Council on arena: Pass the sweeteners, please

It's endgame time, and the Seattle City Council is extracting a few final ounces of flesh from Chris Hansen.
Crosscut archive image.

Chris Hansen, left, with Mayor Mike McGinn during a press event.

It's endgame time, and the Seattle City Council is extracting a few final ounces of flesh from Chris Hansen.

Monday was a busy day of arena developments, starting when a coalition of local Port-focused businesses urged the city to table the arena proposal because of its negative impact on area industrial businesses. A midday city council presser followed, at which President Sally Clark, Tim Burgess, and Mike O'Brien answered questions about the council's long letter that told Hansen, in essence, to finish his homework on the deal.

By the end of the day, down the street, the King County Council approved as expected the County's lower-risk "junior partner" participation in the deal by a 6-3 vote.

So now, whether a Memorandum of Understanding (MOU) to provide $200 million in public bond financing for a new NBA/NHL arena is approved has more to do with San Francisco millionaire Chris Hansen's hedging skills than it does with the turn of Seattle politics or public policy debates.

If Hansen is as sharp as they say and has built enough hedges into his MOU to anticipate the basic back-and-forthing under way, then he is likely to quickly overcome the opposition of city councilors and clear the way for the Arena to proceed. But if Hansen has not built in enough hedges to reach a middle ground, or if his stomach proves too delicate to endure what remains a modest helping of torturous Seattle process, then his Arena deal will fail.

At yesterday's press briefing, city council leaders talked about their four-page letter, signed by a veto-proof majority, outlining the work that they say Hansen and investors must do to obtain their approval. Councilors also said that one way or another, they hope to bring the matter to a vote before the full council recesses on August 20.

The eight council signers (all except Bruce Harrell) called for more information, better protection for the city against financial risk, and a cut of the tax revenues generated by stadium activities. They also demanded to see some sort of "basic business plan" including "level of capitalization," both of which, according to Councilmembers Clark and Burgess, have not yet been provided.

The letter goes on to say that the city will need to get all of the information any business partner would ordinarily get: "If the City is to enter into this public-private partnership, we should expect to see the same information that all your other partners and commercial lenders will have before making their investments."

Game on, in other words, if Hansen hopes to get hundreds of millions of dollars in city-backed financing. What Hansen does next is likely to determine the outcome. Some combination of a better financial deal for the city, firmer financial guarantees, and lots more information is likely to do the trick in "getting to yes." It won't need to be everything the council asks for in its letter, Clark said in her comments Monday.

If Hansen does too little to meet the council's objection, the deal could fall apart, but that seems unlikely, despite the apparent solidarity of eight votes now opposed. The needed votes are likely to tip if enough tidbits are thrown into the deal, because the calculus of pro sports stadium deals everywhere relies on an established realpolitik: there is limited upside to having  sports fans on your side (they don't vote that often and many don't live in your jurisdiction), but there is a major downside to having them campaigning against you (they never forget and they never stop).

Only a complete rookie at dealmaking would attempt such a big one without holding some hedges in reserve while shrewdly insisting that there are none. There are no signs that Hansen is a rookie. Not for a minute is it credible to think that he has not had a detailed business plan and a list of secured partners, those about to confirm, and updated prospects – perhaps updated daily – sitting on his servers. His holding back of basic information until this point is confirmation of his advantage in the negotiation process. If all it takes is releasing some tactically held back information and a financial spiff or two, he's got the council right where he wants 'em.

If the deal fails now it will be that Hansen loses his patience or that councilmembers' distaste for letting a win land in the mayor's column overwhelms whatever final deal Hansen offers. Though council distaste for the mayor may play a role, it is probably not so much as to wreck the deal, provided Hansen sweetens it enough to peel off four more votes.

So the broccoli-and-hard-math work of performing true due diligence on the deal – or at least appearing to - now falls to the Seattle City Council, whose members bear the entire risk of alienating boisterous legions of Sonics fans.

But if Hansen steps up with enough increased incentives, better financial risk-sharing, and the appropriate level of detail to show that he truly views the city as a partner-at-par with his own hedge fund clients and one-percenters in his syndicate of investors, he's likely home free.

What would such sweeteners be? A slice of the take, in the form of carving out some arena tax revenue for transportation improvements, mitigation of Port impacts, or maybe some trifle like investing $10 million to reinstate the historic waterfront trolleys and extend their line through the stadium district, as Seattle Times columnist Danny Westneat advocated

The most impressive outcome would be if the council were to pursue a public-private partnership of equals, something like a normal business partnership as proposed by state Rep. Reuven Carlyle. This could involve the city's getting some equity in the deal as a preferred shareholder, instead of simply being the $200 million guarantor of last resort. Were the tables turned on Hansen, one can be sure that this notion would be near the top of the terms sheet.

Mayor McGinn emerges appearing strategically shrewd on the Arena. Liked or no — and polls show him to be consistently and resoundingly disliked, he will now reap what political credit there is to get from sports fans generally and Sonics fans in particular, no matter what the council does. McGinn was either the instigator of the Arena deal or the deliverer of its wealthy backers to the city. (We don't know conclusively whether Hansen called McGinn's handlers first or if McGinn's then-secret arena consultant  called Hansen's handlers first.)

Ultimately, one casualty of this may be Mayor McGinn's political brand. The business of cavorting with millionaires to deliver giant chunks of public financing to what is unquestionably a largely private venture— all the while cutting round after round of city budgets and going back to the voters for basics like schools, seawalls, and libraries hardly seems the work of an insurgent liberal fighting the system to protect the disenfranchised. If McGinn ultimately does decide to run for reelection, an important strategic question for him will be: Are there more Sonics fans now backing him than former core supporters he may have lost? As Mayor McGinn often puts it, one way or another, the people will ultimately get their say.


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About the Authors & Contributors

Matt A. Fikse

Matt A. Fikse

Matt Fikse-Verkerk (Twitter: @mattfikse) covered urban affairs, politics, tech, and business at Crosscut from 2009 to 2014. He lives in Seattle and works for a biotechnology firm in Redmond, WA.