Would-be KeyArena renovators seeking $40m in city tax kickbacks, $50m in federal tax credits

The day after arena managers AEG pulled out of bidding to overhaul Seattle’s KeyArena on the grounds that it was unfair their competitors hadn’t had to reveal financial details of their bid, lookee what happened: The city of Seattle went and released some of Oak View Group’s financials, including this:

The key lines are under “Sources,” where it’s revealed that OVG would be seeking a $50 million federal historic tax credit (previously reported as $70 million), plus $40 million in “city tax reinvestment of NASC revenues,” which presumably is bureaucratese for “tax money kicked back from arena property, sales, ticket, etc. taxes.” By comparison, AEG was looking at closer to $100 million or so in kicked-back taxes, so this is less than that, and possibly a small enough amount that the city can earn it back by stealing business from entertainment venues outside of city limits, though without a real economic analysis that’s more than one sheet of paper — as well as a lease explanation that guarantees that OVG would pay all maintenance, operations, and future upgrade costs, as the city itself requested — it’s tough to tell exactly how this would work out for the public purse.

It’s at least possibly not a terrible deal, though, which is better than most cases — as I always say, there’s a price point where the value of a new arena and the presence of a team (assuming OVG can get one, which seems a pretty good bet eventually) can make a small enough subsidy worth it. Here’s hoping the city of Seattle can stick to its guns, and be ready to walk away if the fine print on OVG’s plan turns out to make it too rich for their blood.

8 comments on “Would-be KeyArena renovators seeking $40m in city tax kickbacks, $50m in federal tax credits

  1. Ah man, that headline made it look like they were requesting just fifty dollars from the federal government. Which seems crazy, you’d spend more than that in billed hours filling out the paperwork and mailing the proposal package.

    • Ha! Yes, early-morning typo, now fixed.

      Also, Geoff Baker wrote to point out that OVG is actually asking for $70m in tax credits, but only counting on $50m. And the city tax kickbacks are above what the arena is bringing in now, though I still need to check whether that’s above a fixed baseline in 2017, or a projected baseline of what the arena would be bringing in in taxes based on expected inflation.

  2. Color me skeptical.

    IMO this only makes sense for Seattle if they can score an NHL team. More concerts? Perhaps, but concerts don’t boost the local economy the way sports teams do. Sports tourism (e.g. Pac 12 hoops, Frozen Four, etc.)? Maybe, but not on a regular enough basis to make a dent. With an NHL team at least you goose merchandise sales, bar/restaurant business, local news revenues, etc.

    My skepticism stems from the fact that I can’t imagine Oak View offering favorable enough lease terms for an NHL team to happen after spending this much on a renovation.

    Seattle needs to make Oak View commit to reasonable NHL lease terms (probably something similar to MGM/AEG’s lease terms with the Vegas NHL team) before giving them the go-ahead.

    • In KC, the Sprint Center has done arguably better without a main tenant due to scheduling flexibility (especially during the winter). And the fact a primary not having a tenant trying to take all the revenue helps as well.

      Better in the it covers the operating costs, not so much the building debt

    • OVG front man Leiweke has offered to become a part owner in any future Seattle NHL team, so that should help the lease terms quite a bit. With the immense amount of cash and work it is putting into the building, not to mention that more money kicks in from Goldman Sachs and MSG if OVG scores a team, it has to be highly motivated to get a NHL franchise into the building.

      Furthermore, you still have the leverage of Hansen’s privately financed SODO project to push OVG to give the best deal to the city of Seattle and potential NHL expansion investors.

  3. Plus Las Vegas has set the new NHL expansion fee at $500 million. Which is amazing as there are 10 current NHL teams valued below that.

  4. I think it is interesting that there is a debate on the historical tax credit. Since it is tied to the building, it is most certainly a tax subsidy to OVG because the City could use those same funds to do any other renovation to the building.

    If another company (or the city itself) could do an $90 million dollar remodel to the Arena that made it a concert venue or something then it would be the same as what OVG is trying to do. A small subsidy could also allow the City to keep the building and revenue streams that OVG wants to take.

    • It’s a federal tax credit, so I’m not sure that the city would even be eligible for it with their own municipal building, unless they pay federal taxes on them.