21 July 2006
Meanwhile in the Emerald City
Nick Licata, who presides over the Seattle City Council, has an idea what to do with a Sonic-less KeyArena:
It would be an opportunity for a real public-private partnership of a different sort than, say, professional sports. We could convert KeyArena to a new type of facility that would reflect new 21st century technology. In Las Vegas, 15,000 show up for a national gaming conference. Why not have those people come to Seattle?
Why not, indeed?
Licata drew flak earlier for suggesting that the value of professional sports was "on a cultural basis, close to zero." Asked about this and other issues by a Sonics fan, he sent an explanation, attached as a comment to this thread:
I have been saying for months that I would like to see the Sonics stay in Seattle, but not at a cost of over $200 million. As I stated several months ago, there is no doubt about it, my glib, foolish remark on the relative unimportance of professional basketball in Seattle was smug and wrong. In my clumsy way I was trying to point out that Seattle is a world-class city for a variety of reasons, not just because of the Sonics. Public leaders need to ask the right questions, and then listen to the answers instead of providing good press copy. As an elected official, it is my job to weigh competing interests and decide what is the best use of taxpayer dollars. Let me give you some background on this issue. In 1995, after a City Council vote, the former Coliseum was rebuilt into KeyArena at the request of the Sonics. That same year, the voters of King County narrowly voted down a baseball stadium. The State Legislature and the King County Council overturned that decision. In 1997, state voters narrowly passed a measure for a football stadium. Partly as a result of voter anger at the baseball stadium vote being overturned, state voters then passed a series of anti-tax initiatives that constrained the ability of local governments to pay for basic services. This forced cuts in services, and has had a lasting impact. Some governments, such as King County, have had to eliminate entire lines of business, such as providing swimming pools and park construction. Right now the Seattle City Council is considering a tax levy proposal from Mayor Greg Nickels to provide funding for road and bridge maintenance. This is needed because a principal funding source for this basic, core service was removed by an anti-tax measure. One goal of anti-tax measures was to force local governments to put measures on the ballot for voters to decide what they want government to do, so this is in line with the intent expressed by the voters. That is why I believe it is fair for the City Council to insist on a public vote for any tax proposal for a new basketball arena. These initiatives have forced elected officials to carefully choose what items to fund. For this reason, the Council crafted a set of reasonable conditions for negotiations, and the Mayor's office began discussions with the Sonics' former ownership.
The economic model for professional basketball includes a reliance on public subsidies. The level of subsidy required for a NBA franchise has increased considerably in recent years. The Sonics consider the 1995 version of KeyArena obsolete, only 11 years after its construction. This is not an isolated case: Memphis built a new arena in 1991, and then again in 2004. The economic lifespan of NBA arenas is decreasing and the amount of public subsidy formerly a small portion is now expected to be the overwhelming majority. This is the economic model of the NBA nowadays. Keep in mind, the bonds used to finance construction of KeyArena will not be paid off until 2014, four years after the Sonics lease expires. The current business model of the NBA depends not only on public subsidies, but on generating revenues from arenas that are much larger than KeyArena, in order to generate revenue from restaurants and shops. They want all the revenue the arena can generate, including from concerts, which are more profitable than Sonics games. NBA arenas are becoming as much malls as sports arenas. That is why KeyArena is considered obsolete, not because of any structural defects, or lack of good sightlines, for example. As the KeyArena business plan notes, it was rated "Best Venue in the NBA" in 2004, and has won Facilities and Event Management's "Prime Site" award three times since opening. The question is, how much is enough? The proposal for a $220 million KeyArena remodel, when including the remaining debt, and financed at 6% interest, would cost an annual $40 million tax subsidy for 15 years. I developed a proposal that would have provided $8-10 million in new annual revenues for the Sonics. The Mayor of Seattle proposed three options to the Sonics. One of the options would have provided a $20 million annual increase in revenues for the Sonics. The Sonics' former owners did not respond to any of the offers, and instead sold for $350 million the business they purchased 5 years ago for $200 million. This was their business choice; they chose to take their profits by selling the team, rather than accepting one of our offers and submitting it to the public for a vote.
(Originally presented as a single paragraph, divided here for reasons of appearance.)
It won't necessarily happen exactly that way in Oklahoma City, the Home of Creative Financing, but down the road, we're going to have to deal with these issues.Posted at 6:43 AM to Net Proceeds