DA's Morning Tip
Key Arena renovation plan a small step forward in Seattle's hopes of seeing NBA return
NHL expansion may loom for city as it awaits next opportunity to regain NBA team
Does last week’s Seattle City Council vote to approve renovation of Key Arena, or the NHL’s announcement Thursday that Seattle could apply for an expansion team for an expansion fee of $650 million, do anything to accelerate the return of the NBA to the Emerald City?
Short answer: probably not. But it isn’t a step backward either.
The NHL confirmed what had been rumored for months at its Board of Governors meeting — Seattle is a definite target for hockey, which has 31 teams and needs a 32nd to balance out both its conferences and its schedules. The NHL will allow members of the Oak View Group, which successfully lobbied the Seattle City Council to approve its plan to spend $660 million to renovate both the Arena and the nearby Seattle Center, to begin a season ticket drive for the potential expansion team.
Hockey’s timetable for expansion is thus clearly and substantially ahead of the NBA’s.
I don’t see expansion. A move is the only way.”
Anonymous NBA owner, on Seattle’s hopes of regaining NBA team
“That doesn’t mean we have granted an expansion team,” NHL Commissioner Gary Bettman told NHL.com following the Board of Governors meeting. “We have agreed as a league to take and consider an expansion application and to let them run in the next few months a season-ticket drive.”
Though NBA Commissioner Adam Silver said earlier this year that he believes expansion is “inevitable,” there is no indication among league owners and other sources that there’s any current appetite among NBA owners to add one or two new teams. The obvious reason why is there is no appetite among them to further split the $24 billion from the new national TV deal, which runs through 2024. (As ever, in the interests of full disclosure: Turner Sports, one of the NBA’s national television partners along with ESPN/ABC, runs NBA.com.)
“I don’t see expansion,” one owner said this weekend. “A move is the only way.”
However, longtime Seattle sport columnist Art Thiel wrote last week that a source “with knowledge of the league’s long-range thinking” believes the NBA could expand when the current TV deal expires, meaning 2025 at the absolute earliest. Several owners told me a few weeks ago: that while there is strong support for Seattle, there’s just no desire to expand.
Thiel’s source said that Seattle and Mexico City were the two current favorites among owners, and the league has done nothing to dissuade the idea that it’s zeroed in on Mexico City as a potential expansion target.
But another said Sunday that talk of adding anyone to the current 30-team mix is premature. Owners remain unenthusiastic when there are still several teams who are losing money in their current markets, even with significant increases in revenues, a new Collective Bargaining Agreement that ensures labor peace through at least 2023 (2024 if neither the players nor owners opt out) and enhanced revenue sharing.
“We haven’t discussed expansion,” the owner said. “However, Seattle is a market that I believe the majority of owners would want to be in.”
The Seattle City Council voted 7-1 last Monday to approve a Memorandum of Understanding (MOU) that will give the Oak View Group the go-ahead to spend $660 million to renovate both Key Arena and the Seattle Center, the historic, 74-acre former fairgrounds of the 1962 World’s Fair that encompasses Key Arena and the city’s iconic Space Needle and monorail, and includes dozens of cultural, artistic and scientific venues and restaurants.
About $40 million of that money would be used to try and develop plans to alleviate what was already extremely tight parking in and around Key when the Sonics played there, and which has only gotten worse as the Queen Anne neighborhood has expanded since the team left. The behemoth Amazon is headquartered about a mile from Key Arena.
A renovated Key Arena would open in 2020 and seat 18,350 for NBA games, 17,100 for NHL games and more than 19,000 for concerts.
Oak View was created by former AEG executive Tim Leiweke, who was central to the construction of Staples Center and other modern NBA buildings, and music and entertainment mogul Irving Azoff. The two have access to billions in capital and know the major players in both the NBA and NHL, with Leiweke’s most recent foray into both coming when he headed Maple Leaf Sports and Entertainment until 2013.
That has allowed Oak View to overtake billionaire hedge fund manager Chris Hansen and his group’s plans to build an arena in the South Downtown (SoDo) section of town. Oak View also beat out Leiweke’s old company, AEG, which made an arena proposal in Seattle as well. Hansen’s group includes members of the retail store Nordstrom’s family, as well as Seattle Seahawks quarterback Russell Wilson.
Hansen had an MOU with the city dating back to his efforts to buy and move the Sacramento Kings in 2014. But the NBA opted to keep the Kings in Sacramento, getting behind a public-private arena initiative pushed by then-mayor and former NBA player Kevin Johnson. That led to the construction of what is now Golden 1 Center in downtown Sacramento. The NBA then pushed through a sale of the Kings to a group led by billionaire Vivek Ranadive.
Hansen continued to buy land in SoDo and worked toward getting Council approval for construction of a $550 million arena that would be completely financed privately. But his hopes were dealt a major blow when the Council voted 5-4 against him last April to allow a vacation of a crucial city block that Hansen needs to begin construction. Hansen’s MOU with the city expired earlier this month; Oak View’s MOU was then quickly approved.
Hansen’s group is nonetheless still trying to get the vacation approved and have both buildings go up, arguing that a) construction on their arena would not begin until the NBA officially approved a franchise for Seattle, and b) a Key renovation that led to an NHL team getting in first would make a potential NBA team a lesser tenant there. (Seattle’s new mayor, Jenny Durkan, said as she signed the MOU with Oak View last week that the Key deal did not preclude the construction of another arena in the city.)
“Adam Silver’s made it very clear that right now, expansion’s not a conversation. When it is, we’ll be first in line.”
Oak View Group CEO Tim Leiweke, on the “Next Best Podcast”
Before the NHL made its announcement regarding potential expansion, Leiweke reiterated that a refurbished Key Arena would be compatible both for NBA and NHL teams.
“This particular building will, not only from a design standpoint, from a space standpoint, from an economic standpoint, it is build for both the NBA and the NHL,” Leiweke told longtime Seattle TV reporter Chris Daniels last week on Daniel’s “Next Best Podcast” with co-host Chris Cashman.
“It will meet, and beat, all standards for both the NBA and the NHL — for broadcasting, for seating manifest, for suites, and for our building to generate revenue,” Leiweke told Daniels. “In fact, we’ve gone out of our way to design the building such so that there are very specific areas in the building, including the club seats — there’s 2200 club seats for hockey, and more for basketball. And that was literally designed to make sure we protect the economics of both the NBA and the NHL.”
But Leiweke also went to great pains to say he didn’t want “to get ahead of the Commissioners” in either the NHL or the NBA in speculating about his group’s chances of getting a franchise in either sport.
“You don’t hear about the NBA (as a potential tenant) because they’re not expanding,” Leiweke told Daniels. “It doesn’t mean that we’ve lost interest or we’re not focused, or we’re not talking to the Commissioner. But, again, we follow his lead. And Adam Silver’s made it very clear that right now, expansion’s not a conversation. When it is, we’ll be first in line.”
That’s basically what a third NBA owner said as well: a new Key Arena “will make it a viable destination if and when we do look at expansion,” the owner said.
There is some thought that owners may be more inclined to look at expansion if the next TV deal isn’t quite as lucrative as the current one. With cord-cutting continuing to impact the number of cable TV subscribers, there may be a need to find new revenue streams in seven or eight years that wouldn’t seem necessary now. It wasn’t that long ago that a worldwide recession impacted the profit margins of a lot of NBA owners. It’s crazy to think a similar economic turndown isn’t possible.
Yet no one is ready to put any kind of time frame on expansion. So Seattle is left with looking — potentially — at either New Orleans or Memphis, the only two NBA cities that have even a sliver of daylight that could lead to a move in the next decade. And both of those would be very difficult lifts.
Memphis is in the midst of an ownership showdown between the Grizzlies current majority owner, Robert Pera, and minority owners Steve Kaplan and Daniel Straus. Kaplan and/or Straus exercised a “buy/sell” option last month that allows them to set a potential sale price for the Grizzlies, who sold to a group headed by Pera for $377 million. (Pera owns about 25 percent of the team; Kaplan and Straus each own about 14 percent.)
Under the buy/sell, either man could set a price for the team, leaving Pera with two options: either buy them out at their percentage of ownership of the price, or sell them his share at his percentage of ownership of the price. If the price for the team was set at $1.2 billion, Pera would have to buy them out at their stake — 14 percent apiece — of $1.2 billion, or sell them his stake in the team — 25 percent of $1.2 billion. That process will take between two and three months.
But even if Kaplan were to buy the team outright from Pera, the team can’t leave FedEx Forum under terms of the lease with the city until at least 2021. And the other minority owners, almost all local, would still have the right to buy the team from anyone who petitioned the league to move the Grizzlies out of town before 2027. (Several stories detailing the players and potential transactions here, here and here.
The New Orleans Pelicans’ current lease with the state of Louisiana binds them to the Smoothie King Center until 2024. And while the front office has made moves like bringing in DeMarcus Cousins, Rajon Rondo and Tony Allen in the last few months, leading to improved play on the court, the Pelicans still are struggling to draw crowds — they’re currently 24th in the league this year in attendance (16,251), just ahead of … the Grizzlies.
The Pelicans’ marketing folks are trying all they can think of to goose attendance, but it remains an uphill climb, with the NFL’s New Orleans Saints always looming as the big sport in town.
Neither the Grizzlies nor Pelicans are leaving their respective cities any time soon, though. Nor is the NBA expanding any time soon. But any step toward a building actually being built in Seattle is a step toward the return of the NBA there. It’s a tiny one. But it’s better than nothing.
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