Category: San Jose Sharks

In a twist so backwards that I’ve had to double-check it three times before I could get myself to even type it, the San Jose Sharks owners have threatened to move out of town if — hang on, gotta check this one more time … yep, it’s for real — if the city adds new development to the downtown area around their arena:

In an urgent plea to fans for help, the San Jose Sharks on Thursday said the team may be forced out of the city because of big downtown developments near the Diridon train station that threaten access and parking at the SAP Center, where the team plays…

“We definitely do not want to leave,” Jonathan Becher, president of Sharks Sports & Entertainment, said in an interview. “This is our home. This is where we want to be. Leaving is the last resort. But it could come to that if the arena becomes unviable.”

The development at stake is a large mixed-use development that Google plans to build to replace most much (Ed. Note: see comments) of the city’s downtown, adding 65 new buildings hosting 30,000 new Google workers, plus 4,000 units of housing. (Google says the project won’t require any tax or land breaks; most of the public concerns about it have been that it will displace existing residents.) The Sharks owners are concerned about traffic problems during construction and also that Google will be using some parking lots that Sharks fans currently use, as well as eliminating some traffic lanes — there are plans for a BART train extension to Diridon, which would make it easier for fans to arrive from the East Bay by public transit, but that’s not slated to open until 2029 at the earliest.

So it’s understandable that the Sharks owners would be gripey, but moving the team, seriously? In 2015, the team agreed to extend its lease on the city-owned arena through 2040, in exchange for about $100 million in city funding for arena upgrades and rent breaks. A city memo at the time warned that “the team’s success and popularity has cities across America vying to attract the team away from San Jose with promises of new shiny buildings at no cost to the team,” which wasn’t remotely true from what I can tell, even if NHL commissioner Gary Bettman did once threaten that the Sharks could be forced to move if they didn’t get a more lucrative cable deal.

That lease extension was technically only through 2025, though, with a series of 15 one-year renewals to follow. All references to the new lease deal on the San Jose city website now go to a dead link, so it’s tough for me to check what kind of out clauses the team has before 2040, but I’ll give it a shot once folks on the West Coast have woken up today and gone to work walked to their kitchen tables and turned on their laptops.

Even if the Sharks can relocate in 2025, though, doesn’t mean it’s very likely. They have a franchise that is solidly in the middle of the pack in terms of revenue and value, with both on the rise; they have that sweet lease deal pumping more money into the arena for renovations; and they have that BART station about to open just a few years after they could potentially leave, which should make their arena accessible to tons of new fans traveling from the north. San Francisco’s Golden State Warriors arena isn’t configured to accommodate hockey, so that would leave maybe the now-vacant Oakland arena, or … Tulsa?

Way more likely is this is just saber-rattling to get San Jose to throw the Sharks some bones in exchange for putting up with jackhammers at their front door, which is entirely what you’d expect after the team owners were able to get such a sweet deal they last time they made noise about leaving town. It’s probably something city officials should have thought of when they were negotiating that lease extension — if we’re giving them a new lease through 2040, maybe we should make sure they can’t threaten to leave 15 years early if they want to shake us down for more concessions — but nobody ever said city lease negotiators were the sharpest tacks in the drawer.

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.