Is the proposed arena deal good for Sacramento?
We took a look at the last 10 NBA arenas opened or renovated 1999 to 2012. The economic crisis has had a major effect on local government, cities have made severe cuts to services. Most professional sport venues opened after 2007 were financed with private dollars, public investment came in the form of tax breaks and city owned land.
City deals gone wrong?
Complex agreements we more likely to be detrimental to the city. The worst deal was in New Orleans. Under the initial terms, the State would supplied an subsidy if Pelicans ticket sales fall short of the team’s desires. The team could break the lease if attendance didn’t reach certain benchmarks. Those terms have changed with the new agreement, the citizens of Louisiana will pay for 50 million in the for new upgrades and team costs.
The term sheet in Indianapolis and Memphis, which shares many similarities to Sacramento, has come up short.
In Memphis the iconic Pyramid Arena, built in 1991 at a cost of 65 million . The Arena capacity for basketball 19351. The building was deemed not NBA ready and too expensive to upgrade. Today, the arena is a Bass store.
In Indianapolis not only is the arena losing money, the city is paying the principal tenant, the Indiana Pacers 15 million dollars a year to stay in town. Orlando Pyramid Arena is costing the city millions.
Exceptional in Texas?
Dallas, Houston and San Antonio arenas were voter approved. While critics have called them giveaways. They are all profitable, the American Airlines Center in Dallas is nearly paid for years ahead of schedule.
The Last 10 NBA Arenas in the US
Opened: Sept 12, 2012
10.Barclay’s Center(New York Nets) Brooklyn New York Cost: 1 Billion Dollars
On March 4, 2008, the citizens of Oklahoma City passed a $121.6 million initiative designed to renovate and expand the Chesapeake Energy Arena and to build a practice facility for the relocated Seattle SuperSonics team which is now known as the Oklahoma City Thunder. Financing consists of a temporary 15-month, 1-cent sales tax that will be paid by Oklahoma City residents and shoppers beginning January 1, 2009.
Renovation work on the arena was delayed due to a sales tax receipt shortfall during the 2008-10 economic crisis; eventual tax receipts totaled $103.5 million rather than the projected $121 million. The shortfall was accommodated by revising plans for certain features of the arena expansion project, including limiting the size of a new glass entryway, and eliminating a practice court planned for above the delivery entrance of the arena. Major construction work on the arena expansion was also delayed from the summer of 2010 to the summer of 2011. Similar revisions were made to the plans for the Thunder’s separate practice facility, for a total cost savings of approximately $14 million. The Thunder’s practice facility completion date was similarly pushed back to approximately March 2011.
The Orlando City Council approved several operating agreements connected with the arena plans . The Venue plan received final approval by the Orange County Board of County Commissioners. In the agreement, the City of Orlando will take ownership of the new arena. The City would be paid a part of naming rights and corporate suite sales, a share estimated to be worth $1.75 million the first year of the arena’s opening.
The Magic will receive all proceeds from ticket sales for Magic games, while the City will receive all proceeds from ticket sales to all other events.The Orlando Magic will contribute at least $50 million in cash up-front, pick up any cost overruns, and pay rent of $1 million per year for 30 years.
The City of Orlando will pay for the land and infrastructure. The remaining money will come from bonds which will be paid off by part of the Orange County, Florida, Tourist Development Tax, collected as a surcharge on hotel stays, which was raised to 6% in 2006. The Magic will guarantee $100 million of these bonds.
On April 3, 2010 it was reported that Fitch Rating Agency had downgraded the bonds used to finance the new arena to “junk” status and further warned the arena’s debt holders that in as soon as 30 months the new Amway Center could be faced with a default unless finances are corrected. The city and county were quick to assure local media that in no way would Fitch’s downgrade delay construction and that all necessary funds were on hand to complete the center. However because of the Fitch downgrade the interest rate on the debt payments would increase the “payoff” cost of the Amway Center over time and the Orlando Sentinel pointed out that it would be harder to seek lending for the other phases of the project such as the “$425 million Dr. Phillips Center for the Performing Arts and the $175 million renovation of the Florida Citrus Bowl stadium.
The downgrade to “junk” of the Amway Center’s debt—although reversible—signals that unless local government either expands tax revenue or drastically reduces both Amway Center and non-center expenses, creditors could in just a short few years seek bankruptcy relief in the form of repossession or auctioning off the new center. Such a move would probably not threaten the Magic’s status as tenant in the venue.
http://en.wikipedia.org/wiki/Amway_Center
Subsidy’s Near Amway Center are failing…..
Bar near Amway Center runs up $57,000 debt to taxpayers
Opened October 12,2005
7. Time Warner Cable Arena ( Charlotte Bobcats) Charlotte, North Carolina
Cost 260 million
In 2001, a non-binding public referendum for an arts package, which included money to build the new uptown arena, was placed on the ballot for voters. This was done in order to demonstrate what was believed to be wide public support for construction of a new uptown venue. The arts package would have been funded with the issuance of bonds by the city.
There was opposition to the referendum, with many feeling that the city shouldn’t fund a new arena at all (the Charlotte Coliseum, since demolished, was just 13 years old at the time). Mayor Pat McCrory vetoed a living wage ordinance just days before the referendum. As a result, Helping Empower Local People, a grass-roots organization supporting a living wage, launched a campaign to oppose the arena. It argued that it was immoral for the city to build a new arena when city workers didn’t earn enough to make a living. Many of the city’s black ministers switched sides in the arena deal and urged their parishioners to oppose it. The referendum failed with 43 percent for building the arena and 57 percent opposed.
City leaders then devised a way to build a new arena in a way that didn’t require voter support, but let it be known that they would not even consider building it unless the Hornets’ owner George Shinn sold the team. While even the NBA acknowledged that Shinn had alienated fans, NBA officials felt such a statement would anger owners. As it turned out, the NBA approved the Hornets’ application to move to New Orleans. However, the league promised that the city would get a new team—what became the Bobcats—as part of the deal.
http://en.wikipedia.org/wiki/Time_Warner_Cable_Arena
Opened Sept 6,2004
6. Fed Ex Forum (Memphis Grizzlies) Memphis, Tennessee Cost: 250 million
The arena opened in 2004, with a variety of revenue streams, including hotel and motel taxes, seat-use fees and a rebate of NBA-related sales taxes, to provide annual debt service payments. If the revenue streams fall short, the city and county are liable for the difference.
http://basketball.ballparks.com/NBA/MemphisGrizzlies/
MONEY CONCERNS(2009): A city audit suggests Memphis and Shelby County might be owed more than half a million dollars because of ambiguity in the financing scheme for FedExForum.
An internal city audit suggests Memphis and Shelby County might be due more than half a million dollars because of a gray area in the $250 million FedExForum’s complex financing scheme.
That was part of the scenario envisioned years ago when a funding plan for the arena was put together. To hedge against a shortfall in one revenue stream, other funding sources such as a hotel-motel tax and car rental tax were added to the mix.
Building a plan with several layers of financing was designed to prevent taxpayers from directly shouldering the burden of paying for the arena.
http://www.memphisdailynews.com/editorial/Article.aspx?id=45813
Critical State Report Remakes City Budget (May 22,2013)
An April report from the Tennessee Comptroller of the Treasury critical of city finances threw the budget season at City Hall into remake mode Tuesday, May 21.
The bottom line for the budget is a remediation plan that will increase the city’s long term debt, force the city to use its reserves, and take reserves below the 10 percent level considered key with bond-rating agencies.
Over the weekend, Memphis Mayor A C Wharton Jr. alerted council members to the critical comptroller’s report, which requires the city to correct a “negative fund balance” in the New Memphis Arena fund, a fund related to the debt surrounding FedExForum.
A debt restructuring or refunding referred to as “scoop and toss,” which would increase the city’s debt in years to come was what triggered the critical state report.
“This corrects a problem going back nine to 10 years,” Wharton said. But he faced pointed questioning from council members about why his administration just now learned of it.
http://www.memphisdailynews.com/news/2013/may/22/critical-state-report-remakes-city-budget/
Opened October 6, 2003
5. Toyota Center (Houston Rockets) Houston, Texas Cost: 235 million
On November 7, 2000, Houston voters approved construction of a multi-purpose downtown arena, by a vote of 65% to 35%.
So Far, So Good
The agency created to finance Houston’s professional sports stadiums, in a cash crunch since the financial crisis, took a $2.3 million hit to its reserve account in making a debt payment. The good news for the Harris County-Houston Sports Authority is that Tuesday’s payment was the seventh of 10 inflated “term-out” payments it will make, and it still has $25.4 million in its reserve account, authority executive director Janis Schmees said. That suggests, at this pace, the authority still will have plenty in savings when it makes the 10th payment in May 2014.
It’s also worth noting that the insurance policy and the authority’s revenues are the collateral for the its debts, not the sports stadiums or the land under them. The agency services the debt on Reliant Stadium (home to the Texans), Minute Maid Park (the Astros) and Toyota Center (the Rockets).
http://blog.chron.com/houstonpolitics/2012/11/sports-authority-again-taps-reserves-to-make-payment/
Opened October 18, 2002
4. AT&T Center( San Antonio Spurs) San Antonio,Texas Cost 186 million
In 1999 voters approved an increase in car rental and hotel taxes to finance the construction of a new arena. The Spurs contributed $28.5 million and 50% of the funding came from private contributors.
In 2008, voters approved 75 million in renovations for the center.
Opened July 17,2001
3. American Airlines Center( Dallas Mavericks) Dallas, Texas Cost 420 million
Dallas taxpayers approved a new hotel tax and rental car tax to pay for a new facility to cover a portion of the funding, with the two benefiting teams, the Mavericks and the Stars, picking up the remaining costs, including cost overruns.
According to a memo from the city’s Chief Financial Officer Jeanne Chipperfield, the city is ready to pay off the final $10.45 million in bonds used to finance the American Airlines Center.The final redemption will take the bond debt off the city’s books and result in a savings of nearly $2 million. The city has saved many millions more by paying off all of the bonds early. Dallas has been on track for some time to pay off the bonds early. But what could be more timely than Chipperfield’s note that, come August, she will seek redemption of the final chunk of series 1998 B bonds that made up a chunk of the $140,380,000 million Dallas voters agreed to float to build the center?
http://cityhallblog.dallasnews.com/2011/06/mavs-win-and-dallas-is-ready-t.html/
Opened November 6, 1999 Cost: 183 million
2. Bankers Life Fieldhouse (Indiana Pacers) Indianapolis, Indiana Cost: 183 million
$183-million structure was financed by a combination of public and private money, with the $79 million public share paid for in revenue from a special professional sports taxing district. The fieldhouse is operated by the Capital Improvement Board with upkeep costs paid in part by the Pacers.
2010: The Pacers are among the most troubled franchises in the NBA. To help the Pacers, Indianapolis taxpayers are going to subsidize the cost of running Bankers Life Fieldhouse to the tune of $10 million a year during the next three years. In exchange, the Pacers must stay in Indianapolis through the 2012-13 season or pay back the entire $30 million. The Pacers would also be on the hook for a portion of the $30 million if they left before 2019.
May 12,2013 In the never-ending saga that is this city’s battle to keep its sports franchises, the teams always have the upper hand. So the Pacers had leverage three years ago when the city agreed to hand more than $10 million in annual checks to help the team’s bottom line. Yes, the Pacers actually had leverage when they were sporting losing records and playing lethargically to tiny crowds, during an era that followed the infamous brawl and player misdeeds that sent so many fans packing.
The money is running out. The city has raised just about every tax it can. The hospitality taxes that fund sports stadiums are perhaps as high as they can go, at least without damaging the crucial convention business that also drives Downtown’s economy.
Opened October 29, 1999
1. New Orleans Arena (New Orleans Pelicans) New Orleans,Louisiana Cost: 114 million
The State of Louisiana issued bonds for the construction of the Arena .
March 16, 2012, The New Orleans Hornets and the state of Louisiana on Friday jointly announced a long-term lease agreement that will bind the team to New Orleans Arena through 2024, and team chairman Jac Sperling, the man appointed to broker deals with the state as well as a new ownership entity, said that final piece of the puzzle soon will be in place.
The Hornets’ current lease expires following the 2014 season. The new lease, would become effective July 2 subject to the team’s sale, legislative approval of extending the Quality Jobs Tax Credit provision, which currently provides the Hornets $3.6 million annually in tax breaks, and legislative approval of the state’s capital outlay appropriation.
http://www.nola.com/hornets/index.ssf/2012/03/new_orleans_hornets_state_anno.html
Building Boom
Six NBA venues opened in 1999…. Two days before the New Orleans Arena Opened, The Staple Center in Los Angeles opened. Pepsi Center (Denver Nuggets) October 99, Air Canada Centre (Toronto Raptors) Feb 1999 and the American Airlines Arena (Miami Heat) Feb 6,1999.
Sacramento Kings: Game Changer?
The Sacramento Kings sale closed escrow on Friday with the final sale price equates to a record $534 million that also includes the Sleep Train Arena. This for a small market team? Watch the prices for other team increase.
Old Model Fading?
The NBA requires all arenas to seat a minimum 18,500 fans. The preferred location are downtown with large public investment. The Economic Crises has changed local government as most are bleeding red ink.
Oakland (Golden State Warriors) successfully renovated their 40 year old arena adding boxes and 4500 seats. However that wasn’t enough, as private investors are planning to build an arena on San Francisco’s waterfront. Madison Square Garden is in phase one of an 1.1 billion dollar upgrade.
Oklahoma City renovated their arena. Minnesota Timberwolves wants an updated the arena mayor and the city is moving slowly as the football team wants updates. New taxes would be needed.
The Milwaukee Bucks doesn’t want a renovated Arena they want a new one. Milwaukee Mayor Tom Barrett said in his state of the city said: “The team belongs in Milwaukee. The team belongs in Wisconsin. That’s why I want the process to be transparent, honest and open. However, I cannot support a City of Milwaukee or Milwaukee County only financing plan. We need to have a regional plan because the Bradley Center is a regional and state asset just like Miller Park. Just like State Fair Park”
http://media.jsonline.com/documents/barrett-022513.pdf
The NBA is still operating under the old model where communities tax themselves with little or no contribution from the owners to the facilities. Of the small market cities only Sacramento has opened its purse wide.
Sacramento Arena Term Sheet (Printable)
http://www.cityofsacramento.org/arena/pdfs/Sacramento_ESC_TermSheet.pdf
CityFella
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