Inside sports business
Word last week that a planned $600 million renovation of KeyArena could be exempted from a city bylaw prohibiting sports subsidies has raised eyebrows locally.
But two creators of Initiative 91 said what’s most important is whether the bylaw’s “spirit’’ was followed during the city’s negotiation with Los Angeles-based developer Oak View Group (OVG).
Nick Licata and Chris Van Dyk said much has changed since I-91 was crafted in 2006, and that it was never meant to be a “no tax” or “zero public expenditure” prohibition preventing Seattle from conducting business with private companies.
Where they differ is on whether an I-91 exemption of OVG’s deal is truly the way to proceed. The city has suggested because it is putting no money into the project, I-91 doesn’t apply.
But former city councilmember Licata notes the city put entrepreneur Chris Hansen’s proposed-arena plan for Sodo through a detailed financial formula in 2012 before declaring it I-91 compliant. He figures the same should happen this time.
“The last time, our goal was, ‘Does it meet the intent, even if it’s not necessarily the mechanism that’s perfect?’ ” Licata said. “You can calculate that.”
But Van Dyk, onetime leader of the activist group Citizens for More Important Things, said the biggest test of I-91 already was met during a Request for Proposals phase and the drafting of a Memorandum of Understanding (MOU) that had input from various community leaders and groups.
“I’m just glad to see them spending a lot of their money,” he said of OVG. “Because there was an open, transparent, public-bidding process … I think the probability that the public was snookered is extremely low.”
Where this could be an issue is timing. OVG wants the MOU approved by the council in December and hopes a mandatory environmental-impact study concludes within a year so KeyArena can host an NHL expansion team for the 2020-21 season.
An ESPN report last week added more urgency by suggesting the NBA might hasten expansion or relocation if a Seattle arena plan is finalized. The report suggested nearly half the league’s teams are losing money and might benefit from splitting a new expansion fee or moving franchises here from less-lucrative markets.
So speeding up the KeyArena review might secure teams more quickly. And not putting the deal through any I-91 paces is one way to move fast. But is that the best way to proceed?
Up to now, the KeyArena process has been lauded by participating community groups as a model for other cities.
But a leader of one such group, Deborah Frausto of the Uptown Alliance, cautioned last week: “We can’t sacrifice due diligence for scheduling.”
And that’s worth remembering. If OVG’s deal is really the I-91 “slam dunk” it appears, why not exercise some diligence to be certain? That would show the transparency and good faith that truly are hallmarks of the bylaw.
For all of I-91’s good intentions, it isn’t rock-solid legislation — relying more on its “spirit” being followed than its legalese.
It forbids subsidies to sports teams unless the city generates a “fair-value” return — defined as an annual rate equivalent to a 30-year U.S. Treasury Bond.
Back in mid-2006, when I-91 was being drafted, that rate exceeded 5 percent. Nowadays, T-bills generate just 2.8 percent — barely exceeding inflation and hardly a high bar to clear.
Also, as Van Dyk notes, I-91 language is structured around “cash on cash” transactions to prevent the city from spending hundreds of millions on a sports venue while receiving minimal revenue in return. But in Hansen’s case, he wanted $120 million in city-bond funding for a Sodo arena, offering to repay it via arena-generated taxes and revenues that wouldn’t exist without the venue.
And the city deemed that I-91 compliant.
Unlike Hansen’s deal in 2012, OVG is not asking for bonding and would finance the entire $600 million renovation privately. The city might bond some money to more quickly access part of a $40 million transportation fund OVG would set up.
But that’s ultimately the city’s decision, not part of the actual deal with OVG.
Some I-91 questions also could arise from the back-end revenues on parking and taxes the city is giving up. OVG has guaranteed the city won’t “go backwards” on anything it currently takes in and would share additional revenues beyond that.
“The intent of I-91 was to discourage stadium developers from using the city’s bank account to fund a venture that was extremely profitable,” Van Dyk said. “This deal pretty much satisfies that intent. There are foregone taxes that would not be available to most other businesses, but we do that for Boeing. We do that for other major companies.”
Still, not everyone defines a subsidy the same way. There were I-91-based lawsuits threatened against Hansen’s project had it been sold part of Occidental Avenue South by the city. And any future I-91 legal fight waged this time by KeyArena project opponents could cause delays OVG hopes to avoid.
So why supply opponents added ammunition by overlooking I-91 entirely?
“My opinion is, it would be better not to exempt it and see if it meets the spirit of the law,” Licata said.
After all, this is exactly what the council is supposed to be doing ahead of ratifying the MOU: Seeking out and fixing loose ends.
This process has been about as open and transparent as any major sports-venue deal in recent memory. No sense undoing that now as it heads to the final stages.