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There's also a joker in this deck: once the depreciation allowances are used up, there is greater incentive to sell a team. And after the host of benefits accrued along the way, financial penalties for leaving town are usually a small price to pay unless the agreements made concerning early exits have been made ironclad and very expensive.
Fourth, the operation of the team or the operation of the stadium may each provide a strategic profit or a loss, whichever the owners prefer. Between the many ownership entities, arcana such as seat licensing, beverage-pouring rights, and other allocable revenue, income statements and balance sheets can be driven in the direction needed. It will all be in the very fine print.
Fifth, in the case of the Seattle arena, if the backers propose to manage the construction of the stadium, they will earn some markup on that. How much needs to be perfectly clear. The same may apply to KeyArena if the Hansen group takes on the downsizing of it and its new management. Parking concessions are another lucrative stream of revenue to be clarified.
Sixth and last on my list are the government bonds that provide the local $200 million in financing. If the City and County issue public financing (bonds) for the arena, key questions are whether they are tax exempt, and what interest rate will be paid. For bonds to be tax-exempt, they need to pass a two-part "Private Activity Test. (PAT)" One part of passing the test would be for the bonds to be general obligation bonds backed by "full faith and credit" of the governments. That puts the government potentially on the hook if things go wrong. The alternative is revenue bonds, which are backed only by specific revenue streams pledged against them. Revenue bonds are riskier and costlier, because they are perceived to have less security.
Another part of the PAT test requires keeping the private activity revenue stream below 10 percent of the value of the bonds. If the MOU comes out with strangely low arena rents penciled in, that could be a clue that someone is angling for tax-free status for the bonds. That's complicated but hugely valuable, because if you also want to acquire a few hundred million dollars of tax-free bonds in a municipal project, the tax-free income on those bonds amounts to millions of dollars a year. (Bond policy wonks can dive deep here.)
According to King County budget director Dwight Dively, "much of this is not yet resolved, so these are tentative thoughts. It is likely that most of the debt will be taxable because it involves private activity." Dively continued, "It might be possible to issue these as revenue bonds without a 'full faith and credit' pledge, but the interest rate would be significantly higher. At this point, I assume the arena debt, if issued, would be GO (general obligation) bonds with the full faith and credit pledge."
And what does the public get out of this? The fiscal upside is far more modest, though it can be rewarding to a few politically powerful sectors: short term construction jobs, and later on, part-time, low-skill, low-wage concession jobs or waiting tables at nearby sports bars. Boosters will claim that government stadium subsidies produce or sustain huge numbers of jobs, through tourism and add-on effects. Potentially, but many of these jobs are just displaced from elsewhere in the region (as for example when someone grabs a burger near the arena rather than one closer to home in Bothell).
There will be major costs to the public as well. Making arena and other sports traffic and nearby rail and Port of Seattle operations able to coexist in an area of industrial activity is going to take tremendous resources for new transportation infrastructure. That will have to be funded by public agencies, possibly buried in a special levy for multiple road projects. As to the point that, after 30 years, the governments will end up owning both the land and the stadium. Is that a benefit or a white elephant? Think KeyArena 2.0: old, tired, empty, and expensive.
Above all, information asymmetry is a huge risk in negotiations. Time for a very hard look at all the aspects of this deal, by independent inspectors. If we understand all the upsides for arena investors, beyond professed civic pride, then the negotiating playing field will be leveled.
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