Monday, November 05, 2007

Welcome to franchise relocation hell – the Seattle Sonics

In a move reminiscent of the last days of the Montreal Expos, the Seattle Sonics appear destined for three years of professional sports version of franchise relocation hell; three full seasons where the Sonics destiny has been determined, and that fate isn’t in the City of Seattle. Following a ‘difficult’ week that included a Washington state judge ruling the team cannot go through arbitration to end its current lease (the current lease ends on September 30, 2010), Sonics owner Clay Bennett announced on Friday he was preparing the necessary paperwork to relocate the franchise to Oklahoma City.

“On behalf of the owners of the Seattle SuperSonics and Seattle Storm, I am disappointed that our efforts over the last fifteen months to foster the development of a new multi-purpose arena in the Greater Seattle area were not successful. From the beginning, it has been my absolute hope and expectation that we would be able to secure the necessary governmental commitments to build a successor venue to KeyArena. Even though our proposal for a new state-of-the-art multi-purpose facility to be built in Renton was thoughtfully developed by a world-class team, was financially reasonable and was realistically attainable, we were unable to persuade the Washington Legislature to vote on our bill. The region is still in need of a modern building, not just for the Sonics and Storm, but also for the broad commercial and quality of life benefits such facilities provide.

“We now understand and respect that there is very limited public support for such a public investment. As we stated on July 18, 2006, and have stated on many occasions thereafter, KeyArena is not a viable modern venue for the NBA and if a successor facility is not identified by October 31, 2007, we would evaluate our options, which would include relocation. Given the clear lack of public, political, and business support for a new multi-purpose arena, plus the enactment of Initiative 91 as a City of Seattle ordinance following a public vote authorized by the Seattle City Council itself, and the significant operating losses the businesses are now incurring, we have no option but to commence the NBA relocation process.”

History will be the true test as to whether Bennett is really “disappointed that our efforts over the last fifteen months to foster the development of a new multi-purpose arena in the Greater Seattle area were not successful”, but few industry observers believe the Oklahoma City native Bennett’s real goal from the day he bought the Sonics for $350 million from former Sonics owner Howard Schultz, was to bring the Sonics and NBA basketball to Oklahoma City’s Ford Center-- a state-of-the arena in need of a major league tenant.

The Ford Center had been the temporary home of the New Orleans Hornets during the previous two NBA seasons when the Hornets needed a city to play their home games, but the Hornets have since moved back to New Orleans. Hornets’ owner George Shinn looked for investors after his teams’ first year in Oklahoma City, Bennett put together a group of investors who were ready to buy a minority interest in the Hornets (as long as the franchise stayed in Oklahoma City). When Shinn couldn’t agree to those terms, Bennett bought the Sonics, a franchise in a great deal of trouble at the time, and many of the issues the team was unhappy with had to do directly with the team’s arena – the KeyArena, one of the oldest facilities in the NBA.

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 SuperSonics 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 was 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.

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 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 initially maintained that upholding the Sonics' lease with KeyArena through 2009–10 was "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."

Fans of the teams formed Save Our Sonics and Storm to show their 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.

Bennett made it clear in February of this year what he wanted (expected) if the franchise was going to stay in Seattle-- a $500 million taxpayer built facility. On February 13, 2007 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, the proposal Bennett made to Washington’s (State) politicians on that fateful February day included:

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.

On Monday, April 16, 2007 Washington State politicians faced two choices – commit political suicide and give into Bennett’s blackmail or reject Clay Bennett’s demands. Sports welfare isn’t what it once was – Bennett’s demands were soundly rejected.

On September 21, 2007 Bennett filed his latest legal move (Friday’s relocation statement not withstanding) -- filing papers seeking arbitration on the KeyArena lease. Bennett while not stating what his true intentions where, intended to do what he wanted to do since he bought the Sonics for $350 million from Seattle native and Starbucks founder Howard Schultz on July 18, 2006 – move the team to Oklahoma City .

The following Monday, the City of Seattle filed a lawsuit in King County Superior Court in an attempt to force the Sonics to continue playing at KeyArena through 2010.

"Too often pro sports teams have run over local governments and gotten their way with them. Today we are standing up and saying 'no.' We have an agreement. We are going to enforce that agreement. We want you to honor your promises," Seattle City Attorney Tom Carr said in a prepared statement Monday.

How serious is the City of Seattle about ensuring the Sonics honor their lease? They’ve retained former U.S. Sen. Slade Gorton legal firm to handle their lawsuit.

"Regrettably, almost from the beginning those Oklahoma owners gave every indication that they did not intend a longtime stay in the city of Seattle," Gorton said, citing recent comments from part-owner Aubrey McClendon that the new owners never wanted to keep the Sonics in Seattle despite their public statements.

"The issues with the Sonics profitability at KeyArena have less to do with KeyArena than perhaps the Sonics' ability to defend the high pick & roll," Carr said. "Good teams, competitive teams have done well here."

Last Monday Washington U.S. District Court Judge announced his decision to keep the case in federal court. Most legal observers believe that decision will force Bennett to honor the teams’ lease because arbitrators (where Bennett wanted the case decided) generally resolve disputes through compromise, whereas courts (where the City of Seattle wants the case decided) rule more closely to the law. Nonetheless, Bennett announced his plans to move forward with his plan to relocate the Sonics.

“It means that we will now begin to work with Oklahoma City to understand the comprehensive relationship that the team and the city will have if we relocate. What the facilities would look like, what the lease arrangements would look like, what any number of other elements of the relationship would look like. Now, timing is unknown. Timing could be upon determination of this litigation. It could be at the end of this season. It could be at the end of the existing lease term. It could be in between if there's some settlement or negotiation that we both agree to. So timing is unknown, and the process is very comprehensive. It will involve a lot of people. It will take time. The league, today upon notification, will name a relocation committee of owners. And they will help to define and conduct the process.” Bennett told The Daily Oklahoman late Friday.

Bennett had three messages for anyone in the Seattle market interested in keeping the Sonics in Seattle. First if legally forced he’ll honor the remaining three years (this year is the first) of the teams’ lease, secondly he has no intention of talking to a local group from Seattle that expressed interest in buying the Sonics from him last week, but what would happen if the unexpected took place – local and state officials had a change of heart and were ready to build Bennett an arena.

“If very soon there was a leadership driven, tangible, binding proposal relative to the development of a modern building, and we are able to negotiate acceptable lease terms in that building, we would fully evaluate that. But the timing is running out on that very quickly. If something was to begin today, it would not be ready by 2010. So the dynamics of this negotiation and this relationship will change pretty dramatically.”

Since David Stern was appointed NBA commissioner in 1984 two NBA franchises have relocated – the Grizzlies in 2001 and the Hornets after the 2002 season. David Stern hasn’t had a great deal to say regarding the events that unfolded in Seattle last week, but all one has to do is look back at his views on the Sonics future in Seattle (and playing in the KeyArena) to understand the NBA will make it as easy as possible for Bennett to relocate the Sonics.

Stern, according to a report in the Daily Oklahoman, has often criticized Seattle and showered praise on Oklahoma City — and Bennett. And Bennett knows he has Stern’s and the NBA’s support in his back pocket if he needs it.

"It's beyond anything we expected or hoped for,” Stern said in late November 2005 about Oklahoma City's support for the Hornets. "The community stepped up big time — elected officials, the corporate sector and fans. In my view, they've moved to the top of the list if an NBA team were ready to move.”

In mid-April, Stern addressed the state of the Sonics by telling The Seattle Post-Intelligencer, "We are looking for a miracle, but it doesn't look good.”

During a visit to Seattle in May 2005, Stern also blasted the Sonics' use and occupancy agreement at KeyArena, saying, "I don't think there can be any dispute that the Sonics have the least favorable building arrangement in the league.”

"My sense is, and I think we all share it, that it's hard to believe that we can't get a building built here,” Bennett said Friday when asked about his impressions of Stern's feeling on having the Sonics move to Oklahoma City. "Because the market would support it, it would be financially successful, it would be additive to the economic vitality of the region and it would seem to make sense that the public would want to keep the teams here.

"But times have changed. They're political realities and they're economic realities, and at the end of the day one has to do what you can to support the investment. And the business cannot survive in Seattle without a new building. And the league understands that and supports that.”

Seattle Mayor Greg Nickels issued the following statement regarding the Sonics late Friday: “Seattle and Key Arena have been home to the Sonics - and more recently the Storm - for 41 years. I believe that tradition should continue.

“I will do everything in my power to enforce our lease and keep the Sonics and Storm where they belong - in Seattle through 2010 and beyond.”

Cutting trough the rhetoric – here’s what it is likely to take place:

Seattle Sonics and the WNBA’s Storm are sold to another group. Unlikely if not next to impossible. However if the group that emerged last week is serious about NBA basketball in the Pacific Northwest there is a good possibility the NBA may agreed to award an expansion franchise to the City of Seattle if somewhere in the region a new arena is built.

That would follow the formula the NBA used in Charlotte. George Shinn moved the Sonics to New Orleans, the city of Charlotte built the Charlotte Bobcats Arena and the NBA awarded an expansion franchise to Robert Johnson. That may be a good idea but there doesn’t appear to be much political support to build a new taxpayer built arena in Seattle. In Charlotte personal issues had made Shinn into a pariah in that region.

The court case. Legally the Sonics/Storm has an agreement in place keeping the franchise(s) in place until September 30, 2010. Count on the courts upholding the lease.

Once the court case is settled (forcing Bennett to honor the existing lease) Bennett attempts to buyout the lease. The current lease doesn’t include a buyout clause, but there isn’t anything preventing Bennett from proposing an agreement that would include a significant contribution towards the building of a new arena. This makes much more sense than observers might believe it to be. Firstly three years of lame duck basketball will cost Bennett tens of millions of dollars. Why not attempt to negotiate an agreement that might save Bennett some money? Secondly, the last thing the NBA wants is a franchise stuck in a market where the owner and the team are destined for another city. Bennett, David Stern, the Sonics and the NBA’s image would suffer from a full frontal assault over that period of time.

In a geographical region where the NBA watched the Grizzlies move from Vancouver to Memphis, the NBA doesn’t need anymore bad press when it comes to how the league handles its affairs. While this makes sense, Bennett, Stern and the City of Seattle will all have to be prepared to realize the ‘forest for the trees’ is easier said than done.

What makes the most sense? The Sonics move. Bennett offers to buyout the lease for what would be seen as an exorbitant amount of money, that money serves as the foundation for a new arena, taxpayers pay the balance of the costs for a new arena and an NBA expansion franchise is awarded to Seattle, but one issue is clear, the Sonics and Clay Bennett are done in Seattle. It’s not a matter of if, but when the team moves to Oklahoma City.
For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: The Daily Oklahoman, the Seattle Times and the Seattle Post Intelligencer

Labels: , , , ,