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July 31, 2012
King County gives preliminary OK to Seattle arena, pending economic study
The King County council voted yesterday to approve the MOU with Chris Hansen for a new Seattle arena — but with a couple of amendments. The most significant of these: Hansen has to pay for an independent economic analysis of the arena plan, which the county will then get to review before giving final approval to the deal. Other provisions include additional guarantees that Hansen will repay public bonds, that the county will be able to examine the new arena company's books, and that 500 tickets per game will be made available to youth at $10 each.
Hansen was apparently involved in crafting the new provisions, so presumably he's fine with them. Since much of this overlaps the requests made yesterday by the Seattle city council, this really only leaves two potential sticking points on the deal: the council's demand to get a larger share (okay, any share) of arena taxes, and the requirement that plans be made for KeyArena once the new building is open.
For now, Hansen's only public response is a brief post on his sonicsarena.com website, in which he thanks the county council for their vote and says he's "looking forward to sitting down with City Council members to figure out how we can make this deal work for everyone." While obviously any deal can fall apart over even a single sticking point, it's certainly promising when you have local government agencies looking to finetune a deal to protect taxpayers, while the prospective arena builder is willing to concede to reasonable requests. It's almost like democracy is meant to operate, you know?
Of course, then Hansen would still need to find an NBA team to buy at a price that he can afford, on top of paying nearly $500 million to build an arena. (The Sacramento Kings are the obvious much-rumored choice, but it's always hard to predict what the hell the Maloof brothers will do.) If he pulls it off, it would be an impressive sign that a sports arena, prior evidence to the contrary, can actually pay for its own construction cost and still turn a profit. That, in turn, could be a game-changer in cities' future negotiations over arena deals — though given that the San Francisco Giants' mostly privately funded stadium didn't exactly stop the flood of public money pouring into MLB facilities, we probably shouldn't get our hopes up too much.
The flaw is that the independent economic analysis will be done by someone handpicked by Dow and McGinn, two advocates of the deal.
Sadly I think the Seattle City Council is just trying to cover their rear ends and say, "gosh, we tried."
I could be wrong but I thought a KC council member asked who would pick the entity that performed the EIS. The county attorney said it would be a joint decision between the two councils. (I haven't seen the transcript yet to validate that's what I heard.)
JB: I could be wrong as well, and I hope I am! But everyone seems to be reporting that the two execs get to pick, and not the councils.
"Noting the agreement approved by the council is binding, von Reichbauer cited a number of problems. He said traffic issues had not been resolved to his satisfaction, and he predicted a slew of lawsuits from industrial concerns. "I think it's going to be a college trust fund for a lot of lawyers," he said afterward.
He also noted that Seattle Mayor Mike McGinn and County Executive Dow Constantine will select the economic analyst, who also must be approved by Hansen. "The two strongest advocates get to pick the consultant," von Reichbauer complained.
Joe McDermott, who led the County Council's review of the proposal, responded that if the study was biased it would hurt the professional reputation of the consultant."
JB: Like I said, I hope you're right!
I believe this is the scenario that the Maloof brothers have been waiting for. Their desire to move to Anaheim was always a pipe dream - there was no way the NBA was going to allow a third team into the LA market. This knowledge (even though it was a pretty close vote) always propped up the supporters of the Sacramento arena project.
However, if this Seattle arena pans out, the NBA would be very hard-pressed to deny the Maloofs a move to the Emerald City; the Maloofs can now use the Seattle arena as a much more effective tool against both Sacramento and the NBA, either to get a much better sale price for the team or to wring concessions out of an already cash-strapped Sacramento.
While I like the concept of the "return" of the Supersonics to the NBA, I hate that it comes at the expense of Sacramento. I would also warn any Sonics fans that if you end up with a team with the Maloofs anywhere in the picture, very bad things will happen to your team. The boys have the stink of failure about them, and no amount of Axe will make that stink go away.
Thanks MrsWaterClown. I will look at the transcript.
I was ok with most of PVR's concerns until he talked about the deal that the "San Francisco Warriors" are getting. Any FoS reader knows that we are a long way to flesh out the details of that deal.
People have speculated that he has significant ties to the Mariners so something about his soapbox sounds fishy.
uh...yeah. Spartan, Hansen isnt allowing the Maloofs any ownership stake if the Kings move. Hansen will outright buy the team. He didnt just put up 300M cash and go through 6 months of public ridicule to become an arena operator. He wants the team.
Even as a non-supporter of the MOU as it currently stands, I think the Mariners claims are bogus. If you put a good product on the field, people will come. And if you have followed the Mariners over the past decade, well.... judge for yourself.
That said, the additional safeguards proposed by the Seattle Council are a good step. But they have never been trustworthy so I have little faith that they will follow-through and do what is right for their constituents.
If they weren't hitting us up every 6 months for some new levy, bond measure or proposed tax increase, people would have more of a stomach for this. But they continue to use us as an ATM, so my neighbors/friends who live in Seattle continue to voice our opposition to this deal. When the Council and of course, Mayor McGinn, start treating us with more respect, you may see some trust around taking on risk. Instead they just blame Tim Eyman as opposed to just owning up to the fact that they cannot live within their means.
And I agree with Joe. No way Hansen would go through all of this to not own the team. And I wouldn't blame him. Who would want to deal with the drama of the Maloofs?
@joe, Hansen has a number of investors who are still unknown. He's also proposed private debt/financing to the tune of 125M for the team purchase (slide 2) so who knows how much help he needs on the team side of things.
I don't recall him making any statements saying the Maloofs wouldn't be involved in any way, but Hansen has said he's seeking the major ownership stake.
Several of the County Council members spent a great deal of time reminding the public that this wasn't the final County vote on this thing. They'd already seen the Seattle City requirements to change the MOU and the County said they'd need to vote again on any changes to the MOU.
It's a fairly weak step forward by the branch with 5 to 80M on the line vs the City's 115 to 120M and, if they need to vote again if the MOU changes, it's pretty much mostly a vote done for show and pressuring the City.
MrsWaterClown (can I call you Water?), I really can see an easy way through on this: The Maloofs retain about a 20% share in the Kings. Maybe you put an option in any sale that allows them to increase their share of the team later.
They'd sign on to an agreement like that so fast, it'd make your head spin. That would be having their cake and eating it too.
George Maloof is really the driving force here. He wants this team gone, so he can get back to running "his" casino.
There's been an idiotic discussion here in Sac fanboy blogs about who owns the current Kings debt. Those debts are considerable. The fans have come to the conclusion (an erroneous one, I think) that the Maloofs own 100% of the team's debts. But they only own 43% of the team. If the Maloofs own 100% of the debt and 43% of the team, that would mean they actually have a negative stake in the team. I am pretty certain the NBA would not allow that. I think they own 43% of the team and 43% of the debt.
They have a controlling interest, and 2-3 other minority investors always vote with the Maloofs. Between the Maloofs and these minority investors, they own over 50% of the team. It's more like a controlling block than a majority ownership.
Why is this relevant here? Because the Maloofs need money. They don't WANT to get rid of the Kings, but if they can see a way through to still owning a part of it and getting a nice, new arena, plus holding onto the Palms, this really isn't far-fetched at all. In fact, I can't see why they wouldn't do that.
With Ballmer involved, they'd NEVER get back to 43% from 20%. It'd be a situation everyone could live with. Hansen seems like the kind of guy who is perfectly willing to say, Yeah, I can live with that.
Sure you can call me Water, or H20.
I'll admit that I don't have the specifics on the Maloof side, other than the fact that they seem somewhat overleveraged based on what I have read in the press. My opinion was based on 'why would Hansen put himself through all of this to not ensure he would have control of the team'?
And I agree with what ChefJoe said at 12:27. It was showboating all around at King County yesterday.
The NBA has talked about contractions more recently than I've heard statements about expansion. The teams are still a commodity and the Maloofs aren't ready to give theirs up lightly. I suspect the NBA private debt will actually be from the other NBA owners sweetening the pot to get the Maloofs off the profit sharing payroll. Minor ownership stake may be the best way for the Maloofs to have their cake and eat it too.
One thing still gets me. During the Seattle Times live chat with Hansen recently he answered my (one of many) questions about the equity into the arena. He may not end up having to put more than ~$100M in land + development costs to get the deal done. Chris said that the proceeds from the land the city buys from him (step 1 in public financing) would be returned as equity into the arena (step 2). That would make the $490M total based on some double-counting the land-equity contribution from Hansen. The plots of land for the arena site that are registered to Hansen is only the $21M 3 acre warehouse site... the other 3 acres of arena properties haven't transferred according to the assessor's public records.
@ChefJoe, Our plans on the precise funding of the arena are far from finalized. But, at this point, we are planning on putting in approximately $150 million in cash equity from our group and if we find an NHL partner, as well. You should also keep in mind that much of this investment is already in place in the land that we have purchased. As you will notice in the MOU, the city will be purchasing the land from us at the onset of this transaction and we will not be receiving those proceeds; they will instead be redirected into the construction of the arena and serve as part of our equity contribution. And, to date, 100% of our land purchases have been made with cash.
As for those fans who are worried about stealing another town's team: Get over it.
You've learned these teams don't belong to towns, they belong to rich people. These are their toys, they get to move the pieces around.
There's a story in today's Bee about how Sacramento's economy has now shrunk for 5 years in a row. If you were an owner, would you prefer Sacramento over Seattle? I don't think I would.
Just as a warning to all of the taxpayers in Seattle/King Co:
Please be aware of the promises made but not kept by the Santa Clara City Council majority in their blind quest to get the 49ers stadium here. The economic studies here really spun things the 49ers way and ignored a study to the contrary.
The city's consultant's study showed that the city would take a 2 to 1 loss on the public dollars put into the stadium. Our council majority didn't care. The results of this study were not publicized (you could read it on the city's website.)
The 49ers economic consultant (Conventions, Sports, and Leisure) focused on regional economic benefits (and ignored the city's loss), but the region (County or surrounding cities) isn't paying one dime for the stadium.
It was the 49ers consultant's study that was promoted in all of the ads and news articles. The fact that the city of Santa Clara which is footing the bill for the stadium would take a large loss was ignored.
The people who want a stadium/arena will spin the economic studies their way in ads and in the press. Just be forewarned.
We're seeing the undisclosed costs to Santa Clara rise - staff time/salary spent on the stadium (hundreds of thousands to millions), legal costs to pay for an attorney because the 49ers are suing to take away property tax dollars the state has designated for schools, and a city agency is taking on $950 million in loans for stadium construction that were not disclosed to voters. Our mayor was featured in a stadium ad saying 'No Cost to Santa Clara residents. Period.' Yeah, right.
What we've learned here is that pro-stadium council members will say anything to get the taxpayers to agree to a stadium, then go back on their word, and claim that all of the additional costs/loans were agreed to by voters.
ChefJoe: When Hansen says "we" will be putting in $150m, does he mean the current ownership group, the ownership group including any new investors he finds, or what? Trying to understand how much of this he plans to borrow and how much he's seeking new capital for.
MrsWater, the fans don't have the facts either. They just forgot to do a subtraction problem.
An NBA franchise is probably worth about $400M right now (guessing high to make a point). 43% of $400M is $172M. Well, the outstanding balances on this team are reportedly $125M to the NBA and $67M to the City. That's $192M -- so the Maloofs actually would own a stake worth a negative $20M in the team.
I don't think the NBA would allow that. There has to be rules about that.
$192M in debts related to a $400M asset is bad enough, but $192M in debts on a $172M asset is bankrupt.
And to think we were about to sell off our parking assets and the NBA was willing to lend them even more. Does that seem like a smart plan to anyone? No potential landmines in that deal, eh?
Oh, and they hardly own any part of the Palms now.
@Neil, I think he's referring to the NBA HoldCo and NHL HoldCo equity depicted in the documentcloud link I posted, slide 2. That's the most detailed list of funding sources I've found (and it's a ppt slide, not a contract).
When Hansen gives the math on this being a $490M project it generally doesn't break it down in phases.
@MikeM, according to Seattle's MOU the current debt limit (placed on the team) is either $125M or 40% of the team's value. Not sure which is the official NBA limit.
Further, the City and County will also be entitled to receive the first distributions of any proceeds from any sale of the NBA Team, subject only to repayment of any obligations of the NBA Team related to any debt of the NBA Team to the NBA or other lenders approved by the NBA that are secured by the NBA franchise and other
assets of the NBA Team up to the $125 million cap on such debt currently allowed under applicable NBA rules (�NBA Team Secured Debt Obligations�). Notwithstanding the foregoing, however, if the NBA revises its rules to allow NBA teams to borrow in excess of the current limit of $125 million that may be secured by the NBA franchise and other assets of NBA teams, then the NBA Team will be entitled to increase the amount of the NBA Team Secured Debt Obligations;
ChefJoe, I'm just trying to dissect the fanboy website's claim that the Maloofs own 100% of the debt against the team. That's not possible; it would mean the Maloofs own no stake in the team.
Also, I don't think the NBA would count the $67M, because technically, that's debt related to the building, not the team. Although, part if the collateral on that loan is a $25M stake in the team. So it could be that "only" $150M of the team is leveraged. I still think that's spread out over 100% of the owners, not 43% of them.
Just look at these numbers I'm throwing around, and consider this: What are the odds of the Kings being in Sacramento after March 2013? I have to think they're not very good. 100%, $125M, $25M, $67M, $400M... These are some ridiculous numbers.
It would be wise at this point for Sacramento's leaders to review the terms on that 1997 loan. They're going to need that information.
Well, it's *possible* the Maloofs have no equity in the team. It wouldn't be the first time a league looked the other way (or just didn't notice) while team owners racked up a ton of debt. And it would explain why the Maloofs haven't sold before now.
Neil, and then you'll notice that the NBA was ready to give the Maloofs another $9M, and loan them another $67M.
Just what is the nature of the photographs the Maloofs have of Stern?
(That's the only explanation I can think of.)