Will Seattle’s Arena Showdown Actually Bring the Sonics Back?

Is a revamped KeyArena enough to lure the NBA back to the Emerald City, or should Chris Hansen's SoDo vision stay on the table?

By Art Thiel, Seattle Business Magazine

keyarena-and-skyline

November 10, 2017

Fifty years ago, the SuperSonics basketball team brought Seattle into the world of big-time pro sports. The question before the city today is: Will it be 50 years before a National Basketball Association team returns?

Already it has been nine years since the Sonics were hijacked to the Oklahoma prairie. In that time, Seattle bounded out of the recession to become America’s fastest-growing city.

So attractive has Seattle become that developers have offered two separate proposals to build the town a top-shelf arena with no public funding, an opportunity perhaps unprecedented in American sports business.

But it’s possible that neither plan will work sufficiently to induce the NBA to return to a market it believes rebuked its monopoly operation.

Since 2011, Bay Area hedge-fund manager Chris Hansen, a Seattle native, has been pursuing a hoops-first arena in Seattle’s SoDo neighborhood, for which he has spent $125 million on land acquisition alone. But by fall 2017, he finds himself a distant second to an abrupt, dazzling offer to give a $660 million makeover to the aging dowager of lower Queen Anne, the city-owned KeyArena, at small cost to the city. Besides covering cost overruns, the offer includes $40 million for transportation solutions and $20 million to cover issues related to the neighborhoods surrounding Seattle Center.

The catch is that the developer of this project, Tim Leiweke, will build it first for music concerts, as well as for a team from the more eager National Hockey League, which hasn’t been in Seattle since World War I.

What about the NBA and the renewal of a 41-year relationship with Seattle that ended in a nasty divorce? Remarriage seems a dot on the horizon.

“Here’s what I know,” Leiweke, an experienced arena builder and former pro sports executive, said last spring. “There’s no team moving in the NBA. There’s not an expansion team coming. That is not just the will of Commissioner Adam Silver, but the owners.” 

When Leiweke, CEO of Oak View Group in Los Angeles, signed at a May press conference on Seattle Center grounds a draft memorandum of understanding (MOU) with the city that spelled out the offer, he was even more blunt regarding Hansen’s project: “Chris, if you want an NBA team, this is where it’s going to happen.”

The Oak View deal also comes with a pledge that two wealthy partners who seek to own the local NHL team will be the first winter-sports anchor tenant when the doors open (optimistically) in October 2020. This proposal is in the hands of the Seattle City Council, which in May 2016 rejected an earlier Hansen bid he has since revised and resubmitted. A decision on the Oak View proposal is sought by December to keep to what Brian Surratt, director of the city’s Office of Economic Development, describes as “a very aggressive” schedule.

Surely, once Leiweke pushes his ambitious plan through the wowed, willing city electeds and staffers he has charmed, won’t the NBA happily follow, saying all is forgiven? 

Not likely, says Hansen.

“A venue with an NHL partner and a music partner and an NBA partner is inherently going to lead to issues with how to divvy up the pie,” he says. It will need so many revenue streams to retire the construction debt on a building and land it doesn’t own, Hansen points out, that any NBA team owner will find the proposition financially unattractive — no matter how cool Seattle seems to be.

NBA franchises have become so expensive — the Houston Rockets were sold during the summer for $2.2 billion — that a relocating owner or the owner of an expansion team is unlikely to want to be a second-tier renter in a building it can’t exploit financially. While 10 cities have arenas that house both NHL and NBA franchises, most are privately owned and operated. The trend in each sport is for each team to develop its own building, which can be collateralized to fund projects that that specifically appeal to their fan bases and players.

A precedent of sorts is developing in the Bay Area. The NBA champion Golden State Warriors will move from Oracle Arena in Oakland, the NBA’s oldest venue, to Chase Center in San Francisco in time for the 2019-20 season. (The Bay Area’s NHL team, the Sharks, plays in San Jose). As in Seattle, the team’s owners, Peter Guber and Joe Lacob, have agreed to fund privately the estimated $1 billion venue and an entertainment district. As in Hansen’s plan, they will own and manage the 11 acres and the building without a third-party operator. The move will reduce to five the teams that have a third-party operator running the building — either a company like Oak View or Anschutz Entertainment Group (AEG), or a municipal government, as was the case in Seattle with the Sonics.

Warriors President Rick Welts, a Seattle native and former Sonics public relations director in the 1970s, explained that the steep cost up front is in the long run well worth it for a private facility that neither has to share revenues with any other entity nor haggle with a city or a private contractor over priorities in scheduling or operations.

“The bad news for us,” he told The Athletic sports publication, “is that there is absolutely no public funding going into this — something that hasn’t been done in the NBA I think since Utah built its building [in the early 1990s]. But the good news is that, when we’re done, we don’t have any government partners in the building, either.”

Another aspect of the San Francisco project offers a potential partial retort for Leiweke regarding the claim that the annual operations of his revamped KeyArena won’t pencil for all parties, including Goldman Sachs, which has committed to Oak View a $193 million construction loan. In 2016, JPMorgan Chase locked up naming rights to the Warriors’ high-tech palace for 20 years at a reported $300 million, a staggering figure that, if accurate, would be the richest deal by far in American sports.

As part of his Seattle sales pitch, Leiweke has admiringly invoked the name of Amazon, the global retail colossus whose headquarters campus is barely a mile from Seattle Center. But Leiweke has announced no agreement with Amazon, which rarely telegraphs its punches, especially regarding a hypothetical endeavor. In any event, a greenlighted SoDo project would, in theory, have a similar shot at a naming-rights bonanza.


Rendering courtesy of Oak View Group.

From a city government perspective, the most significant argument in favor of Oak View’s plan is that it resolves KeyArena’s future and, by extension, Seattle Center’s, at little public expense. Long known as the city’s living room, the space’s financial viability and physical maintenance have been on the top-10 list of priorities for every Seattle mayor since the 1962 World’s Fair. More than a park, it’s a department of the city, exerting a gravitational pull on the judgment of city staffers and council voters regarding the arena decision that can overpower discerning judgment.

Responding to Oak View’s home-court advantage, Hansen in October sent the City Council a proposal, also funded by him, to repurpose the Key into a music-only venue divided into three spaces of different sizes: 6,200 seats for an indoor hall, 3,000 seats for an outdoor covered amphitheater, and a 500-seat theater, plus 500 parking spaces underground by raising the arena’s floor. The smaller sizes would make it more useful to a greater variety of performances in a park that is already arts centric. It also reduces the apprehension of neighborhood residents, already choking on immense growth, about a potential 80-plus nights a year of sports crowds exiting 18,000 at once onto Mercer Street with no mass transit, creating an impassable predicament that would give pause to the Donner Party.

Besides the construction estimate of $80 million to $90 million, overruns and capital improvements would be covered without public expense. But Surratt, the city’s point man on the Oak View proposal, rejected the idea immediately. He claimed it was late and didn’t conform to the stipulations in the city’s request for proposals in January that elicited the bids from Oak View as well as competitor AEG, which subsequently withdrew its bid.

Surratt’s response seems specious because Hansen wasn’t proposing to house sports at the center, per the city’s request. Sports activities would all be housed at Hansen’s SoDo arena, which could also accommodate the larger concerts with minimal impacts because it’s in an industrial/commercial neighborhood with almost no residences. 

The abrupt back of the hand Surratt gave Hansen signaled the city’s eagerness to do the Oak View deal without considering whether repurposing KeyArena is an idea whose time has come. It called to mind the letter sent in June to the city by AEG Facilities President Bob Newman. In withdrawing his company’s bid, he excoriated the city for bias in the bid process. Newman wrote, “And we believe the city has failed to conduct a sufficiently thorough, objective and transparent process to properly evaluate the respective strengths and weaknesses of the two proposals and, most significantly, to identify the proposal best positioned to deliver a project consistent with the community’s interests.”

Newman reserved a shot for Oak View, saying he was highly skeptical its plan could be pulled off: “If the city elects to proceed with that remaining proposal, to protect the public interests of Seattle, it is imperative that you closely and diligently monitor the process to ensure that Oak View Group is held accountable …”

It would be easy to write off Newman’s complaints as sour grapes when he realized his company wasn’t going to win. Indeed, AEG — which ironically has contracted with the city to manage KeyArena since the Sonics’ departure in 2008 — was behind from the start because its bid included a request of the city for $250 million in bond financing for construction. The request was similar to one from Hansen in 2012 that he subsequently abandoned because, in Seattle’s no-stadium-subsidy political culture, the hit on the public exchequer was radioactive. 

At least some explanation for Newman’s contempt likely is rooted in the profound animosity between Leiweke’s company and AEG, where he was president from 1996 until 2013, when he had a falling out with owner Phillip Anschutz. A Denver billionaire and one of the most influential figures in global sports and entertainment, Anschutz hired Leiweke to build an empire, and he did. AEG owns and/or operates more than 100 facilities worldwide, including London’s opulent The O2 Arena and the Staples Center in Los Angeles.

But after an unsuccessful attempt in 2013 to sell AEG for $10 billion, Leiweke was ousted, apparently the fall guy in the deal’s failure. After a couple of years as president of Toronto’s Maple Leafs Sports and Entertainment in Toronto, which owns the NHL Maple Leafs, the NBA Raptors and the MLS Toronto FC, Leiweke partnered with music industry titan Irving Azoff and James Dolan, owner of Madison Square Garden and New York’s NBA Knicks and NHL Rangers, to form Oak View.

Oak View set about to usurp AEG’s hegemony in the entertainment world. This past summer, a turf battle broke out that typified the animus. Oak View/Madison Square Garden’s tour operation announced it was forbidding from its arenas any acts that previously had appeared in AEG-operated buildings. Since Oak View/MSG has a partnership with Live Nation, the world’s largest concert promotion company, the upstart has considerable leverage in the concert bookings business. Leiweke is quick to point out that Live Nation believes in the Seattle bid so much that it is taking an equity position in the project with Oak View.

Whether this acute business rivalry has added intensity to the Seattle drama isn’t clear. But council members would be well served to consider whether the urgency with which the project is proceeding is driven more by Oak View’s needs than the city’s long-term interests.

The haste may be part of why Oak View insists on an exclusivity clause in the draft MOU, after Leiweke said early on that Hansen was welcome to build the SoDo arena in the hope (wink, wink) that the NBA prefers his place instead of Seattle Center.

Leiweke doesn’t want the SoDo plan to disrupt his plan, so Oak View’s executive summary in the MOU now states: “ … the city will not provide financial support, benefits or incentives … with respect to the construction of any live entertainment venue with a capacity of more than 15,000 seats within the city of Seattle.”

If Leiweke’s MOU language is adopted, it would jeopardize Hansen’s plan because Hansen needs a “benefit” from the City Council of vacating two blocks of Occidental Avenue South. Hansen has maintained the vacation approval comes at no cost or risk to the city, because he would begin construction only after an NBA team was secured, and would pay the city market value for the property, perhaps $20 million or more. Hansen needs the city’s street vacation permission to receive a Master Use Permit to build, a vital turning point in his financial plan to induce investors wealthier than he to come forward as majority owners of an NBA team.

Business logic also says that if Hansen’s bid is alive, the city can use it as leverage in gaining concessions from Oak View prior to signing a final MOU. But perhaps the city is less worried about the best possible deal than it is with no longer aggravating the Port of Seattle.

Oak View and its supporters in city government are not the only objectors to Hansen’s SoDo enterprise. The neighbor to the west, the Port, and the neighbor to the north, the Seattle Mariners, have offered strident opposition to the location of Hansen’s arena, fearing more traffic congestion. The Port claims the arena will be a threat to middle-class jobs because freight mobility will be degraded and shippers will go elsewhere. It seems a dubious claim, but it worked to help give five council members sufficient cover for the original 5-4 “no” vote in May 2016 on the Occidental Avenue vacation.

SoDo arena events largely would be held on nights and weekends, when the Port is closed. Economic threats to the Port far greater than a busy First Avenue South exist globally, nationally and regionally, which introduces the bigger question whether container shipping is the highest and best use of Seattle’s spectacular, expensive shoreline. In the Bay Area, the port of San Francisco is Oakland; in Puget Sound, every bit of container-ship logic says Seattle’s port should be Tacoma.

Independent of the arena but partly because of the attention the controversy drew, the Port over the summer won a landmark development: Funding was completed for the $123 million Lander Street overpass, which will carry freight unimpeded over nine railroad tracks, the way Edgar Martinez Drive does next to Safeco Field. The port has been pursuing the project for 15 years, long before it heard of Hansen. But the celebration was muted because Port backers didn’t want the City Council and voters to think their freight mobility problems were solved independent of their anti-arena claims.

The Port’s broader anti-arena lament, the gentrification of Seattle’s last blue-collar industrial neighborhood, was torpedoed in October by none other than an ally: Mariners CEO John Stanton. Talking to reporters after another dismal end to the Mariners season, Stanton was asked his views on the arena. “If Chris does build in SoDo, we’ll absolutely work with him,” Stanton said. “The fact is if [Hansen] doesn’t build an arena, they’re going to develop it in some way. I’m excited to see what that is.”

There goes the neighborhood, Port fans. Their comrade in arena bashing knows the middle-class worker’s paradise is going to be scuttled regardless of the council’s decision.

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