Opinion: When Barclays admitted a felony, it should have lost the Brooklyn arena
In 2008, when word surfaced that the German insurer Allianz was in discussions with the New York Giants and New York Jets to purchase the naming rights at their Meadowlands stadium, a firestorm of criticism emerged: How could these football teams make a deal with a company that had insured concentration camps? Soon, the discussions ceased.
Fast forward to present day. After a felony plea by a bank with its name on an equally prominent New York sports facility, the Barclays Center (home to the Brooklyn Nets and, as of this year, the New York Islanders), the result is silence. Not only is this a moral cop-out by civic overseers, but existing contracts for the Brooklyn arena, I believe, require New York state to boot Barclays from the naming rights deal.
To be sure, the situations aren’t quite analogous. Barclays PLC, whose subsidiary is paying more than $200 million over 20 years in Brooklyn, didn’t plead guilty until this past May, some two and a half years after the arena opened. (There was criticism before construction about Barclays’ record on slavery and apartheid.)
True, Barclays’ criminal conduct – which was shared, in large part, by other banks – is not as viscerally damning as a Holocaust connection. But the bank’s performance has been self-serving, deceptive and shameful.
In May, Barclays agreed to plead guilty to a felony charge of conspiring to fix prices and rig bids for dollars and euros in the foreign exchange spot market, both in the United States and elsewhere, according to the U.S. Justice Department. The bank agreed to pay a criminal fine of $650 million.
Barclays paid nearly triple that in civil fines. The same day the bank pleaded guilty, it also agreed to pay $485 million to the state Department of Financial Services, $342 million to the Federal Reserve System, and $400 million to the U.S. Commodity Futures Trading Commission. It also paid another $115 million to the CFTC for related offenses, and about $441 million to the United Kingdom’s Financial Conduct Authority. All told, Barclays paid nearly $2.4 billion.
“Put simply, Barclays employees helped rig the foreign exchange market,” declared Benjamin Lawsky, then superintendent of the state Department of Financial Services. “They engaged in a brazen ‘heads I win, tails you lose’ scheme to rip off their clients.” Indeed, as one banking executive bragged in a chat unearthed by regulators, “if you ain’t cheating, you ain’t trying.”
The 2012 penalties
These weren’t Barclays’ first civil penalties. In June 2012, the CFTC filed and settled charges with Barclays for manipulating Libor and Euribor, two global benchmark interest rates, over four years. Barclays agreed to pay $200 million in fines. It paid another $160 million after settling with the Justice Department.
Back then, months before the Barclays Center opened, branding mavens suggested the scandal would not affect the arena, because the facts were tough to grasp and, after all, Citi Field, the Mets’ stadium in Queens, had not been affected by sponsor Citibank’s role in the financial crisis.
Indeed, though Barclays’ chief executive Bob Diamond had to resign, and an internal Barclays report criticized an “at all costs” attitude, the arena emerged virtually untainted. Perhaps, for a naming rights deal to fail, as with Enron Field in Houston, the sponsor has to go belly up. Instead, Barclays has soldiered on, as if such penalties are simply the cost of doing business.
Attorney General Loretta Lynch declared in May that the recent criminal penalties against Barclays “serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers. She called the banks’ anticompetitive conduct “long-running and egregious.”
But will this conduct jeopardize Barclays’ naming rights?
The Barclays Center naming rights agreement was signed by Barclays Services Corporation, which is owned ultimately by the now-felonious Barclays PLC. (BSC is a wholly owned subsidiary of Barclays Group U.S., which itself is wholly owned by Barclays Bank PLC, for which Barclays PLC is the holding company.)
As naming rights partner, BSC contracted with Brooklyn Arena LLC (aka BALLC, an affiliate of arena developer Forest City Ratner), as noted in a May 2010 recognition agreement.
However, the development agreement for the overall Atlantic Yards project, which includes the arena, raises a big question. The agreement, signed in 2010 between New York’s Empire State Development Corporation (now known as Empire State Development) and several affiliates of Forest City, states that no affiliate of the developer “shall contract with ... a Prohibited Person or any Person who shall become a Prohibited Person.” (Note: The arena is, nominally, publicly owned in order to enable tax-exempt bond funding.)
Evidence suggests that Barclays Services Corporation qualifies as a “prohibited person.” First, according to the development agreement, a “person” can include not only individuals, but any form of business or government authority.
Second, a “prohibited person” includes any person who “is controlled by ... a Person who has been convicted in a criminal proceeding for a felony.” Since pleading guilty in May, Barclays Services Corporation seems to have become a “prohibited person.”
On July 23, I queried Empire State Development, asking whether the Barclays guilty plea impacted the naming rights agreement. Was Barclays, I asked, a prohibited person and, if so, what happens to naming rights? If Barclays does not qualify as a prohibited person, could they explain?
I have not received an answer, even after multiple queries, more recently indicating that a City & State piece was forthcoming. If there is a document or clause that undermines my premise, why wouldn’t they tell me? Might the state aim to avoid any such discussion while a sale of the Forest City-controlled share of the arena (55 percent) and Nets (20 percent) is pending?
If the naming rights deal were jeopardized, surely the arena operators would hate to lose the guaranteed $10 million a year. Surely the gubernatorial-controlled state agency, which has shepherded the Atlantic Yards (now Pacific Park) project, would be dismayed. (I do wonder if Barclays might feel it already got sufficient bounce from the deal, as the arena reaches its third anniversary on Sept. 28.)
But it’s not the state’s job to ensure that private companies maintain the income stream they need to pay off arena construction bonds. The state gave away naming rights to the arena in the first place, rather than keeping a cut. The least it could do is follow its own rules and ensure the name doesn’t boost a felon.
Brooklyn journalist Norman Oder writes the daily blog Atlantic Yards/Pacific Park Report and is working on a book about the project.