KCTS 9 Connects/New Arena Proposal - June 22, 2012

CNX: New Arena Proposal 6/22/12
  • KCTS 9 Connects

New Arena Proposal

We talk with hedge fund manager Chris Hanson and sportswriter Frank Deford on the proposed new arena to bring the NBA and NHL to Seattle.

CNX: Chris Hansen 6/22/12
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In an in-depth interview with KCTS 9 Connects host Enrique Cerna, Chris Hansen makes his case for use of public bond money to build a new arena and how in the long run it will benefit Seattle, King County, and the Puget Sound region.

  • About
  • Chris Hansen Transcript
  • Frank Deford Transcript

About the Episode

Chris Hansen wants to bring the NBA back to Seattle, and an NHL team to the city as well. The San Francisco hedge fund manager, who was born and raised in Seattle, is proposing a $490 million arena for professional basketball and hockey in Seattle's Sodo district, with nearly $300 million in private investment and up to $200 million in public bonds to be repaid through arena taxes and revenues. Hanson is also committing another $500 million to buy an NBA team. The proposal is backed by Seattle Mayor Mike McGinn and King County Executive Dow Constantine. Hansen recently announced that Microsoft CEO Steve Ballmer along with Erik and Peter Nordstrom have joined his investment group. The arena proposal needs city and county council approval. Hansen will make his case for the Arena proposal before both councils this week. The Seattle Mariners and the Port of Seattle have raised concerns about potential traffic problems if the Arena is built in Sodo. But Hansen, backed by McGinn and Constantine, says the traffic concerns can be addressed. In an in-depth interview, Hansen makes his case for use of public bond money to build the Arena and how in the long run it will benefit Seattle, King County, and the Puget Sound region.

We are also joined by award-winning sportswriter, author and commentator Frank Deford to weigh in on the arena as well and why he thinks Seattle fans need to let go of the loss of the Seattle Supersonics.

Finally, our Insiders Roundtable talks area and recent polling on same sex marriage and the state attorney general race.

Enrique Cerna:
How do you go about convincing folks, number 1 that it is a good deal, number 2, that the public part of this, the bonds, is really worth it?

Chris Hansen:
Yeah. I think there's a few things to say on that. We are essentially giving the city a $200 million arena when this is all said and done. They're investing $200 million. We will pay the debt service on that through new taxes. If there's any shortfalls in those taxes, we've put a ton of financial guarantees, which I'm happy to talk about, in place, to ensure that the public debt service is met by the investors, not by the public. And the city will own the building and the arena outside of, you know, the financing, they'll own it on their own balance sheet. And the city will generate a lot of incremental taxes from this that are not part of our M.O.U. As people travel from outside the city, from outside the county, to watch games, go to concerts, go to shows like Disney on ice, they will come into the city, they will spend money on everything from parking to hotels to, you know, food and entertainment, to merchandise outside of the arena and the city and the county will keep all of that. And you know, that's a pretty good deal. I mean in the way that you would look at it in terms of opportunity costs, it's not quite fair if you were going to give $200 million to maybe, you know, roads or schools, as some people may state, you know, that is a great thing to do, don't get me wrong, and you know, I would never advocate one versus the other. But those are not revenue generating opportunities. So the point that we would make is that when this is all said and done, if it works out the way that we and the city envision it, the city's bonding capacity will probably rise. And the reason it will rise is because we've provided security against the $200 million and they're generating incremental revenues. So it's no different than you as an individual, it's like if you get a raise in your salary, and if, you know, you purchased a house, and I agreed to make your mortgage payment, you're actually credit capacity would probably rise, you could probably go buy another house. And I think that that's the part of the argument that's a little bit harder for people to get and maybe gets misconstrued.

Enrique:
It's complicated, it is, there's no doubt about it. The municipal came out with some questions, and that's one of the things they said, this is a very complicated kind of deal here. And we do mention what the financial protections for the city and the county, what are they?

Hansen:
Well, there's numerous. The first that's really the linchpin of this is that the city will own the arena and the land, which will have that, I would just argue that, you know, anybody who thinks that this land is not going to be valuable now or in 30 years given its location is probably not being completely honest about it. But more importantly, we've put in, or equally important, we've put in a security reserve fund equal to one year's, one time debt service. So if we ever miss a rent payment or an incremental rent payment, that would be made by a trustee. That reserve account also will increase if our arena income level, from which rent is paid, is not at least two times the debt service. So if for any reason we fall short on that and still continue to make our rent payments, we have to increase the debt service, I mean increase the security reserve fund every year. But then lastly, and also really importantly, is we pledged the equity that we're putting in this transaction, which if you can run some numbers on what an NBA team is going for, plus our equity investment in the arena, you're probably talking somewhere in the vicinity of, you know, $300 plus million in equity as a back stop against our rent payment and incremental rent payment in the event of default. So if you combine that with the people that are involved here, and the fact that I don't think they would, you know, for civic and public reasons, would not want to default on something for the city. I think it's pretty clear that there's a lot of protection.

Enrique:
The people involved with Hansen as investors are Microsoft C.E.O. Steve Ballmer, along with Pete and Erik Nordstrom, whose family was once the majority owner of the Seattle Seahawks. When you consider that the wealth that someone like Steve Ballmer brings to the table as Microsoft C.E.O., and we know that he's a billionaire. But I'm sure you have already heard too that, okay, then why do you need public money, public bonds of up to $200 million?

Hansen:
Um, yeah, I would just say, ah, the first thing is somewhat, I think everybody has found it a little amusing that initially I'm being criticized for having a lack of potential resources to do this, and people wanting to make sure that I have the financial wherewithal to, you know, guarantee the debt, and to live up to the obligations that are part of this deal. And then when we prove that, to immediately turn around and say, well, okay, now you have too much money. So why do you need to do this at all? Maybe there's some magic exact number of money my investor group is supposed to have to thread the needle here. But to the more important question, I would say that, look, it's, you know, the returns on this are not anything close to approaching what I would get in my business, or the investment alternatives that probably Steve Ballmer or the Nordstroms would have. So an important part of making this transaction pencil out is getting the incremental taxes that we're generating contributed back into the deal. And the easiest way to do that is through a bond and, you know, some of that money comes up front, and some of the money comes up on the tail end when we build the arena. And yeah, it's important. It's important to the transaction to make it financially viable, I think, with anybody, there's limits of how far they're willing to go in their civic obligation. So...

Enrique:
The traffic issue. Obviously, you've heard from the port on this, the Mariners have come forward and all of that. What are the guarantees or not that, you know, we can deal with that issue?

Hansen:
Well, the first thing I would say is that, you know, I think we've put a pretty good analysis of the traffic situation we put forward in the traffic analysis that we did. And I would like to kind of let that speak for itself. And a lot of the people who have been objecting have not provided a similar level of analysis, just opinion as to what they think the situation is. And the most important part of that is that just, you know, remember, the ports' gate closes at 4:30. Maybe at some point in the future, they'd like to extend those hours. But the ports' gates close at 4:30. To say that, as I think one of the constituents said that all 6,000 of our cars from our 18,000 attendance on a sold out event are going to arrive at the arena between 3:00 and 4:30, when most of our clients or customers work until 5:00, is just not accurate. And if you look around the NBA and NHL, most fans show up just before game time for that reason. Most fans are showing up between 6:30 and tip off or face off. And so we posted, I think you may know this, we posted the SDOT live traffic cameras. I think we're comfortable with the truth. I would encourage people to look at the traffic situation. Those aren't hosted by us, they're hosted by S dot, so look at the traffic on 3:00 to 4:30 on games, and Mariners games and days when there isn't, and look at the traffic from 6:30 to 7:30 when our people would be coming, and at 9:30 to 10:30 when they would be leaving, and just judge for yourself. There's five traffic cameras in the area. Take a look and see what you see.

Enrique:
Why not the Key Arena?

Hansen:
Yeah. That's a good question too. And there's a couple of reasons. The first is just the actual cost to redo Key would be more expensive than doing it where we're doing it. It would also be a lot more difficult because it is a civic asset, the land is owned by the city. But probably, more important than that is two others things, and the first is that there is just a lack of parking around there. And to be able to do the amount of excavation necessary to load in and load out concert trailers, and to put probably the 2,000 to 3,000 parking spaces you would need below there would be very difficult. And then just imagine yourself trying to get into First Avenue and Mercer before and after a game. Imagine trying to put 3,000 cars after a game out onto First Avenue. It would take you hours to get out of that. So that's important. And it has been studied and our architects are the same architects that worked on the original Key Arena, you know, remodel plan five years ago. So we just don't think it's viable from a financial standpoint or a traffic standpoint. The second part, which I think people miss, and this is really important, is that we need Key Arena as an interim solution to do this transaction. Unless the city would like to put up their money and they could entice us into putting up their money to build the arena on spec, and then with the hope of going out and getting a team, we actually need Key Arena to play in for the years that we are building the arena. So it's like a chicken and the egg thing. Yeah. You need a place to play to get the NBA team here, and some people have proposed Hec Ed. And that's just not a realistic option. The NBA would not buy off on an NBA team playing in Hec Ed.

Enrique:
Shawn Kemp has a restaurant down here, and he's hoping that an NBA team would be here.

Hansen:
I've talked to Shawn. And I think he'd be very happy to have a restaurant down where the NBA team is too.

Enrique:
Been watching the NBA finals?

Hansen:
Of course.

Enrique:
How do you feel about that?

Hansen:
Um, you know, I'm a fan. So, you know, I can't help but watch it. It's, you know, it's difficult to watch OKC with the guys they have on the team and knowing they were here. But they're good guys, you know, it's not like they're hard guys to root against, right? It's a great team with a bunch of great guys on there, it was built the right way. So if you want to look at it that way, you could say it's really painful, which in some ways it is, but I think it's also hard to argue that it hasn't been a great expose for our city, and how passionate the fans that we have here are. And right now, almost every national story about OKC has a Seattle component to it. And that's really serving to highlight what great fans we have here, what a great city we have here, and why we deserve to have the NBA here, and the NHL here again.

Enrique Cerna:
During his 50 plus years as an award winning sports writer and commentator, many of those years covering the NBA, Frank Deford has heard a lot about arenas and the debates over building them. He has a new book out, a memoir titled "Over Time," about his career covering the world of sports. We talked about the arena proposal, the loss of the Sonics, and what he thinks fans need to do.

Frank Deford:
The situation has actually improved. Because if you go into really just the recent past, the citizens were paying, the taxpayers were paying for the buildings completely themselves, you know, and they were sort of a gift to the owners. Now, we've moved into a situation why it's a partnership. Where the cities, the municipalities, and the owners are sharing the costs of the building. And I also believe this, that stadiums are different than arenas. You build a football stadium, and how many times a year is it used? Eight or nine games, maybe you bring a couple of concerts in if the Rolling Stones come to your city, right? But otherwise, it sits there. Whereas an arena can be used for so many different sorts of things. It's not just hockey and basketball. But it can be music and dance and all sorts of other activities. And so I see arenas as sort of the old town square. I think they can be justified much more. But by the same token, I also believe that the basketball and the hockey owners should ante up a considerable portion of the funds.

Enrique:
The public, and in this town that happened, and really why we ended up losing the Seattle Supersonics. More and more, you're hearing the public come forward and say, why do we have to put anything up? Reasonable?

Deford:
Reasonable, absolutely. And particularly in hard times. When we're flush, I think that you can build those kind of civic amenities and excuse it by saying, you know, it helps the city. And we do need these things, we do need things that make us a community, whether it's a zoo, parks, concert halls, all of those are under the same umbrella. And it's hard enough to find community, you know, in this world today, in this country today. So I do believe that arenas and stadiums serve a purpose. But I also think the public has every right to say wait a minute now, you know, the people that are getting rich off this, they got to throw in too.

Enrique:
When you see the Oklahoma Thunder in the NBA finals, which a lot of people here feel a tremendous amount of pain. Obviously, some people don't a care at all. Seattle has lost a bit of its legacy. 41 years, we had a team here. And now, we don't have that. And yet we have this team that should have been ours. That's pretty painful, huh?

Deford:
If I could speak to the good people of Seattle, I could say we all share your pain. Because there isn't a city in the United States, including New York, that hasn't lost teams. I mean this goes back to 1957 when the dodgers and Giants went to California. I grew up in Baltimore. My Colts were stolen by Indianapolis, and then we turned around, Baltimore did, and stole the Cleveland Browns. So Seattle, suck it up and welcome to the club. And I believe that Seattle will get a team back.

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