Afternoon Jolt: County executive, mayor reach arena agreement with investor

The day's winners and losers.

Today's loser: KeyArena.

As if Seattle Center's lackluster 50th anniversary celebration wasn't enough of a letdown for the Center, the mayor and county executive effusively announced a new arena today that will essentially unplug the Key, leaving the arena with fewer of the events and concerts that made it profitable last year. 

KeyArena, of course, became a liability for the city in the past decade because of a bad deal the city cut with the Sonics in 1995, when the city financed a $77 million upgrade ($130 million with debt service) on the promise that gate revenues would be enough to pay the city back. They didn't, and the Sonics — who were ultimately supposed to cover the debt themselves — were in the red, forcing the city to make up the difference, to the tune of $2.2 million a year.

Although the new proposed arena comes with more guarantees, the city and would be on the hook for unpaid debts if all the protections in the agreement failed.

City and county officials said they've learned from the mistakes they've made with past stadium and arena projects, and King County Executive Dow Constantine and Seattle Mayor Mike McGinn said the deal announced today would protect the city and county from financial risks. 

The agreement, Constantine said at today's announcement, is "unprecedented in the guarantees and the protections that the public gets for its investment. … It's one of the larger commitments of private capital ever made in America." 

In a media briefing prior to Constantine and McGinn's official announcement, county budget director Dwight Dively and Seattle deputy budget director Hall Walker explained the details of the agreement. Dively noted that the city has funded four stadium projects in the past, with mixed results for taxpayers, and that "we think we have learned the lessons of those four agreements and have embodied them in this memorandum of understanding."

Among the details, some of which would help address those lessons:

  • The arena itself would be paid for and built by ArenaCo, the company headed up by Hansen and his still-unnamed team of investors. They would be responsible for all cost overruns on the project and would put aside a reserve fund worth one year of debt service as a failsafe. 

The city and county would buy the land for the project from Hansen, who has been buying up land in SoDo, for no more than $100 million, paying for the debt with general obligation bonds issued by the City Council. (Hansen spent $22 million for one of the parcels where the arena would go, and bought several smaller parcels, encompassing about the same area as the $22 million parcel, for an undisclosed amount). 

  • Construction of the arena is contingent on acquiring an NBA team. However, the arena can be built without an NHL team. With both teams, the total cost of the arena would be capped at $200 million — $120 million from the city for the NBA team, and $80 million from the county for the NHL team. If the new arena company, called ArenaCo, can't acquire an NHL team, in other words, the county would be off the hook and the entire public cost of the arena would be borne by the city. 

Asked whether the deal was better for the county than the city, Dively responded: "In this agreement, the city's tax revenues are significantly larger than the county's. We were always going to be a junior partner in the agreement."

  • Before the arena can be built, the project will have to go through environmental review, including review under the State Environmental Protection Act (SEPA) and an environmental impact statement. 

Additionally, Hansen is funding a traffic impact study to see how the new arena will impact congestion in the area — a particular concern of the Port of Seattle, which already gets hit by traffic from the two existing stadiums. 


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Comments:

Posted Wed, May 16, 2:47 p.m. Inappropriate

In light of Erica's long-demonstrated inability to get basic facts right, I'm going to have to check other sources before commenting on this.

NotFan

Posted Wed, May 16, 9:56 p.m. Inappropriate

That's great news! I'll check back later for your informed and articulately expressed opinion. I hope that you will address each and every point that Erica has made in this article.

Posted Wed, May 16, 2:52 p.m. Inappropriate

Great article. But reading it, all I can think of is the "The Walrus and The Carpenter."

jmrolls

Posted Wed, May 16, 4:28 p.m. Inappropriate

"The agreement commits any team to call themselves the Seattle Supersonics, subject to ArenaCo's ability to obtain the rights to the name and team colors from its current owner."

This is vital. Now what I would like to have seen was a committment that the Sonics original record books also carry forward. Retired Jerseys need to go right back up on the walls thanks very much, with number 21 being next in line

onboard

Posted Wed, May 16, 10:01 p.m. Inappropriate

I've always felt these for profit corporations should post their profit and loss statements on the walls for the fans to appreciate. After all that's who they are supporting: a for profit corporation that exists and plays ball games for one reason only-to squeeze every penny possible out of the community it operates in.

Posted Thu, May 17, 10:11 a.m. Inappropriate

Who is number 21?

206er

Posted Thu, May 17, 10:26 a.m. Inappropriate

doh! meant 20

onboard

Posted Wed, May 16, 7:43 p.m. Inappropriate

Tim Ceis' traffic analysis (paid for by Hansen) does not include Port traffic. It does not include rail traffic *except* light rail; that is, nog those long trains running through SoDo 24/7. It does not include peak traffic counts and it does not include any modeling. It more or less is a PR deal, considering that Ceis' PR firm is one of the partners in the study. Long on confirmation bias, long on "facts" to feed that fix that is already in, and low on actual study. Seattle hasn't seen such a snow job in many years, perhaps, only to be rivaled by our own SPD. If either council passes this, I bet some careers will be ending sooner then later.

An SDOT study from 2010 shows that peak congestion on game day starts at 2:30 PM. So much for that "it doesn't matter cause it's at night" line.

Godwin

Posted Wed, May 16, 10:09 p.m. Inappropriate

I hope you are right, but don't bet on any careers ending. Recall that we voted no on public funding for the Mariners Stadium and it was built anyway with emergency legislation. Quick! Can you name any other emergency legislation passed in the past few decades? Can you name a single politician who lost his office because of overriding the voters expressed opinion and supporting public funding for the Mariners stadium?

If my memory serves me Constantine supported the mariners stadium in word,not deed, because he hadn't been elected yet and then went on to support the Seahawks stadium after being elected. Public subsidies for one of the wealthiest men on the planet earth. I have to stop--I'm grinding my teeth.

Posted Wed, May 16, 8:08 p.m. Inappropriate

If it's such a great deal, there should be no need for public spending at all. Why does the govt get a better bond rating than private investors? Because if all else fails, and all the promises fall short, the taxpayers are on the hook.

Trevor

Posted Wed, May 16, 10:14 p.m. Inappropriate

From King 5:

"In San Francisco, Hansen is a big deal in the investment world. He's in charge of Valiant Capital, a hedge fund worth a reported $3 billion."

Seems like a man of his wealth, financial expertise, and connections should be able to finance this "no risk" deal on his own.

Posted Thu, May 17, 8:37 a.m. Inappropriate

He has plenty at his disposal:

http://sec.gov/Archives/edgar/data/1452689/000114036111051559/form13fhr.txt

Godwin

Posted Wed, May 16, 9:48 p.m. Inappropriate

"Construction of the arena is contingent on acquiring an NBA team."

Well that settles it for me. The city IS really being careful about this deal.

Posted Wed, May 16, 11:11 p.m. Inappropriate

Burgess is agnostic about the arena deal until he sees the polling and assess it's effect on his mayoral ambitions.

Posted Thu, May 17, 8:36 a.m. Inappropriate

One has to look at the disaster in Kansas city to see what our future may hold here; remember, Hansen cited this financing effort as a positive example, right before the WSJ article came out.

http://online.wsj.com/article/SB10001424052702304331204577356471425094502.html

"Today, those taxes generate less than one-third of what is needed to cover the debt service on the bonds."

http://journalstar.com/news/local/govt-and-politics/taxpayer-bailout-of-entertainment-district-not-likely-in-lincoln/article_f2dff61a-58c1-54b7-ae87-77cac9e54f0f.html

Godwin

Posted Thu, May 17, 9:21 a.m. Inappropriate

This $250Million issue has captured so much attention,on the same day that our Seattle School Board considers cutting school bus service to save $250Thousand a year. Do we even pause to think that the first number is a thousand times greater than the second number? Our political priorities too often amaze me.

JimL

Posted Thu, May 17, 10:30 a.m. Inappropriate

I do like that the new stadium should be quite visible from Howard Schultz' office.

onboard

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