Will Seattle See a New Arena: Part 2
In Part One of this series, we summarized the history of the debate surrounding a new stadium and gave you a teaser on the Memorandum of Understanding (MOU) to renovate the KeyArena. What does this MOU contain, you ask? Let’s dive in.
Part Two: The Nitty Gritty
On June 7th, 2017, Former Mayor Ed Murray publically announced that he had accepted a bid proposal from Oak View Group (OVG), a prominent Los Angeles investment group, to renovate and redevelop KeyArena at Seattle Center into “a world-class, multi-purpose sports and entertainment facility.” The decision came after Seattle Partners, OVG’s only competitor for the project, revoked its bid just days before. The series of events spurred many questions about the validity of OVG’s bid, and the viability of the project altogether.
After several months of negotiation, the City and OVG published a proposed Memorandum of Understanding in mid-September. Though a new interim Mayor now stands in Murray’s stead, the MOU is now with the Seattle City Council to evaluate and vote on.
What is an MOU?
At the most basic level, an MOU is an agreement to agree to enter a contract. It outlines key terms and procedures agreed upon by the parties, and includes the premises and understandings that are to be contained in any final contract.
Procedurally, the MOU must be approved by the City Council in order to be binding. A vote could happen as soon as December 2017. The next month will no doubt be chock-full of talk of the NBA’s return and NHL’s potential entry into Seattle. However, for sports fans and non-fans alike, the redevelopment of a cornerstone City venue has major impacts.
About the building
If the Oak View Group’s redevelopment plan comes to fruition, KeyArena will nearly double in current size. It will seat between 16,940 and 19,125 depending on the type of event. The Arena will meet Leadership in Energy and Environmental Design (LEED) Gold environmental ratings. Respecting the historic aspects of KeyArena, OVG is required to design the project in such a way to maintain the current roofline of the structure.
The MOU provides for a 39-year lease with the City as the initial term, with the option to renew for two additional 8-year periods (for a maximum total lease potential of 55 years). There are a number of conditions OVG must meet in order to exercise the optional terms, however—one being that at the time of the exercise, the KeyArena must be the designated home arena of a major league NHL or NBA franchise team. During the lease period, OVG will be responsible for operation and maintenance costs and will assume all risks of operation.
The final contract documents will incorporate terms to assure that the design, construction, and operation of the facility meet the Seattle Center campus goals and principle. OVG will develop a schedule and plan for the relocation of City tenants, as necessary, and will pay the City $1.5 million for the relocation of the Seattle Center Skate Park, maintenance, and other public facilities.
About the money
As of the MOU’s publication, the proposed renovation is estimated to cost $600 million. So where is the money coming from? The MOU provides that the renovation be 100% privately financed, with no financing provided by the City, even if the project results in cost-overruns in construction and operation.
In return, the MOU provides OVG with a deduction in rent. The City is entitled to enough rent to cover the City’s current base revenue generated by the KeyArena, the 1st Avenue North Parking Garage and campus sponsorship rights (collectively, the “Baseline Rent”). The MOU promises OVG a deduction (otherwise known as “abatement”) equal to $350,000 a year for the first 10 years of operation. The amount of rent to be charged will be determined by a joint audit between the City and OVG based on a four-year (the financial years of 2014 to 2017) trailing historical annual average.
In addition, the City is entitled to “Baseline Tax Guaranty,” which essentially guarantees that the City will receive a threshold amount of taxes from revenue generated by the new KeyArena and associated parking garages. If the taxes collected do not meet the set threshold (a “Baseline Tax Threshold”), then OVG will reimburse the City the difference. The Baseline Tax Threshold is intended to equal the amount of tax and facility revenues the City receives from the current operation of the KeyArena and related operations. If the tax collected exceeds the Baseline Tax Threshold, the excess can, depending on its source and amount, be applied to lower rent.
About the traffic
No one in Seattle would argue that the traffic around Seattle Center is not already horrible. A key issue in the ongoing debate between Seattle Center and SoDo arena plans has been (and continues to be) transportation, access, traffic impact, and mitigation plans. This article couldn’t possibly succeed in revisiting or resolving those arguments. Focusing purely on the impact of the proposal currently before the City Council, though, the MOU contains several attempts to mitigate the traffic impacts of an expanded sports and entertainment venue in the heart of Uptown. The MOU provides that the City will create a separate fund (“City Transportation Fund”) to be spent, at the sole discretion of the City, to fund transportation improvements in the neighborhoods surrounding Seattle Center. OVG will contribute $40 million to the City Transportation Fund. In addition, the City Council’s approval of the MOU is contingent on an environmental impact study to identify the project’s impacts on traffic and other resources, and to propose alternatives and mitigation solutions. OVG will pay the costs of all necessary mitigation, separate from its contribution to the City Transportation Fund. OVG will also pay for a transportation consultant to develop and conduct a “North Downtown Mobility Action Plan” to support transportation improvements in the Queen Anne, South Lake Union, Belltown, and Denny Triangle neighborhoods.
About the teams (the ones we don’t have and the one we do)
The MOU requires OVG to use “commercially reasonable efforts” to pursue NBA and NHL teams to locate (or relocate) to Seattle. OVG will bear the costs of any facility or tenant improvements required by the NBA, NHL, or other organization, in order to obtain a team. Any team locating to Seattle will be required to maintain its corporate headquarters here and its lease will require a non-relocation agreement. (Once burned, twice shy, apparently, in Seattle sports and politics). As to the pursuit of an NBA franchise, OVG is required to use “commercially reasonable efforts” to secure the Seattle Sonics/Supersonics name.
Speaking of “reasonable efforts,” the MOU also provides that both the City and OVG must use “reasonable efforts” to support the Seattle Storm—perhaps the most obvious, often-ignored, and taken-for-granted team that already calls KeyArena home. The two-time WNBA world champion Seattle Storm, originally owned by the Sonics, was acquired by Force 10 Hoops LLC when the Sonics relocated. Force 10 Hoops is comprised of three local businesswomen, Dawn Trudeau, Lisa Brummel, and Ginny Gilder, who made a commitment to keep the Storm in Seattle as a means to give back to the community, and to emphasize that women and girls should have the opportunity to compete at every level. The Storm is one of only six independently owned franchises in the WNBA.
In May of this year, the Seattle Storm extended their lease with the City for more than a decade, solidifying the Storm’s future at KeyArena through December 31, 2028. Relocating the Seattle Storm for the estimated three seasons it would take to renovate could result in hefty penalties to the City, up to $2.6 million per season. Accordingly, the MOU requires that OVG assume the remainder of the City’s lease with the Storm or develop a new lease agreement with the team by the Arena’s opening date. The MOU further solidifies OVG’s seat at the table by prohibiting the City from entering into any amendments to the existing lease with the Seattle Storm without express advanced approval from OVG, which, per the MOU, can be granted or withheld “in OVG’s sole discretion.”
When it comes to the Storm or a not-yet-acquired sports franchise (or both), only time will tell how “reasonable efforts” will (that is, if the MOU becomes binding) materialize. Remember, it wasn’t too long ago that a certain Clay Bennett promised us similar “good faith efforts” to keep the Sonics in Seattle. Regardless of the uncertainty and the possible changes on the horizon, one thing is sure: the authors of this article will be watching.
Part 3 evaluating the viability of the new stadium proposal and KeyArena renovation proposal and predictions will be published on Thursday, November 9.
- Cecilia JeongAssociate
- Marti McCalebAssociate