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

Credit: Erica C. Barnett

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. 

Although the traffic study won't be finished for another couple of weeks, McGinn, a loud critic of the downtown tunnel — in large part because of its impact on traffic downtown and in Pioneer Square —was surprisingly sanguine about its conclusions. 

Noting that the arena would be at the nexus of light rail, three bus-rapid transit lines, 21 Metro bus routes, nine Sound Transit bus routes, and Sounder trains, McGinn said, "Chris Hansen has chosen this site because of its transportation access. We're at a regional hub. In fact, I don't think you can look at any place in the Pacific Northwest with more transit access." McGinn also noted that the arena, with 18,000 seats, will be significantly smaller than either CenturyLink Field or Safeco Field. 

"People coming to the city is a good thing," he added.

  • The MOU includes a nonrelocation agreement requiring the team to stay in Seattle for 30 years. However, it also includes a provision allowing the team's owners to buy themselves out of the agreement for an amount that will depreciate over the course of the agreement; in other words, the team would pay more to get out of the 30-year deal after one year than it would after 20. 
  • 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.
  •  It's unclear what would happen to KeyArena under the agreement, which notes somewhat vaguely that any NBA or NHL team that decides to play at the new arena "will have the option to play their home games in KeyArena" while the new arena is being built, and that ArenaCo will pay for improvements if the team wants to play there.

What's the MOU doesn't address is whether the company would pay for improvements if the team doesn't decide to play at KeyArena, and what will happen to the old arena after the new one opens. According to a fact sheet put out by the mayor, the new arena will have room for 18,500 NBA fans, 17,500 NHL fans, and 19,000 attendees at concerts; given that big concerts are a mainstay of KeyArena's revenues, the new arena could take a significant bite out of the old arena's profits.

  • If the team goes bankrupt, the city and county will be in a "first tier" position — that is, they'll be first in line to take the team's assets, including taking over the arena itself. 
  • Although Hansen has bought the land for the arena and vowed to buy the team or teams himself, the whole arena project would still have to go out to a public bid, leaving the door open for other investors —such as a group of business and civic leaders who want to build an arena in Bellevue — to propose a better bid.
  • Another hurdle is that the city and county councils both have to agree to the terms of the MOU and pass bonds to pay for the arena. As at previous briefings on the arena proposal, city council members Mike O'Brien and Bruce Harrell were the only council members at today's announcement.

Council budget chair Tim Burgess, who has declared himself "agnostic" on the arena, issued a statement this morning saying that he looked forward to thoroughly reviewing the MOU and determining whether it answers a list of questions the committee asked about the proposal in April, including what the transportation impacts would be, what the financial impact of a new arena would be on KeyArena and Seattle Center, and what kind of extra services (utility, medical, police, fire) the new arena would require. 

"We will determine if municipal bonds for this project are an appropriate and wise commitment from the City," Burgess said. "We will also explore any risks to the City’s financial stability and whether this investment provides sufficient public benefit."

The city council's budget committee will hold a hearing on the arena proposal at City Hall on May 31 at 9:30 am. The county council's budget committee also plans to hold a hearing soon on the proposal. 

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