Council considering Key Arena MOU amendments, on Thursday

Thursday morning, the  Council’s Select Committee on Civic Arenas meets to continue its discussion on the proposed MOU with Oak View Group and to have a first round of deliberations on possible amendments to the agreement.

Committee chair Debora Juarez noted today that the Council’s independent consultant will lead off the meeting with a report. They will then turn to consideration of a number of possible amendments, as detailed in this memo circulated today.

The memo lists fourteen possible amendments, several of which are trivial or fairly unobjectionable agreements on signage, scheduling, communication and programming. Of the more notable ones:

  • Requiring OVG to reimburse Pottery Northwest for all relocation costs and other financial loss associated with its relocation during construction (they are already required to cover relocation costs);
  • Requiring OVG’s baseline rent payment to begin no later than six months beyond the projected 24-month construction period, unless the delay in opening the building was caused by the city;
  • Require OVG to increase the number of free “Community Event” days from 14 to 24;
  • Require that the 20-year payment period for OVG’s charitable contributions to YouthCare apply to all other charitable recipients as well, with at least half of the $20 million charitable fund contribution in cash;
  • Require the building to meet, at a minimum, a LEED Gold standard, as well as the city’s Sustainable Building Policy;
  • Ensure the city has a defined process in the event it receives unsolicited offers to purchase the First Avenue North Garage.

The memo also has a detailed analysis of the projected financial returns for the city and OVG under the terms of the proposed MOU, as confirmed by the Council’s independent analyst. As structured, OVG assumes nearly all of the financial risks of the project, and in return receives a larger share of any “upside” revenue returns. Looking across the various potential outcomes of OVG’s attempts to land NHL and/or NBA teams, the city’s revenues are steady and within a narrow range; however, OVG is highly incented to have the teams as tenants.

While that looks like a great deal for OVG, here’s the list of the costs that OVG has signed up to pay under the proposed MOU, on top of assuming 100% of the risk for project overruns:

  • $600 million project costs plus all cost over runs (construction is estimated at $350 million).
  • $3.5 million to reimburse the City for consultant and outside counsel costs related to the execution and performance of the MOU and the Transaction Documents.
  • $40 million transportation payment over the 39-year lease term (or $1.026M per year).
  • $250,000 for a transportation consultant.
  • ($TBD) Baseline rent, amount yet to be determined, by an accounting firm based on the four-year trailing historical annual average of arena-related revenues for years 2014 through 2017.
  • $20 million in kind or cash to non-profit organizations (not made directly to the City).
  • $500,000 for tenant relocation (Pottery Northwest addressed separately)
  • All costs related to temporary and permanent relocation of Pottery Northwest
  • Hire and pay for a Community Liaison
  • 4 rent-free days per year.
  • Dedicate 1% construction costs to the 1% for the Arts program.

 

As a reminder, the SODO Arena MOU expires next month, unless Chris Hansen magically lands an NHL or NBA team before then.

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6 thoughts on “Council considering Key Arena MOU amendments, on Thursday”

  1. “upside” revenue returns… is public money being traded for OVG taking on risk. I look got forward to seeing what that risk value is and how much projected public money all the public buildings the city is giving up.
    The only thing private about that revenue is its absence from presentations.

    1. Your assertion that it’s public money traded for OVG taking on risk assumes that the city could generate an equivalent amount of revenues on its own — which is almost certainly not true. And it’s not just that OVG is taking on risk; OVG is also bringing hundreds of millions of dollars of capital to the project, where the city is providing no public funding. It’s totally fair to ask whether the city could negotiate a better deal with OVG or another organization, but the kinds of tradeoffs involved here are not surprising.

      1. A build option where you give away revenue vs no build option where we don’t. You are assuming that parking garages in UpTown won’t generate more revenue for the city over 39 years.

        1. I’m not assuming anything. The amount that the garages generate depends heavily on the number and size of events at Seattle Center, which the OVG deal will change dramatically versus what the city can do on its own.

  2. Basically OVG is paying a lot of money to build an arena, payoff business for relocation expenses, and a variety of other expenses for the right of a large piece of the revenue the new Arena will generate. OVG is falling over backwards to get this deal. My guess is they are getting a very sweet deal and the City gets screwed out of a lot of revenue down the road.

    1. I wouldn’t put it that way. If you read the memo, there’s an independent estimate of the revenues both sides are making. Deals like this have more dimensions that just maximizing revenues. The city gets a substantial amount of guaranteed revenues no mater what happens, while assuming no risk and contributing no public funding. OVG assumes all the risk and must provide all the financing; if both an NHL and NBA team show up, then they do exceptionally well, otherwise they do less well. No one is getting screwed here; the two parties just want different things from the deal, and they both appear to be getting what they want.

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