BY Art Thiel 04:01PM 05/30/2014

Thiel: Ballmer is done here, but arena project isn’t

Ballmer doesn’t have all the silly money in Seattle, and Hansen wrote Friday he’s not quitting on the arena. Here’s some things to know after the latest turn, including NHL’s role.

The SoDo arena project takes yet another turn. / 360 Architects

To summarize, by using a tortured old expression, the consequences to the proposed SoDo arena a day after the earth under the sports world moved: The baby has not been thrown out with the Ballmer, but there is a nasty welt on its head.

After reading arena developer Chris Hansen’s website post Friday and talking with several people with knowledge of the project, all of them too fearful to go on the record, here’s what is apparent to me at this turning point:

  1. Hansen absolutely did not want Steve Ballmer to leave his investor group, but remains confident and committed to seeking other investors
  2. Ballmer’s $2 billion offer to buy and keep the Clippers in Los Angeles has sufficient megatonnage across all sports that is hard to foresee its long-term ripple effects, so be wary of any instant analysis that contains conclusions
  3. The NHL is serious about coming to Seattle, and Hansen has talked to prospective team owners. But the arena outcome and the NBA’s TV contract negotiations will have greater influence than simple NHL eagerness to be the first tenant in the proposed arena.

As to how all this plays out . . . well, it’s complicated. Let’s try to explain.

Keep in mind that the expiration date on the project’s key document, the memorandum of understanding between Hansen and his public partners, the city and King County, is November 2017.  At once, the date seems suddenly much closer, yet is far enough away that much can happen in the incredibly fast-changing world of sports business.

Many fans eager to see the return of the Sonics were floored by Ballmer’s abrupt abandonment of the Seattle project in favor of being an NBA owner in Los Angeles. Those who know Ballmer were not.

His longtime passion to be an NBA owner has not wavered. He wanted to be an owner years before he heard of Hansen, and is likely to be an aggressive supporter of Seattle’s pursuit of a team, although restrictions soon upon him as an owner will keep him from butting into the business of a Seattle bid.

Simply, he wanted to be an NBA owner more than he wanted to be an NBA owner in Seattle. To put his outsized passion in a soon-to-be-immortal phrase by the Seahawks’ Marshawn Lynch that has become a regional and national catchphrase for deeds over words: “I’m all ’bout that action, boss.”

At 58 and retired from Microsoft, Ballmer does not want to mess around with the infamous Seattle process that will drag out the arena project even after the final environmental impact statement is released in September. The arena outcome remains uncertain, as does the availability of a team by relocation (almost no chance) or expansion (improving).

When Donald Sterling soiled himself and sent the stink throughout the NBA, Ballmer knew that opportunity was upon him because his cash, cred and relationships would provide the quickest solution to a monumental embarrassment. And he would get to run a franchise in a glamor capital that has a significant chance to succeed right in the face of the NBA’s most celebrated franchise: The Lakers. That is so Ballmer.

He didn’t have to get an OK from partners, banks or the NBA. The timing, so off with Seattle, was perfect for him and the NBA.

As one person acquainted with Ballmer said, “He had a lot of money, and was impatient and bored.” After a pause to laugh, he said, “That’s what gets a lot of NBA players in trouble.”

As for the Seattle project, Hansen has a huge void to fill, but the cash is less of a consideration than credibility. There’s lots of wealthy, sports-minded people sitting on big piles of cash, most of it in the tech community. Some stayed away because the big dog, Ballmer, always eats first.

Hansen knows he and his remaining partners, led by the Nordstrom brothers, have more vetting to do, as would the NBA if and when the time comes. Hardly impossible, but another complication.

Which brings us to the NHL, and a potential partnership.

A source in in city government said that Hansen has talked with the parties interested in making hockey the first tenant, and he is open to the idea. But at least two things must happen: The prospective team owners must be willing to be equity partners in the building, and they have to be as willing as Hansen to assume the risk that the public debt (up to $120 million for a one-team scenario) is protected by an unusual, if not unprecedented, requirement in pro sports leases: A virtual lien in on the value of the franchise.

When Hansen signed the MOU rewritten to satisfy the city council, he agreed to the council’s insistence on using the franchise as collateral in case the building ceased to function, by natural, man-made or economic causes. While that chance is small, the council is mandated to account for worst-case scenarios in a public-private partnership.

Since the value of NHL franchises are less than half the value of NBA franchises (and thanks to Ballmer, WAY less than half in the last 24 hours), the city’s risk, while still relatively low, is greater with the NHL than the NBA as first tenant.

From a risk-management perspective, that is the city’s biggest issue with rewriting the MOU to favor hockey, not the threat of less attendance or revenues from a marketplace unproven for hockey, as council member Tim Burgess suggested to me in a March column linked here.

A city employee who has worked on the MOU explained it this way: “If the whole thing goes bad, the franchise owner is obligated to pay us off first. The risk profile for the NHL is worse for us than the NBA.”

So in order for the NHL to induce a rewrite of the MOU, it must offer the city financial guarantees that zero out the difference between the leagues, a difference that became theoretically greater Thursday because Ballmer’s valuation will float higher every other NBA team.

Hansen’s passion for basketball and Seattle made him willing to offer the franchise as collateral. He doesn’t feel the same way about hockey, nor is it likely that the NHL will feel the same way he does about Seattle. Nevertheless, a deal is not out of the question.

It comes down to how much the NHL believes in Seattle and the Hansen proposal: Will they match Hansen’s risk acceptance, and join him as an equity partner in the building?

That’s why Commissioner Gary Bettman and an NHL entourage, including potential franchise owners, flew to Seattle May 6 to meet with Mayor Ed Murray and county executive Dow Constantine. The NHL needs to get specifics in order to have an informed discussion about potential expansion to Seattle before the league’s annual meetings in June.

Even if the NHL decides Seattle is worth it, there is another consideration. Hansen would have to receive some indication from the NBA that having hockey first would not create an impediment to an NBA expansion team. The NBA is used to being the older brother in markets shared with the NHL, and will need assurance that there will be enough ticket sales, sponsors and advertisers in Seattle to support two winter teams.

History provides no answer, and Seattle remains the only city in North America where soccer is on a nearly equal footing. If Hansen goes to the trouble of the heavy lift in attempting to rewrite the MOU in the face of mayoral and council skepticism, he needs to know at some point he will realize his Sonics dream.

That’s the bad news for NBA fans. The good news is that Ballmer was given a preliminary read on negotiations for new deals that will replace the NBA’s current TV contracts that expire after the 2015-16 season. One NBA source said Ballmer was happy.

If TV revenues are substantially greater starting in 2016, that will help make expansion to 32 teams more plausible — the pie will have grown so much that sharing two more slices will be acceptable. Particularly after Ballmer’s wealth, impatience and boredom increased the likely expansion fee per team from $600 million to $800 million or, hell, $1 billion. Divide $2 billion among 30 existing franchises in a one-time payment, and you have many happy owners.

A year ago, I thought Ballmer/Hansen offering $625 million for the Kings to move from Sacramento was the acme of foolishness. And six weeks ago, I thought being a racist was a dead-end proposition.

Referencing No. 2 above: Regarding pro sports, business and crazy people with crazy wealth, assume nothing about outcomes.


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YourThoughts

  • jafabian

    I believe Hansen has to do a joint deal with the NHL. If he doesn’t then an NHL group could put together their own arena deal for an NHL only facility and if that happens Hansen’s project will never happen because the city wouldn’t support yet another arena for just an NBA team. With Ballmer gone and Silver apparently determined to continue Sterno’s legacy getting an NBA team in Seattle will be later rather than sooner.

    • Matthew Parker

      Their own arena deal? Unless they’re going to go 100% privately funded, it will never happen. And why would anybody hamstring themselves with an ONLY NHL facility? Look at how useless the Key is because it can’t handle hockey properly.

      • jafabian

        Currently the city believes in the NBA and is loyal to Chris Hansen’s proposal so if the NHL really wants to be here a Seattle NHL group will have to have their own arena plan if anything to impress the City Council. Since prospective Seattle NHL owner Victor Coleman recently purchased land in the SODO district to the tune of $280 million I’m assuming that’s in play.

        I believe Hansen isn’t getting into the NBA. If its true that if his group offered $2 billion for the Kings the NBA would have still said not then the NBA is that offended with Initiative 91 (Amazing that ego is winning out over greed.) and think that because of it Seattle is not a “sports town”. If simply having an NBA ready arena is the key to getting an NBA team then cities like Vancouver, Kansas City and San Diego would have one. I don’t believe sports leagues like to revisit cities they’ve previously been in anymore, unless legally mandated. So Hansen should either bandwagon on the prospective NHL Seattle group or cut his losses.

  • soundersfan84

    Hey art can to clarify something for me

    “So in order for the NHL to induce a rewrite of the MOU, it must offer
    the city financial guarantees that zero out the difference between the
    leagues, a difference that became theoretically greater Thursday because
    Ballmer’s valuation will float higher every other NBA team.”

    I’m very confused on this. I get that NHL group has guarnatee in order for the city to be left on the hook. But how does teams value have anything to do with how much the NHL group has to guarantee. I always had though NHL has to personally guarantee what ever funding the city/county provides that they aren’t left with it in case things go south.

    • soundersfan84

      I mean for the city to not be left on the hook.

    • art thiel

      No, there aren’t often guarantees given to leasing teams for worst-case scenarios with public buildings, like an earthquake (or Katrina chasing New Orleans’ team to OKC).

      These deals are almost always about borrowed money, and if the project fails or breaks, the city wants to be ahead of the banks to make sure the team, wherever it plays, pays its debt service on public funds on schedule. So the higher the value of the team, the less risk to the city in the event of catastrophe.

  • 1coolguy

    $2 BILLION for a team Forbes estimated @ $700 million? The Forbes estimates of NBA franchises have been fairly accurate, borne out by the past few recent sales.
    Frankly, Balmer can spend his bucks any way he wants, BUT as he did with Microsoft’s “funny money” (stock) which he used to consistently OVERPAY for acquisitions, he simply did the same brain-dead thing here with the Clippers.
    Let’s remember Wall Street thought so little of him that one day after he announced his resignation MS stock jumped 10%! No one in the tech community thinks much of Ballmer, who was a horrible CEO.
    He was a technocrat with zero personnel skills and it was a sad day when Gates announced Balmer was to succeed him @ MS.
    The Clippers are said to have made $15 million last year, 2013. Yes: $15 MILLION, so tell me that paying $2 BILLION is not an over payment? there is no land, no stadium and just an ok local media contract.
    Here is what we have: Another tech billionaire playing with his silly monopoly money, who is bored to death and not working, does anythingthing it takes to be relevant.
    So Steve buys himself court side seats and a team that MIGHT be worth $2 Billion in 10-20 years.
    Dumb and dumber………….

    • notaboomer

      but but america’s team!!!

  • Jamo57

    “There’s lots of wealthy, sports-minded people sitting on big piles of cash,”……
    Now how exactly does “trickle down economics” work again? I guess a rising tide raises all boats as long as they’re Clippers.

    • notaboomer
    • art thiel

      Rich guy buys team. You buy expensive ticket. You both are happy.

      Something like that.

      • Jamo57

        I think a few expensive beers figures into that equation somewhere too.

  • Carol Alfonso

    All I say is… Ballmer became a TRAITOR to Sonics fans, after dealing in good faith for a team in the PNW, but his ego came first, knowing that he could risk another rejection from the BOG owners, which would had favored Dreamworks co founder David Geffen and Oprah Winfrey in the first place. Sure, he said “Moving the franchise would be value destructive” which means, he was afraid of the BOG rejection or afraid of Hansen and the MOU terms, in which the city would assume control of the franchise if something went wrong.

    • notaboomer

      ball(m)er belongs in la. i say sayonara.

      • art thiel

        He’ll miss you, though.

    • art thiel

      Traitor is a little strong. No government secrets exposed. He wanted to get in the NBA more quickly than the Seattle process would allow. We all say life is too short, but when you have $20B, you don’t have to wait in line.

      • Most Definitely Bob

        Ah, the old “shit sandwich” analogy. ‘Twas ever thus.

    • RadioGuy

      Ballmer may be a bit of a wanker, but a “traitor?” Nah. He’s not getting any younger and may have determined there’ll be snowball fights in Hades before he’d own an NBA team in Seattle. When he saw the chance to own a team (with Griffith and Paul, no less) in LA, he jumped at it. Bottom line: It’s HIS money to overspend as he sees fit.

  • Leon Russell

    The arena deal is dead. Nobody with a shred of self-respect would give any billionaire one dollar of public financing for a new pro sports arena after Ballmer just paid $2 billion for the Clippers. These guys can afford to build their own stadiums with NO public help, and everyone knows it. Why give them any public help when they have so much money that they just go around looking for things to throw it away on?
    It’s one thing to be a stupid public official. It’s another thing to be a stupid public official when billionaires are rubbing your nose in it and its obvious to even the dullest twit that you are being played for a fool.
    By the way, District Elections for Seattle City Council passed by 2 to 1, and Mayor Bike McGinn got shown the door. Wasn’t McGinn the mayor who cut the arena deal with Hansen?
    Didn’t you think the Kings were coming to Seattle, too?

    • art thiel

      Regarding the Kings, I said from the beginning that the NBA was extremely reluctant to move teams because it would reflect badly on the new CBA that a team had failed its marketplace. I took a lot of crap locally for being a nay-sayer, but my attempt was to be honest.

      McGinn’s ouster was little influenced by the arena. Sports fans love to overestimate their influence.

      Ballmer’s move was a function of time over money. He went with Hansen’s play because it was the only one in Seattle. Hansen claimed that getting to borrow money at municipal rates would make the deal work in Seattle, which is a smaller market than LA or the Bay Area.

      Ballmer wanted in the NBA now more than he wanted to be in Seattle. He doesn’t have the time or interest to deal with public policy, and the Clips have an arena.

  • Most Definitely Bob

    “And he would get to run a franchise in a glamor capital that has a significant chance to succeed right in the face of the NBA’s most celebrated franchise: The Lakers. That is so Ballmer.”

    That is also so Tully’s. How’d that work out?

    “…his outsized passion…”

    Now, there you go again, confusing his bloated ego with his pint-sized pendejo. A fat person can always lose weight, but you can’t fix ugly. Ballmer should have bought a plastic surgery practice instead.

    “He had a lot of money, and was impatient and bored.” So buy cocaine and snort it! That’s what the other billionaires do! If you’re impatient and bored enough, you can go through $2 billion in coke real fast. In fact, divide $2 billion in coke among 30 existing NBA franchises in a one-time blow party, and you have many happy owners.

    “The big dog, Ballmer, always eats first.” Which means he also always craps first. As the old Iditarod saying goes, “Unless you’re the lead dog, the view never changes.” Neither does the meal. Hope you like leftovers.

  • 3 Lions

    Amazing. Sterling says some moronic stuff that is illegally recorded by his mistress & a month later he sells the franchise for four times the going rate! Meanwhile, the new Commish comes out looking good & Stern is smiling again as Seattle’s prospective owner (Ballmer) is placed in LA. Maybe Paul Allen could sell the Trailblazers & buy an expansion franchise in Seattle. Keep the faith!

  • dougfir43

    Can’t Balmer own two teams? In other words, if the opportunity arises in Seattle at some point through expansion or otherwise, does Balmer’s ownership of the Clippers disqualify him for being part of the Seattle owner group?

    • Daniel Althouse

      Yes. You cannot own two NBA teams simultaneously.

  • bobk333

    It is wrong to assume that Ballmer has a brilliant plan in mind for the Clippers.

    He probably doesn’t.

    For what it’s worth, Ballmer had a perfect record of incompetence in his company acquisitions for Microsoft. He grossly overpaid for all of them and then did nothing with any of them. Most floundered and died within Microsoft.

    I am not sure he bought the Clippers because he was impatient and bored. I don’t think Ballmer understands the concepts of negotiation or price. In his fifteen years of running Microsoft, there is no evidence of it. He is so used of having virtually unlimited money that when he sees something he likes, he buys it – always at an inflated price – always with no plan in place on how to make the entity succeed and make money from it. At least he is doing it with his own money this time.

  • Sonics R.I.P.

    If Ballmer has loved the NBA for so long, why didn’t he just buy the Sonics from Howie and pay for his own new arena in Seattle. He would have saved himself about a $1 Billion!

  • Kafkaeske

    Ballmer’s deal in L.A. doesn’t really hurt Seattle’s chance of getting an NBA team in the next 10 years, because that wasn’t going to happen anyway. If we do get a team, we’ll be better off without Ballmer as an owner because he’s an egomaniacal jerk. There are plenty of other bored super-millionaires to finance a team in Seattle. They don’t really need a public handout to build an arena and they never did.