Seattle arena concessions: Less than meets the eye, but better than nothing

The Seattle city council made its arena announcement as promised yesterday, and the big-ticket items were the ones that had been leaked earlier: $40 million extra money from Chris Hansen to pay for traffic improvements, a $7 million “fund to improve KeyArena,” and $25 million in extra city borrowing that Hansen would repay. There are, however, a few additional twists in the revised MOU (PDF with changes highlighted here):

  • Hansen will personally guarantee five years’ worth of arena debt payments, in the event his arena company runs out of money.
  • Hansen agreed to annual audits of his personal net worth, to show that it’s at least $300 million, and the city will be allowed to conduct an assessment of viability of his business plan and his private investors.
  • The city and county can force Hansen to buy back the land and arena for the initial purchase price of the land plus inflation, or $200 million, whichever is greater, after 30 years.
  • The $7 million KeyArena fund will actually come out of incremental sales and admission taxes at the arena as the result of any increased spending there while it plays temporary host to an NBA or NHL team. So it’s actually the city spending its own money on this, not Hansen.
  • The city will study potential alternative sites, including the current site of the KeyArena.
  • Everyone gets a puppy! Also, bees!

City councilmember Tim Burgess bragged yesterday that “we got it all” in negotiations with Hansen, but clearly that’s not true — they got effectively nothing in terms of the fate of KeyArena, and even if they discover that Hansen isn’t keeping up his end of the bargain to keep his net worth at $300 million, it’ll be too late to do much about it. Still, they got something by playing hardball, and that’s better than nothing.

The full council still needs to approve the deal, as well as the county council, but those seem way more likely now. Then all that has to happen is … oh, right, Hansen has to find an NBA team before he’ll break ground. The Seattle Times cites the Milwaukee Bucks, Charlotte Bobcats, and Minnesota Timberwolves (really?), but most of the speculation remains centered on the Sacramento Kings, whose owners the Maloof brothers yesterday issued a “no comment” on the matter. The key question, I expect, is whether the Maloofs and Hansen can agree on a price that works for both sides, given that the Maloofs have a ton of debts to pay off, and Hansen will need a purchase price that he can afford even after putting up most of the cost of an arena. Plus, of course, whether the Maloofs are actually capable of agreeing to anything without freaking out and calling it off at the last second, which remains an open question.

[UPDATE: An FoS commenter also points out that Hansen’s base rent has been reduced from $2 million a year in the original deal to $1 million a year in the revised deal. This probably doesn’t change the arena cost calculus much — Hansen has to cover any shortfall in bond payments beyond what comes in from arena taxes anyway, so unless there’s an unexpected surge in arena tax revenues, this will mostly end up being a shift from the “base rent” column to the “additional rent” column, both of which come out of Hansen’s pocket. It is a small concession to Hansen, though, and one that’s going unmentioned in media coverage of the deal so far.]

15 comments on “Seattle arena concessions: Less than meets the eye, but better than nothing

  1. “Hansen agreed to annual audits of his personal net worth, to show that it’s at least $300 million…”

    “… even if they discover that Hansen isn’t keeping up his end of the bargain to keep his net worth at $300 million, it’ll be too late to do much about it.”

    Yeah, might be the most useless, PR-centric clause ever added to a stadium deal.

  2. There’s a put option and a call option in that 200m buyback scenario.
    Under the put option the city can (somehow) force Hansen to buy the arena and property for 200 million at the end of the lease. That’s not inflation adjusted.
    Under the call option Hansen can “reuse” the land to build a new arena at the site and the site will be sold to him for $200 M or the CPI adjusted price of the land, whichever is greater. If inflation ticks away at 3% and land doesn’t appreciate, it wouldn’t be the best deal but if the land has any appreciation ahead of inflation it could be a nice incentive to keep the arena at that location.

  3. I’ll hand this to the city council: They’ve managed to make a confusing deal even more confusing. I especially like how they filed all the section numbers off the MOU in the latest revision, so it’s no longer possible to refer to “paragraph 12(c)” or whatever.

  4. While the Timberwolves are likely to be sold in the next couple years, it’s very unlikely they’ll be moving. As part of the Vikings stadium deal, Target Center is getting an expensive remodeling, so the team shouldn’t have any arena issues for a while. The Bucks on the other hand are another story.

  5. The numbering will probably shift around again once someone realized they added a blank line with a section number on page 9 and shifted everything. Unless that’s some provision written in invisible ink that will appear 2 years down the road. :-)
    13 e” [Intentionally Left Blank].

  6. Neil, these west coast stories get so much attention on your blog that I think you need to give up and move out here. I’ll be thinking about you in December.

    Yes, we have summer heat, but as a friend once told me, “You can’t shovel heat.”

  7. If memory serves the Target Center only gets government money if the new entertainment taxes draw more money than is needed for the Vikes’ stadium. The lone case of that happening that comes to mind is Nationals Ballpark in D.C., and I seriously doubt that Minneapolis will see an economic expansion on par with the expansion of federal government spending that led to the D.C. overage.

    If there is no overage from the Vikes’ stadium, then AEG and the Wolves would have to cover the cost of the renovation. I just don’t see that happening under current ownership.

    I am not too familiar with the Wolves’ lease but I think it goes another decade or more. Still, we’ve seen leases broken early before so unless the language is more St. Petersburg than Seattle, then the Wolves may actually be a possibility.

    (And yes, this entire post is an exercise in convincing myself that my beloved Bucks will stay in Milwaukee.)

  8. Neil, this was a good deal to begin with (still some small amount of corporate welfare involved, but I have no trouble seeing the city get it’s ‘investment’ back over the term even at reasonable projections).

    But the final version is actually better, imo. The city has been able to lay off some of it’s bond risk back to Hansen in exchange for lower ‘fixed’ payments.

    Congratulations to Seattle and Mr. Hansen. This looks like a fair deal all around and both parties are to be commended for being reasonable and actually working toward a common goal that benefits the taxpayers (especially the sports fans) with limited risk to the general public. Job well done.

    Darryl Katz & the City of Edmonton, however… oy

  9. The proposed Seattle arena would not benefit taxpayers. It would cost taxpayers money, and be Seattle tax exempt. This is a horrible deal, and bad business. Seattle receives no profit with the Hansen proposal.

    Seattle has no reason to accept anything less than a 100% privately financed arena. We are not beholden to subsidize any rich NBA owner wannabe that shows up in town.

    Hansen had a chance to present a proposal that truly was equitable , and allowed Seattle to share in gains. Instead of doing this, Hansen presented a proposal with complete Seattle tax exemption for himself, a fundamental reliance on public funds, subsidy, and which provides no profit to Seattle.

  10. Neil, Seattle just advanced the arena from a subcommittee and they’ve updated their fiscal note, somewhat. It looks like they’ve not changed attachment b (except they added
    the missing year 32 data) but they’ve got slightly different numbers in the top table of attachment C and different numbers in the lower table (I think they’re capturing $15M from KeyArena admissions taxes, for example).

  11. Just spotted this, which may well be a holdover from the earlier version, but I hadn’t noticed it before now:

    “The MOU acknowledges that most of the public financing obligations will be taxable. If the City
    and County determine that tax-exempt debt can be issued, the revenue streams supporting
    those debt service payments would be excluded from Arena Tax Revenues and would not be
    guaranteed by ArenaCo.”

    I.e., the only way they can sell tax-exempt bonds is if they can carve out an absolutely secure portion of the arena-related taxes. Doubt this is going to be very significant, since most of the diverted tax money is admissions taxes, and nobody knows what those will be from year to year. And you can’t pay off tax-exempt bonds with rent, since that’s illegal under IRS rules.

    Answers one question of mine, anyway. The rest of the numbers don’t look like they’ve changed dramatically.

  12. Would a personal seat license generate sales tax or admissions taxes that would be considered secure ?

  13. Maybe, but PSL sales aren’t a sure thing, either. With tax-exempt bonds you need to be damn sure your bond payments are right at the level of “generally applicable” tax receipts without going over, or you face major trouble from the IRS.

  14. Hey Neil, just want to thank you for your coverage of the Seattle arena (and everything else you covered). I am a Seattle resident and happen to read the book a couple months before the Seattle Arena news broke. You covered it very well and seems like it has gotten quite a bit of interest if you base it on the number of comments per post. I’ve also enjoyed everyone’s comments and dialogue, we all have our biases and motives but this is one of the more sane places people can discuss things. Thank you Neil and thank you everyone else. (i’m not going anywhere just wanted to pause and say thank you)

  15. Humorous comment of the day:
    If Hansen’s not negotiating the price for the Economic Impact Analaysis he wants to drop the price ceiling by 25% because “he has a perspective of how governments spend money”… at a meeting about issuing up to $200M in public bonds to build his arena. Smiles and laughs all around.
    Oh, but don’t worry, the council was contacted a few days ago by “someone” wanting to bid on doing that study, even if the new MOU saying the council would commission it was only released two days earlier.