The Coliseum as Loss Leader

The Town of Hempstead likes to repeatedly remind us of their "generous" offer to Charles Wang and Scott Rechler to renovate the Coliseum and then tackle the rest of the Lighthouse Project once that's done. Let's set aside questions of timeline and jurisdiction for a moment to explain why this is not possible. To do that, I need to detour and discuss the concept of a loss leader.

In business, a loss leader is an item that is sold at a heavily discounted price, often at a loss, in the hope of guaranteeing future sales. This is very popular in the video game industry. Often, the makers of video game systems absorb hundreds of dollars in losses on each hardware unit. This is possible because each customer is expected to buy somewhere around 10 games, and games are very high-margin products that will in most cases guarantee all customers are profitable.

I believe the same concepts apply to the Lighthouse Project. To recap, here is the current arena situation:

• The lease with Spectator Management Group (SMG) is, by all accounts, suffocating. The New York Islanders could sell out every home game every season and still lose money.
• Due to economic conditions and recent precedent, the local government has refused to provide any money from taxpayers for a new or refurbished arena.

These facts necessitate exactly what the developers chose to do - develop the land around it to privately finance the arena. In essence, the projected $400 million spent on the Coliseum is a loss leader, because that money should be recouped through other developments such as the apartments, hotel, and conference center. Simply renovating the Coliseum leaves the rest of the project up in the air and does not provide a reliable way to recoup the investment.

In addition, the idea of simply renovating the Coliseum ignores the fact that this is a negotiation. I do not have any inside information to confirm this, but I would imagine the Town of Hempstead would want less development and, ideally, just a new arena. The Lighthouse group wants the full project that received the blessing of Nassau County, the land owner. Renovating the Coliseum eliminates leverage for the Lighthouse group, because the Town now has the thing it most wants and there is no pressing need to debate the rest of the development. In addition, the "or-else" is now taken out of the equation. It is understood that the Islanders would likely leave the are and the Coliseum would likely be abandoned if the Lighthouse does not go forward. With a new arena (and a new lease), the "or-else" is now gone - the Islanders are tied to the area, and the investment will likely be lost.

I know my economics was a bit simplistic there, but I hope I've made the point. The entire Lighthouse Project was approved by the county government. The development in the Lighthouse Project will provide reliable revenue streams for the developers and justify the investment in the Coliseum. Therefore, the offer to simply do the Coliseum and table the rest of the project was and should have been rejected.

As always, don't forget to sign the petition and pass it on!