not part of the master lease, the sublease between Olympia and the Wings raises new questions.

Few details are available about the Red Wings’ TV contracts, but the city estimated in 2014 that its share might have been as high as $80 million.

“The city has been fully informed that Olympia has never received any cable revenue and, as such, the city is not owed any rent attributable to cable revenue,” reads a heading from an eight-page position statement Olympia submitted to the city in September 2013 explaining why Detroit was not entitled to any cable TV revenue.

Ilitch Holdings spokesman Doug Kuiper issued the Free Press a one-sentence statement on Thursday in response to questions about why the sublease was not on file with the city as required under the master lease, and Olympia’s interpretation of the sublease language.

“This matter was evaluated, completely resolved and approved by the city’s finance department, our organization and City Council more than two years ago,” Kuiper’s statement reads.

The lease, sublease

The debate over the Red Wings’ cable TV revenues stems from the city’s master lease of Joe Louis Arena in 1978 to Olympia Stadium Corp. The city built the arena, in part, to convince the Red Wings — then owned by the Norris family — to stay in Detroit.

The Joe Louis master lease included a clause designed to ensure the Wings would play at the Joe for the 30-year life of the lease. To ensure that, the contract said Olympia would enter into a sublease with the Red Wings requiring it to play all home games at Joe Louis. “Olympia shall provide the city with an executed copy of such sublease,” the master lease reads.

An amendment to the master lease in 1980 said that Olympia would pay the city 25% of annual cable TV revenues over $1 million. Under the lease, $750,000 would be subtracted from the gross revenues before a 25% payment to the city. The city began asking about its share of cable TV money in 2007. But Olympia, which was acquired by the Ilitches in 1982 along with the Red Wings, said it owed nothing because the Red Wings signed the cable TV contracts, not Olympia.

But an amendment to the sublease in 1999, obtained by the Free Press, described the Red Wings as being responsible for paying to the city of Detroit Olympia’s share of cable TV revenues under certain conditions. It defines the Red Wings as the Joe Louis Arena’s “tenant” and Olympia as the “landlord.”

“Tenant shall receive all benefits and revenues exclusively from any Telecast agreement or contract and no part of the consideration from said agreement or contract shall go to any other party except tenant; provided, however, in the event Tenant is an affiliate of Landlord as described in the Master Lease, Tenant shall be responsible for the payment of any fees due pursuant to paragraph 3.01(d) of the Master Lease from and after the date hereof,” the sublease amendment reads.

Section 3.01(d) is the section of the master lease that describes Olympia’s obligation to share cable TV money with the city.

Settlement questioned

New questions over Olympia’s settlement with the city over debts from Joe Louis Arena come as the Red Wings prepare to leave the riverfront arena for a new home north of downtown. The new facility, to be called Little Caesars Arena, is under construction and is to open by fall 2017.

The $627-million arena is being built along Woodward Avenue north of I-75 with $285 million in public money from tax increment revenues captured by the Detroit Downtown Development Authority. No general fund money from the city of Detroit is being used.

The sublease between Olympia and the Red Wings not only suggests the city was not fully informed about the document’s existence before the 2014 settlement was approved, it appears to weaken Olympia’s steadfast claim that the city was due nothing, according to two legal experts who reviewed the sublease and several other legal documents related to the Red Wings’ use of Joe Louis.

Eric Williams, an assistant professor at Wayne State’s law school and director of its business and community law clinic, said Olympia’s failure to file the sublease with the city could invalidate the 2014 settlement.

Williams, who is running for an at-large seat on the Detroit City Council in the August primary, said Olympia had a clear contractual obligation to share the sublease with the city.

On top of that, the sublease language regarding cable TV money was clearly drawn up to benefit the city, he said.

City officials never have been able to pin down exactly how much the Red Wings made off cable TV broadcasts. Olympia, which is a private corporation, declined to provide the city with copies of the contracts during the city’s 2007 review of its enforcement of the Joe Louis master lease, according to a letter Olympia sent the Detroit auditor general’s office.

City officials estimated in 2014 that Detroit’s share could have been between $50 million to $80 million. The Canadian sports website TSN reported on May 13 that the Red Wings’ debt could have been between $200 million and $400 million.

During its negotiations with the law firm Jones Day, prior to the settlement, Olympia indulged in a scenario — contrary to its legal position — in which the Joe Louis master lease did apply to the Detroit Red Wings’ cable TV revenues. Olympia used a statute of limitations to narrow the window of payments to 2008-10 and estimated the city would be due $1.89 million.

Any time Olympia is late paying the city for any rent payments, including payments related to cable TV revenues, a late payment penalty in the Joe Louis master lease tacks on 1.5% per month interest calculated daily and compounded monthly, which equals about 24% per year.

The Red Wings struck a 10-year cable TV deal with Fox Sports Detroit in 2008, paying the team $25 million a year, according to Crain’s Detroit Business. Before that, the team signed deals with Pro Am Sports Systems, or PASS, in 1991 and Fox Sports Detroit in 1997, according to Olympia.

As part of Olympia’s argument in its 2013 position statement on cable TV revenues, the company said that it provided the city with independent auditor reports of Olympia revenues for 2004-06 that “failed to identify any cable television revenue actually received by Olympia and thus provided further confirmation of Olympia’s position.”

However, the audit reports, done by Deloitte, say that the auditing firm relied on Olympia’s interpretation of the Joe Louis master lease. Among provisions of the master lease that were examined, Deloitte did not list the master lease provision that dealt with cable TV revenues.

In 2014, the Jones Day law firm negotiated a settlement with Olympia on behalf of the city for $5.2 million. From Olympia’s perspective, the settlement money was tied to bills at the Joe for costs such as rent and insurance. The company maintained that none of the settlement money was directly tied to cable TV payments because the company did not owe such money under the Joe Louis master lease.

But from the perspective of Jones Day, which represented the city, the $5.2 million was for consideration of all money owed, including cable TV money.

The city and Olympia were under pressure to reach the settlement. Olympia’s acquisition of city land earlier that year for the new Red Wings hockey arena was contingent on a resolution of all outstanding issues related to Olympia’s original lease of the Joe, which expired in 2010.

Opinions differ as to whether the city can use the uncovered sublease to recover any money that it might have been owed.

The city’s top lawyer, corporation counsel Melvin Butch Hollowell, said in a statement to the Free Press on May 20 that the 2014 settlement agreement waived future litigation and is legally binding.

Hollowell acknowledged the city did not have the sublease documents even though they were required to have been filed with the city.

“On behalf of Emergency Manager Kevyn Orr, the Jones Day law firm entered into a settlement agreement with Olympia to resolve all potential claims for revenue from the broadcast of games in the amount of just under $6 million,” Hollowell’s statement reads. “The settlement agreement drafted by Jones Day included a provision that the $6 million was adequate consideration for all rents due, and a mutual release by the parties waiving any litigation over the issue was agreed to. The agreement was approved by City Council.”

Orr returned to the Jones Day law firm after his stint as Detroit’s emergency manager. He declined to comment for this report.

‘A lost opportunity’

University of Detroit Mercy School of Law professor Larry Dubin said it is hard to give a definitive opinion on whether the city’s settlement is binding. He said there are several questions, including whether the city ever asked for the sublease during discussions about cable TV revenues with Olympia. The answer to that question is unclear.

“It’s really a lost opportunity for the city to be able to claim what might have been something that could have been litigated and might have given the city a right to additional revenue,” Dubin said. “It’s hard to go back and reconstruct what would have been a complicated lawsuit.”

Detroit filed for Chapter 9 bankruptcy protection on July 18, 2013, citing $18 billion in debt and projected long-term obligations.

Lawyers for bond insurer Syncora — one of the Detroit’s most aggressive creditors during the city’s bankruptcy — were interested in the city’s dispute with Olympia over cable TV revenues. During a deposition of Mayor Mike Duggan about four months after the settlement was approved, a lawyer for Syncora asked Duggan about what he knew about cable TV revenues.

“Only what I’ve read in the paper,” Duggan said, according to a transcript of his deposition. “Kevyn Orr handled that. I had no involvement.”

Eric Zacks, who specializes in contracting practices as an assistant professor at Wayne State University, said the settlement between Olympia and Detroit likely makes moot the question of whether the city can retroactively pursue payments in light of the sublease’s discovery.

However, Zacks said the sublease language diminishes Olympia’s consistent position that it owed nothing to the city because the cable TV contracts were with the Red Wings, a separate company.

Zacks said the sublease’s very existence shows that Olympia contemplated paying the city.

After reviewing the sublease and the city’s master lease of the Joe Louis Arena, Zacks said it makes sense why the sublease between Olympia and the Red Wings would be written to include language that the team was responsible for paying the city.

The definition of Olympia in the master lease was written to include “any parent, subsidiary or other company controlling, controlled by or in common control with Olympia.”

The broad, legal definition of Olympia can be seen at the top of the same page of the Joe Louis master lease amendment that includes language on Olympia’s obligation to pay the city a portion of cable TV revenues.

But when Olympia included this page as an exhibit to its 2013 position statement on why the company did not owe cable TV revenues, the page had been enlarged in a way that the definition of “Olympia” was squeezed off the page and could not be seen.

Multiple defenses

If Jones Day seized on the idea that the city was owed cable TV money because Olympia, by definition under the master lease, included the Red Wings, it wasn’t publicly discussed.

Steven Koppel, a Jones Day lawyer who presented the $5.2-million settlement to the Detroit City Council in March 2014, told the council that Olympia had multiple defenses for why it was not responsible for any cable TV payments.

In addition to its defense that Olympia and the Red Wings are separate companies, Olympia argued that Michigan’s six-year statute of limitations substantially reduced the window in which the city would have a claim.

Furthermore, Olympia said the city waived its claim to any TV revenue because it didn’t dispute Olympia’s response on the issue in the 2007 lease review; the city’s questions in 2010 came after the original lease at the Joe expired, Olympia said. The company also said the city’s claim would be limited by “estoppel by laches,” a legal term that means the city did not do its due diligence to enforce its claim.

Before the council voted on the settlement, Koppel told council members that the city would have to go into litigation to make a claim on cable TV revenues. He said he couldn’t assure victory and added:

“The primary argument I think that’s been raised is that the cable revenue is paid to an entity (Red Wings) that’s different than the tenant (Olympia) under the lease, and the cable revenue and the provision in the lease with respect to the sharing of 25% of cable revenue is with the tenant under the lease and doesn’t have a defined term like an affiliate or any other entities.”

The council narrowly approved the settlement by a 5-4 vote at its March 31, 2014, meeting. The sublease between Olympia and the Red Wings was never brought up.

After the vote, former Councilman Gary Brown, who was then serving as Detroit’s chief operating officer, said the settlement allowed the city to move forward.

“This deal allows us to clean up a lot of litigation that, as you heard, Jones Day made a very good case that it was not a realistic likelihood that we could succeed in a lengthy lawsuit,” Brown said at the time. Brown declined to comment for this report.

Koppel did not respond to several messages seeking comment.

Williams, the Wayne State law professor, said Detroit’s law department should pursue recovery of the cable TV money.

“Olympia never came clean. Never, ever, ever. The city never had this document and the document, the sublease, is what’s the most important document,” he said. “Right now, the only thing left is to figure out exactly how much money is due so that we know how much to sue for.”

Joe Louis Arena time line

1978: City of Detroit signs lease with Olympia Stadium Corp.

1979: City-owned Joe Louis Arena opens

1980: City and Olympia amend lease to adding that Olympia would pay the city 25% of annual cable TV revenues over $1 million

1982: Mike and Marian Ilitch purchase Olympia Stadium Corp. and Red Wings

2007: City of Detroit reviews enforcement of Joe Louis lease

2013: City of Detroit files for bankruptcy protection

2014: Olympia, city of Detroit negotiate settlement for $5.2 million for Olympia’s outstanding obligations at Joe Louis

2014: Bankruptcy creditor Financial Guaranty Insurance Co. acquires Joe Louis site, agrees to redevelop it by 2020