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.
I don’t remember exactly when I last suggested that the San Jose Sharks might soon circle back around and ask for another new arena, prompting complaints from Sharks fans that their current 22-year-old home is just fine, but apparently those talks have already begun:
“We have been talking to the Sharks about how we make arrangements for the construction of another facility here in San Jose,” [San Jose Mayor Sam] Liccardo said. “At some point we know, within our lifetimes, this arena will outlive its useful life. We know we have one of the oldest arenas already in the NHL. Hard to believe that’s true, but it is. So whether it’s a significant upgrade to this arena–it’s got to be more than a facelift, obviously–or the construction of a new one, we need to start having conversations about those sites.”
Liccardo is currently working on a lease extension with the Sharks owners on their existing arena, so anything new isn’t likely to get built for another few years, at least. Still, it’s amazing how quickly everyone has come to accept that a 22-year-old building must be nearing the end of its “useful life.” We may not have quite reached Rod Fort’s singularity where team owners can demand a new building every year, but we’re sure headed in that direction.
San Jose Mercury News columnist Mark Purdy has speculated wildly before, so take this with a huge grain of salt, but: Purdy is now reporting that the owners of the San Jose Sharks are so unhappy with the cable TV deal that their former CEO signed in 2009 that they’ve brought in NHL commissioner Gary Bettman to threaten that they’ll move out of San Jose if they don’t get more TV money:
Bettman has contacted high-level honchos at Comcast corporate offices in Philadelphia to see if the Sharks’ local television deal can be reworked. Comcast is the parent company of Comcast Sportsnet Bay Area, which broadcasts Shark games. So far, the Bettman talks have not been fruitful…
In the most extreme version of the narrative, there is no creative solution and the Sharks continue to drain money. Plattner then tires of the red ink and decides to move the team outside the Bay Area market — where he could negotiate a better TV deal and abandon his current one here.
Sounds extreme. And almost unthinkable. That is likely why Bettman became involved. Comcast is also the parent company of NBC, which holds the NHL national broadcast rights. The decision to award an outdoor game to the Bay Area next season, which will soon be announced at either AT&T Park (most likely) or Levis Stadium (still possible), could be a bone thrown out to Comcast in hopes of currying favor.
Purdy then drops that line of thinking and talks about how the Sharks may want a new arena “sooner rather than later,” because their current one in 21 years old and maybe Santa Clara could build a hockey rink to go with their new San Francisco 49ers stadium and … it’s either team-prompted trial balloons or a desperate attempt to fill column inches and get hits on a slow news day. You make the call.