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February 17, 2012
Hansen's "no new taxes" Seattle arena vow: Is it for real?
Chris Hansen's press conference on his Seattle arena plan came off yesterday as promised, though perhaps predictably, it shed more heat than light on the hedge fund manager's proposal to bring the NBA and NHL to Seattle. (One Seattle Times columnist called it "more pep rally than news conference," and that's from a guy who likes the plan.) There were some funding details revealed, though, which come down to this:
- $290 million from Hansen and other "private investors," who would also supply the land (not far from Safeco Field in the SoDo district) and be responsible for buying an NBA team to move to Seattle, with the Sacramento Kings and league-owned New Orleans Hornets considered the leading candidates. Hansen's group would also seek a NHL team to relocate, but wouldn't own that.
- $200 million in bond sales by the city and county, which would be repaid by a mix of rent payments by the team, and "existing tax streams, including sales, property, admissions and business-and-occupation taxes generated by the arena." (Hansen didn't indicate how much public money would be paid back by each method.)
As arena plans go, it's a heck of a lot better than some I could mention: Unless there's some hidden costs that Hansen didn't mention (who'd be paying arena operating costs, for one thing?), it looks like well over 60% of the cost would end up being footed by the private team owners, which is better than a poke in the eye with a sharp stick. But is it truly "self-funding," as Mayor Mike McGinn insisted at yesterday's news event? And more to the point, will it meet the requirement of Initiative 91, passed in 2006, that Seattle turn a profit on any sports facility expense?
That is likely going to come down to how that "existing tax streams" clause gets interpreted. This is basically a TIF, which — as we've discussed a million times before — assumes that all tax revenue from a new arena is new money to the city and county, and then kicks it back to the developer to pay off construction costs. Only one problem: If some of this is taxes on money already being spent at entertainment events — say, at the existing arena that the city already owns across town — then the city ends up losing money on the deal. Also (okay, two problems), there's the little matter of city services to support a new arena, which, as Judith Grant Long likes to point out, normally are paid for with the tax revenue from a development project. And (three problems...) it doesn't look like either Hansen or McGinn detailed what would happen to KeyArena under this plan, which could saddle the city with additional costs for either demolition or operating a lame-duck arena, though it could also provide new opportunities if it frees up the KeyArena land for other uses.
That said, a private contribution of $290 million plus land is nothing to sneeze at, and — assuming the I-91 requirements can be finessed — it looks possible that the city and county could be voting on this plan by summer. The bigger trick for Hansen, in fact, could be landing a team at a price that makes this feasible: Since he'd be looking at something like $20 million a year in arena payments, plus whatever he'd have to be paying the city and county in rent, that doesn't leave a ton of revenues to create a return on investment on whatever he'd have to plunk down for, say, the Hornets. Plus, you know, actually fielding a team.
If Hansen can actually make the numbers pencil out, this could provide a model of how to build a sports facility without tapping the public purse — much, anyway. But there are still many chickens to hatch before they can be counted.
Neil, since I-91 is a City of Seattle initiative, and this proposal is a combined City-County project, I think they may have found their (evil and clever) way around it.
The hitch here will be team ownership. Who in Seattle wants to own the team? After Hansen's group comes up with $290M, he doesn't appear to have enough to buy a franchise. They'll have to bring in someone willing to work with them (Steve Ballmer is the name that springs into my mind) and also find owners who are willing to part with their team. That might actually be the biggest hurdle here -- getting a team.
The way the NBA treated them last time, though, it almost seems masochistic that they'd want to get right back into bed with them.
The Sacramento Bee is treating this as a legitimate deal:
www.sacbee.com/2012/02/17/4270724/sacramento-faces-new-competition.html
The "Threat from another city!"-angle is covered in your book, though, I think.
Posted by MikeM on February 17, 2012 12:16 PM
Presumably the city's share will still need to be covered by new revenues, though. Unless they try to play one of those "We're not giving money to an arena, we're giving money to an arena *authority*!" tricks like was suggested in Minneapolis - in which case I expect you'll see the top of Nick Licata's head fly off.
Posted by Neil deMause on February 17, 2012 12:34 PM
Neil,
I saw on Twitter that you're being interviewed about the Seattle proposal. Have any of our fine journalists in Sacramento called you? It seems that the only opinions our local mainstream media (Sacramento Bee and TV stations) solicits are from the Mayor and his minions, real estate developers, and basketball fans including "Carmichael" Dave. Like many news stories here in town we have to go to the "alternative" press for the truth.
Posted by jjo916 on February 17, 2012 01:08 PM
First things first... if this deal is as presented (60% private/40% public with a real possibility that the city/county will earn back at least half their initial investment), then as a taxpayer I would have no significant problem with it.
It promises to bring an asset to the city at, by anyone's count, a reasonable cost (unlike many other proposed deals).
Yes, operating costs need to be addressed (these can easily run into the $12-15m range annually for hockey/basketball arenas... better make that basketball/hockey arenas), but it isn't actually a bad deal (assuming someone in the NBA office doesn't go all Blazing Saddles on it) for Seattle as far as I can see.
Regarding Hansen's ability to pay for his share of the arena and own the team, I don't see that as being a big problem, Mike. They will use private money to fund their share, but as far as I'm aware no-one has said it's going to be "cash on hand", nor that it will be "all Hansen" money. Most buildings like this are funded with bonds and/or a mortgage, despite what the various partners say they are "kicking in in cash".
Owners also like to mortgage their franchise purchases, as it provides considerable tax advantages to them (particularly if franchise values are increasing, which they may or may not be in the NBA).
Anyone have an idea what the Kings/Hornets might go for? I seem to recall the lowly Warriors sold for something like $450m a while ago, but I don't recall if that included the arena or sundry other items related to the sale.
Posted by John Bladen on February 17, 2012 02:27 PM
Neil, wouldn't the city forgo existing property taxes on the private land that Hansen recently bought for the arena? If that becomes non-taxable land below a publicly-owned arena then that is a loss for city taxpayers. Even if the existing property taxes and/or the rent Hansen says he will pay are diverted to pay arena debt it is a loss as it would not be going into the city's general fund as it currently is. I am assuming when politicos say this deal is "self-financing" that is simply not true unless there is going to be a Payment in Lieu Of Taxes (PILOT) agreement. This seems to be a case of when a subsidy is not a subsidy.
Posted by DW on February 17, 2012 03:57 PM
jjo: I've talked to a couple of Sacramento journalists over the years, but none lately.
John: Looks like $400m is about the going rate:
weaksideawareness.wordpress.com/2011/07/06/should-teams-prices-become-a-factor-in-next-cba/
DW: It's on private land, so unless Hansen is planning on giving it to the city, it would still be subject to property taxes. Yet Hansen said the city/county would own the arena and lease it to the team, and there's no real reason to do that aside from to avoid property taxes... so I dunno.
There are many, many unanswered questions here. As John says, if the promises Hansen is making are true, this could be a pretty good deal for Seattle, especially compared to what the Sonics owners were asking for. But then, this sounded like not a terrible deal to me at first, too, and look how it turned out:
www.fieldofschemes.com/news/archives/2005/06/2360_one_stadium_lea.html
Posted by Neil deMause on February 17, 2012 05:02 PM
In Sacramento, I don't know if it's all just the whole "Threat from another city" game being played by ThinkBig or what but I don't quite get the perception that Seattle is a threat to somehow take the team this offseason, as in start playing in Seattle this fall.
The whole press conference confused me. If the property is going to remain private and they just get revenues from the arena, wouldn't they need between $13 million and $14.5 million annually from the tenants essentially through taxes and arena revenues? Seems awfully hard unless they have two tenants at once and I get that is what they are trying to do but that's pretty complicated if it's both NHL and NBA unless they both have the same owner right? Don't they have pretty much the same schedule? And if that's the case, where is a hockey team going to play? I guess they have time to make sure the money and proper construction is ready to go to renovate Key Arena for hockey?
And if it is owned by the city, why were they talking about property taxes unless they wanted a TIF not just in the arena but around the arena? I don't get how they can pull off a TIF around the arena with that referendum or at least feel comfortable with moving forward this summer. Or how it would even work considering the location it's in given it's right there with the other arenas?
And where is the private money coming from? I swore there was a rumor it came from a TV network deal. Wouldn't that be considered a negative to enticing a franchise to come given TV money would be used to fund building the arena and not going into the pocket books of the tenants?
Am I missing something or is this in all likelihood just the very beginning stages of all of this?
Neil;
In the latest iteration of the Oilers arena deal, the land that the carpetbagging owner had 'assembled' (which in this case means negotiated an option to purchase on) was purchased by the city, not Katz (which is odd, considering he owned the option and whined about it's imminent expiry...)
This means nothing specific to Seattle, but it does prove that the land may not remain in Hansen's ownership as part of the deal. We will see.
Posted by John Bladen on February 17, 2012 05:55 PM
John, I think the answer to that may from the Tacoma Dome. And yes, everyone knows that's not a long-term solution, but still, if you have one team at the Tacoma Dome, and another at the old Key Arena, and it's only for a year, maybe that's a tolerable situation.
mynorthwest.com/384/546222/Tacoma-mayor-talks-about-dome-renovation
Posted by MikeM on February 17, 2012 05:56 PM
Thanks Mike.
I hate that building. Every time I get stuck trying to get through the Seattle area in rush hour traffic I get stuck in Tacoma and I have to stare at that darn thing for about an hour. I am haunted just looking at pictures of it.
Posted by John on February 17, 2012 06:01 PM
Yuck, rush hour on the West coast. If you hit Eugene just wrong, you might emerge on the other side of Seattle about 12 hours later.
Posted by MikeM on February 17, 2012 07:27 PM
I'm confused what you guys are talking about - there are at least a dozen cities where NBA and NHL teams play in the same arena. In fact, the NBA was started to fill empty dates at hockey arenas, strange as that may sound today. A 40-game home schedule spread over six months leaves plenty of time to work around each other.
As for the $13m or so a year to pay off the city's/county's share, an awful lot of that is clearly going to have to be rent. Which would be unusual in this age of zero rent (or negative rent, in the case of teams like the Pacers), but that's what Hansen is promising, anyway.
Posted by Neil deMause on February 17, 2012 09:15 PM
"...there are at least a dozen cities where NBA and NHL teams play in the same arena"
It ain't even that unusual for them to play in the same arena on the same day.
In any case, from some of the comments I've heard and read the past couple of days, getting an NHL team is very wishful thinking. Especially before a new venue is complete.
Posted by Keith on February 18, 2012 01:39 AM
But when Key was renovated some years back it was made pretty much unusable for hockey. Supposedly there are less than 10,000 unobstructed seats for the hockey configuration. I can't figure out how hockey is going to fit into this because Hansen is only interested in the NBA. Who is going to buy an NHL franchise and move it into an arena (the new one) that they don't control?
Posted by Greg on February 18, 2012 01:42 AM
Knowing today what we didn't know 2 days ago, I'd say this proposal is a very long shot.
The NHL doesn't seem to be interested; and the Seahawks and Mariners are now complaining about traffic.
I don't think this is 50-50. It's about 20-80 now. I will be very surprised if this goes through.
Posted by MikeM on February 18, 2012 06:58 PM
Yeah sorry I just thought given their seasons were so similar it would be tricky to bring them both at the same time but perhaps not.
Posted by John on February 18, 2012 07:48 PM
@MikeM. I've read and heard that the NHL is interested in Seattle first on all possible relo or expansion cities. Where have you read or heard differently? Can you also point out where the Seahawks and Mariners are complaining? Seahawks shouldn't have a worry in the world since it is rare that the NHL plays on Sundays and the Mariners haven't played a meaningful game in October in years and the April seasonal crossover seems minimal. I still think it is a longshot but would love to see your sources to gain more info.
Posted by JB on February 18, 2012 08:44 PM
There was this about the Mariners' concerns, but it appears to be just one member of their front office for now:
seattletimes.nwsource.com/html/localnews/2017537836_arena18m.html?syndication=rss
Posted by Neil deMause on February 18, 2012 10:16 PM
The NHL couldn't care less about Seattle. Did you see how big the crowd was in PHX tonight? Go Dogs. We're on our way to selling this team to someone that will keep them in the valley. Seattle, I mean really...
Posted by Garry Betmann on February 18, 2012 11:45 PM
Well, I guess those of us who thought Gary B. was busy full time with the satellite radio talk show and that other gig have it all wrong...
Those of you who live in Seattle... I've been reading some things about an agreement that the Seahawks/Mariners/Sounders have (or perhaps a local ordnance?) that no game will start within four hours of another ending to reduce traffic concerns... is that legitimate or ???
If so, it wouldn't be a problem for the Sounders/Seahawks and Mariners, likely, but I could see how it might be complicated if two more (80 game season) pro teams come to town.
All in all, I believe the basketball talk. I'm highly skeptical than an NHL team will come along with it if the same guy doesn't own both.
And Hansen (wisely) seems to have no interest in owning an NHL team...
"Those of you who live in Seattle... I've been reading some things about an agreement that the Seahawks/Mariners/Sounders have (or perhaps a local ordnance?# that no game will start within four hours of another ending to reduce traffic concerns... is that legitimate or ???"
I don't live in Seattle. However, you are correct that there is an agreement where no Seahawks, Mariners or Sounders games can start within four hours of another one ending to reduce traffic concerns going in and out of each venue. We both think alike when it comes to Seattle getting an NBA team... I think that somehow the Kings will remain in Sacramento when they get a new arena and the Hornets will move to Seattle at some point within the next two years. As far as an NHL team goes, Quebec City will be next to get an NHL franchise through relocation in my opinion. Seattle might get a team within the next five years if the NHL expands #I don't think they should do expansion or any other league for that matter# but I kind of doubt that Seattle will have an NHL team.
Posted by Matt on February 20, 2012 12:05 PM