The Keys to KeyArena

The mayor has formulated a plan to hand them over to the Sonics—and maybe later build them a new home.

Legislative relief might be doomed this year in Olympia, but City Hall still thinks taxpayers one way or another must pay off the Seattle Sonics' $60 million KeyArena debt, pony up $10 million for a new practice facility, and eventually foot $205 million for "expansion" of "the Key"—in reality, a new arena designed and built by the Sonics. The new tax funding would be in addition to $5 million currently being spent as part of a 2003-2005 "state of the art" renovation for an arena renovated for $74 million just nine years back.

If that's not charitable enough, it turns out the city is poised to effectively give it all away, handing over control of the publicly owned sports and entertainment facility to the privately owned basketball team. The Sonics, by going from anchor tenant to arena manager, could thus "own" the arena much like the Seahawks and Mariners control their taxpayer-built stadiums through master leases—earning revenue on everything from concessions and rentals to parking and naming rights for 20 or more years. Such an agreement could be applied to the existing arena, as well, and extended to a new one if and when it's built.

Outlined in city and state documents, the move would be another step toward quasi-privatization of all of Seattle Center, the prized 74-acre urban commons developed for the 1962 World's Fair and now fondly known as the city's "living room." A Seattle Center planning paper handed out to employees last week outlines efforts to increase sagging Center revenue by jettisoning "underused property"—such as three Center parking lots valued at $78 million—and downsizing operations.

Seattle Center's director, Virginia Anderson, first quietly disclosed the arena plan in a Feb. 22 e-mail to Center staffers. The city, she said, has to "rethink the KeyArena, both for Seattle Center and the Sonics. The renovation of the KeyArena will revitalize the facility. . . . It may also bring other changes, such as management of the KeyArena by the Sonics. At this time, I don't know what that would mean nor is it something that will happen in the coming months. However, I know that this is a very big issue and one that I want to be forthcoming with you about as information becomes more detailed." In a brief e-mail response to questions this week, Anderson did not comment on the arena deal but said there is no plan to privatize the Center. Her spokesperson, Perry Cooper, says the arena move is "still up in the air based on what may or may not come out of the Legislature and the proposals there."

The handover plan is spelled out in little-noticed language in a bill introduced Feb. 23 in Olympia. Getting only weak support, the legislation sought $265 million in tax extensions for a new arena and to pay off debt from the 1994 renovation. That proposal was supplanted last week by a more modest plan seeking $70 million to build a new practice facility for the Sonics and pay off the debt—although that proposal, too, lacks strong support. The Feb. 23 bill makes it clear that the Sonics and the city have devised a development agreement giving the team rights to build a new arena of its own design on the Key site. The Sonics would "enter into a new sole master tenant lease agreement for the multipurpose public arena, together with related facilities"—most likely the First Avenue North parking garage, a nearby office/storage building, and the new practice facility, all built or owned by taxpayers. The master lease would run at least 20 years, and the team "shall assume responsibility for marketing, operation, and routine maintenance."

Additionally, the legislation would give the NBA franchise authority to sublease the facility and "retain all basketball and non-basketball revenues derived from the operation of the multipurpose public arena, including revenues from any sublease, use, license and concession agreements, revenues from concessions, ticket sales, suite rentals, suite and seat licenses, advertising, parking, signage, intellectual property rights, and naming rights." Depending on how the lease is structured, diverted parking revenue alone could mean millions for the Sonics and, at $4.4 million last year, cut into the Center's biggest revenue source.

Last week, Sonics president Wally Walker showed up at a Center staff meeting to chat about the plan and suggested employees contact their state legislators to support an arena tax proposal (although a Sonics handover could mean some Center workers would lose their jobs). A day earlier, March 15, Walker told lawmakers at an Olympia hearing that, if not this year, then somewhere "down the road," before the Sonics' current arena lease runs out in 2010, a new facility had to be built. The Sonics and the city want legislators to extend some existing restaurant, car-rental, and other taxes to aid the team, while incidentally providing about $4 million to arts groups. Without tax aid, Sonics owner Howard Schultz has warned that the franchise could be sold and its new owners might abandon Seattle.

Walker and Seattle Deputy Mayor Tim Ceis told legislators that the annual arena deficit run up by the team—a projected $2.5 million this year—isn't the Sonics' fault, it's the Mariners' and Seahawks' doing. The 1994 arena-financing plan "worked well at the start," said Ceis, with revenue from luxury suites dedicated to paying off the renovation debt. But once the Seahawks and Mariners built new stadiums—Safeco and Qwest fields—and added 189 competing suites, the arena financial plan began sucking wind, Ceis said. Walker called it a "financial model not sustainable for the future," and said, "Something must change." He complained about the team having to pay both rent and mortgage, although that was the 1994 deal the team signed under then-owner Barry Ackerley—who boasted about an expansion financed by no new taxes. It was also the deal Schultz legally inherited when he and 57 other investors bought the team in 2001. Not that there weren't red flags: In 1993, two then–City Council members, Jane Noland and Jim Street, voted against the plan. Street thought it was shaky and wanted the Sonics to guarantee repayment. Noland called it a "bad deal," warning presciently: "The public pays for all these mistakes."

Mayor Greg Nickels has not spelled out the sweetheart arena management plan to taxpayers, much as his office kept the public in the dark about the recent sale of a Center parking lot to the private Bill and Melinda Gates Foundation (see "Charitable Terms," March 16). That secretly negotiated and swiftly approved $72 million transaction arranged by Nickels may net the city only $20.5 million. Two other Center parking lots are also being sold for $6.4 million, affecting the 43-year-old Center's future as a stand-alone city department. Its public role is shrinking as it sheds land and increasingly ministers to wealthy private tenants such as the Gates Foundation, Microsoft co-founder Paul Allen (developer of the architecturally challenged Experience Music Project on Center grounds), and Starbucks CEO Schultz. According to city planning documents, the Center's long-range plans include possibly turning over management of its new $127.8 million McCaw Hall to the Seattle Opera and the Pacific Northwest Ballet in another master lease deal. Additionally, the old Mercer Arena might be razed and replaced by offices and a commercial hotel to be run by the opera and ballet organizations. Also on the chopping block is 12,000-seat Memorial Stadium, owned by the cash-strapped Seattle School District; it could be sold and the site used for new private development. One city plan calls for lidding the athletic bowl and building a parking area below.

"With the loss of the arena and the opera house," says one longtime Center maintenance worker familiar with the planning, "we won't have much to do, and our jobs will fade away." The Center's remaining maintenance operations could be turned over to the parks department, he says. Despite its $35 million budget, the Center is $10 million in the hole and relying on the sale of the three parking properties to temporarily shore up finances. Augmented by $62 million in voter-approved redevelopment levies since 1990, the Center's operations will likely require new tax revenue—another levy or help from Olympia—to stay in the black.

Longtime sports-stadium critic Chris Van Dyke says the public, sometimes offended by the obscene sums paid to ego-inflated pro athletes, doesn't really support stadium/arena tax subsidies. He cites studies refuting franchise owners' claims of wide economic benefits from new pro playfields, arguing they merely suck up dollars that would have gone elsewhere in the community. That was the view of a state restaurant industry spokesperson who last week told state legislators that a few close-by eateries might profit from a new stadium or arena but that others would actually lose money. A car-rental spokesperson reminded legislators that his industry agreed to the original stadium tax, helping build the Mariners and Seahawks fields, with the government's promise the levy would sunset in 2012. Isn't a deal a deal? he asked.

Van Dyke, though, thinks he has the solution to the arena fix. If there's a revenue shortfall at the Key, "I would suggest an income tax on players' salaries," he says. "Let's tax some people who have some true discretionary income."

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