No Blame in Arena Hockey Financing, Just Two Valid Positions

Alexander Hassenstein

There's no blame in the potential Seattle hockey impasse over the arena, just two valid positions seemingly running at odds at the moment.

With the idea that Ray Bartoszek and his group of investors interested in bringing an NHL team to Seattle are looking at possible arena projects independent of Chris Hansen and his SoDo project, there is a lot of back and forth on just who might be responsible for this seeming impasse. In my opinion, both "sides" are responsible here, though not at "fault." There are simply two valid viewpoints.

(To be clear, I am not associated with either Bartoszek's, Hansen's, or any other hockey or basketball group, so I am not speaking on anyone's behalf. This is merely conjecture.)

Hansen's group has made it clear that they aren't interested in becoming major hockey investors, and don't see it as a viable solution just to get their arena project approved and built. A number of people feel that this stands in the way of the NHL, who show all indications that they would grant an expansion franchise to Seattle with the arena concern settled. (The NHL has not made any formal statements regarding expansion to Seattle other than to say it is not currently worth consideration given an inadequate facility.)

The Hockey Hopefuls

First and foremost, while we are not privy to negotiations that have gone on in private, none of the prospective hockey ownership groups has stepped up and committed to any sort of dollar amount toward the facility publicly. To be fair, the city, through Council President Tim Burgess, has basically said that they can't see a viable way to work on an agreement for a similar financial mechanism that puts hockey in first position. This, understandably, leaves the hockey contingencies uncertain on what they can provide.

Color on the city's position from Art Thiel, via unnamed source, is that revenue isn't the issue as much as it is that the value of an NHL franchise is significantly less than the value of an NBA franchise. Should things go south financially and the city need to assume ownership of the team to sell it off to repay the public bonds, there is considerable concern that they won't get enough value for the team to make that a risk worth taking, not in the same fashion they would an NBA team. If truly representative of their position, that's a substantial hurdle to overcome, so it's more than likely that there won't ever be an agreement where the city and county contribute public financing with hockey as the initial tenant.

This means that the hockey owner would have to take on substantial cost/risk of the project to get the building up. As the prospective owners were looking at a relatively slim investment to get into the arena, that dramatically alters the finances of their project. They have to purchase the team, likely for $275M at last word, contribute to the arena, and then worry about operational costs of the team for a few years. Now, things like bringing on minority partners and possibly selling naming rights to the arena could help but only go so far. That's a lot of money for anyone interested in hockey -- a significantly smaller investment than the NBA -- to truly consider.

Hansen-Ballmer

The other issue is the Hansen-Ballmer group. It's not disingenuous to think that they are, in a sense, a roadblock toward the hockey efforts. That is certainly not their intention, but the given situation with the arena puts them in that position. As with so many things in life, this isn't a black and white issue. With grey, it's worth understanding their side of things.

I'm seeing a train of thought that the only thing holding HBNW back from doing a hockey-first approach to the SoDo arena is a hockey partner who is willing to take on a large majority of the risk of the arena. The assumption here is that Hansen-Ballmer would be willing to put any money into the construction of the arena without clarity into the NBA situation.

Right now, HBNW is committed to shouldering over 70% of the $500M arena with just a basketball team. If both a basketball team and hockey club come, that drops their investment to about 60%, barring any cost overruns, which they would be required to pay. Now, bringing on a hockey partner surely makes for an appealing proposition, allowing them to likely halve that investment. For sake of argument, let's say the split is 35-25% HBNW. Now, you've got Hansen-Ballmer contributing, at least, $175M, the hockey partner contributing $125M, the city putting in $120M, and the county offering $80M. That's with the teams acquired, triggering the public financial mechanism.

As there is no basketball team, the cost of building the arena falls squarely on HBNW and the hockey partner. If they were to build, keeping a similar ratio to the 60% share, that would cost HBNW $292M and the hockey partner $208M. If they simply reversed that, the ask is now for Hansen-Ballmer to contribute $208M to a project with no guarantee they'll ever see a basketball team.

Say the hockey partner decides to take on even bigger amount of risk; they elect to pay HBNW's cost for a basketball-only approach, which would be $385M. Leaving aside the separate issue of the hockey group now paying $660M (arena + expected $275M expansion fee), which might be more than they can afford, this leaves Hansen-Ballmer with $115M to pick up. Again, this is with no guarantee that they'll ever see a basketball team.

$115M sounds relatively small in this mix of such large amounts of money, but that's nothing to sneeze at. Add in the roughly $80M+ in land purchases and various fees paid, as well the $30M given up to the Maloofs, and you now assume HBNW would be willing to part with $225M on spec. Even if the ratio were $499.999M to $1.00, adding any money on spec does little to nothing for their position.

So yes, the NHL partner needing to take on a good chunk of the risk is a big piece of the puzzle, if they want to do hockey first. But that assumes that HBNW would be willing to contribute anything in the blind, and all indications are that they are not. As businessmen, I'd say that is appropriate business and a well-considered conservative approach.

Look, this isn't something meant to pit basketball and hockey interests against one another. It's the reality of the situation they are all in. Sure, groups like Bartoszek's have their own interests, so it makes complete sense that they explore any number of options to make things happen. For my money, they'll quickly find that trying to get anything done at KeyArena is a larger morass than what they are dealing with currently.

In the meantime, we should all spend less time trying to assign blame here. You have two very valid positions that are simply running at odds with one another at the moment.

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