You are on page 1of 5

September 29, 2007

Mr. Larry Thrailkill


Thrailkill, Harris, Wood & Boswell PLC
5141 Virginia Way, Suite 240
Brentwood, TN 37027

Dear Larry,

Let me begin by thanking Mayor Dean and Chairman Lavender for their
encouragement and support over the past several weeks as we have worked
together to find a solution to the threat of the Predators being moved out of
the city. Please convey my appreciation to Chairman Lavender for fitting us
into his schedule yesterday afternoon and to Mayor Dean for giving up so
many hours of his evening last night to help us dig through the details.

This team is an extremely valuable cultural and economic asset. Much


like the Titans, this team contributes significantly to the national and
international reputation of our city. We hope this letter contains some good
suggestions for encouraging local investors to purchase the Nashville
Predators, and for the team to receive a reasonable opportunity to survive
and thrive in Nashville on a long-term basis.

Our suggestions are based on several basic concepts.

First, the Predators absolutely cannot survive in Nashville without some


additional sources of revenue. This does not mean that life will not continue
without the Predators, but simply that retaining the Predators is not
financially viable without additional revenue.

Second, mere survival will ultimately be a poor economic development


decision, a poor quality of life decision, and a national TV embarrassment to
the city. Searching for the “bare minimum” is counterproductive to the
greater good. The team should have a reasonable opportunity to thrive and
succeed on the ice. The team needs a chance to win.

Third, any additional revenues dedicated to the Predators should come


only from those people that use the arena and not from the general
population. The city should not be asked or expected to use any additional
taxpayer money to assist the Predators unless those taxes come directly and
specifically from arena users. As we agreed last week, the city should not be
exposed to the risk of a ticket purchase guarantee. Thus, our previous
suggestion of this mechanism is not included.

Fourth, our group is determined to rescue this team on behalf of the


city. Many have questioned the wisdom of that decision. Nevertheless, we
are willing to risk millions on this venture. However, much as the city should
not be exposed to uncapped losses in the form of a ticket guarantee, our
group should not be forced into years of financial suicide if we cannot turn
around this dire situation despite the best efforts of our group and the many,
many volunteers within the city that have stepped forward to save Our Team.
Ultimately, and bluntly, if Nashville does not support the Predators, then the
Predators need to leave rather than create additional pain. But the team
should leave Nashville if, and only if, the team is not supported and for no
other reason

Based on these concepts, and as guided by our conversations


yesterday, we suggest the following specific lease modifications:

1. The city is experiencing substantial annual increases in operating


losses at the arena. The operating loss in 2006 reached $3,788,984.
We will help the city limit its operating losses by capping the loss at
$3,788,984. We propose that the city pay us the $3,788,984 (subject to
annual CPI adjustment) and we will take all risks associated with the
arena. Thus, we will receive all operating revenues from the arena and
be responsible for all operating expenses at the arena.

2. The city will continue to be responsible for certain expenses related to


ownership of the arena, such as insurance, capital expenses, and debt
service on bonds.

3. We propose that the city tax the team only on profits and not on gross
sales. The team currently pays the city approximately $128,000 in such
taxes despite overwhelming losses. This revenue to the city would not
exist without the team.

4. We propose that the city allow the team to keep (via a management
fee or whatever mechanism the lawyers advise) almost all of the state
and local sales taxes and the seat use fees paid by those that use the
arena (hockey and non-hockey events). We have heard the demands to
“make those that use the arena pay for it if they want to keep the
Predators.” We think that demand has merit and we think that this
concept is perfect. All additional revenue (approximately $4.2 million
based on 2006 in-arena sales) for the Predators would come
exclusively from arena users rather than the general public. The
majority of this revenue would evaporate immediately without the
Predators. The city will continue to benefit financially from the
presence of the Predators because the city will continue to retain all
sales taxes generated outside the arena on event nights. We believe
this concept is much preferable to our earlier proposal of a ticket
purchase guarantee plus a $3 million direct subsidy from the
taxpayers.
We suggest “almost” all of the sales tax revenues because we now
understand that part of the sales tax money collected (approximately
$400,000 annually) is set aside for education. We prefer that
percentage remain set aside for education. We cannot accept that
money in good conscience. If we are successful in growing the revenue
streams inside the arena, the city’s public school system will benefit
from increased funding. Other than this education set-aside, we believe
that any reduction in this incentive will only delay the inevitable loss of
the Predators.

It is our great hope that we are able to take advantage of the incentive
provided by this structure. Our strategy is to use this incentive to
maximize the utilization of the arena. We will focus a lot of energy on
non-hockey events. We will now have an incentive to take greater risks
on more events. We will now have an incentive to accept events that
otherwise would not be profitable. The outside-arena sales tax
collections will rise as our in-arena sales tax collections rise. The city’s
financial boat will rise with ours. We promise to work closely with the
Sports Council and be extremely aggressive in recruiting SEC, NCAA,
and Olympic-sport events. These special events will create an even
greater economic benefit for the city due to the influx of out-of-state
visitors.

5. The owners need the right to avoid financial disaster if the team does
not succeed financially. Thus, the team should have the right, but not
the obligation, to leave if (i) average annual paid attendance in any
year is less than the NHL minimum to qualify for revenue sharing, and
(ii) the new ownership group has lost at least a cumulative total of $20
million (in addition to the $193 million already invested). The city will
have the explicit right (but not the obligation) to purchase (or arrange
for the purchase of) enough tickets to satisfy the revenue sharing
threshold. The existing exit penalty provision will remain in effect in the
event the team is both sold and relocated.

6. The liquidated damages penalty will remain in place and should be


doubled.

7. The city is currently required to make necessary and reasonable capital


expenditures to keep the arena up-to-date. We suggest that the city
assist the team in creating new revenue streams by updating the arena
to (i) build out the rehearsal hall so that it is available as a public
entertainment venue for our community, (ii) construct three additional
Fun Zones similar to the one already constructed, and (iii) improve the
HVAC to eliminate excessive utility costs. The city should fund the
improvements approved previously by the Sports Authority in 2006 but
that remain unfunded. The team will cover any cost overruns above
the estimates previously provided to the city for each of these projects.

8. The city has not paid the team its 2004 and 2005 Performance Fees
due to a dispute with the prior owner. We suggest that the city pay
only the $289,000 that the city believes it owes and that the new
ownership group accept that amount as payment in full. The city will
need to calculate and pay the 2006 and 2007 Performance Fees and
then the Performance Fees will be eliminated going forward.

9. To be on equal footing with other NHL teams, the Predators need to


have access to public parking and parking revenues. However, we do
not suggest that the city should expend additional dollars on this
concept. We suggest that the team be allowed use of any parking
facility that might be constructed as part of the proposed new
downtown convention center. We suggest allowing the team control of
the garage starting two hours before an arena event so long as that
time is not Monday - Friday 5 a.m. to 5 p.m.

Please know that our ownership group does not intend to take any
salaries, distributions, dividends, or other payments from the team. We
intend to use any excess funds to pay down debt and re-invest in the
Predators. We are asking for help for the team, not for ourselves.

As we acknowledged last night, the Predators’ situation is an extremely


unfair and unfortunate situation for the Mayor to face in his first week on
the job, especially given the inflexibility of the timetable already in place.
Our group obviously did not create this situation, but we volunteered to
thrust ourselves into it because we think it’s the right thing to do. The
Mayor certainly did not create the problem either, but now the weight of
the city is on his shoulders. He faces a most difficult dilemma because the
team will definitely be gone within a year if he doesn’t act and, yet, there
are absolutely no assurances of success even if he does act. Several
months ago, Craig Leipold asked me why I thought we could succeed
where he had failed and why he should risk taking a chance on our
“relatively” poor group of investors. I told him that we believed in our city.
We believed that, given a second chance, Nashville would respond and
prove to the NHL and the nation that our city is too strong, too good, and
too successful to fail. We ask the Mayor to join us in that belief and that
risk.

For what it’s worth, my opinion is that the Predators and the Sounds
directly affect the allure of downtown living and downtown entertainment.
My opinion is that the Titans and the Predators are a factor in the
recruitment of the Nissans, the Dells, and the LPs. My opinion is that the
Gulch, the Signature Tower, and all the other new downtown residential
development projects benefit from the glamour and proximity of
professional sports. My opinion is that Second Avenue and Lower
Broadway are infinitely better today than a decade ago. Unfortunately, I
cannot prove these opinions or provide a credible economic impact study
that incorporates these effects. However, I was here a decade ago and I
remember downtown Nashville. As a very wise man once said, it’s all
connected.

Thank you for your consideration of our suggestions.

Sincerely,

David S. Freeman

Cc: Chris Cigarran


Tom Cigarran
Holly Dobberpuhl
Joel Dobberpuhl
Herb Fritch
De Thompson
John Thompson