BY Art Thiel 06:30AM 12/05/2017

Thiel: City wins on arena deal, hoops fans lose

City Council votes 7-1 in favor of Oak View Group’s $660 million plan to trick out KeyArena for concerts and the NHL. NBA? Maybe 2025. Maybe not.

Get ready for another recycling of the dowager of lower Queen Anne. / Ballparks.com

Beaming from a front row seat at Seattle City Council chambers, Tim Leiweke witnessed an improbable dream come true Monday afternoon. As we say in the world of hockey, he lit the lamp.

At the end of a 2½-hour meeting, the CEO of Oak View Group watched as council members voted 7-1 to approve a memorandum of understanding for his audacious $660 million proposal: Converting 55-year-old KeyArena, in the middle of a rapidly growing urban village, into a global concert venue and sports arena on his own dime.

The vote sent the document to new Seattle mayor Jenny Durkan for her signature Wednesday. She said nothing substantive in her campaign regarding her views on the arena. But in her first full week in office, she is highly unlikely to veto this highly unlikely gift from a private contractor that has delighted city officials and crushed, for all intents and purposes, the five-year effort by developer Chris Hansen to build an arena in Sodo.

OVG believes it can begin demolition in 2018 and open for the NHL season in October 2020.

In two long sentences, here’s who won and lost and why:

Despite a congested arena location, Leiweke won because of a nearly unlimited supply of private money, a savvier approach in the political worlds of global sports and municipal government, and an informal partnership with a pro sports league that has no bad history in Seattle and a hole in its lineup.

Despite a more logical arena site, Hansen lost because he was unable to afford an arena and a team on his own, and didn’t find significant allies or effective strategies in the political worlds of global sports and municipal government to overcome the mess he inherited with Seattle’s business history in pro basketball, as well as the conflicts he developed with local adversaries.

From his nearly 40 years in the sports business, Leiweke knew the NHL had to be the first winter pro sports team in any new building in Seattle, or forever be consigned to little-brother status in a market with a 41-year history of the Seattle SuperSonics. After a rancorous split left a profound distaste for Seattle’s no-more-public-subsides-for-sports political culture, the NBA for now does not care whether it returns to Seattle.

In fact, the empty Seattle market was a valuable tool for the NBA in extorting other city governments in Sacramento and Milwaukee into helping fund, with much reluctance, new arenas for the Kings and Bucks.

The NHL needs a team in Seattle. The NBA needs an empty market in Seattle.

All the other elements in the drama that have developed since the 2008 poaching of the Sonics pale in comparison to that simple observation.

But the animus between Seattle and the NBA won’t last forever. In fact, an NBA source with knowledge of the league’s current long-range thinking told me that at the end of the   current $24 billion television rights agreement with ESPN and TNT following the 2024-25 season, NBA owners believe they will be ready to expand from 30 to 32 teams.

At the top of the list, in pencil, subject to change — Seattle and Mexico City.

A city employee who has been following the negotiations with OVG said that the NBA’s desired outcome is known around city hall. It makes some geographic and financial sense — Mexico City is the world’s fifth-largest city and and Seattle’s arena site is a mile or so from the world headquarters of Amazon, which by then figures to have purchased western Washington.

Leiweke will never confirm the league’s thinking, but he’s bragged up his pro sports connections so often that it’s hard to believe he would be oblivious to off-the-record talk of expansion plans. And he has been quite public in his ardor for Amazon.

Amazon abruptly has become a global leader in consumer entertainment. Leiweke aspires to have OVG supplant his hated former boss, Philip Anschutz of Anschutz Entertainment Group, as one of the world’s largest entertainment presenters. So it becomes easier to understand why Leiweke is willing, in a building he will not own, to gamble hundreds of millions of dollars, including covering all cost overruns on the Key renovation, to create a concerts-first venue: It’s a neighbor to the world headquarters of the retail/entertainment colossus.

Along with his equity partner in the Key remodel, concert promoter Live Nation, Leiweke’s OVG needs to win Seattle, the next big marketplace opportunity, to win the bigger turf war with rival AEG.

Given the scale of Leiweke’s ambitions, seducing a beleaguered city government with throw-ins such as $40 million for traffic solutions, and another $20 million to community non-profits (see list below), is chump change.

The fact that Leiweke played Santa Claus to so many constituencies in and around Seattle Center to earn their blessings is part of how council president Bruce Harrell swung around his support from Hansen to Leiweke.

In May 2016, before the Key project had momentum or Leiweke, Harrell was one of four council members to vote yes to Hansen’s request for the street vacation he needed for siting his arena. Hansen lost the vote 5-4 when council member Lorena Gonzalez, in a rambling, nervous speech in which she said “she stuggled with the issue a lot,” broke the tie.

Gonzalez, said to be traveling, was the only council member absent Monday.

In explaining his yes vote Monday, Harrell said, “This is one of the strongest (arena) deals in the country . . .  We should have a state of the art arena that will attract a lot of musical events. It’s not contingent upon teams, but puts us in the driver’s seat to attract that kind of activity.

“What’s critically important is the community events and groups that are part of this deal that will foster racial equity and social justice and provide benefits to the communities affected by this arena. This has in it programs for youth, arts, sports, music and cultural events.”

As with most council members and city staffers, Harrell saw for Seattle Center, its users and the neighborhoods. a basket of privately funded goodies, not a basketball team.

Electeds have a responsibility to maintain and upgrade Seattle Center, a department of the city. The attraction to the OVG plan is understandable and proper.

It is also true that this same body voted in 2008 to accept $45 million from Sonics owner Clay Bennett to break the KeyArena lease and let the Sonics go to Oklahoma City. They did so despite holding a likely winning hand in a landlord-tenant lawsuit. Then as now, the council had other priorities, thus setting in motion over the past nine years all the complicated events surrounding the so-far-futile return of pro basketball.

It is also the same body that in 1994 agreed to use $77 million in 20-year construction bonds to turn the World’s Fair relic Coliseum into KeyArena. The council also agreed to give then-Sonics owner Barry Ackerley a 15-year lease. The five-year difference between the lease and the bond debt, which was scheduled to last until 2015, is what made the franchise so attractive to Bennett when he purchased it in 2006.

The worst-case scenario for Bennett was that he could operate the team in Seattle for four years, then take the team to Oklahoma City. He slickered the council and escaped in two.

All of the council’s dubious history with the arena doesn’t mean that OVG’s deal isn’t the greatest thing to hit Seattle since rubber boots. But when I hear Harrell, a former University of Washington football player, describe basketball and hockey as “that kind of activity,” I get the sense he has the same priorities now as in 2008, when he voted to let the Sonics go.

That’s OK. There’s many more important agenda items for the council than what amounts to a hood ornament on the civic car. But council members, and OVG, would serve more honestly the market’s many basketball fans if they simply dropped the idea of a return of the NBA as any kind of community virtue or priority.

Given the history between the building and the government that runs it, and the history between Seattle and the NBA, I’d just as soon see the final expansion franchise go to Atlantis.

Expected contributions from Oak View Group to KeyArena redevelopment

 Seattle City Council summary

  • $600 million in project costs, plus all cost overruns.
  • $3.5 million to cover the City’s cost for the hiring of expert consultants and legal counsel during the MOU negotiation process.
  • $250,000 for a transportation consultant to develop a neighborhood mobility action plan.
  • $40 million payment for transportation improvements over the 39-year lease term (approximately $1 million per year), as informed by the mobility action plan.
  • Guaranteed baseline rent and tax guaranty payments, amount to be determined by an accounting firm based on the four-year trailing historical annual average of arena-related revenues for years 2014 through 2017 (roughly estimated to be approximately $2.6 million per year.
  • $20 million in-kind or cash to non-profit organizations, including $10 million dedicated for YouthCare. Council amended the MOU to require that at least half the contributions be made in cash.
  • $1.5 million to relocate the Seattle Center campus’ skate park and maintenance facility.
  • $500,000 for relocation of other affected Seattle Center tenants.
  • All costs related to temporary and permanent relocation of Pottery Northwest
  • Hire and pay for a community liaison.
  • 14 rent-free days per year for the Seattle/King County Public Health Clinic, Bumbershoot, and other community events.
  • Dedicate one percent of construction costs to the 1% for the Arts Program.
  • Make a Mandatory Housing Affordability payment for the increase in arena square footage.
  • Arena workers are expected to be paid a prevailing wage, and current qualified KeyArena employees will be offered an equivalent job following the arena’s opening.
  • As revenue collections begin, the City will collect 25 percent of excess revenue in the first ten years of the lease, and 50 percent for the remaining years beyond the baseline rent and tax generated.
  • If arena tax revenues ever fall below current levels (about $2.4m/year), OVG will reimburse the City the difference.

 


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YourThoughts

  • coug73

    Savvier, or savior? Savoir-faire perhaps? I enjoy your work Art. My work is done here.

    • art thiel

      C’mon, Coug73. Your work is never done. What happens if Leach goes to Oregon?

      • coug73

        Leach is a strange duck so he may get the flock out of Pullman. I hope he doesn’t steal Grinch.

        • woofer

          …and, of course, that Grinch doesn’t steal Christmas.

  • Matt712

    It seemed from the beginning that the SoDo arena plan went all in on a losing proposition, perhaps never fully understanding the breadth and depth of the NBA’s distain for Seattle. The city counsel, on the other hand, has understood all too well – and with some members, the feeling being mutual.

    The SoDo plan had a half-court shot’s chance before the failed attempt at acquiring the Kings. Afterward… back up to row Z in the stands and put a blindfold on.

    • art thiel

      Hansen always believed that big money investors would show up buy the team once he cleared the city permitting process with a street vacation.

      Missed by one vote in council chambers on May 2016.

  • DJ

    Thanks for making sense of the senseless, Art.

    So I wonder what the SoDo team of Hanson, Wilson, Nordstroms, and Walker are thinking?
    I heard something about a letter they’d sent to the city council when their MOU expired.

    I’m not at all a Walker fan, and believe that he took advantage of the prior lease situation that you described, and Seattle, to make a wad for himself in the Shultz partnership, which I believe he brokered. In that, I expected that Wally had enough sources of NBA insightful information, which would serve him again by informing him of the chances for a return of the NBA to Seattle. His addition to the SoDo group, to my disdain, indicated to me that those chances were good. I now would question my theory, unless this is a long term plan for the 2024 time frame, or the SoDo group is waiting for some sort of implosion of Oak View efforts and will be ready to save the day.

    • art thiel

      The Hansen crew thinks no NBA owner will accept OVG terms, even if offered a one-third share of building equity. But Leiweke has a grandiose vision for revenues as part of his arena-alliance network that will draw advertising for 27 arenas, including Seattle, instead of one. Among other things.

  • StephenBody

    I’m sure everything you’ve said here is true, Art. But the inescapable, overriding core fact is that there is NO way – short of what would almost certainly be an inadequate subway or bus tunnel extension that would only halfway address the problem – to get masses of people in and out of Lower Queen Anne with any timeliness and efficiency. IF, in an ideal world, we were all the sort of good sports and good citizens who would stoically suffer serious inconvenience and a two hour commute to and from games, we might be able to make LQA work. But we are not and the area is now FAR more congested than it was when the Sonics where here. The city council, like a collective realization of Dustin Hoffman in “Rain Man”, kept chanting, “Well, what about Key Arena? What about Key Arena?” until somebody arrogant and greedy enough came along to tell them that an area and arena that the NBA had already rejected could be ginned up to resemble an acceptable venue. I don’t personally care for the SODO/Hansen plan, either. I just want to be able to go to a fuggen game without the sort of Quest that would have led Don Quixote to say, “F**k it. Too much trouble.” There is NO way to make Lower Queen Anne accessible. NONE. And the reasons why Leiweke succeeded and Hanson failed don’t really matter, at this point. What matters is that we’ve been handed a s**t sandwich and told it’s a gourmet delight and that there are people in power who truly believe that we are stupid enough to buy that.

    • Colonel_of_truth

      I’ve never had problems getting to Seattle Center for an event. Just don’t drive. Or park outside LQA and take transit the rest of the way if you have to. That may sound inconvenient, but think of the time you’ll save from being stuck in traffic (bus priority lanes are helpful) or dealing with parking in LQA. With a little planning and a transit app or two, it’s no big deal.

      • Howard Wells

        you are the future! but are there 17K of you?

        • DAWG

          Delusional. That’s the story SDOT wants us to follow. KeyArena is not a Regional Asset. KeyArena is a Seattle asset exclusively and diminishes Seattle Center’s importance to the Region at large. This decision was, yes, impulsive and convienant for now. Bad for the future and Region.

          • art thiel

            Not sure I get how the Center isn’t a regional as well as a city asset, especially when tourism is included.

      • art thiel

        It’s true that mass transport is an option. But as I said above, you have to convince/train rich people and/or families of four to do your routine.

      • StephenBody

        Even busses get stuck in that heinous late rush hour traffic. And define “never had problems”. There’s a BIG difference if you’re riding in from West Seattle versus from Shoreline or Bellevoid or Issaquah. Did that trip take you over an hour? THAT, to me, is a problem, unless I’m coming from Tacoma or Everett. And you know dammed well how Americans are. If we COULD get people to seriously consider mass transit, NO city would have a traffic problem. Find me a city that DOESN’T have one. You ride the bus? Great. DON’T expect very many people to follow your lead.

    • Mavis Jarvis

      Actually, lower Queen Anne will get light rail in 2035. A long ways off, but it’s going to happen.

      • DAWG

        Oh, how refreshing and hopeful. Let’s contemplate what growth will bring to Lower Queen Anne, Upper Queen Anne, Dexter, Denny, Belltown, South Lake Union, Elliott Ave, Interbay (15th) and Nickerson. Sit back in your easy chair. Sip some chamomile tea . . . not too hot now. Yes, hmmm. It’s coming to me. I think I see it now. Yes. It’s clear now. Light Rail (not Heavy Rail) is 50 years behind where it should be today. By 2035 you want to speculate on a better or more optomistic future ?

      • art thiel

        I believe people will embrace light rail to LQA as they have the threat of climate change:

        Not my problem.

      • StephenBody

        Really? Yeah, I know there have been plans floated but we have now voted THREE TIMES to extend the monorail and there is not one additional millimeter of monorail beyond the original tracks. Why? Zoning issues, land rights, private ownership blocking right-of-ways, and it is NOT a situation in which the city can exercise eminent domain. Queen Anne is a long-established neighborhood. The city council would have a twenty year fight on its hands if they tried to ram though a lightrail line into that area and they’d be instigating a fist-fight with many of the very people who form their strongest and oldest power base. You can believe in the faint, vague promise of light rail “someday”, if you like, but it’s not going to happen within the lifetimes of anyone reading this post today. Be sure to tell your grandkids about it. They tell their kids and maybe, one fine day, THEIR grandkids can ride the trains.

    • Matt712

      The SoDo plan went all in on hoops (the original MOU stating that ground would not be broken until an NBA team was secured) so, it basically became a non-starter after the failed attempt to acquire the Kings. There was no time-table and zero assurances (still aren’t) for the NBA to return to Seattle. In the mean time, the city is offered a complete makeover of their own building starting next year, at no cost to it, along with some (however token they may seem) additional improvements and community spiffs. And the city will share in whatever spoils its reimagined house will bring.

      Call it whatever kind of sandwich you want. But it is a real sandwich. As for the SoDo plan…
      “Have you ever heard of a ‘wish’ sandwich? It’s the kind of sandwich where you have two slices of bread, and you ‘wish’ you had some meat.”

      • art thiel

        True. It’s a real sandwich, minus the meat of an NBA franchise, which was the primary purpose of the mission.

        Missions can change, apparently.

      • StephenBody

        You can go ahead and call it whatever kind of sandwich you like. I made it clear that I’m not lobbying for a reconsideration of the SODO arena. I don’t want it there, either. In fact, I don’t want the fuggen thing AT ALL if it cannot be built in some accessible location, in which ingress and egress is not a two-hour, teeth-grinding ordeal. Everybody is SO damned determined to have a team, at ANY cost, that they’re now cheering for a plan which lands the city and sports fans right back in an even worse unholy mess than the Key was when the Sonics were there…and as a Queen Anne resident, at that time, I’m not guessing at all about what a debacle that was. The SODO plan wasn’t much better but at least it was somewhat close to I-5 and 99 and there were wide surface streets to handle more traffic. NONE of that is the case in LQA. This is, BY FAR, the most congested arena site in any American city and there is NO feasible solution to the problem. If you live outside Seattle and want to spend two to three hours getting to the game and two hours or so getting home again, knock yourself out. Just don’t imply that I’m some sort of unrealistic goober for not wanting to turn a trip to the ball game into the Search for the Holy Grail.

    • DAWG

      Concur

    • art thiel

      The hope for LQA has two parts:

      The rich people who can afford concert/game tickets will accept some sort of mass transportation to the Center;

      Population density in downtown Seattle will be so great that the arena can be filled with car-less people who can walk/bus/rideshare/monorail to the Center.

      And then there’s the third idea from Leiweke: Drones.

      Feel free to choose.

      • DAWG

        Brave new world.

      • StephenBody

        I believe there’s already a drone that you can ride. It’s called a “helicopter” and even that needs some place to land and something that could carry in any meaningful number of patrons would be military and would need a space the size of the arena footprint to land. I think your first option probably hits it squarely on the head.

  • Guy K. Browne

    “As revenue collections begin, the City will collect 25 percent of excess revenue in the first ten years of the lease, and 50 percent for the remaining years beyond the baseline rent and tax generated.”

    I hope they have defined “what is rent”… I foresee a future where rents are below market, but substantial management fees are collected, all of which would likely go directly to OVG. Ticketmaster defined the business model, others have employed it to great success.

    • art thiel

      OVG is guaranteeing a minimum payment of rent and fees, regardless of revs, and the amount, about $2.6M, shouldn’t be difficult.

  • Effzee

    1) Its funny that this whole thing started out as Chris Hansen trying to bring the NBA back to Seattle, and ended with a new Key Arena deal for a different investor group and a different sports league altogether.

    2) Wally Walker killed the Sonics fan base, which led to the team leaving. As soon as he hopped on board with Hansen, that whole deal went downhill too. On the bright side, I guess we can all be relieved that we don’t have suffer any more Wally-ness.

    • art thiel

      I don’t think Walker was toxic to Hansen’s plan. It all would have worked had Ballmer had the patience to stick around.

      • Playhouse

        True, Walker is a good guy with the best intentions for a Sonics return. It doesn’t sound like he’s been the strongest spokesperson, and with Hansen unable to be around on a regular basis, that job fell to Wally. They needed to bring on a stronger voice.

      • J S

        I think the fatal flaw for Hansen is that he did not have the background in playing the Seattle political game needed to make sure that the yes votes stayed yes votes.

        Also, his PR game or lack thereof was also a flaw. Especially during the street vacation vote. I don’t know if he was here personally to Shepard the votes through, but i didn’t hear anything that he was. Having him there at council meetings would have been good optics.

  • DAWG

    Thank you, Art.

    • art thiel

      You’re welcome.

  • Tom G.

    I just wish the City government and OVG understood that next to no one trusts them to do the right thing at the moment as it relates to realistic traffic mitigation that accounts for cars and making it easier to bring the Sonics back once the arena is finished.

    The die-hard hockey fans that desperately want a team and a few of the special interest groups trust the City and OVG. But beyond that I think there are reasons why no one really showed up at City Hall to cheer on OVG and the City the other day; and I think “arena fatigue” is a little too simplistic of an excuse for it.

    And what’s disappointing is the Council and Mayor won’t care about how happy people are about the arena because it won’t cost them votes if it goes haywire.

    • art thiel

      The X-factor in traffic is what motorists will do once the new 99 tunnel is opened in 2019 with tolls and no downtown exits. I don’t think even the experts can forecast behavior without more specifics.

  • Husky73

    Outstanding analysis, Art (as always). I remain skeptical that this can be pulled off as OVG has sold it. I also remain skeptical that the next NHL franchise will NOT be in the east, and that the NBA will expand in the foreseeable future (5-10 years?). That being said….where do the Storm and the Redhawks play in the coming years (during construction)?

    • art thiel

      OVG will pay the Storm $2.5 million to endure a two-year relocation. Likeliest venue is Hec Ed. But arenas in Kent and Everett are possible, even the T-Dome.

  • Kirkland

    I’m a diehard hockey fan, but I’m very angry right now and will not support a Seattle Center team. Besides the usuals (traffic, devious politicians, distasteful Leiwicke playing Trump-style divide and conquer), I believe in “something for everyone”. What’s wrong with accommodating for both the NHL and NBA? This was supposed to be righting the wrong of the Sonics theft, and instead that cause got hijacked. Plain and simple, the basketball fans were let down by the power brokers and those in charge here. Again.

    I don’t care for the NBA, but I savored the microscopic possibility of a Seattle joint Stanley Cup/Sonics championship parade. That dream just got punted far into the future.

  • Marty Aalto

    Art – Has any independent financial wizard confirmed that the OVG plan is going to make money for OVG without a money making NHL tenant? Seems like spending a lot of money for a concert venue. I’m concerned that we will end up with an NHL Coyotes type situation 10 or 12K people paying $80 to $100 per ticket and the team losing significant money and if I understand it, the arena / team package will cost 1 billion dollars… and they are going to make money? how?

    • Kirkland

      A friend went to the Bruno Mars concert in the Tacoma Dome earlier this year. She said she saw tickets with a face value of $500 (!). Multiply prices near that by 18,000, and you’ll see why a midweek concert is more desirable for an arena owner than a midweek game against, say, the New Orleans Pelicans or Columbus Blue Jackets. NHL tickets are expensive, but not *that* expensive.

      Add in a dozen more concerts of the big names with those big prices, and you’ll easily offset the losses from a bad NBA/NHL team … or earn a huge profit WITHOUT a team, a la Kansas City. As a sports fan, that’s my biggest fear, a bait-and-switch.

  • Really?

    “As we say in the world of hockey, he lit the lamp.” We? Has Art written a story on a hockey game in his life, and certainly in the past, oh, quarter century-plus? LOL

    “The NHL needs a team in Seattle. The NBA needs an empty market in Seattle.” The NHL would probably like a team in Seattle, OR PORTLAND. Still, obviously, the NHL has a rich 100 year history essentially sans Seattle. The NBA, at times, may benefit from playing Seattle off of cities that are too stupid to realize the NBA could not move a team to Seattle right now if it wanted. Big question on that one, however. Furthermore, in a perfect world the NBA would much rather prefer to have a team in Seattle. So, regardless of how you break it down, hardly “needs an empty market in Seattle.”