http://www.sacbee.com/101/story/28402.html
Other arenas go awry
Portland, Seattle may offer cautionary tales as forces here push for a new Kings venue.
By Mark Kreidler and Jon Ortiz - Bee Staff Writers
Published 12:00 am PDT Sunday, September 24, 2006
It went south in Seattle, where even Starbucks' top executive couldn't energize a sports tax-exhausted populace into agreeing on a new arena deal for the SuperSonics.
It fell apart in Portland, Ore., where one of the country's richest men gave up the Trail Blazers' arena in bankruptcy rather than continue operating it at a loss.
Now comes Sacramento, where voters are being asked, amid considerable public tumult, whether to increase the sales tax and use some of the money to fund an arena for the Kings -- and where there's a possibility the team will leave if the ballot measures fail.
The scenario, most experts agree, is familiar to followers of the NBA. While it's now Sacramento's turn to confront it, it's been a nagging debate in cities all over the league.
The issue is rooted in the league's economic system, which favors large markets over small. With its national TV numbers either static or falling and player payrolls soaring, NBA owners increasingly have seized upon arenas as ways to develop new revenue streams and maintain their financial edge in the league marketplace.
In fact, nearly three-quarters of all U.S. major pro sports franchises have replaced or dramatically remodeled their facilities over the past two decades, with the vast majority of the financing coming from taxpayers.
The new buildings, replete with luxury suites, expanded concourses and club seats, allow teams to tap the discretionary incomes of their most monied customers. Combine that with a public subsidy to build them, and the financial implications are enormous -- even if, as Kings executive John Thomas says, most arenas do not pencil out as profitable by themselves.
With NBA owners claiming the need for new buildings ever more urgently, sentiment regarding taxpayer help may be creeping the other way, says Kevin Quinn, sports economist at St. Norbert College in De Pere, Wis.
"I think there is a change occurring in public attitude toward these kinds of threats," Quinn said, referring to the idea of a team leaving a city rather than stay in an arena deal it deems substandard.
"People are becoming more sophisticated about understanding that these are entertainment businesses, really. These are not public trusts, and there is not a sacred obligation upon politicians to 'save' them for a particular area."
Officials in Charlotte, N.C., several years ago refused to help pay for a new arena for unpopular Hornets owner George Shinn, who then moved the NBA team to New Orleans. Charlotte then built a new facility with taxpayer money and obtained a startup franchise, the Bobcats, in 2005.
The NBA's national TV contracts pay each team $25.55 million per year, a figure representing less than half the Kings' estimated $60 million player payroll for the 2005-06 season. But teams can keep the local or regional broadcast revenue they produce, creating a potentially huge financial disparity from city to city.
Top markets like New York, Los Angeles, Chicago and Philadelphia can leverage their ratings for TV deals that dwarf those in markets like Seattle, Sacramento and Portland (14th, 20th and 23rd, respectively, in the most recent Nielsen rankings).
The Los Angeles Lakers, for example, get about $30 million each year in local broadcast and cable TV rights, according to Shaw Sports Business, a Monterey firm that tracks NBA broadcast revenues. Kings owner Joe Maloof said his team earns about $9.5 million from its deals with Channel 10 and Comcast SportsNet.
For smaller cities, other revenue sources thus become critical, and ticket prices realistically can be raised only so many times. The Kings' average price of $59.80 was third-highest in the league last season, behind the Lakers and New York Knicks.
The buildings, though, can produce revenue in other ways: parking, concessions, memorabilia, high-end amenities for top-paying customers. Seattle, Portland and now Sacramento all seized upon that notion as a means of hanging in against larger-market competition.
The Sonics' story is the most strained, considering that they are the oldest pro sports franchise in Seattle -- their 40th anniversary is this year -- and had enjoyed decades of support. It took only a few years, and a few twists of fate, for that to change.
In the early 1990s, Sonics management asked the city of Seattle to help the franchise get a better place to play. The result was a $95 million renovation of KeyArena, which debuted in 1995 amid fanfare and an unusual approach to its financing, counting on future revenue from the building to cover most of the construction cost.
The plan seemed sound at first. Seattle ran off a three-year string of first-place finishes starting with the 1995-96 season. Nearly 700,000 fans filled up the arena over 41 games each year.
But the NBA's 1998 lockout depressed the fan base, and the dot-com downturn shortly thereafter hit Seattle's once-thriving high-tech industry hard. The Sonics themselves began to struggle, hovering between fourth and fifth place for six years in a row. The year after the lockout, per-game attendance fell 10 percent.
By the time a group led by Starbucks Chairman Howard Schultz bought the team for $200 million in 2001, the Sonics were reeling.
They also were on the hook for what NBA Commissioner David Stern later declared to be the worst arena deal in the league, under which the team pays the city a considerable portion of its profit -- an average of $8 million a year -- in addition to $1.5 million in rent, to pay for the renovation. The city, not the Sonics, controls the building, meaning the franchise derives none of the ancillary income from the place.
It didn't take Schultz long to begin asking for a better deal. But, as he soon discovered, the Sonics had been beaten to the punch.
While KeyArena was undergoing renovation, the managements of Seattle's other two major pro sports franchises already were headed for entirely new venues. First came baseball's Mariners, who secured more than $300 million in public financing via the Washington Legislature in 1995 as part of its $517 million Safeco Field.
Next, the NFL's Seahawks launched a multimillion-dollar campaign in 1997 that resulted in voters approving nearly $300 million in public financing toward the estimated $430 million cost of constructing Qwest Field.
By the time the Sonics sought help, voters had exhausted their good will toward pro franchises, and the opposition was better prepared. City Councilman Nick Licata went so far as to tell Sports Illustrated that the team offered Seattle little economic or cultural benefit.
Schultz eventually concluded his group wouldn't be able to get the kind of arrangement it wanted. In July, he sold the team for $350 million to a consortium headed by Oklahoma City businessman Clay Bennett, who immediately set a 12-month timetable for reaching a new arena agreement with Seattle officials.
Failing that, the group could seek to move the Sonics to Oklahoma City, whose Ford Center seats more than 19,000 and succeeded wildly last season as a home for the New Orleans Hornets. The Sonics' lease at KeyArena, under which Schultz's group claimed it lost $70 million in operational expenses over five years, expires in 2010.
Bennett declined to be interviewed for this story. He has told reporters several times that he will keep the Sonics in Seattle -- if the team gets a new deal.
In Portland, an approach almost diametrically opposed to the one in Seattle resulted in similarly dire straits, with the possible sale of the team the result.
In 1995, Paul Allen, the co-founder of Microsoft with assets exceeding $6 billion, decided to build the Rose Garden mostly on his own for his Trail Blazers. He borrowed $155 million and added nearly $50 million of his own money, with the city of Portland providing about $34 million for streets, plazas and nearby parking structures.
The Rose Garden was quickly proclaimed as the finest venue of its kind, and, at a $262 million total price tag, at the time the most expensive basketball arena ever built. Better yet, Allen's company owned the building and could control the revenue.
It still went kaput. First, Allen invested heavily in player talent -- the Blazers' payroll was among the NBA's top three from 2001 to 2004 -- yet the team slid into mediocrity. Several players were involved in legal scrapes.
And the Rose Garden faltered, in part because its location, across the river from downtown Portland, was so isolated that it never developed into the kind of entertainment and shopping district Allen imagined.
Allen's operating losses on the Blazers at one point were said to exceed $100 million per year, and by 2004 he concluded the arena itself was a financial sinking ship. When a bankruptcy reorganization plan was rejected for his Oregon Arena Corp. holding company that year, Allen stunned locals by simply giving up ownership of the arena as a way of settling his outstanding debt.
Since then, it has become clear that splitting the team and the arena hurt the Blazers. Allen's company gave up its rights to the Rose Garden's suites and the other revenue sources, further hampering the Blazers' ability to compete as a small-market team.
As a result, the team's value has slid backward, something nearly unheard of in major-league sports business. Forbes magazine estimates the team is worth about $227 million, down $18 million from its 1998 value.
Allen's spokesmen say a new arena lease is needed to get the team back on track.
Still, Allen put the Blazers up for sale this year, joining with the arena's current management company to offer the team and the Rose Garden in a single transaction. But just as qualified offers began to come in, Allen withdrew from the negotiations.
He has not said whether he intends to keep the NBA team, or whether he is waiting for its value to rise before offering it for sale again. Some in Portland wonder whether Allen might ultimately be interested in regaining control of the Rose Garden under a more favorable lease arrangement.
Either way, the Blazers, like the Sonics and the Kings, continue to look to their arena as a means of creating or enhancing revenue streams that can close the gap between small-market and large-market franchises.
"They're out there buying players in a common market, but they're selling their product in a local market, and that can create huge disparities in revenues," said Quinn, the sports economist. "You have to generate some money, somewhere, to compete for those players."
About the writer: The Bee's Mark Kreidler can be reached at (916) 321-1149 or mkreidler@sacbee.com.
Other arenas go awry
Portland, Seattle may offer cautionary tales as forces here push for a new Kings venue.
By Mark Kreidler and Jon Ortiz - Bee Staff Writers
Published 12:00 am PDT Sunday, September 24, 2006
It went south in Seattle, where even Starbucks' top executive couldn't energize a sports tax-exhausted populace into agreeing on a new arena deal for the SuperSonics.
It fell apart in Portland, Ore., where one of the country's richest men gave up the Trail Blazers' arena in bankruptcy rather than continue operating it at a loss.
Now comes Sacramento, where voters are being asked, amid considerable public tumult, whether to increase the sales tax and use some of the money to fund an arena for the Kings -- and where there's a possibility the team will leave if the ballot measures fail.
The scenario, most experts agree, is familiar to followers of the NBA. While it's now Sacramento's turn to confront it, it's been a nagging debate in cities all over the league.
The issue is rooted in the league's economic system, which favors large markets over small. With its national TV numbers either static or falling and player payrolls soaring, NBA owners increasingly have seized upon arenas as ways to develop new revenue streams and maintain their financial edge in the league marketplace.
In fact, nearly three-quarters of all U.S. major pro sports franchises have replaced or dramatically remodeled their facilities over the past two decades, with the vast majority of the financing coming from taxpayers.
The new buildings, replete with luxury suites, expanded concourses and club seats, allow teams to tap the discretionary incomes of their most monied customers. Combine that with a public subsidy to build them, and the financial implications are enormous -- even if, as Kings executive John Thomas says, most arenas do not pencil out as profitable by themselves.
With NBA owners claiming the need for new buildings ever more urgently, sentiment regarding taxpayer help may be creeping the other way, says Kevin Quinn, sports economist at St. Norbert College in De Pere, Wis.
"I think there is a change occurring in public attitude toward these kinds of threats," Quinn said, referring to the idea of a team leaving a city rather than stay in an arena deal it deems substandard.
"People are becoming more sophisticated about understanding that these are entertainment businesses, really. These are not public trusts, and there is not a sacred obligation upon politicians to 'save' them for a particular area."
Officials in Charlotte, N.C., several years ago refused to help pay for a new arena for unpopular Hornets owner George Shinn, who then moved the NBA team to New Orleans. Charlotte then built a new facility with taxpayer money and obtained a startup franchise, the Bobcats, in 2005.
The NBA's national TV contracts pay each team $25.55 million per year, a figure representing less than half the Kings' estimated $60 million player payroll for the 2005-06 season. But teams can keep the local or regional broadcast revenue they produce, creating a potentially huge financial disparity from city to city.
Top markets like New York, Los Angeles, Chicago and Philadelphia can leverage their ratings for TV deals that dwarf those in markets like Seattle, Sacramento and Portland (14th, 20th and 23rd, respectively, in the most recent Nielsen rankings).
The Los Angeles Lakers, for example, get about $30 million each year in local broadcast and cable TV rights, according to Shaw Sports Business, a Monterey firm that tracks NBA broadcast revenues. Kings owner Joe Maloof said his team earns about $9.5 million from its deals with Channel 10 and Comcast SportsNet.
For smaller cities, other revenue sources thus become critical, and ticket prices realistically can be raised only so many times. The Kings' average price of $59.80 was third-highest in the league last season, behind the Lakers and New York Knicks.
The buildings, though, can produce revenue in other ways: parking, concessions, memorabilia, high-end amenities for top-paying customers. Seattle, Portland and now Sacramento all seized upon that notion as a means of hanging in against larger-market competition.
The Sonics' story is the most strained, considering that they are the oldest pro sports franchise in Seattle -- their 40th anniversary is this year -- and had enjoyed decades of support. It took only a few years, and a few twists of fate, for that to change.
In the early 1990s, Sonics management asked the city of Seattle to help the franchise get a better place to play. The result was a $95 million renovation of KeyArena, which debuted in 1995 amid fanfare and an unusual approach to its financing, counting on future revenue from the building to cover most of the construction cost.
The plan seemed sound at first. Seattle ran off a three-year string of first-place finishes starting with the 1995-96 season. Nearly 700,000 fans filled up the arena over 41 games each year.
But the NBA's 1998 lockout depressed the fan base, and the dot-com downturn shortly thereafter hit Seattle's once-thriving high-tech industry hard. The Sonics themselves began to struggle, hovering between fourth and fifth place for six years in a row. The year after the lockout, per-game attendance fell 10 percent.
By the time a group led by Starbucks Chairman Howard Schultz bought the team for $200 million in 2001, the Sonics were reeling.
They also were on the hook for what NBA Commissioner David Stern later declared to be the worst arena deal in the league, under which the team pays the city a considerable portion of its profit -- an average of $8 million a year -- in addition to $1.5 million in rent, to pay for the renovation. The city, not the Sonics, controls the building, meaning the franchise derives none of the ancillary income from the place.
It didn't take Schultz long to begin asking for a better deal. But, as he soon discovered, the Sonics had been beaten to the punch.
While KeyArena was undergoing renovation, the managements of Seattle's other two major pro sports franchises already were headed for entirely new venues. First came baseball's Mariners, who secured more than $300 million in public financing via the Washington Legislature in 1995 as part of its $517 million Safeco Field.
Next, the NFL's Seahawks launched a multimillion-dollar campaign in 1997 that resulted in voters approving nearly $300 million in public financing toward the estimated $430 million cost of constructing Qwest Field.
By the time the Sonics sought help, voters had exhausted their good will toward pro franchises, and the opposition was better prepared. City Councilman Nick Licata went so far as to tell Sports Illustrated that the team offered Seattle little economic or cultural benefit.
Schultz eventually concluded his group wouldn't be able to get the kind of arrangement it wanted. In July, he sold the team for $350 million to a consortium headed by Oklahoma City businessman Clay Bennett, who immediately set a 12-month timetable for reaching a new arena agreement with Seattle officials.
Failing that, the group could seek to move the Sonics to Oklahoma City, whose Ford Center seats more than 19,000 and succeeded wildly last season as a home for the New Orleans Hornets. The Sonics' lease at KeyArena, under which Schultz's group claimed it lost $70 million in operational expenses over five years, expires in 2010.
Bennett declined to be interviewed for this story. He has told reporters several times that he will keep the Sonics in Seattle -- if the team gets a new deal.
In Portland, an approach almost diametrically opposed to the one in Seattle resulted in similarly dire straits, with the possible sale of the team the result.
In 1995, Paul Allen, the co-founder of Microsoft with assets exceeding $6 billion, decided to build the Rose Garden mostly on his own for his Trail Blazers. He borrowed $155 million and added nearly $50 million of his own money, with the city of Portland providing about $34 million for streets, plazas and nearby parking structures.
The Rose Garden was quickly proclaimed as the finest venue of its kind, and, at a $262 million total price tag, at the time the most expensive basketball arena ever built. Better yet, Allen's company owned the building and could control the revenue.
It still went kaput. First, Allen invested heavily in player talent -- the Blazers' payroll was among the NBA's top three from 2001 to 2004 -- yet the team slid into mediocrity. Several players were involved in legal scrapes.
And the Rose Garden faltered, in part because its location, across the river from downtown Portland, was so isolated that it never developed into the kind of entertainment and shopping district Allen imagined.
Allen's operating losses on the Blazers at one point were said to exceed $100 million per year, and by 2004 he concluded the arena itself was a financial sinking ship. When a bankruptcy reorganization plan was rejected for his Oregon Arena Corp. holding company that year, Allen stunned locals by simply giving up ownership of the arena as a way of settling his outstanding debt.
Since then, it has become clear that splitting the team and the arena hurt the Blazers. Allen's company gave up its rights to the Rose Garden's suites and the other revenue sources, further hampering the Blazers' ability to compete as a small-market team.
As a result, the team's value has slid backward, something nearly unheard of in major-league sports business. Forbes magazine estimates the team is worth about $227 million, down $18 million from its 1998 value.
Allen's spokesmen say a new arena lease is needed to get the team back on track.
Still, Allen put the Blazers up for sale this year, joining with the arena's current management company to offer the team and the Rose Garden in a single transaction. But just as qualified offers began to come in, Allen withdrew from the negotiations.
He has not said whether he intends to keep the NBA team, or whether he is waiting for its value to rise before offering it for sale again. Some in Portland wonder whether Allen might ultimately be interested in regaining control of the Rose Garden under a more favorable lease arrangement.
Either way, the Blazers, like the Sonics and the Kings, continue to look to their arena as a means of creating or enhancing revenue streams that can close the gap between small-market and large-market franchises.
"They're out there buying players in a common market, but they're selling their product in a local market, and that can create huge disparities in revenues," said Quinn, the sports economist. "You have to generate some money, somewhere, to compete for those players."
About the writer: The Bee's Mark Kreidler can be reached at (916) 321-1149 or mkreidler@sacbee.com.