Thiel: Why rich guys won't fund entire arena

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by Art Thiel

SportsPressNorthwest

Posted on June 22, 2012 at 9:27 AM

Updated Friday, Jun 22 at 10:30 PM

From most witnesses,Chris Hansen has drawn high marks for his presentations to city and county councils, both for his mastery of information and his willingness to engage officials, fans and media in the discussion.

He does tends to stumble on a frequent question: "If this deal is so good, why don't you rich guys pay for the whole thing instead of bothering yourself and us with public participation?"

The shallow answer is that the $490 milllion project is a good deal because there is public participation, in the form of construction bonds of up to $200 million that will be retired from tax revenues on the arena's business, not from new taxes or a diversion of existing taxes.

But the reason behind the virtues is not made clear. It's no secret and has been discussed. It just hasn't come out of Hansen's mouth in a public forum. I think the answer makes him uncomfortable because it may not go over well. But since he's been credited for transparency, he may as well address it and avoid the "gotcha" stuff.

The reason behind the answer has two parts:

1) Municipal governments can borrow such sums more cheaply than private investors. For a fuller explanation, read a previous column here. The difference can mean millions of dollars of year in savings on a project of this size. Even to rich guys like Hansen and Steve Ballmer, it's a big deal. It's also a big deal to the city because in this proposal, it will end up the owner of the building and land, meaning it makes sense to save on the project's front-end financing instead of back-end cost cutting (see Kingdome roof).

2) The owners assume 100 percent of the risk in the purchase of the NBA and NHL teams. While it's easy to say the risk is small, in view of the fact that pro sports are monopoly operations whose assets have always appreciated even when they lose money on annual operations (see Sonics), that doesn't change the facts that every market is different, and no one alive has previously experienced a four-year recession whose end is not yet discernible.

Adding NBA and NHL teams would make Seattle home to six major pro teams (NBA, NHL, Seahawks, Mariners, Sounders and Pac-12 football/basketball, which has become a more professional operation than Seal Team Six, only more ruthless).

What makes Seattle unique is that it is the only market in the country with a hugely successful soccer operation. And by 2013, all of its current big teams are playing in a building owing big public debt. Even though the Husky Stadium remodel is being funded largely through private construction bonds issued by the university, the UW is risking its full faith and credit just like a municipal government.

What this means is that every sports operation in town, current and future, will scrap with each other for ticket buyers, suite sales and sponsorships as we've never seen.

What is known about this market is even though there is huge private wealth here, the number of big, Fortunate 500 companies are relatively few, particularly when companies like Amazon.com don't believe in playing the sports game.

What isn't known: How this all plays out. Therein lies the risk to each ownership. Sure, a loser team can be sold out of town, but then its old owner can do lunch with only one guy the rest of his life -- Howard Schultz. The Huskies don't even have the option of moving to Oklahoma City.

Everyone involved in sports and media in this town a guess as to how it will work. But that's all it is. The only guess I'll offer today is that every day the Mariners trot out Ichiro to start in right field over Casper Wells, is one day closer the franchise comes to being ticket No. 6 in the potential pecking order. And that's with four teams in the marketplace.

Such personnel decisions illustrate how precarious financial life may become in, say, 2017, should Hansen's dream becomes reality. More business partnerships may be one-year deals, as they shop for the hot team in the marketplace.

Hansen, Ballmer, the brothers Nordstrom and other investors so far unidentified in the project understand the risk. That's why they don't want to be on the hook for the entirety of the building too. I don't blame them.

But neither should they shy away from a fuller explanation of the rationale for the deal. The modern, privately funded stadiums built or planned in the Bay Area, often cited as comparables by skeptics of the Seattle deal, are in a much larger marketplace than Seattle. The wealth in Silicon Valley is a couple of orders of magnitude greater than Seattle.

Could the wealthies here fund the arena? Sure. Will all the teams be financially break-even? No idea. So they are willing to assume majority of the risk. But as Hansen told the city council Wednesday, "It's fair for the city to have skin in the game."

With an agreement to cover cost overruns and several other protections added, the risk seems reasonable. But I would also ask Hansen to be careful in minimizing the public risk.

After all, Aubrey McClendon, Frank McCourt, the Wilpons, Tom Hicks and Bruce McNall are just a few pro sports owners who were hailed as white knights until the chessboard went upside down.

CLARIFICATION -- The Seattle Storm has made no decision about their interest in tenancy at Chris Hansen's proposed arena, said Dawn Trudeau, managing partner of Force 10 Hoops LLC, which owns the WNBA team. A Sportspress Northwest story Wednesday quoted a Seattle City Council staffer informing council members in open session that the Storm, which has a lease at KeyArena, "wanted to be" in the new arena.

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