Imagine if instead of all the months of negotiations, public hearings, editorials, council votes, renegotiations, and more council votes, Seattle Mayor Mike McGinn had just Tweeted out the terms of the Sodo arena deal on a Saturday with the expectation of winning city council approval on Tuesday. Unimaginable, right? Even for the allegedly imperious McGinn.
Well, that's pretty much what just happened in Sacramento.
Over the weekend, Sacramento Mayor Kevin Johnson announced the terms of a deal to build a new NBA arena in a last ditch effort to prevent the Kings from moving to Seattle. Sacramento is up against an April 3 deadline to present to the league a viable alternative to Chris Hansen's purchase agreement. To meet this deadline, Johnson is asking the Sacramento City Council to approve the term sheet at its Tuesday meeting. The council is expected to oblige.
That Johnson could even think of making such an ask highlights the contrast in political culture between Sacramento and Seattle. McGinn would have been pilloried had he asked his council to approve a $447 million deal with so little vetting. (I mean, even more pilloried than he already is.) But the terms of the Sacramento arena deal also highlight what relatively favorable terms Seattle negotiated with Hansen.
The top-line numbers are the most striking. Sacramento taxpayers would contribute $258 million (58 percent) toward arena construction, while the proposed ownership group would contribute only $189 million. In Seattle those numbers are more than flipped. With an NBA team only, the Seattle would contribute $125 million (25 percent) to the cost of building a new $490 million Sodo arena; Hansen's group would put up the remaining $365 million. With both NBA and NHL franchises on board, the city/county contribution would bump up to $200 million (40 percent), but the revenues on which that contribution is bonded would bump up as well.
And that brings up another major difference between these two deals. Sacramento's contribution is largely funded via $38 million in land sales plus $212.5 million bonded on future revenue generated from city-owned parking facilities. These parking facilities currently generate a $9.6 million profit for the city general fund. City officials expect this lost general fund revenue to be backfilled via ticket surcharges, a portion of parking revenues, and a minimum $1 million annual share of arena profits. But very little of this money is guaranteed. This leaves Sacramento taxpayers on the hook, not just for lost revenue, but in a worst case scenario, for the bond payments as well.
The bond payments on Seattle's arena contribution will be covered entirely from arena revenue. And if that revenue falls short, the well-heeled Hansen (and his multi-billionaire partner Steve Ballmer) are contractually obligated to make up the difference. And all these guarantees are further secured against much of the value of the franchise itself. Seattle is essentially just contributing its low-interest/tax-free bonding capacity.
Oh. And rather than the city transferring land to the ownership group, in Seattle it's the other way around. Much of Seattle's contribution to the arena deal goes toward purchasing the land the arena will sit on—land the city will own. No deal is risk free, but this is about as close as it gets.
Sacramento's 58 percent contribution is actually slightly lower than the average NBA arena deal in recent years. "If you're looking historically … the most recent Sacramento proposal is very fair," a stadium-finance expert told the Sacramento Bee. Well, if that's a "very fair" deal, then Seattle's 25 to 40 percent contribution must be a downright bargain.
In fact, if there's any downside to Seattle's arena deal it's that it is so favorable to the city that, given the more owner-friendly Sacramento alternative, NBA owners might well reject it. After all, it's not in the NBA's interest to establish a precedent in which owners extort less out of taxpayers than they currently do.
Sure, in a perfect world, taxpayers wouldn't be asked to kick in anything. But this isn't a perfect world. And in the context of both that general imperfection and the term sheet coming out of Sacramento, Seattle's arena deal is looking pretty damn good.