Charlotte to pay for $34m in Hornets arena upgrades, Michael Jordan kept at bay a few more years

The Charlotte city council voted 9-2 last night to spend $34 million on renovations to the Hornets‘ Time Warner Cable Arena, which opened in 2005 and is the third-newest building in the NBA. Of course they did, because they (or their predecessors nine years ago) included a “state-of-the-art” clause in the Hornets’ (then Bobcats) lease, which means the city must go on spending indefinitely to keep the arena as up-to-date as the newest NBA arenas:

“It is a contractual obligation,” said council member Claire Fallon, a Democrat. “If we break the contract, who will believe our word anymore?”

At this point it’s worth asking — not that any of the media outlets who were actually at the council vote seem to have asked it, but I’ll ask it to the winds, anyway — how much Charlotte will likely have to put up for renovations over the life of the arena, whatever that may turn out to be. You have to expect that the Hornets will come back for more upgrades in another nine years or so — it’s in their contract, why wouldn’t they? — and that those will be more expensive, since by then there will be even more new arenas to keep up with. And nine years after that … well, by then the arena will be 27 years old, so you have to expect the Hornets will be looking to tear it down and build a new one.

As a reminder, the Hornets are owned by the billionaire most famous former athlete on earth, and got the arena scot-free when Charlotte covered all $260 million in construction costs. Add in the gift-that-keeps-on-giving state-of-the-art clause, and this is a serious contender for “worst arena deal ever,” though at least Michael Jordan isn’t getting negative rent. Yet.


7 comments on “Charlotte to pay for $34m in Hornets arena upgrades, Michael Jordan kept at bay a few more years

  1. I am definitely against clauses like this.

    On the other hand, I don’t even think they’re necessary. Listen, kids, if a business is losing money, you can’t force them to stay — that’d violate the Commerce Clause. There are conditions under which you can legally break leases. I fully expect the Sacramento Kings to be grumbling within 5 years of moving to their new home. If they’re losing money, and someone who wants to move them, buys them, I just don’t see how you stop a move.

    Yeah, it’s disgusting that Charlotte was stupid enough to have this clause, but on the other hand, they didn’t really need it. In effect, every team has this clause already. Even those with 35 year leases.

  2. I know this is an aside, but now we get to find out how big a whale Ranadive actually is:

    http://www.informationweek.com/big-data/big-data-analytics/tibco-sale-rumors-reemerge/d/d-id/1297849

    I have a feeling that the answer will be something like, Not that big after all. Once again,undercapitalized owners. Whoops.

  3. MikeM, I’m not sure I get your point about the Commerce Clause. If a team signs a lease that obligates it to pay huge financial penalties if it moves before the term is up (or if it even talks to anyone about moving, as with the Tampa Bay Rays), then no, you can’t force the team to stay, but effectively it’s not going to go anywhere, because it would be prohibitively expensive.

  4. Well, that line seemed to do the trick here in Cleveland. (Unless it was the fabulous performance of the local teams…?)

    Apparently few people ask why it is that “It is a contractual obligation” only seems relevant when the obligation is owed to rich people.

  5. Several teams have signed “location agreements” as part of new construction deals (or major renovations) in recent years.

    These are meant to bind the club to the host city for a fixed period in exchange for the “improvements”. However, these clauses are mostly too new for us to really know whether they will hold up in court when challenged down the road. Having said that, if your interpretation of “the commerce clause” is that the business has to actually be losing money, then I would argue that most franchises could not qualify on that ground… they just aren’t making as much as they’d like to, which is not the same thing at all.

    As for “poison pill” lease break fees… well, we saw how swimmingly those work in Glendale, where the City imposed on Ellman a $700m lease break fee should the club seek to extract itself from the lease. That clause went away in bankruptcy court… along with a whole pile of taxpayer’s money (and a bunch of Jerry Moyes’ cash too).

    A lease break can work, however. It just has to be reasonable… for example, if Sternberg wants to take the Rays to New Jersey (or Vermont for that matter), Tampa might allow him to leave early if he pays them $100-110m toward the Trop’s construction and renovation costs. If the building is really what’s holding him back, why wouldn’t he jump at that deal to get to New York (almost)… forgetting, for the moment, what he’d have to pay the Steinbrenners and Wilpons?

    Similarly, if Glendale had been at all smart (* ok, had gotten at all smart after deciding to build a $185m hockey rink in a town with perhaps 6,000 hockey fans in it and in the middle of the desert), they would have imposed a more rational lease break. IE: On a pro rated basis, you pay us what is outstanding on the construction cost. If you leave in year one, you pay the full shot. If you leave in year 15, you pay half, give or take. But no, they had visions of sugar plums… and they ended up not only with nothing, but an annual operating subsidy paid to the club to play in the arena they built for it…. much, much less than nothing. In fact, over the next decade, they’ll pay the club almost as much to play in the arena as the building cost in 2003.

    As Yakov Smirnoff used to say… ‘vadda countri’….

  6. Matt: Excellent point. Pension and healthcare benefits are obligations as well, yet they seem to go away with great regularity don’t they?

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