December 29, 2006
Whither KeyArena?

Joel Connelly asks an interesting question in his annual year-in-review awards column, which remains a guilty pleasure for this writer even though I end up disagreeing with his take most of the time:

Matt Millen/Isiah Thomas Sports Management Award: Using a full-court press in the media, Seattle City Council President Nick Licata made clear that Seattle Sonics owners would get no renegotiated lease or new financial favors at KeyArena.

You reap what you sow. Local owners sold the NBA franchise to Oklahoma City businessmen. The new owners are scouting locations for a multipurpose arena in Renton and Bellevue.

If the Sonics depart, and the new arena is better equipped for big concerts, where does that leave KeyArena?

First, the non-sports fan reader should understand the "Matt Millen/Isiah Thomas Sports Management Award" is two insults for the price of one. Either way, Connelly raises an important point about the City shooting itself in the foot. Though previous Sonics' ownership is hardly guilt free either, the City's ham-handed approach to dealing with them created a situation where the Sonics will either move to a suburban location or out of state. A suburban site in Bellevue or Renton, which appears to be gaining some momentum, also becomes a serious problem for the City:

A Seattle task-force report last year warned that KeyArena could become a financial drag on Seattle Center if it faces competition from a new state-subsidized Sonics arena in the suburbs. And Seattle Mayor Greg Nickels said he'll ask that Seattle be compensated by the state if that happens.

As if the State should compensate the City because the latter was incapable of negotiating effectively with the leading tenant of one of its facilities.

Arguing on behalf of the Sonics has not proven a popular position at this site. Furthermore, it remains far from a sure thing the Legislature will approve an arena deal, even with significant financial contributions from the new ownership. The relevant point in this case is the City of Seattle may have set itself up for a worst case scenario of a new arena in the burbs that not only lures the Sonics & Storm, but which also becomes a direct competitor for concerts and the other events on which the City depends the Key to draw for financial viability.

Profiles in leadership this is not.

Posted by Eric Earling at December 29, 2006 08:20 AM | Email This
1. 1. Seattle Public Schools - 20m in the red
2. Seattle Streets - congested and potholed

And about a hundred other things that need to be done but aren't...

Somehow corporate welfare for the Sonics comes in way at the bottom of the list, Eric.

It's about time that pro sports teams learned to balance their books. If the only way they can make turn a profit is to receive public subsidies for facilities, then they need to look at cutting salaries and operating costs. Business 101 - Expenditures should not exceed income.

If I ran my business like the Sonics (or any other sports franchise for that matter) I would have been out of business long ago.

Posted by: Robert on December 29, 2006 08:28 AM
2. Well, Robert, if you ran your business like the City of Seattle does you'd have been out of business even longer ago. No better example than Seattle, of 'community' ineptitude at doing business.

Actually, two of the sports franchises around here are way successful, having gouged the public for bazillions of dollars AND new stadiums, crying losses while their franchises multiplied in value.

Posted by: Hank Bradley on December 29, 2006 08:43 AM
3. Are there enough concerts to make all the venues profitable?

You have KeyArena, the new concert hall in the burbs, a dilapidated Tacoma Dome and an Everett Events Center that seems to get more than its share of availabe concerts. You add the new one and you can see the silliness of publicly financed stadiums. They are all competing with each other for limited events.

Add the Lynnwood Convention Center paid for on the State sales tax dime and you have the makings of a huge mess. No wonder a budget shortfall is predicted.

And aren't there are couple of other convention centers in State built on the sales tax dime?

Posted by: swatter on December 29, 2006 09:09 AM
4. I find it rather amusing that one of the selling points of this new arena by the Bennett group is that it will attract political conventions. Just how often do they think a major political convention will come here? Once in 20 years? The tax revenue from a political convention is a drop in the bucket of the public cost of that arena. And since the political convention is only limited to one party (Republicans won't come here), you have an even less of a shot of attracting them more frequently.

The Key Arena is a fine venue for seeing concerts in the winter time. For summer, I would rather go to the Gorge or to the new White River amphitheater (although traffic getting to White River is horrible). Tacoma Dome or Qwest is fine for bigger concerts.

So if the good people of Oklahoma want to tax themselves for a new palace for the team, have at it. The NBA, WNBA and (potential) NHL products are not worth public subsidies.

Posted by: Palouse on December 29, 2006 09:33 AM
5. Anybody honestly think an Oklahoma City business man - with its own arena ready and waiting - is going to spend his free time jumping through the hoops in this place? Not a chance.

The Sonics are gone. Any talk of a new arena is a waste of time. Won't. Happen.

Posted by: jimg on December 29, 2006 09:40 AM
6. No thanks on corporate welfare to the tune of $400M+ for his version of a state of the art palace.

Basketball players making $100M+.
Baseball players: Gil got $55M for 5 from KC. Zito got $126 for 6 from SF. Soriano got something like $168 for 8.

I don't need to subsidize this crap.

By the way, how's that national debt doing?

Posted by: Jim on December 29, 2006 09:48 AM
7. Not only is Bennett OKC, but so are all of his partners in the ownership group. They are making a real effort to keep the team here, by asking for a massive public handout. So I don't think that qualifies as a real effort.

Other sports like baseball and football have more clout and are able to shakedown the public for handouts because of their popularity. The NBA, at least here, does not possess such clout.

Posted by: Palouse on December 29, 2006 09:48 AM
8. Can we use the same move to get the Sonics out of Washington State completely?

Posted by: Andy on December 29, 2006 10:06 AM
9. Well, the business morons are out in force today. It's a very simple problem to look at, whether it's a sports franchise paying people obscene amounts of money or whether it is a Boeing company paying people moderate amount of money. If the value of keeping the sonics is greater than the cost, then you can pay that cost. If the present value of the future cash flows generated by having a sports team or a Boeing located within the county/city or whatever is greater than the present value of the cost then you do it.

You use input/output analysis, money multipliers, all sorts of readily available business tools to figure it out. Some people might even argue that you just don't count all potential taxes received but also increases in personal income as a benefit, as well.

You people who are against 'corporate welfare' are just business MORONS!!!!!!!! It would be intelligent to be against specific 'corporate welfare' incidents if the cost/benefit analysis shows it, but it is business STUPIDITY to be against corporate welfare for any other reason.

Posted by: Doug on December 29, 2006 10:16 AM
10. Ok Doug, do you have any evidence that the state will get $300+ million in tax revenue from that arena, and over what period? I don't think anyone has that evidence, because it doesn't exist.

Posted by: Palouse on December 29, 2006 10:29 AM
11. OK... tell ya what, Doug. We'll limit our corporate welfare objections to any private athletic organization owned by millionaires/billionaires.

BTW, have you seen the books on the Seahawks Stadium lately? You know, like Allen promised and the law required?

And why haven't we.... hmmmmm?

Maybe Sound Transit or the Monorail Authority can condemn them for eminent domain, eh?

If the Sonics leave... they leave.

Last time I looked, LA didn't collapse with the departure of the NFL; Seattle will do just fine w/o the NBA... and MAYBE the politicians can start addressing issues of importance.

Posted by: Hinton (Former Seattleite) on December 29, 2006 10:36 AM
12. Paying players multiple millions to play and not putting aside any re-investment profit for repairs and expansion to Key Area and then not being able to fund these expenses through core revenue streams (tickets, concessions, etc.) is like Jet City Pizza paying drivers 300K a year and still selling a pie for $14.99. It can't be done. When the business model includes constant injections from tax payers it ceases to be a business and should be allowed to die or become part of the government that is supporting it.

One plan I never hear is that Seattle is paid back, with interest or as a vested percentage, its investment when the team is sold. Everybody knows that's where the big money is, on the back-end. So Sonics, give it up from the just completed sale and then we can talk. Show us just how good this investment is.

Posted by: G Jiggy on December 29, 2006 10:37 AM
13. Palouse,

No, I haven't done a recent study on the Sonics.

I once did a study, maybe 15 years or so ago trying to figure out the viability of a new arena for the Sonics. In that study I looked at remodeling the coliseum, relocating to Bellevue to a new arena, building a new arena (where safeco field is now) playing at the tacoma dome, playing at a new arena in tacoma, leaving the city, etc.

While doing the study I learned how the Sonics affected tax revenue and business incomes, secondary incomes, in various ways. For example, the state would gain X per year in sales tax. The cities would gain, the counties would gain property values, some little businesses all over the place would gain a little, hotels, etc. The further away as far along a population density map, the less the impact.

The point was at that time, the state, three counties and the city could have created a package of any amount under $93 million to help fund the Sonics and still have considered it a good investment. I don't have any clue what it would be today.

It's very simple, if you want your city, county and state to be run like a successful business, then they should make decisions based on business models. If you want them run politically then by all means let everyone be anti-business, it's not like we aren't use to it.

Posted by: Doug on December 29, 2006 10:52 AM
14. Sorry Doug, but I just don't want to subsidize private investments again. They should pay their fair share.

Using your logic, should I get money to build my new office so that I can hire 20 new people? Look at all the secondary and teriary benefits I would give the unsuspecting public. Sorry, good try, but I am tired of that argument.

Posted by: swatter on December 29, 2006 11:22 AM
15. Yes Swatter, you should. If I can convince you to locate in my city by offering you an initial tax break for locating here for a period of X years, we can do business together. All I need to know is what positive impact your business will have on my city, then I can try to lure you out of your city at a lesser cost than the benefit you would provide here. There is a reason why more and more cities, counties, states, even countries are doing that. You may be tired of it, but then again you may be fine with inefficiency.

Posted by: Doug on December 29, 2006 11:38 AM
16. Tax breaks yes, subsidies no. There's a BIG difference. If the Bennett group wants to build their own arena for $400 million, then by all means, give them a long term break on property taxes, sales taxes, whatever. I think you might find that would get alot more public support, and it would be a better deal for taxpayers.

It can be done. Joe Robbie Stadium was built by the late owner of the Dolphins using private funds. The city and county gave him tax breaks on it, and somehow he managed to make money. Why? Because football is a profitable sport without public subsidies. The NBA and NHL are not.

Posted by: Palouse on December 29, 2006 12:04 PM
17. No, Doug, I think Swatter is more tired of Socialism, as I am, then anything. Your last post gives away your socialist mindset. Let's see, you and some other smart guys (who, for some reason, could not make it in private industry) want to be the ones deciding if maybe Mr. Swatter's business should be allowed to operater in YOUR CITY. What an arrogant attitude!

Maybe, just maybe, whatever businesses can make it on their own, without the help of YOUR CITY and YOU (BIG DOUG) should be left alone (tax and regulation - wise) so they can employ whomever they want to and create wealth.

Actually, I'd put you closer to a Communist than Socialist. Hey, maybe the "Seattle Commies" could be the name for the new ball team that I won't be paying to see.

Posted by: Jimmy Antley on December 29, 2006 12:09 PM
18. Gorsh... and who makes up for those taxbreaks you toss around like samples, Doug.... hmmm?

Under your scenario, government would go broke.

Speaking of business models, one could assume that if the Sonics had anything approaching profitability, we would not need to subsidize them.

Seems the only business model that works for them is government subsidy without any government control... (See Qwest Field for THAT "business model.") or accountability to that government.

In short, they can go screw the people of OK City before we get screwed again.

Because, after all... the worst that can happen is... well, we get rid of another business... which, come to think of it, is the model they follow in Vancouver, WA; Seattle and throughout this state.

Posted by: Hinton on December 29, 2006 12:15 PM
19. Doug, it wouldn't be anything illegal. Say, maybe a tattoo parlor (upscale, of course) or another $1 store. It ain't right for you to select if I am what you want and if you want it, I get breaks. I still pay taxes, you know. Why give Weyerhaeuser or Boeing a break, but not me? It's not fair, as my daughters tell me all the time.

Posted by: swatter on December 29, 2006 01:35 PM
20. Time for an initiative. All new stadiums, arenas, opera houses, convention centers, NASCAR tracks - whatever - must be built on reservation land. No tax money out, no tax money in.

Posted by: Tyler Durden on December 29, 2006 01:53 PM
21. Jimmy, you are mistaking Capitalism for Socialism. There is NOTHING socialist about having a CORPORATE CHARTER city or county for that matter BID to bring an irreplacable asset to the city. It is capitalism in it's purest sense that professional sports teams are able to get geographical areas to bid services in order to bring them to their city.

Palouse, Tax Breaks and Subsidies, Corporate Welfare, all come from the same pot. Try not calling them by evil names instead of calling them what they really are: Incentives or Investments for the Government body involved. If there is a measurable benefit for the government or people, then they should be willing to pay for that benefit, it's rather simple. If they don't want to pay for that benefit, that is fine, but they should be willing to lose that benefit without yelling bloody corporate welfare.

Hinton, there would be no 'making up' for the tax breaks under my model. The cost of the model must be equal to or less than the actual increase in benefits or taxes received by the entity. If the benefits don't make up for the cost it shouldn't be done. However, if a proper cost/benefit analysis is done then the benefits will always exceed the costs or it won't be done. The only wrench thrown in is when people use emotions instead of a business model.

Swatter, your argument of why a government entity can pick and choose to whom to recruit to locate is valid but is easily reasoned with. Boeing, Weyerhauser, Sonics, etc. are types of industries that are not easily replacible nor are they industries or businesses that will displace other businesses in much of a sense. When the city looks at whether to offer say a laundrymat owner funding to locate in the city, they would soon realize that the benefit doesn't outweigh the cost because they would only cannibalize another business and not much benefit would be realized.

However, if a small town had the opportunity to bring in a small internet business of 15 to 20 people, they may try to offer incentive because that business likely wouldn't displace another. Many more effects to look at but it's obvious to me that certain types of businesses or industry have a larger value vs. cost, than others.

Posted by: Doug on December 29, 2006 02:00 PM
22. The difference with tax breaks instead of subsidies Doug, is simple. Risk. When the public floats bonds to pay $300 million to build Bennett a new arena, it's taking on all the risk of that arena and whatever projected tax revenue might or might not come out of it. It's a pretty sweet deal for Bennett. The public takes all the risk and he gets all of the reward, and we get to keep a mediocre basketball team.

With tax breaks, Bennett, the OWNER is the one taking on the risk as he would have to get financing for his new arena. The public is only out some extra property tax or sales tax revenues, which is offset by whatever ancillary business revenue is created by the arena.

Not even Boeing gets the state to build it a new building. Weyerhaeuser either. That's the difference. Those businesses are taking on the capital costs of constructing new buildings when they build a new plane or a new sawmill. The tax breaks they do get are a low risk deal for the state because the products they sell and employees they hire may offset that loss of revenue. But if not, the state is not stuck paying interest and principal on a large public debt.

Posted by: Palouse on December 29, 2006 02:40 PM
23. Time for a hockey team.

Posted by: Al on December 29, 2006 02:57 PM
24. Strangely enough no one chose to comments on Joel Connelly's hosannas to Gerry Grinstein of Delta Airlines

Although I'm a fan of the Nature Conservancy, Grinstein has behaved questionablely at Delta

As chairmen of board for the UW School of Medicine, Gerry managed to get the school of with a fine of $35 million for Medicare and Medicaid fraud

Posted by: Green Lake Mark on December 29, 2006 05:06 PM
25. Yeah, Doug, you say "Happy Holidays" and I say "Merry Christmas", but what you're talking about is Socialism (goverment control of the economy). Call it Capitalism, but it isn't. (See Palouse's reply.)

You say " If there is a measurable benefit for the government or people, then they should be willing to pay for that benefit ..." So, if they're not, what, you want to force them, I guess huh. Frickin' Commie.

Posted by: Jimmy Antley on December 29, 2006 05:07 PM
26. And once again, how's that national debt doing?

Posted by: Jim on December 30, 2006 09:41 PM
27. Doug is correct that we should view the decision in terms of business and economics - does it make money for the "state"?

A second question, however, is ethics: Is it ethical to provide taxes on mostly poor people to subsidize a non-market price for high player salaries? Stated another way, do we favor socialized professional entertainment? (Sports is, alas, nothing more than entertainment.) Why should we stop at sports?

We don't, of course. We also provide tax breaks and subsidies to really big businesses. Boeing, received $3.2 billion in tax subsidies to retain 800 787 jobs in Washington. That's just $4 million per job funded by transferring tax money from the people - who make a wee bit less than $4 million - to Boeing since that tax shortfall is being made up by taxing the rest of us. Or how about the huge subsidies given to Intel to build a "huge" plant in Dupont, WA - which they mostly abandoned after the collapse of the dot cons in 2000-2001?

Whenever the government gets involved outside its expertise, we we end up with huge inefficiencies ($4 million per Boeing job) an distorted markets (multi-million dollar subsidized salaries for entertainment players).

Let's all stand up and cheer: "I SUPPORT SOCIALIZED BASKETBALL, FOOTBALL AND BASEBALL" since that is exactly waht this is all about. And don't forget, "I SUPPORT SPENDING $4 MILLION PER JOB TO KEEP BOEING JOBS IN WASHINGTON".

Posted by: Ed on December 31, 2006 10:01 AM
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