Summary of ‘The KeyArena Subcommittee report’

What they learned:

The city’s aggressive goals and agreement with the Sonics to fund operations and debt without tax revenues succeeded for the first five years. But since 2001, due to a number of factors, including an economic recession and competition from new venues (Safeco Field and Qwest Field), the building revenues to support debt service have fallen $12 million short.

The city’s debt service obligations on KeyArena construction bonds extend through 2014. The current cost of relieving the city of the debt related to the 1994 KeyArena construction is approximately $54 million (as of 1/1/06), and at the end of the Sonics & Storm lease in 2010, it will be approximately $29 million.

The spending of KeyArena patrons and businesses in 2005 created $353 million in business activity, 3,252 jobs, and $102 million in labor income in King County.

State and local governments receive $13.3 million in tax revenues as a result of the business activity at KeyArena.

“New money” economic impacts of KeyArena yielded $165 million in business activity, 1572 jobs, $47.3 million in labor income, and $6.5 million in tax revenues. These are benefits that would not occur without the KeyArena. Note: the Sonics & Storm contribute 68% of the attendance at KeyArena.

While overall economic activity represented by KeyArena is a valid measure of the total economic impact of KeyArena in the region, the incremental impacts, or the economic benefits the KeyArena brings to the region and that would not exist except for the activities of the KeyArena are referred to as “new money” impacts. The incremental new money impacts of KeyArena -- $165 million in business activity – are 40% of the KeyArena’s total business activity. This is a high comparative new money ratio as economy-wide about one-third of business activity is “new money”.

Framework for Recommendations:

KeyArena has a positive economic impact on the State, King County, City of Seattle, and adjacent neighborhoods that is not reflected in pro formas on building expenses and revenues, and this impact needs to be factored into any analysis of future operating models for the building. 

Convenient and safe transit, automobile, truck, bicycle and pedestrian access to KeyArena is vital to the future success of the facility. If patrons can’t get there, neither the users nor the Center can be successful, despite new investments in the facility.

Public funding is the cornerstone for the future success of Seattle Center and the Seattle Sonics & Storm. Removing the debt as a Seattle Center obligation is critical to both the Center and its tenants.

Retaining the Seattle Sonics & Storm as the anchor resident tenants of the KeyArena is integral to achieving the vision for Seattle Center and the KeyArena. 

Recommendations:

The City should engage in meaningful efforts to retain the Sonics & Storm as anchor tenants of KeyArena. (6/1/06) KAS Comment: Seattle has been the home to the Seattle SuperSonics of the NBA, Seattle’s oldest major league sports franchise, since 1967. The Sonics & Storm brought Seattle the first of the City’s modern day national professional championships in 1978-79 and the Seattle Storm brought the WNBA Championship to Seattle in 2004. The KAS does not believe that the City should retain the Sonics & Storm as KeyArena tenants at any cost. The Committee does believe, however, that it is important and valuable to the city and the region to keep professional basketball and serious pro-active efforts should be actively engaged to this end.

If the KeyArena is to be a competitive, major league arena for NBA basketball and other events that currently take place in KeyArena, the KAS recommends that a capital investment in the range of $200 million, as envisioned in the KeyArena Concept Plan, be made in the facility. (6/1) (Note: This $200 million estimate does not include the amount required to pay off the existing KeyArena debt.) KAS Comment: The KAS looked at alternative levels of capital improvements from $20 million to $200 million. The KAS concluded that it is only at the $200 million level that the KeyArena gains the space to correct operational deficiencies, improve the competitiveness of the arena for events, enhance the fan experience with added amenities, and generate non-ticket sale revenues needed to be a profitable venue. A $200 million investment in the KeyArena represents one-half the cost of building a new arena and requires one-half the time to implement.

New investment in the KeyArena should be funded by private investment and public monies. The public funding for eliminating the current KeyArena debt and making new capital investments in KeyArena should rely largely on what are commonly referred to as “visitor taxes”. The development of the specific funding plan should be determined by the elected officials of the City, County and State. KAS Comment: New and renovated multipurpose arenas around the country are funded through public/private partnerships. Data on the ten publicly-owned NBA-only arenas show substantial public funding – 63% on average. The predominant form of public tax support is “visitor taxes”, including, for example, hotel/motel, car rental, and dining. The funding models for Safeco Field and Qwest Field should be considered as part of developing a funding plan. The use of City of Seattle General Fund is discouraged.

The willingness of elected officials and citizens to invest in sports and entertainment facilities is generally based on the proposition that the incremental economic activity generated for the larger community from a major league sports franchise returns more benefit than it costs taxpayers. There is also strong sentiment across a broad range of citizens and elected officials that major league sports franchises, as well as premier arts and cultural organizations, are part of the attractions of great cities and add to the quality and diversity of city life. And, there are countless examples of specific public benefits negotiated as part of the public/private funding and lease agreements. The KAS encourages elected officials to consider all of these “returns” on a new public investment in the KeyArena.

Among hearing of a the sale two suburbs have made public gestures to show their interest in building a new state of the art arena within the Seattle Metropolitan Area.  The findings of the KeyArena Subcommittee backup the idea that a multi-purpose arena does indeed pencil for both the city and state governments.  They also show that there will have to be some form of a public and private partnership that the current Sonics ownership group is hoping to form.  An NBA franchise is important to keep as an anchor tenant to KeyArena and will certainly be the key attraction if a new arena is built.  Whether it’s in Seattle, Renton, Bellevue or elsewhere keeping the Seattle SuperSonics and Storm in town is what is best for this region.