Seattle council cuts its better deal with Hansen, arena announcement imminent

It looks like the final shoe may be about to drop: Seattle Mayor Mike McGinn says that hedge fund rich guy Chris Hansen and the Seattle city council have reached an agreement on a new downtown arena that alleviates the council’s concerns. An official announcement is expected later today.

So, what’d the council get in its month and a half of haggling? As you’ll recall, councilmembers had three main concerns: They wanted to keep some of the tax proceeds from the arena to pay for traffic improvements around the site; they wanted more information about Hansen’s business plan and financials, to ensure the city wouldn’t be left holding the bag if his project went belly-up; and they wanted a concrete proposal about what to do with KeyArena once the new building is in operation.

Details of the revised plan are still sketchy, but some hints are provided in today’s Seattle Times:

  • $40 million of future tax revenue would go to a fund for road improvements, assuaging Port of Seattle concerns that their trucks won’t be able to navigate local streets on game days. Hansen would kick in an extra $40 million to make up the difference.
  • Another $7 million in tax revenue will go into “a fund to improve KeyArena and plan for its future,” again with Hansen presumably filling the gap with his own cash.
  • The city “might” borrow $145 million instead of $120 million to put toward stadium costs, but Hansen will still pay it all back, either via rent or kicked-back arena tax receipts.
  • “City sources said the council believes Hansen’s business plan will succeed even with the added debt load.” Presumably this means the councilmembers got a peek at Hansen’s books, or one set of them, anyway.

Clearly, the big ticket item here is the $47 million in subsidies that Hansen agreed to give up, though it’s not yet clear whether this is $47 million in 2012 dollars, or $47 million spread out over the next 30 years. Still, given that the deal was looking awfully close to break-even for the city previously, either way this concession likely pushes the needle over into the black.

The main concern now about the deal shouldn’t be whether it’s a reasonable one on its own merits — it is, especially compared to the more typical arena giveaways — but what will happen to the KeyArena, and the city’s revenues from it, once a new arena is built, especially considering that arena experts question whether there are enough events in town to support two NBA-sized arenas. A piddly $7 million isn’t going to be enough to bail out an empty arena, so unless Hansen has provided more details that will be revealed later, this still has to be a worry.

Still, preliminary kudos to the Seattle city council for apparently getting Hansen to sweeten a deal that was never all that sour to begin with. It’s amazing what elected officials can accomplish when voters tell them in no uncertain terms what they should do.


31 comments on “Seattle council cuts its better deal with Hansen, arena announcement imminent

  1. Hansen made a lot of concessions, and kudos to the council for insisting on seeing Hansen’s financials. I don’t think there’s any way it would have come this far if Hansen didn’t think he had a team in the bag. Now it’s just a matter of when he announces it. I’d guess December, so that team doesn’t play in an empty arena this season. I continue to think it’ll be the Kings.

  2. See, I’d wild-ass guess the opposite: Hansen knows that his window to get a team may be short, so he pushed to get an arena deal secured so he can be first in line to ask the Maloofs for the Kings. Whether they’ll settle for a price he can afford, though, I’m still wondering. Remember, he can still back out of the arena deal if he can’t get a team at a reasonable price.

  3. How many potential NBA team owners have made grand plans thinking they “had a team in the bag”. It’s almost like they don’t know anything about Bennett’s NBA involvement from before he bought the Sonics.

    I’m still curious about the details (at 9:30 AM PST there’ll be a city council press conference about the arena) but the deal does seem to be improved and closer to where I’ve hoped it would be. See, it’s not “too good to pass up/the best arena deal ever” and now it’s even better for the public thanks to not blindly approving it.

  4. Neil, I think the mitigating factor here is just how much money Hansen already has spent on this deal. Just on land, he’s already into it for $50M. If, at 9:30, they announced that, “Well, up until 20 minutes ago, we were certain we had a deal, but it all just fell apart!”, Hansen would lose $50M.

    He wouldn’t have let it get this far.

    Certain people know far more than they’ll say today, and I think that’s the way it has to be.

    It’s the $50M that Hansen has already spent — he’s not getting that money back if the deal falls apart today, and I don’t care who you are, $50M is still a lot of money — that convinces me. Hansen is confident here.

    If any NBA team announced this today, they’d have roughly the same attendance that the KC Kings had the last year they were in KC. I think that was right around 3,000 per game. This logic applies to all 30 teams.

  5. MikeM, most of those land parcels have been sold at a slight premium to their tax assessment, with the exception of the showbox property. I’m sure he knows a real estate developer or two he could have sold a larger land parcel to so he wouldn’t take a $50 million hit. Heck, he could operate his mini-mall entertainment zone block for the Mariner/Seahawks games.

    The Sonics attendance in Seattle during their last year in Seattle was 78% home, 93% overall.

  6. Well, he’d still have the land he spent the $50m on. Even if he didn’t recoup his entire investment by selling it, he’d get some of it back.

    I agree that Hansen is confident he’ll get a deal done, but there’s a big difference between “confident” and “team in the bag.”

  7. If it is the Kings, the most interesting part for me will be seeing how the Maloofs settle their current debts. To sum it up: They owe the NBA somewhere between $75M and $125M, and they owe the City of Sacramento $67M, payable immediately if the Kings leave town. The only real exception to the $67M would be if the building became unusable, because technically, the Maloofs lease the arena from the City, with ownership reverting to the Maloofs once they repay the bond-holders (as cash, or over time).

    So they could raise $400M in a sale, and then have to pay out up to $192M immediately… And then Hansen would have a relocation fee. It might cost Hansen $450M to buy and move the Kings.

    Bottom-line: The Maloofs aren’t going to realize much of a profit if they sell the team for $400M.

    Yes, they’d then own the existing arena and the land if they repaid the $67M, but there’s no chance that land and arena are worth $67M in today’s market. On the other hand, I’d bet the monthly payments on $192M in debt are pretty large. Sure would be nice to get rid of that. That’s on top of the usual costs of running an NBA franchise.

  8. Neil, not sure having an arena is going to help his case with the Maloofs any. Hansen has already reportedly offered them $400 million for the Kings franchise ($100 mil premium over their actual value) and they Maloofs rebuffed him. They seem determined to own the team until they’re bankrupt or finally able to move it to a city of their choice like Anaheim or Virginia Beach.

  9. So the City is getting $40 million in revenue towards transportation and the concern should be an Arena that is no longer needed? Why exactly should the City should be worried about an Arena that would never bring them $40 million in revenues and was going to cost them money in the near future for renovations. The Key Arena lost money the first year it was without the Sonics and have barely broke even since then. This is not a concern.

  10. Myk, my best guess is the $7M to (the former) Key Arena is to spruce the place up a bit, so it can temporarily house an NBA team. They say they won’t start building the SoDo arena until a team has been acquired; that means some team might have 2 lame-duck seasons in its current city, which would be a disaster.

    $7M is nothing compared to the $15M annual loss some lame-duck team would certainly have. Just how many Sleep Train ads would air during Kings games if the Maloofs said “Two More Years!”?

  11. Myk, the reason to be concerned about Key is that if it loses its events to the new arena, suddenly that’s sales tax revenue you were getting previously that you’re not now, because the sales taxes at the new place get kicked back to Hansen.

    Mike, Hansen was already promising to pay for Key upgrades, so this must be something new.

  12. The KeyArena fund is something new. The previous MOU gave Hansen the option to use the KeyArena rent-free but he had to pay to make it suitable for his interim use. There were some options on how any tax revenues generated at the Key during that time would be used (to go to the KeyArena/Seattle or the ArenaCo bonds). Hansen still has to pay for those KeyArena upgrades but the Seattle Center was just given a $3M loan from the City to help with operational shortfalls and they’re not going to be able to pay it back right away… the KeyArena fund may end up being a temporary patch to help keep the arena break-even until Hansen is done with it (particularly if ArenaCo still doesn’t pay rent on it).

  13. The best thing about this article is a link to this November 2006 proclamation from another poster here:

    “The NBA in Las Vegas can, and will, happen.”

    All in fun. I respect your passion MikeM.

  14. Neil, since you’re the expert on these things, isn’t it true that these things ALWAYS end up biting the taxpayers in the ass? No matter how many dollars or percentages are purportedly going to come from Hansen, 10 years later, what and how much is going to be the public’s bailout into perpetuity. I think of Columbus as a perfect example.

  15. Ummm if the Key Arena is not making money for the City then the “Sales Tax” revenue isn’t really important since it is draining the City budget in other manners. We should also conclude that the Key Arena hasn’t seen a capital improvement for a decade and will need one in the future and there is no way to pay for it (so that’s more revenue that would need to be wasted).

    Finally, there is an incentive to move all the events to the new Arenas. Yes, you might lose some sales tax revenues due to “substitution” at first. But, you would also be paying off the debt faster (if they make the smart decision and choose to do that) at the new Arena. Paying of the debt faster would mean that they’d get to use the Sales Tax revenues more quickly at the new Arena, which will assuredly generate more $$ than the Key Arena.

    The only group that has a right to complain about the Key Arena are the business owners in the Queen Anne area and I do feel for them. Hopefully, whatever is decided as a replacement for the Key Arena could help replace that business. However, it would be silly to consider this an important decision point when just 5 years ago the entire City (both in government and outside government) had no problem letting their anchor tenant walk away and hurt those businesses.

  16. Wow, I take that back… the KeyArena fund isn’t something new. It’s just putting a dollar amount to the improvements Hansen said he’d do to make the KeyArena useable for a few years (while he doesn’t pay rent). It would come from incremental tax collections at the KeyArena … the first 7 million to the KeyArena fund and the rest goes to the transportation improvement fund. Unless all the KeyArena tenants sign leases at the new arena in which case that KeyArena fund gets directed to the new arena improvements and the KeyArena is left to rot away.

    The Transportation Improvement Fund will have to total $40M by the time the arena is built. If only the NBA gets on board then the public would issue up to $25M in bonds that Hansen would be required to pay with all his other arena bonds but if both leagues are involved Hansen won’t get any additional bond help.

  17. “because the sales taxes at the new place get kicked back to Hansen.”

    I find this a misleading statement. This implies that the money is going into Hansen’s pocket. What it is doing is paying off the bonds of the building that the City will actually own. There is a benefit to pay that off as quickly as possible.

  18. ” Neil, since you’re the expert on these things, isn’t it true that these things ALWAYS end up biting the taxpayers in the ass? No matter how many dollars or percentages are purportedly going to come from Hansen, 10 years later, what and how much is going to be the public’s bailout into perpetuity. I think of Columbus as a perfect example.”

    – In Seattle, Safeco Field was paid off early. CLink Field is on track to be paid off early as well. The Key Arena (which we are talking about) was paid off due to the Clay Bennett settlement.

    The idea that the public always gets screwed is factually incorrect. Even more, the idea that the public even feels an impact from the stadium is typically untrue as well. Since October of 2011 (the day that Safeco Field was paid off) I’ve asked for one person to explain to me how their lives were improved or different now that the tax has ended. Most people didn’t even know it ended. There was no impact. Well, the one impact was that 15,000,000 times people in this area bought tickets to an event that brings them entertainment. Lots of people can tell me about their favorite moment at Safeco Field.

  19. Myk, do instead of eeking out a small profit at the Seattle Center’s KeyArena (plus all the other city owned properties and parking down there) it’s better to just forgo most of those tax revenues for 25 years to Hansen and instead hope for indirect tax revenues to come pouring in ? Meanwhile, do you think the City should pay to demolish the KeyArena or turn it into the largest butterfly cage in the PNW ?

    I seem to recall the city and a bunch of lawyers fighting the Sonics move… you can be angry that they settled instead of pressing on but it’s not something the public can fix. Mayor Nickels is gone-ish. You expected people who don’t support using tax money to build new arenas to be the sort of people who would fight tooth an nail against a done relocation agreement for a team owned by someone like Clay rather than get cash ?

  20. This is one of the weaker editorials the Times has had yet:

    http://seattletimes.com/html/editorials/2019127240_editarenareviseddealxml.html

    Seriously? They’re actually going to consider other locations now?

    I think that bus has left the station, Times. I considered getting a user-ID to express this, but it’s a Seattle paper, and I don’t live there. It’s just a lame editorial.

  21. Myk, Safeco Field isn’t paid off. For example: http://publicola.com/2011/09/29/new-safeco-tax-loophole-to-cost-city-millions/

    These white elephants are never paid off. One way or another, the public always pays the freight.

  22. The Seattle City Council negotiated with ArenaCo so hard that Seattle cut the base rent in half, from 2 million to 1 million per year. :-/

    Yes, we know the required annual payments (mostly taxes) will still need to be made but doesn’t this just mean that Seattle cuts down the fraction of truly “new revenue” and increases the fraction that’s open to PILOT tax exempt status, increases the amount Hansen could use for bond payments from potential general fund revenues, and increases the portion of the pie most subject to substitution spending ?

  23. A.J.: No, they don’t *always* bite taxpayers in the ass. Just almost always. But that doesn’t mean we should ignore the cases where they don’t (Pac Bell Park in San Francisco, and … Minneapolis Metrodome, maybe?).

    Myk: Just because Safeco Field is (or will be) paid off doesn’t mean it was a good deal. That’s still an awful lot of tax money that Seattleites have been paying year after year and getting no public benefits from it.

    ChefJoe: Was there ever a significant chance that there would be leftover arena tax revenues after paying off the bonds? As for the tax-exempt bonds, I’m baffled how they’re going to work this — they can’t sell tax-exempt bonds on the tax revenues and then pay them off with supplemental rent payments (that’d be illegal, and jeopardize the bonds’ tax-exempt status), so what on earth are these bonds going to look like?

  24. Also, ChefJoe, it looks like the base rent was always set at $1m a year, even though the city’s cash flow document has it at $2m a year. Any idea what that’s about?

  25. Look carefully Neil, the old MOU had a ground lease of $1M/yr during construction and a base rent of $2M/yr after the “commencement date” when occupancy would occur. The newest MOU strikes out that 2 m/yr in base rent and changes it to a 1 . Amazingly, this change was never mentioned by the council during their press conference or press release.

  26. Hansen has accused the city of being very conservative in their tax revenue estimates. The city did not include any parking tax revenues or taxes associated with the entertainment zone (which I still think Hansen intends to have applied to the bonds) which is why they wound up with a large part of additional rent. Hansen told the council he didn’t think he’d need to pay additional rent based on his revenue projections and said he’d give the council his estimates, but if he followed up on that those documents have never seen the public eyes. Not long ago councilman Licata went on a local tv show and said ArenaCo hasn’t shared their business plan with the council, which should have included those revenue estimates.

  27. Aha, thanks, I see the switch from $2m to $1m now. Doesn’t help an already-confusing document that they removed all the section numbers and letters in this one, making it really hard to cross-reference…

  28. In all fairness to MikeM, that post in 2006 was before the recession hit. Las Vegas and the Maloofs hosted the 2007 all star game and AEG was all set to break ground on a downtown Vegas arena in the summer of 2007 when the deal hit a snag and then the recession hit. If those 2 things don’t happen, I can say almost assuredly that the Kings would be in Vegas by now. In fact, I bet they would’ve played a couple years at Thomas and Mack while waiting for the new arena to open.

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