KeyArena financing plan appears far ahead of Sodo group

Seattle Times |

--Inside sports business

A group pitching a new $600 million arena for the city's Sodo District released proof of its potential funding last week with a "letter of support" from J.P. Morgan investment bank.

The letter to the group, led by entrepreneur Chris Hansen, is similar to a letter from Goldman Sachs produced by the Oak View Group as part of its $564 million proposal to renovate KeyArena. But there are differences between the letters that demonstrate why Hansen faces a struggle convincing the Seattle City Council to go with his plan over the KeyArena venture.

Missing from Hansen's letter was any monetary amount J.P. Morgan might lend his group. The OVG letter, meanwhile, states that Goldman Sachs could lend $150 million to $200 million and then additional monies once teams are acquired.

That's hardly surprising, given OVG plans an "on spec" build ahead of landing teams. The Hansen proposal, meanwhile, is predicated largely on getting teams first, completing the project's financing and then starting to build.

Let's be clear on one thing: Neither bank is guaranteeing anyone money. The letters are akin to a "preapproval" statement you or I might receive from a mortgage lender ahead of shopping for a home.

Those typically state how much mortgage we'd qualify for, based on statements we've made about our financial capacity and intentions.

In this case, Hansen's group and OVG laid out plans for J.P. Morgan and Goldman Sachs. And they've received some preliminary support, provided their pledges stand up to increased scrutiny later.

But OVG already has detailed for the city exactly who would pay for what and how: anticipating $197 million in Goldman Sachs financing, $50 million in federal historic landmark tax credits and $40 million in diverted city tax and operations revenues.

Finally, the remainder of the construction cost -- about $277 million -- would come from private equity from OVG and its partners.

Because OVG can't guarantee it will qualify for the fully anticipated tax money nor Goldman Sachs loan, the group says its Madison Square Garden company partner would backstop the entire plan up to $1 billion. That's a huge financial commitment from MSG, which so far has provided its own letter of support -- subject to due diligence and minus any dollar amount.

Naturally, the city in upcoming negotiations with OVG must firm up that MSG commitment and seek in-writing protections on project cost overruns.

With Hansen's proposal, nothing has been laid out in such detail. The J.P. Morgan letter states Hansen's plan relies partly on sales of seat licenses and sponsorships.



It's tough to get fans and companies to buy those when it's unclear if an NHL or NBA team is coming. So Hansen's financial plan clearly requires teams before completion.

Though Hansen and supporters claim, rightly, that traffic and parking at his Sodo site trump the current KeyArena conditions, that won't be the only aspect the city scrutinizes. Money will be a major factor, because a report given the city in 2015 estimated the cheapest viable alternative for KeyArena could cost taxpayers $150 million if the Sodo venue is built.

That's already a significant hurdle for Hansen without the city also worrying about his group's funding plan. Mayor Ed Murray and the council have long questioned Hansen's ability to attract the teams he needs to complete his funding and start construction.

NHL commissioner Gary Bettman has said having "steel in the ground" -- meaning arena construction already under way -- is his league's preference, and the NBA has strongly hinted it's a half decade or more from expanding.

Murray referenced Hansen's incomplete financing last week, telling KING (Ch. 5) the Sodo group is "waiting for a future group of people to come together."

In contrast, OVG has billion-dollar partners in MSG and Live Nation and recently introduced investment banker David Bonderman and Hollywood producer Jerry Bruckheimer as future investors.

Small wonder Bonderman threw a scare into OVG last week when he resigned from Uber's board of directors over his sexist quip made during an all-staff meeting. The last thing OVG wants is to have to dump Bonderman (estimated net worth $2.5 billion) over the scandal and risk also losing his longtime associate, Bruckheimer (estimated net worth $900 million).

You don't just jettison partners worth $3.4 billion with ease. Not surprisingly, OVG is standing by Bonderman, insisting his gaffe was a one-time thing.

Murray issued a rebuke of Bonderman, saying he'll closely monitor OVG to ensure it adheres to the city's values of inclusion. In other words: He'll likely forgive a one-time blunder, but OVG had best make sure there isn't a pattern or history of such behavior by Bonderman.

Given how far ahead of the Sodo plan's financing OVG appears to be, Bonderman's blunder could have proved monumentally costly. Instead, as long as he stops making inappropriate jokes, the OVG advantage appears like it will remain formidable.

Hansen's project ordinarily would still be enticing on its own, given its arena location and similar all-private construction plan. But it's now competing with another venture that appears to have its financial act more together.

And in business, money often talks louder than anything -- including, in this case, parking, traffic and even inappropriate jokes. That means Hansen likely will need more than a contingency-filled J.P. Morgan letter if he wants his voice to ultimately be heard.

Baker:gbaker@seattletimes.com or 206-464-8286. On Twitter @GeoffBakerTIMES

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