Oak View Group’s KeyArena vs. Chris Hansen’s SoDo Arena: Will Either Bring Back the Sonics?
In the latest rush to create a new sports arena and woo the NBA back to Seattle, should the city consider both options available to it? Or is the glossy remake of KeyArena the slam dunk weve all been waiting for?
November 6, 2017
The city clearly prefers Oak View Groups KeyArena revamp to Chris Hansens SoDo project. But is it the best bet to hook the NBA? Photo by Jay Kelvin.
This article appears in print as the cover story for the December 2017 issue. Click here for a free subscription.
Fifty years ago, the SuperSonics basketball team brought Seattle into the world of big-time pro sports. The question before the city today is: Will it be 50 years before a National Basketball Association team returns?
Already it has been nine years since the Sonics were hijacked to the Oklahoma prairie. In that time, Seattle bounded out of the recession to become Americas fastest-growing city.
So attractive has Seattle become that developers have offered two separate proposals to build the town a top-shelf arena with no public funding, an opportunity perhaps unprecedented in American sports business.
But its possible that neither plan will work sufficiently to induce the NBA to return to a market it believes rebuked its monopoly operation.
Since 2011, Bay Area hedge-fund manager Chris Hansen, a Seattle native, has been pursuing a hoops-first arena in Seattles SoDo neighborhood, for which he has spent $125 million on land acquisition alone. But by fall 2017, he finds himself a distant second to an abrupt, dazzling offer to give a $660 million makeover to the aging dowager of lower Queen Anne, the city-owned KeyArena, at small cost to the city. Besides covering cost overruns, the offer includes $40 million for transportation solutions and $20 million to cover issues related to the neighborhoods surrounding Seattle Center.
The catch is that the developer of this project, Tim Leiweke, will build it first for music concerts, as well as for a team from the more eager National Hockey League, which hasnt been in Seattle since World War I.
What about the NBA and the renewal of a 41-year relationship with Seattle that ended in a nasty divorce? Remarriage seems a dot on the horizon.
Heres what I know, Leiweke, an experienced arena builder and former pro sports executive, said last spring. Theres no team moving in the NBA. Theres not an expansion team coming. That is not just the will of Commissioner Adam Silver, but the owners.
When Leiweke, CEO of Oak View Group in Los Angeles, signed at a May press conference on Seattle Center grounds a draft memorandum of understanding (MOU) with the city that spelled out the offer, he was even more blunt regarding Hansens project: Chris, if you want an NBA team, this is where its going to happen.
The Oak View deal also comes with a pledge that two wealthy partners who seek to own the local NHL team will be the first winter-sports anchor tenant when the doors open (optimistically) in October 2020. This proposal is in the hands of the Seattle City Council, which in May 2016 rejected an earlier Hansen bid he has since revised and resubmitted. A decision on the Oak View proposal is sought by December to keep to what Brian Surratt, director of the citys Office of Economic Development, describes as a very aggressive schedule.
Rendering courtesy of Oak View Group
Surely, once Leiweke pushes his ambitious plan through the wowed, willing city electeds and staffers he has charmed, wont the NBA happily follow, saying all is forgiven?
Not likely, says Hansen.
A venue with an NHL partner and a music partner and an NBA partner is inherently going to lead to issues with how to divvy up the pie, he says. It will need so many revenue streams to retire the construction debt on a building and land it doesnt own, Hansen points out, that any NBA team owner will find the proposition financially unattractive no matter how cool Seattle seems to be.
NBA franchises have become so expensive the Houston Rockets were sold during the summer for $2.2 billion that a relocating owner or the owner of an expansion team is unlikely to want to be a second-tier renter in a building it cant exploit financially. While 10 cities have arenas that house both NHL and NBA franchises, most are privately owned and operated. The trend in each sport is for each team to develop its own building, which can be collateralized to fund projects that that specifically appeal to their fan bases and players.
A precedent of sorts is developing in the Bay Area. The NBA champion Golden State Warriors will move from Oracle Arena in Oakland, the NBAs oldest venue, to Chase Center in San Francisco in time for the 2019-20 season. (The Bay Areas NHL team, the Sharks, plays in San Jose). As in Seattle, the teams owners, Peter Guber and Joe Lacob, have agreed to fund privately the estimated $1 billion venue and an entertainment district. As in Hansens plan, they will own and manage the 11 acres and the building without a third-party operator. The move will reduce to five the teams that have a third-party operator running the building either a company like Oak View or Anschutz Entertainment Group (AEG), or a municipal government, as was the case in Seattle with the Sonics.
Warriors President Rick Welts, a Seattle native and former Sonics public relations director in the 1970s, explained that the steep cost up front is in the long run well worth it for a private facility that neither has to share revenues with any other entity nor haggle with a city or a private contractor over priorities in scheduling or operations.
The bad news for us, he told The Athletic sports publication, is that there is absolutely no public funding going into this something that hasnt been done in the NBA I think since Utah built its building [in the early 1990s]. But the good news is that, when were done, we dont have any government partners in the building, either.
Another aspect of the San Francisco project offers a potential partial retort for Leiweke regarding the claim that the annual operations of his revamped KeyArena wont pencil for all parties, including Goldman Sachs, which has committed to Oak View a $193 million construction loan. In 2016, JPMorgan Chase locked up naming rights to the Warriors high-tech palace for 20 years at a reported $300 million, a staggering figure that, if accurate, would be the richest deal by far in American sports.
As part of his Seattle sales pitch, Leiweke has admiringly invoked the name of Amazon, the global retail colossus whose headquarters campus is barely a mile from Seattle Center. But Leiweke has announced no agreement with Amazon, which rarely telegraphs its punches, especially regarding a hypothetical endeavor. In any event, a greenlighted SoDo project would, in theory, have a similar shot at a naming-rights bonanza.
Rendering by Hok
From a city government perspective, the most significant argument in favor of Oak Views plan is that it resolves KeyArenas future and, by extension, Seattle Centers, at little public expense. Long known as the citys living room, the spaces financial viability and physical maintenance have been on the top-10 list of priorities for every Seattle mayor since the 1962 Worlds Fair. More than a park, its a department of the city, exerting a gravitational pull on the judgment of city staffers and council voters regarding the arena decision that can overpower discerning judgment.
Responding to Oak Views home-court advantage, Hansen in October sent the City Council a proposal, also funded by him, to repurpose the Key into a music-only venue divided into three spaces of different sizes: 6,200 seats for an indoor hall, 3,000 seats for an outdoor covered amphitheater, and a 500-seat theater, plus 500 parking spaces underground by raising the arenas floor. The smaller sizes would make it more useful to a greater variety of performances in a park that is already arts centric. It also reduces the apprehension of neighborhood residents, already choking on immense growth, about a potential 80-plus nights a year of sports crowds exiting 18,000 at once onto Mercer Street with no mass transit, creating an impassable predicament that would give pause to the Donner Party.
Besides the construction estimate of $80 million to $90 million, overruns and capital improvements would be covered without public expense. But Surratt, the citys point man on the Oak View proposal, rejected the idea immediately. He claimed it was late and didnt conform to the stipulations in the citys request for proposals in January that elicited the bids from Oak View as well as competitor AEG, which subsequently withdrew its bid.
Surratts response seems specious because Hansen wasnt proposing to house sports at the center, per the citys request. Sports activities would all be housed at Hansens SoDo arena, which could also accommodate the larger concerts with minimal impacts because its in an industrial/commercial neighborhood with almost no residences.
The abrupt back of the hand Surratt gave Hansen signaled the citys eagerness to do the Oak View deal without considering whether repurposing KeyArena is an idea whose time has come. It called to mind the letter sent in June to the city by AEG Facilities President Bob Newman. In withdrawing his companys bid, he excoriated the city for bias in the bid process. Newman wrote, And we believe the city has failed to conduct a sufficiently thorough, objective and transparent process to properly evaluate the respective strengths and weaknesses of the two proposals and, most significantly, to identify the proposal best positioned to deliver a project consistent with the communitys interests.
Newman reserved a shot for Oak View, saying he was highly skeptical its plan could be pulled off: If the city elects to proceed with that remaining proposal, to protect the public interests of Seattle, it is imperative that you closely and diligently monitor the process to ensure that Oak View Group is held accountable …
It would be easy to write off Newmans complaints as sour grapes when he realized his company wasnt going to win. Indeed, AEG which ironically has contracted with the city to manage KeyArena since the Sonics departure in 2008 was behind from the start because its bid included a request of the city for $250 million in bond financing for construction. The request was similar to one from Hansen in 2012 that he subsequently abandoned because, in Seattles no-stadium-subsidy political culture, the hit on the public exchequer was radioactive.
At least some explanation for Newmans contempt likely is rooted in the profound animosity between Leiwekes company and AEG, where he was president from 1996 until 2013, when he had a falling out with owner Phillip Anschutz. A Denver billionaire and one of the most influential figures in global sports and entertainment, Anschutz hired Leiweke to build an empire, and he did. AEG owns and/or operates more than 100 facilities worldwide, including Londons opulent The O2 Arena and the Staples Center in Los Angeles.
But after an unsuccessful attempt in 2013 to sell AEG for $10 billion, Leiweke was ousted, apparently the fall guy in the deals failure. After a couple of years as president of Torontos Maple Leafs Sports and Entertainment in Toronto, which owns the NHL Maple Leafs, the NBA Raptors and the MLS Toronto FC, Leiweke partnered with music industry titan Irving Azoff and James Dolan, owner of Madison Square Garden and New Yorks NBA Knicks and NHL Rangers, to form Oak View.
Oak View set about to usurp AEGs hegemony in the entertainment world. This past summer, a turf battle broke out that typified the animus. Oak View/Madison Square Gardens tour operation announced it was forbidding from its arenas any acts that previously had appeared in AEG-operated buildings. Since Oak View/MSG has a partnership with Live Nation, the worlds largest concert promotion company, the upstart has considerable leverage in the concert bookings business. Leiweke is quick to point out that Live Nation believes in the Seattle bid so much that it is taking an equity position in the project with Oak View.
Whether this acute business rivalry has added intensity to the Seattle drama isnt clear. But council members would be well served to consider whether the urgency with which the project is proceeding is driven more by Oak Views needs than the citys long-term interests.
The haste may be part of why Oak View insists on an exclusivity clause in the draft MOU, after Leiweke said early on that Hansen was welcome to build the SoDo arena in the hope (wink, wink) that the NBA prefers his place instead of Seattle Center.
Leiweke doesnt want the SoDo plan to disrupt his plan, so Oak Views executive summary in the MOU now states: … the city will not provide financial support, benefits or incentives … with respect to the construction of any live entertainment venue with a capacity of more than 15,000 seats within the city of Seattle.
If Leiwekes MOU language is adopted, it would jeopardize Hansens plan because Hansen needs a benefit from the City Council of vacating two blocks of Occidental Avenue South. Hansen has maintained the vacation approval comes at no cost or risk to the city, because he would begin construction only after an NBA team was secured, and would pay the city market value for the property, perhaps $20 million or more. Hansen needs the citys street vacation permission to receive a Master Use Permit to build, a vital turning point in his financial plan to induce investors wealthier than he to come forward as majority owners of an NBA team.
Business logic also says that if Hansens bid is alive, the city can use it as leverage in gaining concessions from Oak View prior to signing a final MOU. But perhaps the city is less worried about the best possible deal than it is with no longer aggravating the Port of Seattle.
Oak View and its supporters in city government are not the only objectors to Hansens SoDo enterprise. The neighbor to the west, the Port, and the neighbor to the north, the Seattle Mariners, have offered strident opposition to the location of Hansens arena, fearing more traffic congestion. The Port claims the arena will be a threat to middle-class jobs because freight mobility will be degraded and shippers will go elsewhere. It seems a dubious claim, but it worked to help give five council members sufficient cover for the original 5-4 “no” vote in May 2016 on the Occidental Avenue vacation.
SoDo arena events largely would be held on nights and weekends, when the Port is closed. Economic threats to the Port far greater than a busy First Avenue South exist globally, nationally and regionally, which introduces the bigger question whether container shipping is the highest and best use of Seattles spectacular, expensive shoreline. In the Bay Area, the port of San Francisco is Oakland; in Puget Sound, every bit of container-ship logic says Seattles port should be Tacoma.
Independent of the arena but partly because of the attention the controversy drew, the Port over the summer won a landmark development: Funding was completed for the $123 million Lander Street overpass, which will carry freight unimpeded over nine railroad tracks, the way Edgar Martinez Drive does next to Safeco Field. The port has been pursuing the project for 15 years, long before it heard of Hansen. But the celebration was muted because Port backers didnt want the City Council and voters to think their freight mobility problems were solved independent of their anti-arena claims.
The Ports broader anti-arena lament, the gentrification of Seattles last blue-collar industrial neighborhood, was torpedoed in October by none other than an ally: Mariners CEO John Stanton. Talking to reporters after another dismal end to the Mariners season, Stanton was asked his views on the arena. If Chris does build in SoDo, well absolutely work with him, Stanton said. The fact is if [Hansen] doesnt build an arena, theyre going to develop it in some way. Im excited to see what that is.
There goes the neighborhood, Port fans. Their comrade in arena bashing knows the middle-class workers paradise is going to be scuttled regardless of the councils decision.
Photo by Navid Baraty.
Speaking of neighborhoods, Hansen grew up in Rainier Valley and attended Nathan Hale and Roosevelt high schools, spending summers and weekends washing dishes in the restaurant kitchens of legendary Seattle barkeep Mick McHugh. He attended San Diego State and USC and lives near San Francisco, but his local origins have endeared him to many sports fans, some of whom are cool, maybe even cold, to the prospects of a return of big-time hockey to a glamorous new arena. Forty-one years of basketball have left a yearning in many that is not allayed by biscuits in the basket.
For a non-native, Leiweke is hardly a stranger to Seattle sports, and has often been curiously influential. Born in St. Louis, the fourth of six kids, he lives in Los Angeles with his wife, Bernadette. His daughter, Francesca, works for Oak View.
In 1994, he was president of the Denver Nuggets, who entered the NBA playoffs with almost no hope, yet eliminated the top-seeded Sonics the first time in NBA history a No. 8 seed beat a No. 1. In 2004, while at AEG, he was also president of the MLS Los Angeles Galaxy when he fired Coach Sigi Schmid, who later became the first coach of the expansion Sounders FC. In 2013, when Leiweke was president of the Raptors, he joined 21 other owners reps in voting to deny Hansens bid to relocate the Kings from Sacramento to Seattle.
Most famously, hes the older brother of Tod Leiweke, considered the most successful sports executive (2003-2010) in Seattles modern sports history. As CEO of the Seahawks and Sounders, Tod in 2009 needed a football coach after firing Jim Mora. He wanted USC Coach Pete Carroll but needed a clandestine place in Los Angeles for a meeting to assure secrecy. Tim offered Tod the backyard of his home for a dinner chat al fresco. As you may have heard, things worked out.
Tod Leiweke left the Seahawks in 2010 for the NHL, where he was CEO and part owner of the Tampa Bay Lightning, which reached the 2015 Stanley Cup finals. A longtime hockey player and fan, Tod put Tim onto the possibilities for the NHL in Seattle. Tod left his favorite sport in 2015 to become COO of the NFL, the No. 2 executive position behind Commissioner Roger Goodell.
It would be hard to find two people, let alone brothers, more knowledgeable about and experienced in the business of big-time global sports. Which explains much of Tim Leiwekes certitude when it comes to his plan.
What I believe is, if we dont get an arena built first, [Commissioners] Adam Silver and Gary Bettman are always going to hesitate as to whether anything can get done in Seattle because of the history here, he says. Only by doing [a concert arena before sports] will we have the best chance to ultimately convince a league to bring a team here.
That may be true. It is also true that Leiweke has never done a remodel like this in a place like Seattle, where process is king and the land and building remain public. And he has a patient competitor, even if city government doesnt seem to appreciate him as much as many sports fans do.
Our goal is to bring an NBA team back to Seattle, Hansen told KING 5. No one can make us sell our land or do anything different. Were gonna sit here, patient, as long as it takes.
The driving force for swift approval of Oak Views plan was former Mayor Ed Murray, who said he was eager for a legacy building that would make him the first openly gay mayor to bring sports to his city. No one has yet explained what those aspirations had to do with good public policy, but Murrays timetable was rendered moot when The Seattle Times reported three allegations he sexually abused minors more than 30 years ago. When another accuser came forward in May, Murray ended his reelection bid but insisted he would serve out his first term through December 31. When a fifth person, a family member, came forward with allegations, Murray resigned on September 12.
Murrays career collapse has not slowed the project, which is now in the hands of the council, as is the decision on whether to grant Hansen a hearing on his revised SoDo proposal. Following two interim mayors, either Jenny Durkan or Cary Moon will succeed Murray when the November 7 election is certified on November 28. Surratt and others on city staff are eager to have the council vote in the first week of December.
Neither mayoral candidate has said much during the campaign about the arena when more pressing matters are at hand. But even if neither has a dog in the arena hunt, if something goes haywire in the Oak View proposal, the new mayor will be thrust into the fray at the back end, which is never the place to be in a controversy.
As the council studies a report from independent consultants hired to vet the Oak View deal, there is nothing pressing the arena agenda other than the proposed opening date for the NHL season of October 2020. At this point, a question worth pondering is whether 2021 is a better aspiration if it results in better decisions in 2017, which would be aided by another hearing for the SoDo project.
Deborah Frausto is a leading member of the community group Uptown Alliance, which represents the neighborhood likely to be most affected by a large uptick in KeyArena activity. She agreed to be a member of the Arena Community Advisory Panel, which heard from Oak View and the city on their plans for surface-street mobility that was the highest priority issue for the neighborhood. Frausto was supportive of the process, but apprehensive about the pace.
We cant sacrifice due diligence for [NHL] scheduling, she says.
For a Civic Cocktail TV program broadcast on the Seattle Channel in September, Hansen was asked if he would sue the city if denied an opportunity to present to the council his case for SoDo again. He said he would not.
I want whats best for Seattle, Hansen said. If Seattle goes through this process and they decide what to do, thats just the way the cookie crumbles. The chance of us suing the city is zero.
Lawyers for the city might be disinclined to take him at his word. But it wouldnt have to come to that if the City Council can resist the gravitational pull of the fast fix for a slower deliberation, one that includes considering the SoDo option thats committed to the NBA and to repurposing the dowager queen for music and arts.
Besides, what would Leiweke do? Sue?
This article appears in print as the cover story for the December 2017 issue. Click here for a free subscription.