The San Jose city council is set to vote tomorrow on a lease extension for the Sharks on their current arena while talking about whether to build a new one. You can read the proposal here; it’s a bit convoluted and I haven’t made sense of it all yet, but Marc Morris of Better Sense San Jose has sent along his analysis, which is this:
1. The Sharks get immediate relief from previously obligated rent payments (total reduction is $7.25M = $2M for the Arena and $5.25M for the Ice Center, where the Sharks and their new AHL farm team practice).
2. Starting in 2018, the Sharks stop paying any rent at all (that’s $0 per year) for the city owned Arena, down from roughly $5M per year.
3. The City in the short term kicks in $6M and then, starting in 2018, pays $2.6M for ‘capital and modernization needs’ for the Arena. That of course will be financed by the $0 a year rent.
4. The Sharks get to spend a lot of this ‘capital’ money for revenue enhancing improvements; for its efforts, the City gets precisely none of the enhanced revenue.
5. Just to rub it in, the agreement also explicitly prohibits the City from getting any new revenue from its own Arena, like maybe adding a ticket tax.
6. It appears that the City will take on the interest rate risk for the bonds on the Ice Center, making the current ultra-low rates the new baseline for the rent calculation. After all, there’s little to no probability that rates will go up in the next 10 to 20 years.
7. And, although this never gets mentioned, the City will continue to pay over $10M a year in interest on the bonds that paid for construction of the Arena in the first place. In the best case, the net loss to the City from the Arena is over $8M a year.
Like I said, I haven’t done the math on this myself, but if Morris is correct, that could easily be more than $100 million in concessions that the city would be providing to the Sharks — all for a team that doesn’t have an immediate alternative option to play in, and which isn’t even agreeing to a long-term lease deal in exchange. (They’d have to stay put through 2025, but it’s unlikely they could get a new arena built much before then anyway.) That’s the kind of thing you might think you’d want to have a hearing on, or even a financial study, before voting on whether to approve it, but that’s apparently not the way the San Jose city council rolls.