Disney Deal So Sweet the Ducks May Have Arena to Themselves

When the Walt Disney Co. agreed to bring a hockey team called the Mighty Ducks to the Anaheim Arena, the move was viewed by some as almost an act of charity by a duty-bound neighbor.

After all, here was a major corporation sparing the city from the embarrassment of seeing its new $103-million sports emporium going empty. In the process, Disney’s move saved the city $1 million of the $2.5 million a year that it was obligated to pay Anaheim Arena’s manager if no major sports teams were landed.

But careful scrutiny of the contract between Disney and Ogden Entertainment Co., which manages the 17,350-seat arena, shows that Disney drove the hardest of bargains. Sports business specialists say that Disney appears to have one of the nation’s most lucrative arena contracts.

It gives the entertainment conglomerate not only a superior share of all Ducks revenues, but a healthy cut of the cash generated by any other teams that eventually call the arena home.

“They have negotiated the best deal I have ever seen for professional sports,” said Ron Weinstein, commissioner of the fledgling, 11-team Continental Indoor Soccer League. “They basically own that arena without ever putting up a dollar to help build it.”

The deal is so good, in fact, that it might deter a National Basketball Assn. franchise from taking up residence in Anaheim. That’s because of an unusual provision that gives Disney significant control over sales of premium season tickets and most advertising for any other teams that take up permanent residence in Anaheim.

Disney receives 100% of the hockey-related advertising revenue, half the revenue from other advertising posted inside the arena and gets to sell the advertising for other teams. As the sole ad sales force for the center, it also controls sales of premium seats--the luxury boxes and club seating--for all events. Disney gets to keep 10% of all the advertising it sells as a commission.

But with Disney allowed to nose in on another teams’ control over advertising and luxury seating, experts say that NBA team owners will be likely to look elsewhere for a more equitable deal.

“In our building, we would never give up those rights,” said Mark Scoggins, executive vice president of the Forum in Inglewood, home to hockey’s Kings and basketball’s Lakers.

Rick Benner, president of the NBA’s Sacramento Kings, said a basketball franchise needs as many revenue sources as possible to succeed. Having much of the revenue raked off by another tenant could mean the difference between profit and loss.

“Come five years from now,” Benner said, as “this agreement continues there might be some people who would issue some second thoughts about it. If the hockey team is successful but such a sweet lease deal can’t attract other teams, at some point there would be some second guessing going on.”

Anaheim City Manager James D. Ruth says, however, that there is nothing in the contract to preclude the city from securing an NBA franchise.

“There is room in there for an NBA franchise,” he said, predicting that it will “happen down the road.” He acknowledged, however, that “Disney has an advantage if they want to bring one” to Anaheim. The city is required to pay Ogden $1.5 million a year, with a maximum exposure of $7.5 million, until an NBA team moves into the arena.

Anaheim Arena officials have attempted to woo NBA teams, but with no luck so far. A spokeswoman for the Seattle SuperSonics, which reportedly was one target, said that the team expects to receive the arena improvements it needs and is committed to staying in the Northwest.

Besides the NBA, other team sports have slipped away. The Continental Indoor Soccer League nixed a deal to put a team in Anaheim Arena and will relocate it to Atlanta. The Los Angeles-based league, which is scheduled to begin play June 17, said the arena managers made a deal so generous to Disney that it made soccer unfeasible.

“They rolled over for Disney,” said Stuart Lichter, a real estate developer who headed the group of Anaheim investors who wanted the Orange County franchise. “Ogden and the city made a deal that will make it very hard for any other sports-oriented event to succeed in this arena.”

Specifically, he said his proposed lease was changed so that his group would receive less of the revenue from 2,731 premium seats, those with some of the best views in the house that are sold on a seasonal basis for hockey and basketball. The proposed lease was also amended so that Disney controlled advertising read over the public address system and flashed on the scoreboard. In addition, no advertising would be sold to any company that is a competitor of one of the Mighty Ducks’ suppliers, advertisers or sponsors without the team’s consent.

Advertising had been expected to generate 35% of the proposed budget--the second-largest source of revenue after ticket sales. “How do I build team value with all these hammers over the second-largest source of revenue?” Lichter asked.

Lichter said he received assurances from Disney that its executives could be trusted to be liberal in giving permission for ads the first year. But what about the second year? “It was all Disney saying, ‘Trust me.’ ”

Anaheim’s Ruth said he regrets that the indoor soccer team decided not to come to the city. He said, however, that Lichter’s group had a chance to sign its agreement before Disney arrived, but refused--and paid the consequences of delay when Disney sealed its deal.

Like any initial tenant of a new arena, Disney got an edge just by being first, said Tony Tavales, president of Disney Sports Enterprises. “This is a standard kind of thing in arenas throughout the country,” Tavales said. “The first guy in always gets an edge.”

Those acquainted with the terms of the Disney agreement say that it received a good deal even without revenue from other teams.

Disney pays rent equal to 6% of ticket sales the first year, and 7.5% thereafter. Granted, the Mighty Ducks will have one of the highest average single-game ticket prices in the league, $31.80, not counting the prices of the premium seats. The cheapest seats will be $18, $7 more than for the same ticket to see the Kings play at the Forum.

Ogden agreed to pay half of the $25-million fee owed to Kings owner Bruce McNall in consideration for the new team infringing on the Los Angeles team’s exclusive territorial rights. Disney gets 22.5% of the gross food sales from its games, with the rest going to Ogden. Disney also receives half of the parking for hockey games and about half of the luxury box and premium seating revenue.

Disney keeps all it makes from merchandise sales, a clause that could reap a bonanza for the $7.5-billion company that is expert in designing and selling branded products worldwide. Merchandising is becoming especially important in sports marketing, with Kings sweat shirts and caps considered fashionable by thousands of non-hockey fans. One of the NHL’s newest teams, the San Jose Sharks, sold $150 million of merchandise in its most recent fiscal year.

All told, revenue for Disney and Ogden could reach upward of $35 million, Tavales confirmed. He said he thinks the Disney franchise stands a good chance of being profitable in its first season.

“Newer teams are in a position to make money because they are going into modern facilities with club seats and boxes and are able to negotiate deals more representative of the times,” he said.

More liberal player draft policies in the National Hockey League, along with a vow from the Mighty Ducks’ front office to mix young players with more expensive veteran players, could lead to a higher payroll that would cut into earnings.

Still, observers say Disney stands to do well in its first outing into professional sports.

“Disney is going to make a bonanza out of this hockey club,” predicted Harry Ornest, a Beverly Hills businessman who owned hockey’s St. Louis Blues and the arena there from 1983 to 1986.