Tuesday, February 20, 2007

How they’re playing the arena game in Seattle with the Sonics


In the last five years, maybe even the last decade the stadium/arena game has changed ‘somewhat’. If a professional sports franchise wanted to build a new arena or stadium before the turn of the century professional sports teams held cities and taxpayers hostage demanding taxpayers build sports facilities or they would move their team to a city that would meet their needs. Walter O’Malley used that logic to move the Dodgers from Brooklyn to Los Angeles, the infamous Midnight Mayflower move of the Colts from Baltimore to Cleveland, and Art Modell ripping the heart of Cleveland when he moved the original Browns to Baltimore.

Between 1958 and 1997 (the year the Dodgers and Giants left New York for California) 35 sports franchises (Major League Baseball, National Football League, National Basketball Association and National Hockey League) moved at least once. In the last ten years three teams have moved. Sports have grown into a half trillion dollar industry but by all appearances teams are not moving much if at all anymore. And the reason -- the rules of how the stadium/arena game is played have dramatically changed. That’s not to suggest owners aren’t trying to keep the rules in their favor, just that taxpayers have had enough.

During David Stern’s “State of the NBA” Saturday night in Las Vegas Stern dealt with two of the NBA’s ‘pressing’ arena issues with the Seattle Sonics and the Sacramento Kings.

KeyArena at Seattle Center is on the grounds of Seattle Center (the site of 1962's Century 21 Exposition, a World's Fair). The arena's primary tenants are the Seattle Sonics of the National Basketball Association. It hosted the 1974 NBA All-Star Game.

Opened in 1962 as the Seattle Center Coliseum, the rebuild began on June 16, 1994 before the building reopened on October 26, 1995. The court which was originally at street level is now 35 feet below to allow more seating. After the rebuild, the Coliseum was renamed KeyArena, as Key Bank purchased the naming rights.

The rebuild cost the city of Seattle $74.5 million, and the Sonics approximately $21 million. KeyArena is the first publicly financed arena fully supported by earned income from the building. Its seating capacity for basketball games is 17,072.

In late 2004 proposals for expanding KeyArena to nearly twice its current size to accommodate new restaurants, shops, and a practice court (the cost is to be approximately $220 million) were debated. Because of a lack of interest by the city of Seattle in following through on the project the new owners of the Sonics and Storm made the decision to look outside the city limits for sitting a replacement arena. Currently, the future viability of the arena after the Sonics lease expires in 2010 is under debate.

Following disagreements between the Basketball Club of Seattle (a group fronted by Seattle billionaire and Starbucks founder Howard Schultz) and the city of Seattle concerning the need to renovate the KeyArena, the Sonics and Seattle Storm were sold to an Oklahoma City group led by Clay Bennett on July 18, 2006 for US$350 million. The sale was approved by the NBA owners on October 24 of that year. The new ownership has said that upholding the Sonics' lease with KeyArena through 2009–10 is "a priority" and that "with the right dynamics on the court, the right business model and a financially committed ownership group that recognizes and respect Seattle, we can succeed here for decades to come." However, there is speculation that their intention is to move the team to Oklahoma City once the Hornets return to New Orleans, Louisiana.

Fans of the teams formed Save Our Sonics and Storm to show support and urge the regions leaders and the NBA to keep the teams in Seattle. But on November 7, 2006 Seattle voters approved Initiative 91 to make a profit on-par with a 30-year treasury bond on any public investment on city owned facilities. While the Initiative would have no impact on the proposed arena, which will be owned and funded by the county and state, it is now unlikely that the team will stay inside the city limits. As of February 13th, 2007, the new ownership has stated it plans to build a new $530 million dollar arena in Renton, Washington. The fact that the new owners did not fight I-91 confirms that the new owners have no desire to remain in Key Arena after the lease expires in 2010. The initiative was approved with 74.08% of the vote.

Throughout the past few months, the Sonics future has begun to take shape as the ICON Venture Group was selected to manage the arena development, HOK Sport as architects to design the new facility; the city of Renton is now the proposed location for the new arena, and former Sonics player, and coach, Lenny Wilkens being named as Vice Chairman. On February 13, 2007 Clay Bennett announced that the site for the new $500 million "King County Multipurpose Arena" would be a 21 acre site to be purchased from the Boeing Company located in Renton, Washington.

Towards the end of Saturday’s media Q&A a Seattle reporter attending David Stern’s presser suggested the arena challenges the Sonics are facing parallels what is happening with the Sacramento Kings and their hopes to find the needed funding for a new arena for the Kings.

“No, I think that two different things. First of all, in California it's really hard to get anything passed, because the citizens have spoken.

“I think that Seattle is a much more mature situation. The new ownership has done so much, beyond what we could have hoped. They were very poorly treated at first. Everyone thought they were simply going to go in and wanted to move the team to Oklahoma City again. And they were disbelieved when they said they would like to keep it there.

“They've spent enormous sums of money and time and the like to come up with a plan, a funding plan. They've laid it out. They've got a site selected, et cetera. And it will either happen or it won't. We've been around this track a long time and I hope it happens because Seattle has been a very good city for the NBA and the Clay Bennett Group, I think, would be great, great, and will continue to be great owners for the Sonics. I don't see a role for me at this point.” Stern said Saturday.

Thursday, Stern echoed similar comments to The Seattle Times relating to how the NBA feels about the Sonics insistence a new arena (largely publicly funded) be built in the immediate future. Its clear, David Stern has all but washed his hands of any future involvement in the Seattle arena debate.

"I'm not intimately involved" with the latest news in Seattle, Stern said. "Our office is keeping on top of it. I've been extensively involved with the All-Star [preparations]. I haven't had a chance to review it, except on a top-line basis.

"But, obviously, the ownership group is working very hard to get something done and spending an enormous amount of time, effort and money on putting together the best possible proposal and building."

Clay Bennett wants a new $500 million home for the Sonics, in tax money, and the Sonics hope for additional financial help from Renton, Washington (where he wants the arena built). By comparison Los Angeles’ Staples Center built in 1999 for $375 million was largely privately funded by the Anschutz Entertainment Group (AEG).

Last Tuesday, Bennett visited the Washington (State) House, asking for $300 million in state funding, and $100 million from the City of Renton. Bennett is ready to kick-in $100 million. However, Bennett intends to retain all of the funding the arena will generate. Given the Sonics can expect between $150 million and $200 million in naming rights for the proposed arena, not only will Bennett not pay a dime if his wish is granted, but he’ll actually make a profit.

According to The Seattle Times, here is the proposal Bennett made to Washington’s (State) politicians last Tuesday: Sonics funding plan

Senate Bill 5986 would extend several taxes paying off existing sports stadiums to fund a new arena, arts groups and stadium maintenance.

Sales taxes: A 0.017 percent sales tax for Safeco Field debt would be extended by 17 years, to 2029, and a separate 0.016 percent sales tax for Qwest Field debt would be extended by eight years, to 2029. $227 million

Restaurant tax: A 0.5 percent tax on restaurant meals and drinks to pay off Safeco Field debt would remain until 2015, three years longer than previously projected. $75 million

Car rental taxes: A 2 percent car-rental tax for Safeco Field debt would be extended until 2015. Another 0.75 percent car-rental tax for Kingdome debt also would continue. $40 million

Hotel/motel tax: After the Qwest Field debt is paid off in 2021, a 2 percent tax on hotel- and motel-room rentals would be split between the new arena and arts groups. $81 million

Total financed: $423 million

And how was Qwest Field (the Seahawks home) built. According to The Seattle Times Gregory Roberts a classic example of how the stadium game was played (before the turn of the century).

Paul Allen negotiated to buy the team (at the time the third richest man in the world), contingent on a stadium solution: renovation of the Kingdome, construction of a new stadium or use of an upgraded Husky Stadium at the University of Washington.

Allen ultimately decided on a new, 72,000-seat stadium, to cost $425 million. He spent $1.7 million lobbying the Legislature for his public-private financing plan. The package included $100 million from Allen. The $300 million initial public share, which could reach twice that with interest charges, would be financed by an eight-year extension (to 2020) of the 2 percent tax on hotel rooms in King County and by 10 percent taxes on stadium admissions and parking.

The deal also included $25 million in a county sales tax credit for Allen and a state sales tax deferral. And part of the hotel room-tax money would pay off the $127 million debt on the Kingdome, which would be torn down to make way for the new stadium.

Allen would pay $850,000 a year to lease the stadium. He would keep all the money from renting it to other users and 80 percent of the revenues from an exhibition center to be built along with it.

The Legislature agreed, sending the proposal to a statewide referendum that Allen would pay $3.4 million to underwrite. If the plan failed, Allen said, he wouldn't buy the Seahawks. He spent $5.4 million urging voters to approve the proposal, and they did, 51 to 49 percent, on June 17, 1997. The County Council signed off on the financing a week later. The stadium, now called Qwest Field, opened in 2002. (Key year was 1997).

When Safeco Field was built in 1999, bonds worth $325 million were earmarked for the project — paid with a combination of taxes to be collected through 2016. The money to pay off the bonds comes from three sources: a half a percent tax on food and beverage sales, a 2 percent car-rental tax, and a 0.017 percent sales tax.

The largest, by far, is from the restaurant tax. In 1999, it generated $13.5 million; last year it brought in $17.7 million. The sales tax brings in about $7.5 million and the car-rental tax about $5 million a year. (Again the key the funding was put in place before 1997).

Friday, a Seattle based polling group (managed by independent pollster Stuart Elway) sent a message to the Sonics and the NBA – an overwhelming majority of state taxpayers have no interest in supporting any measure that would offer financial support for sports franchises. Given Seattle’s two other ‘big league’ sports teams – Major League Baseball Seattle Mariners and the National Football League’s Seattle Seahawks are playing in stadiums that are less than 10-years old, the results of The Elway Poll as relating to sports facilities being built is clearly directed at the Sonics.

Lawmakers are considering plans for partial public financing for sports venues for NASCAR, the Seattle Sonics, minor league baseball teams and a rodeo and equestrian center. Asked a general question about whether pro sports owners should pay for their own facilities without taxpayer subsidies, 71 percent agreed, while 23 percent called subsidies a good investment.

About 77 percent opposed use of public dollars for major sports facilities such as the Sonics' Renton proposal. Public financing for a NASCAR racetrack was opposed by 79 percent.

Days before the results of the poll where released Bennett met with The Seattle Post-Intelligencer’s editorial board and suggested economics will force the Sonics to move in the not too distant future. Bennett told the paper the Sonics would lose somewhere “north of $20 million” this year. Through 27 home dates the Sonics are averaging 15,878 fans per game, or playing to 93.4 percent of the KeyArena’s 17,072-seat capacity the smallest in the NBA.

So what exactly is Bennett’s end game? The Sonics play in a facility so terrible it forced Seattle native and Starbucks founder Howard Schultz to sell the franchise to Oklahoma City interests. Just before the start of the NBA regular season in early November the NBA Board of Governors approved the transfer of the teams’ ownership to Bennett. Bennett keeps on saying all the right things about the team staying in Seattle, but let’s make it clear – Bennett is from Oklahoma City, and if Bennett and the NBA can’t convince Washington taxpayers to support the building of a new arena for the Sonics, Bennett will move his team to the city he lives in.

“Well, actually I have sort of a sense of optimism because although Clay and his ownership group are based in Oklahoma City, almost from the first day that Clay started looking at Seattle as an investment and then as a purchase, he stressed to me the vibrancy of the Seattle market, the revenue streams that could be available there, and its jumping off status to Asia and its business relationships to Asia, which is a subject on which the Board spent some time today, not in terms of Seattle, but in terms of the NBA’s opportunities. So, I went from kind of skeptical in a way, to kind of getting on line with “Ok, I get what you see here.” But, of course, the large investment that they’re making and that they’re continuing and willing to stand behind is dependent upon a new building. And, they actually have committed to resources for experts and consultants and the like, to follow a critical path that seems designed to exhaust every opportunity, including the political route, the governmental route that is necessary to have a new building. I’m delighted to see the effort so focused, and hopefully their intentions here will be reciprocated by the decision makers who have the opportunity to impact it in a positive way, “ Stern offered after the BOG’s approved Bennett’s ownership of the franchise.

“David has said it very well. We, first and foremost in our evaluation, made a decision to invest in the NBA and to be a shareholder in what we view as a very important and growing, global business. We also view the Seattle marketplace as a remarkable opportunity – very dynamic, expanding economy, beautiful place to be. The connection to the Pacific Rim, the existing trade that is there, the future trade that will happen, and the league’s potential internationally and really a lot of work that is already being done in that pursuit. So, our interest is in that marketplace and in that economic model. I am encouraged by what has happened so far in terms of the development of a building. I think we’re being well received, and I think we’re making constructive progress toward that end. So, we’ve been working -- although we didn’t receive board (NBA Board of Governors) approval until today – we’ve been working, really since the day we announced (the purchase), on this project. So, we’re excited to really hit the ground and begin some serious work,” Bennett saying what any new owner would say on the eve of his first year as owner of an NBA franchise based in Seattle.

Bennett has made it clear he’ll give it this year (the Hornets “plan” on moving back to New Orleans in one year) and then he’ll look at his options – moving the Sonics from Seattle to Oklahoma City, in time for the 2007-08 season. Whatever Bennett and Stern suggest, Bennett bought an NBA franchise to ensure the city he does business in and lives in (Oklahoma City) has an NBA team. Once Bennett moves the Sonics to Oklahoma City the NBA may expand to Seattle (the Charlotte Bobcats) or move a team to Seattle (the New Orleans Hornets) but take it to the bank Bennett -- will move the Sonics to Oklahoma City, when George Shinn moves the Hornets back to New Orleans.

The end game, Stern has tossed in the towel on Seattle he has no interest in personally or professionally getting involved as he is in Sacramento. With more than 70 percent of respondents in a poll released Friday saying in no uncertain terms they have no interest in helping to fund an arena unless Washington (State) politicians are ready to commit political suicide (unlikely) Bennett might be saying all the right things, but he’ll have little if any real political support. The NBA has been a resounding success in Oklahoma City as a stopgap plan to help the New Orleans Hornets for the last two years, but if anyone honestly believes the NBA is going to leave Oklahoma City to the NHL or another sports league than they clearly never understood how Clay Bennett and David Stern are playing the arena game – to win, with the Sonics moving to Oklahoma City.

For Sports Business News this is Howard Bloom. Sources citied and used in this Insider Report: The Seattle Times and The Seattle Post Intelligencer

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