AEG drops out of Seattle arena renovation bidding, says city was unfair to them

With a decision expected in later this month by the Seattle city council on which competing developer was going to be selected to enter negotiations on a renovation of KeyArena, one of the two bidders made the whole thing moot yesterday by withdrawing its bid, saying the city’s financing plans were “unrealistic”:

In a letter to Seattle Mayor Ed Murray, Seattle Partners said it believes it has the best plan, but it raised significant questions about whether the project can be completed by either group.

“We fear the City is driving toward an unrealistic financing structure, and we believe the City has failed to conduct a sufficiently thorough, objective and transparent process to properly evaluate the respective strengths and weaknesses of the two proposals and, most significantly, to identify the proposal best positioned to deliver a project consistent with the community’s interests,” the letter read.

Okay, let’s read between the lines a bit here. That bit about an “unrealistic financing structure” may refer to pushback on the proposal by Seattle Partners (a group led by arena management giants AEG) to use $250 million in city bonds to raise money for the renovation, to be repaid partly by $5 million a year (increasing by 2% each year) in rent, and partly by ticket, business, and parking taxes that would normally go to the city’s general fund. The other bidders, Oak View Group (led by Tim Leiweke, AEG’s former head), have similarly asked to “identify a mechanism for reinvestment of new revenue streams back into the project,” but didn’t get as far as publicly identifying exactly what they would be asking for.

Lack of a “thorough, objective and transparent process” sounds like whining that Oak View was getting treated nicer than AEG just because AEG spelled out in advance its subsidy demands, which is kind of a fair gripe, honestly. Though taking your ball and going home because you’re expecting to lose is never a good look.

Anyway, sounds like Oak View will now get to try to work out a deal with Seattle over Key renovations, though they still (in theory, anyway) need to compete with Chris Hansen’s proposal to build a new arena in SoDo. One hopes that by the time that decision is made, more of the financial details of the Oak View plan will be made public, since it sounds like there would be some tax kickbacks involved (as there would be for Hansen’s plan) — the idea to leverage better offers by starting a bidding war for Seattle arena plans remains a good one, but whether any of the proposals will be actually good for Seattle residents has yet to be determined.

KeyArena reno would use $70m in historic tax credits, sparking economist catfight

More details are filtering out about how the two KeyArena renovation plans would be funded, in addition to the $90 million or so in tax kickbacks that each would require. Today, its that Oak View Group would be seeking to get the arena declared a national historical landmark, which would allow them to request $70 million in federal historic tax credits.

This led to a rare occasion where two sports economists disagree on the meaning of the tax credits, though it’s less a matter of economics than of semantics. In this corner, Holy Cross economist Victor Matheson, who tells the Seattle Times:

“I would not consider that a subsidy for the arena. Because I think that’s a subsidy that you would grant to anything you designate as an historical thing. In which case, it’s not the fact that it’s an arena that gets (the federal tax credits), it’s the fact that it’s historical that gets it.’’

In the other, West Virginia University economist Brad Humphreys, who counters:

“Absolutely, it’s a public subsidy. It’s tax dollars. Forgone federal taxes collected is an implicit subsidy. The only difference between this sort of subsidy and something from the state or county is whose pocket is this coming out of? It’s coming out of the pockets of everybody in the country.”

So who’s right? We’ve been through this before, both with Fenway Park and Wrigley Field, each of which got federal historic preservation tax credits for their renovations. Probably the best way to think of it is that historic tax credits aren’t a special subsidy, but they are a general subsidy — much like apartment buyers getting to deduce mortgage interest on their taxes isn’t a special subsidy to condo developers, but it still does help their bottom line. The only questions then are whether you consider historic preservation to be important enough to be worthy of a tax credit, and whether you consider KeyArena to be historic enough to be worthy of preservation — Matheson isn’t even so sure of that, noting, “I think it’s probably a crock that it should be a historical monument. “I mean, for God’s sake, this isn’t Soldier Field, or Ebbets Field or something. It’s KeyArena. I mean, come on.’’ (Matheson gives the best quotes.)

In any case, this probably won’t enter into the question of which of three arena plans (the two Key ones plus Chris Hansen’s SoDo arena) the city of Seattle rates as best, since it’d be money coming out of federal taxpayers’ pockets, not Seattle citizens’ in particular. But it is a good reminder that there are tons of ways for people who build stuff to use other people’s money to pay for the stuff they build.

Seattle seems set to approve a KeyArena reno plan, despite unknown public price tag

Things we learn from SeattlePI reporter Stephen Cohen’s article “comparing the proposals” for a new or renovated Seattle arena:

Things we don’t learn:

Fortunately, SBNation’s Sonics Rising blog this week ran a long analysis of the Oak View Group proposal, which notes that though “the financial information section of the proposal was redacted from public consumption” (seriously?), OVG wants to “repurpose some of the tax revenue collected each year on admissions, retail sales, parking, and the leasehold excise taxes they would pay in lieu of property taxes for use of a private building on public lands.” That’s more specific than the “identify a mechanism for reinvestment of new revenue streams back into the project” that OVG listed in its initial pitch, and, as Sonics Rising notes, could amount to a significant public subsidy, though it’s hard to say exactly how much. When Hansen was seeking similar tax kickbacks, just the admissions, property and sales taxes added up to $90 million, so it’s a fair bet we’re talking that same price range here.

Given that AEG’s plan similarly calls for using “revenues that would not exist but for the renovations proposed for the Seattle Coliseum,” neither KeyArena proposal exactly meets the “no public money” pledge that Seattle officials said they were seeking. Of course, neither does Hansen’s, but it still seems a little rash to be committing to a KeyArena plan before running the numbers on how the public subsidy would compare to Hansen’s proposal. (Or how the numbers would compare to not doing any arena building at all, for that matter.) Seattle was looking for a minute there like it was going to do a bang-up job of playing off competing arena developers against each other — if they end up throwing $100 million at a renovation plan just because it’ll make local political interests happy, that won’t be the worst arena deal ever negotiated, but it will be pretty disappointing in a grasping defeat from the jaws of victory kind of way.

Two developers propose KeyArena redo with no public money, except for maybe some public money

As promised, the city of Seattle received two proposals for renovating KeyArena this week, and—

One of the groups interested in renovating KeyArena for NBA and NHL is prepared to spend more than $500 million on a complete overhaul of the 55-year-old facility.

The Oak View Group (OVG), based in Los Angeles, has produced a $564 million plan it says can have the arena renovated by approximately October 2020 – leaving it ready for the 2020-21 NBA or NHL season – spokesperson Steven Gottlieb said—

Hey, hey, Seattle Times, thanks for reporting what one of the developer spokespeople said, but the city of Seattle has made available the actual proposals, so let’s just go read those, shall we, and see what’s actually in them?

  • The Oak View Group (aka Tim Leiweke and friends) is proposing that $564 million redo, expanding the underground part of the arena — which is most of it — to modernize it for basketball, hockey, and concerts. (And probably change the whole seating bowl, since that’s necessary for hockey.) Oak View promises that the project “will not require any City investment,” with the developer covering all constructions, operations, and capital improvements, as well as paying $1 million a year rent; however, it does note that the city will still own the land (so presumably it will remain property-tax-free) and that “OVG will work with the City to identify a mechanism for reinvestment of new revenue streams back into the project,” which is just vague enough to be slightly ominous.
  • Seattle Partners, aka AEG and friends, aka Leiweke’s former employer, doesn’t put a dollar amount on its renovation plans, except to say that it will be “world-class.” As for funding, the only promise (in the executive summary, anyway, which is all that the city seems to have made available) is that the developers will “guarantee all financing, public and private, through revenues that would not exist but for the renovations proposed for the Seattle Coliseum,” which is usually code for tax increment financing or some similar scheme to kick back taxes that can be claimed to be due to the renovated arena, even if they’re ultimately cannibalized from spending elsewhere in the city.

Neither of these is quite a “no public money” promise, which is what the city was requesting. But they’re potentially close, which is kind of crazy, given that everything we know about arena operations is that spending half a billion or so on upgrading these buildings doesn’t usually generate a great return on investment. But this is a weird moment in the arena biz, what with AEG, Live Nation, and Madison Square Garden (who would be Leiweke’s financial backers) engaged in a nationwide war for control of the concert industry, meaning that they could be more likely to overbid in an attempt to lock their competitors out of the Seattle market. That’s an opportunity for anyone doing business with them, and Seattle is smart to be trying to play this for all it’s worth.

In short: This still needs way more analysis of the competing groups’ funding plans, and in particular of how weaselly those weasel words are about arena-related revenue streams. But it’s well worth exploring, since this might be a rare chance for a city to be in the driver’s seat when it comes to getting a new or renovated arena. Getting a team will be another story — hello, Kansas City — but cross one hardball negotiation at a time.

Seattle still debating two arena proposals, because universe has not yet grown old and died

I’ve been trying to compose a post on the latest development in the Seattle arena saga for a couple of weeks now, and have been hamstrung at every turn by the fact that despite a lot of newsprint and pixels being burned on the subject, nothing is actually happening. Here’s what I have sitting in my Instapaper queue:

  • The Seattle Design Commission approved the design of vacating a one-block stretch of Occidental Avenue for Chris Hansen’s proposed SoDo arena, which it already did once before, again sending the project to the city council, which rejected it last time because it was opposed to closing the street.
  • The Port of Seattle says the consultant it’s paying $185,000 for consulting services doesn’t have to register as a lobbyist because it’s not just lobbying on behalf of a KeyArena renovation project (which the Port of Seattle supports because it opposes the SoDo one because it might mess up its truck routes).
  • The Seattle Center, where KeyArena sits, is filing to landmark a bunch of buildings, which could complicate any arena plans there, maybe.
  • The council is studying the best option for an arena, and a local radio host doesn’t think they’re serious about the SoDo one, which is the one he likes.
  • There could be a decision by June. Or not.

Add it all up and … man, that’s a whole pile of nothing. Neither the KeyArena plan nor the SoDo plan sounds either terrible or like a slam dunk for Seattle taxpayers and residents, and given the competing lobbying factors, it’s unclear what it’s going to take to get some resolution. Which isn’t necessarily a terrible thing — neither project comes with the promise of an NBA or NHL franchise, and a new or refurbished arena alone isn’t going to change local lives much. But it does mean I’m going to have to keep reading about this (and hearing from both sides who are really really emotionally invested in this, I get it), so I for one wouldn’t mind at all if the Seattle council just threw a dart or something and got this whole mess over with.

Seattle calls for applicants to redo Key Arena with no public cash, may actually get bites

This may go absolutely nowhere in the end, but the city of Seattle is certainly giving it the old college to see if it’s feasible to renovate Key Arena instead of building a whole new one, issuing a request for proposals for private developers to do so with no public money:

Under terms of the 25-page document, the city would maintain ownership of KeyArena, and any developer with an accepted proposal would pay a rental fee and assume all costs for maintenance and arena operations. The developer could sell naming rights for the upgraded venue as well as sponsorships and gain additional revenues via ticket sales and other routes.

“The assumption is that the city would be leasing the facility to the entity that would invest in it,’’ said Ben Noble, city budget director.

This sounds like exactly the sort of deal that private developers would turn up their noses at — you want us to put how much of our own money into renovating an existing arena and pay a rental fee and operating costs on top, what? — and yet two entertainment companies, AEG and Oak View Group (run by former AEG honcho Tim Leiweke), have said they’d be interested in bidding. So, if you’re the Seattle city council, why the hell not?

At worst, this will give the city more leverage to demand concessions from would-be arena developer Chris Hansen, which has already worked once. At best, just maybe they get AEG and Oak View into a bidding war for the rights to operate an arena in Seattle, which while not lucrative on the surface may matter a whole lot in the ongoing battle for arena management market share. Either way, it’s exploring your options rather than bidding against yourself, so preliminary kudos to the Seattle council for doing the right thing on that front.

Two private developers express interest in renovating KeyArena, world has turned upside-down

In the wake of Chris Hansen’s surprise announcement that he’d shoulder all the construction costs of a new Seattle arena (or at least front the money for all of them, though he’d still pay some of them off with tax breaks), another potential bombshell: Both the Oak View Group, an entertainment venue business launched last year by former AEG exec Tim Leiweke and artist manager Irving Azoff, and AEG itself have expressed interest in renovating KeyArena to bring in NBA and NHL teams.

“We believe in the KeyArena location,” Leiweke, CEO of the 11-month-old Oak View Group, told The Seattle Times in an interview Thursday night. “We believe that the studies have proven — and we will continue to do additional studies as we go through this process — that there is a chance to renovate and make that arena work for music and sports.

“And the economics are such that if the right private-public partnership can be established, that it will stand alone on its own two feet without the rest of the land around it having to be developed.’’

If you’re like me, your alarm bells probably went up at “the right private-public partnership,” since that is almost always code for “we’ll build it … for a price.” The last best estimate of the cost of Key renovations was $285 million; while Leiweke told the Times that “we understand that the private sector is going to have to do the heavy lifting here,” there are no details yet of what exactly Oak View would be asking for from the public side, in either cash or tax kickbacks.

That said, Seattle could do far worse than suddenly having three different developers fighting for the right to build a new or renovated arena. As the Times’ Geoff Baker writes:

That’s great news for NBA fans and anyone wanting the NHL here. Two arena locales close to the downtown core will openly compete; with NBA and NHL leadership looking on, knowing a winning site won’t be in some distant suburb… Seattle has become a wealthy, desired place where many more people and businesses than ever, sports leagues included, want to be. And like the most beautiful woman at the dance, we don’t have to leave with the first guy showing up in a designer suit.

That’s, um, only a slightly creepy metaphor, Geoff, but the point is valid: All else being equal, it’s always better to have options, since you have the potential to drive suitors into a bidding war. Possibly not a hugely lucrative bidding war — I remain skeptical that there’s a ton of money to be made in building or renovating a Seattle arena — but competition is always good for getting the best price, so kudos to Seattle politicians for driving a hard bargain. Now to see if they can pick a winner based on what will be the best deal for residents, and not just on which powerful locals are shouting the loudest.

Hansen offers Seattle arena with no public money, fine print means he’d still get public money

Well, huh: Would-be Seattle NBA owner Chris Hansen, apparently realizing his plans were going nowhere since the city council’s May vote to disallow closing a street to make way for his proposed new arena, has upped the ante by saying he will now build the project entirely with private money if it’s approved. Sort of, anyway:

We have concluded that a changed economic climate makes possible the private financing of the arena. For that reason, and to address concerns expressed by city council members, we would consider revising the street vacation petition to eliminate public financing of the arena. In such a case the MOU would be terminated and the rights and obligations of the parties under the MOU would end. The City and County would recoup the $200 million in debt capacity, and tax revenue streams generated by the arena would cease to be encumbered for arena debt service.

  • Approval of the street vacation
  • Granting of a waiver of the City’s admissions tax for the arena, just as similar waivers have been granted for the other sports venues
  • Adjustment of the City’s B&O tax rate for revenue generated out-of-town

So how much money would this save taxpayers compared to the original deal? To determine that, we need to revisit the prior arena funding plan, which I don’t appear to have ever totaled up in one post — let’s start with this summary of the not-quite-final plan, plus this update, and see how we can do:

  • The city and county were going to take out $200 million in bonds, which would be repaid by Hansen in the form of rent and kickbacks of arena-related taxes. These bonds would now be eliminated, but so, presumably, would be the rent payments.
  • The first tax that would have been redirected was $71.8 million worth of arena admissions taxes. Now, instead of being collected by the city and then used to pay off public bonds, this money would be not collected by the city and then could be used by Hansen to pay off his private stadium costs. So, a wash.
  • Hansen was to get an additional $15.7 million in reimbursed business taxes. Without knowing exactly what “adjustment” he now wants to the business tax, it’s impossible to say if he’d still get this full amount, but he’d certainly get some of it.
  • Hansen would get to keep $15.1 million in incremental property taxes on the arena site, plus $5.8 million in arena sales taxes. He’s no longer asking for these tax breaks, so far as I can tell.
  • Hansen would put up $40 million to pay for road improvements for the Port of Seattle, which has been griping that its trucks would face more traffic from games at the arena. This is presumably still on the table.

So most of the public money that Hansen was asking for, he’s still asking for — it just would go to pay off his private loans instead of city arena bonds. The good news is that this wasn’t a terrible deal for taxpayers to begin with: The tax breaks were small enough that Seattle was going to come reasonably close to breaking even anyway, and still would if enough consumers chose to spend money in Seattle rather than the surrounding area as a result of the new arena. (This would mostly cannibalize spending from elsewhere in Washington state, of course, but taxpayers in the city itself at least wouldn’t lose out much.) The less-good news is that Hansen’s new proposal is mostly just reshuffling the bookkeeping deck chairs, so if you hated the old plan, there’s little reason to like the new one any better.

Guess we’ll see what the Seattle city council thinks, since their opinion is the only one that matters. Or, since the new proposal would dispense with Hansen’s soon-to-expire MOU, giving him more time to cut a deal, maybe the next city council after the 2017 elections. Give Hansen credit for persistence: He really really wants to own a new Seattle Sonics basketball team, and he’s clearly not going to go home until the fat lady has sung her last note.

Ballmer: Seattle not getting NBA team anytime soon, probably not arena either

Steve Ballmer, who owns the Los Angeles Clippers but is from Seattle and was possibly going to be part of an ownership group for a new team there before buying the Clippers, says don’t hold your breath for Seattle getting an expansion team, at least in the next year or two:

“It’s just not likely to happen,” Ballmer told those attending the conference. “There has been no discussion about expansion since I have been involved with the league. So, I don’t think that will happen. The league has really moved to favor teams staying in their current markets. You’d have to find a team that’s at the end of their (arena) lease, where it looks hard to build an arena and where they’ve tried really hard to build an arena.”

The next year or two is an eyeblink in league expansion time, so that’s really no surprise. Why it’s significant is that the city’s memorandum of understanding with Chris Hansen expires in November 2017, so even if the Seattle council works out its qualms over closing a street to make way for the arena, there may not be an NBA team to build one for, which is required as part of the deal.

Hansen’s best chance of building an arena, said Ballmer, is to find an NHL team to bring to town — something that would take some fast footwork, since Hansen doesn’t have a team owner lined up, and the NHL just announced expansion that didn’t include Seattle, and there’s at least a $100 million funding gap if Hansen brings hockey to town instead of basketball, and also Hansen doesn’t really like hockey. Verdict: mostly dead.

Could Hansen seek a Seattle NHL team now that Vegas has one? Sure, but don’t hold your breath

Speaking of getting an NHL team by waving a $500 million check around, our old friend Geoff Baker of the Seattle Times suggests that Chris Hansen might want to do just that if he ever wants to get a Seattle arena built:

For now, with the NBA not expanding and the NHL needing another Western team to balance conferences, it might be worth giving that “NHL first” option another look.

Las Vegas built its arena with private funds, resulting in limited political delays. Of course, an all-private venture for a $500 million arena in Sodo would be tougher without public-bond money.

Yeah, it sure would be tougher: The finances of an NBA arena in Seattle looked difficult enough under Hansen’s original plan, and it would only be tougher with a hockey team (which is projected to bring in less money) plus paying off $200 million that was supposed to be covered by city bonds — though about half those bonds were going to be paid off by Hansen’s rent payments anyway, so presumably he could just replace those with plain old bank loans. Yes, an NHL franchise would probably be cheaper than an NBA one at this point, but you’d also end up with a less valuable asset for your money, so really the concern here is whether Hansen could turn an operating profit on an NHL arena after paying off construction costs — I’m guessing no, but if he wants to give it a shot, more power to him.

Of course, that’s the other thing: Hansen, like Fannee Doolee, loves basketball but doesn’t think much of hockey, so he might not be willing to risk his money just to become an NHL owner. Baker’s theory is that at least it’ll let him build an arena, maybe, so that down the road he can get an NBA team, maybe, which … sure, maybe. I don’t really expect to see Hansen jumping at this option, but stranger things have happened.