Thiel: Arena deal passes scrutiny from experts

No score is kept in the game to get the NBA game back in Seattle.

But if there were an accounting, Thursday was Arena 1, Opponents 0.

King County’s budget committee heard from a volunteer panel of seven longtime local experts formed six weeks ago to assess multiple aspects of Chris Hansen’s proposed $490 million basketball/hockey arena in SoDo.

No single conclusion was reached in the report, which can be found at the bottom of this page.  That rests with the councils of the county and city.

Neither were red flags sent up. Which, in this game, constitutes a stage win, as they say in the Tour de France. There were questions, concerns, request for deeper information, but no one shouted, “Bogus!”

There was, however, this shot from Dick Conway, a local economist long experienced in the business of pro sports. It wasn’t directed at the arena.

“If I were at the Port of Seattle,” he said, “the arena would be the least of my problems.”

After presenting report on the arena’s economic impact on the area (negligible) and market analysis (borderline over-saturated with two more pro sports teams), Conway also contributed an analysis of the claims by the port, the arena project’s most high-profile challenger,  that the arena would be a “job-killer” by further congesting the already crowded front door of the port on First Avenue South and helping discourage customers in a highly competitive business.

Conway reported that the port identified 194,000 jobs statewide “associated” with port activities. Of those, 56,300 are seaport jobs, the rest airport jobs. Marine cargo handling, the task most directly impacted by increased SoDo traffic, has 12,400 direct jobs and 20,900 indirect jobs — or 1.2 percent of the state’s total non-farm employment.

In Conway’s worst-case assessment, he wrote that loss of all those jobs would have a significant but not devastating effect on the state economy, since the state is currently adding about 50,000 jobs a year. That represents zero solace if one’s job is flushed, but he wrote that, in the unlikely event that the port shuts down cargo handling, most of the jobs would migrate 30 miles south to the Port of Tacoma.

The port disputed Conway’s findings. The port’s media manager, Charla Skaggs, cited Prince Rupert, B.C.,  as an aggressive port that would take jobs out of state, and pointed out that the port has never cited a specific job-loss figure, nor did Conway speak to port officials for his report. Nor was port the lone commercial user impacted.

“The port is not the only generator of freight,” she said. “The port is only part of the traffic that uses SoDo. There’s FedEx, UPS and all the air cargo carriers. There’s the distribution centers that repackage goods.

“There’s traffic people don’t talk much about, like Waste Management, which has a big distribution center is South Park that has trucks coming and going all day, and the school bus depot. All of these users on the same few roads add up.”

Aside from the argument about traffic impacts, the issue of market saturation has been one of the least discussed, mostly because it’s harder to predict than traffic. Panelist Bill Beyers, a University of Washington professor of geography, along with Conway, looked at 22 national sports markets with pro teams and concluded that adding NBA and NHL teams would make Seattle, currently eighth with the Mariners, Seahawks, Sounders and Storm, the third-highest per-capita market for pro-sports saturation, trailing only Denver and Cleveland.

“One way to look at it is that everyone in the market would have to go to two events per year to fill every seat in every building to capacity,” Beyers said. He rejected the claim by the Hansen camp that Seattle was the best major city to which a relocate a team, claiming instead it was third-worst.

However, Beyers’s study is flawed. While he included the WNBA Storm, which is not considered a major sport, he left out University of Washington football, which is a highly professional sport in every aspect but federal tax law. And unlike the Cleveland and Denver markets, which have no major college football within the cities, the UW in its new stadium scheduled to open in 2o13, will be in the dead-red middle of competition with the officially pro teams for season-ticket buyers, suite-holders, advertisers and sponsors. That probably makes Seattle an even worse market for relocation.

“Adding two more teams could have adverse impacts on fan spending for existing teams,” Beyers said, stating the obvious and perhaps the riskiest aspect of the entire enterprise, one that drives the Mariners’ opposition, even though the franchise’s stated resistance is over SoDo traffic.

But it’s also a risk for Hansen and his investors. Since expansion does not appear to be a near-term option for either the NBA or NHL, Hansen almost certainly will have to pull out weak teams from their markets. A honeymoon in Seattle will undoubtedly prevail for a couple of seasons, but lousy teams are part of the risk for ownership.

Although he hasn’t said so, that’s another reason he feels as if the public should be an arena partner. Investors are funding 100 percent of the purchase price of the teams and 60 percent of the arena. The ask from the public is $200 million lease-purchase in the form of construction bonds to be repaid by rents and tax revenues the building generates.

Panelist Justin Marlowe, another UW professor who specializes in public financial management, explained a previously undisclosed reason Hansen wants a public partner: Besides the fact that municipalities can get cheaper interest rates than private investors, they also can get 30-year terms, spreading out the amortization to make annual payments cheaper.

“Since (the market collapse in 2008),  corporate bonding over long periods like 30 years is not available,” he said. “Even 20 years is very difficult find. That drives up the cost of capital.

“Lenders tend to believe King County will be around a long time.  Municipalities are unique for their ability to borrow over time.”

Regarding the entirely of the financing proposal, Marlowe concluded, as have others with experience in public-private projects, that in terms of balancing risk/reward between the partners, is good.

Said Marlow: “It’s one of the better allocations we’ve seen.”

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