No Exclusivity

As expected, the Office of Economic Development (OED) released details of their draft agreement with the Oak View Group (OVG) this morning.

The deal is a strong one, requiring OVG to invest approximately $600 million into the Seattle Center Facility and also to contribute an additional $40 million towards a traffic mitigation fund and $20 million to a community benefit fund. In addition, Oak View will pay a lease excise tax and voluntarily contribute to city arts and housing funds, which the facility would likely have been exempt from otherwise.

The term of the lease, 39 years, is the minimum required to qualify for federal landmark tax credits and two 8 year extensions are conditional, requiring additional investment into the building and the presence of one or both NBA and NHL franchises as tenants.

It should be noted that the $40 million contribution to a transportation fund is intended for area improvements as directed by the city. This amount is in addition to the costs of any direct mitigation identified during the EIS process. OVG has stated that they expect significant transportation mitigation to be included in the construction.

In an article covering the situation KING 5's Chris Daniels commented about transportation spending:

"Leiweke said during a conversation about the MOU that his company may spend close to $100 million trying to create transportation solutions in the Uptown and South Lake Union area. In addition to the $40 million transportation fund, Leiweke said $30 million of the arena construction budget is for transportation. He said, the mandated improvements, per the lease, could mean millions more for traffic improvements."

Sonics fans are concerned about traffic, but more than that they are concerned about the financial viability of the building, specifically the venue’s ability to split revenue and attract an NBA team. While it may not satisfy the most ardent of critics, the document does take some steps to address these concerns.

First and foremost, the document does not contain any exclusivity provision which would prevent Chris Hansen’s Sodo arena from being built with private financing. Consider me stunned that OVG, unlike their competitor AEG, was willing to forego language preventing the competitive Sodo arena from being built at a future date. It demonstrates confidence in their ability to compete with Hansen to lure investors and woo the NBA.

The lack of exclusivity opens the door for Hansen to continue playing his long game, assuming that his economic model for an arena 100% controlled by an anchor tenant would be more profitable for an NBA owner than shared occupancy in KeyArena. Hansen has advised previously that should OVG build a music only arena at KeyArena, his proposal will remain available to potential NHL and NBA ownership. Even in the likely event that OVG's building is anchored by an NHL tenant, he has remained adamant that his Sodo site would compete for an eventual NBA team offering exclusive control of revenues and sole site control to potential investors in an NBA franchise. Ultimately, if OVG attracts both NBA and NHL, Hansen will reap a tidy profit by selling or developing land that has increased in value significantly since its purchase.

The potential for two proposals, neither with an exclusivity cause, seems on the surface to be a great scenario for Sonics fans. At the end of the day it will be up to the NBA commissioner and an ever-shrinking pool of billionaires who can afford to complete the transaction to choose the terms and location for the NBA to return to Seattle. Having two options for them to choose from will allow the NBA to be the kingmaker, granting an expansion or relocated franchise to an investor in the building of their choosing with the economic and operating model most appropriate for their owners. While Hansen’s team would face competition from an alternative venue, it would also be freed from obligations to make both short and long term improvements to the Key.

Leiweke's choice not to demand exclusivity appears to indicate his confidence that the league, if given the option, would choose to partner with his company over Hansen's team. Also in Daniel's article he offered a blunt assessment of his reasoning:

"No collaboration. That’s what’s wrong with your SoDo. They’ve never ever communicated to the leagues or the city."

While "never ever" may be pushing rhetorical boundaries, there is ample evidence building that the Hansen teams refusal to communicate or cooperate with stakeholders, and this continues to be the fatal flaw in what has otherwise been a great development option. While Sodo representatives bristle at the insinuation that their outreach is insufficient, the consistency of the criticism has established an alarming pattern with members of organized labor, neighborhood associations, potential NHL ownership, and even ardent supporters like me - all offering similar experiences. League sources who followed the failed Sacramento relocation effort have likewise offered criticism about the group not taking time to strategically gather support and prepare for the process prior to executing their deal.

If the Sodo team believes that their communication is sufficient to accomplish their goals, they need to look at the scoreboard and re-evaluate their performance. Too many key allies have dropped away with the same concerns.

While fans were impressed with the substance of Hansen's proposal to renovate KeyArena into a music only facility, frustrated stakeholders clearly felt that the effort was symbolic of the problems, pointing out that Hansen had unveiled his solution to their problems without ever running the idea by any involved parties at the Seattle Center, its surrounding neighborhoods, or in city hall.

"It's like he refuses to learn." said one stakeholder, who described themselves as a big fan and supporter of the project previously, in response to the proposal’s roll-out via Twitter last week.

Whether he can learn in time remains to be seen, as the OVG process calls for a much more aggressive timeline. While the Sodo project would remain undeveloped unless - and until - an NBA team is acquired, OVG is pressing to begin construction as early as October 2018 with completion intended by October 2020. As reference in Geoff Bakers article in the Seattle Times, this aggressive timeline is directly related to OVG's efforts to launch an NHL franchise in time for the 2020 season.

The aggressive timeline would require the delay of a currently scheduled NCAA tournament game in 2018, a conflict which all parties seem to agree is easily resolvable. In the event that construction runs long, early season games for the newly launched NHL franchise could be rescheduled to away venues.

So here we are. Terms and conditions are out for a building that appears likely to net a guaranteed facility renovation that would re-establish winter sports in 2020 without excluding Hansen from competing for the NBA at a future date.

On a personal note I am satisfied with what I accomplished here under difficult circumstances.

While people have been very upset with my stance on OVG, I believe that a broad and inclusive process has been, and will continue to be, necessary to complete great projects of this type. I have chosen, and will continue to choose, to participate with organizations that prioritize this type of collaborative process.

Working with other members of the community has allowed the fans to provide input that would not otherwise have been heard. If we had not been given a seat at the committee table guiding principles, agreed to by a broad group of stakeholders for inclusion in the MOU, may not have called out specifically that the OVG must have both a building design and economic model capable of attracting the NBA. If we had not been listened to then, in all likelihood this deal would have contained an exclusivity cause preventing Sodo from ever being built.

It may not satisfy everybody but this deal is a win for Sonics fans. Given the outcomes of the last 5 years and reality of current circumstances, it is also the best Sodo could hope for.

I believe that we should seize the NHL opportunity in front of us, expedite the process on behalf of our our hockey loving friends, and after that is done foster healthy competition for the NBA.

When it finally happens, Adam Silver can be the kingmaker, as he was always destined to be.