The Sonics' Venue Envy

Seattle's only championship-winning big-league team wants taxpayer help to tear down KeyArena and build a new home—just like the Seahawks and Mariners.

In their drive for a new arena, the Seattle SuperSonics are trying to dribble around the Seattle City Council. Rather than first obtaining city approval for a new arena proposal to the Legislature, as the council insists is proper, the Sonics have gone straight to Olympia for a funding plan. They want state lawmakers to approve a tax-extension package that could finance a $271.5 million arena proposal. It would retire debt on KeyArena, which would be torn down and replaced with a new facility that the team would effectively own and operate. (This amounts to tearing down a landmark from the 1962 World's Fair — the Washington State Pavilion, later known as the Seattle Center Coliseum and now KeyArena.) It's a political maneuver that would evade early City Council scrutiny—City Hall will have to sign off at some point. But says Sonics Executive Vice President Terry McLaughlin: "It's just a way to keep the momentum going." As he sees it, the council can take its sweet time deciding if a new arena is warranted, but the team will have gotten a funding plan approved in Olympia this session. Two bills are ready and awaiting action, and, says McLaughlin, "Time is of the essence."

It's not clear how this will go over at City Hall, where a review is set to begin Feb. 1. But the Sonics arena economic model no longer works, and something has to give. McLaughlin says the team has been in talks with unnamed other big cities—teamless Kansas City, where a new arena is in the works, is perhaps the most likely—and with Bellevue, where a new facility would have to be built from the ground up, costing perhaps $400 million. An arena in Bellevue, too, could be financed by the legislation the team is pressing in Olympia. The King County Council would have to approve financing of any facility built within the county, and the City of Seattle, as owner of KeyArena, would have final say over a Seattle plan, sooner or later.

Sonics lead owner Howard Schultz argues that the city's oldest (1967) big-league team, with an NBA title (1979) under its waistband, should get the same deal given to the Seahawks and the Mariners. The time is ripe, as well: The Sonics are, in part, making their move now to take advantage of the city's excitement over the Super Bowl–bound Seahawks. "Yes, we're cheering them long and loud," says McLaughlin. "It shows how a sport can galvanize a community."

The Sonics have also now gotten around to discussing some of the true costs of the proposal. For the first time, McLaughlin allows that the Sonics' arena dream is not just a $200 million proposal to finance a steroidal expansion of KeyArena, as previously reported. "Really, it's closer to $220 million now," he told reporters Thursday, Jan. 26, during a news conference. But the full package sought by the Sonics/Storm franchise actually comes to at least $271.5 million. With interest, it tops $400 million. The breakdown, outlined in documents floating between the team and City Hall, is $221.5 million for a new Seattle Center arena and $50 million to retire debt. The debt is what's left to be paid on the $73.4 million arena remodel done in 1994–95; annual bond payments of around $6.8 million are scheduled to run for seven more years.

Seattle Center spokesperson Perry Cooper says debt settlement "has to be part of the package." The Sonics have already decided they'd like taxpayers to pick up all costs including debt. That would be similar to the Seahawks stadium deal, in which taxpayers paid $205 million in remaining debt on the imploded Kingdome. The Sonics proposal conflicts with vows made a dozen years ago when city officials and then-Sonics-owner Barry Ackerley agreed the expansion would be financed by revenue and not involve taxpayer funds. (See "The Keys to KeyArena," March 23, 2005.) But, says McLaughlin, there's little alternative. The team lost $16 million last year and can't climb out of the red here without a new deal. If the Legislature approves an extension of current taxes used to finance the football and baseball stadiums, "that would provide sufficient revenue to do the job at KeyArena," he says. "That would also retire that debt, and there'd still be a significant surplus left over."

Draft planning documents, updated in December, show the $271.5 million cost is projected in 2008 dollars, the most likely year that construction and a financial plan would be in full swing. "These things usually take from five to seven years to plan and build," says McLaughlin, noting the Sonics lease expires in 2010, "so we're already behind the eight ball." If the project got under way this year—most unlikely—the cost would be $254.8 million, debt payoff included. If construction didn't start until 2009, total cost could be $280.4 million. Interest could almost double taxpayer costs. The current $73.4 million arena finance plan, for example, will ultimately have cost $125 million with interest and would have cost taxpayers $150 million had not the bonds been refinanced a few years back.

There are other, cheaper arena expansion proposals on the table—priced as little as $20 million—but the Sonics and many city officials favor the high-end plan, a modest one in the team's view. "We don't need lavish," says team President Wally Walker, as quoted in minutes from a meeting with city representatives. "We need something that works." Adds McLaughlin in an interview: "Two years ago, the Sonics and Storm went through a very deliberate and pretty intensive process, working with the Center and city to design a building with an economic life for 20 years. It was $200 million, and that cost has already risen 10 percent. To build anything less will be to whittle away at the future. We don't want to be revisiting this in another five, 10 years. In the early '90s, when the arena renovation was being designed, the first proposals were around $120 million. Designers were told to go back to the drawing board, that's too expensive. Most of that design included the things we are seeking now."

Under the favored scenario, the arena would expand to the south, adding 344,103 square feet and 903 seats, most likely premium club seats and suites. There would be 358 new parking spots within the building for high-rolling fans, a new courtside club, expanded locker rooms, more concession and concourse space, a new Sonics office building, an expanded team shop, and a new Sonics practice facility. There would also be considerable expansion of what now is a comparatively small staging/loading dock needed for concerts and other shows. Unlike the Mariners and Seahawks stadiums, Safeco and Qwest fields, "this building is used for many purposes other than basketball," McLaughlin points out. "In reality, the Sonics and Storm comprise only 45 percent of arena events," which average 60 dates a year.

Sonics ownership, a 58-member investment group headed by Starbucks Chair Schultz, wants control over all those events with a master tenant lease similar to those of the Seahawks and Mariners, entitling the Sonics to all arena revenue. Under the current pact, the city takes an average $7.8 million annual cut from Sonics arena money to pay for the 1995 expansion. That includes $2.9 million of the proceeds from leased suites, $1.7 million from club seats, and $731,500 from arena naming rights. The franchise says it pays about $1.5 million in annual rent for the Sonics and Storm, including taxes and other contractual fees. Though Seattle Center operations have otherwise broken even over the years, the arena deal left a $16 million hole in the Center's operations budget after assorted sports and entertainment events failed to generate necessary revenue. To close that hole, the city is using proceeds from the sale of three Center parking-lot properties. The taxpayer properties will bring in about $16.7 million, although the debt will resume growth next year if a new plan isn't in place. The Sonics aren't obligated to help pay the Center's debt, Cooper says, because, "bottom line, we own the building, so it's our debt service to handle."

Of course, Schultz and company accepted the current financial deal with the city "as is" when they bought the team for a reported $200 million in 2001. Having steadily lost money, they need a bailout. The team's winning percentage is fifth-best in the NBA the past 10 years, McLaughlin says, noting that the Storm won the 2004 WNBA title. But this has been a so-far-lackluster, sub-.500 season for the Supes, recently costing new coach Bob Weiss his job and making it difficult to drum up arena support. "A winning team creates better enthusiasm, sure, and we expect to win again," says McLaughlin, "but you really have to look at this as a 20-year investment."

Their end game, however, is profit, and a new playground will surely improve the owners' investment, now thought to be worth $240 million. The Sonics have hired public relations specialists, escorted legislators around the arena, and are passing out position papers to reporters. The franchise claims it has a $258 million economic impact on Seattle—a figure based on rosy estimates—and that a new facility would not require new or higher taxes. If the Legislature goes along, it could set up an extension of the King County "visitor" taxes used to fund Seattle stadiums, the team says. The taxes are levied on lodging and car rentals and on restaurant food and drink that locals are just as likely to pay. A state tax credit granted to King County could also be used to pay an arena tab. If the tax is extended, under the current legislation it would also be used to fund local arts and heritage organizations.

Because of the lease deal and ever-inflating player salaries, the team says, it couldn't make a profit at the Key even if it sold out every game, and that's definitely not happening this humble season. The financing plan began to falter after the new Mariners and Seahawks stadiums began luring away KeyArena premium seat buyers in 2000, McLaughlin says, and the franchise has lost $58 million since then. (Team books are not open for public inspection to verify that, however.)

The Sonics and the mayor's office last year failed to convince the Legislature to extend the Seattle stadiums taxes, a move attempted mostly behind closed doors. The city says it's trying to move swiftly this year but has set up a series of hoops through which the Sonics must jump. That includes first getting approval from a citizens advisory panel—which, in fact, has now indicated it will back the Sonics' request. At an October meeting of the advisory panel, Walker and McLaughlin made their case, saying a new high-end facility could increase their revenue by as much as $10 million, according to meeting minutes. (It would also likely decrease their city payment obligations.) Sonics control over a new facility is critical, they said, and it must be taxpayer-financed, like the football and baseball stadiums.

Not incidentally, the M's and Hawks chipped in for their facilities. Of Safeco's $517 million cost, $126 million came from the Mariners; the Seahawks gave $161.3 million toward Qwest's $461.3 million tab. McLaughlin says "it's a misnomer that the Sonics haven't invested in KeyArena," arguing the team has put $115 million into the current building, if you count $77.8 million in building revenue it paid the city along with other mostly required costs. The Sonics haven't talked about contributing to a new arena—until now. "That's a discussion we think is worth having at some point," McLaughlin says in an interview, opening the door for the first time. "But we need an agreement, soon. We can't afford to wait another year."

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