Building lease blocks hope of Sonic boom

SEATTLE – The cheers faded last month after an exciting NBA season, sending Seattle SuperSonics executives back to their offices to confront a dubious distinction.

Their arena lease is arguably the worst in the NBA, and the financial strain is starting to suck the team dry.

“I don’t think there can be any dispute that the Sonics have the least favorable building arrangement in the league,” commissioner David Stern said during a visit to Seattle last month.

How bad is it?

Well, the Sonics lost $17 million last season, largely because the team – unlike NBA rivals – doesn’t keep the revenue from luxury suites, parking and concessions at home games.

About $8 million went to city government, which owns the 87-acre Seattle Center campus that is home to the Space Needle, the McCaw Hall performing arts center and KeyArena, where the Sonics play.

When it was drawn up back in 1995, the team’s 15-year lease with Seattle Center was heralded for demonstrating that pro sports teams didn’t need to use substantial taxpayer money to build their palaces.

That notion seems quaint today.

“The agreement was structured with the best intentions when it was signed in the mid-‘90s,” Sonics president Wally Walker said. “It was innovative. It was right for the times, and it worked for a couple of years.”

The old Seattle Coliseum was transformed into KeyArena for $75 million, with the city selling bonds to fund the project in exchange for a cut of revenue from game-related activities and luxury suite sales.

Seattle Center was pulling in about $1 million annually through the first four years of the arrangement, money to fund cultural activities for the site’s 10 million visitors.

“It worked for the city and the Sonics when we designed it, but then the marketplace changed,” said Seattle Center spokesman Perry Cooper.

Not long after KeyArena opened, public money helped the Seattle Mariners and Seattle Seahawks flee the crumbling Kingdome for two new stadiums. Suddenly, the market for pro sports luxury suites in Seattle tripled.

“After the other venues were completed, it really put a dent into the suite income, which the city collects,” Walker said. “It changed the economics for them and for us.”

Another unseen market force: skyrocketing NBA salaries in the late 1990s. Unlike many NBA teams, the Sonics had no luxury suite money to help pay for top talent.

Then came the 1998 NBA lockout and slow economy. Seattle Center has lost nearly $10 million on KeyArena over the past five to six years.

“This isn’t just a Sonics or NBA issue,” Cooper said.

In the midst of the bleeding, the team was sold by the Ackerley family for a reported $200 million.

Starbucks chairman Howard Schultz took over, leading a Sonics ownership group of 58 investors who optimistically believed they could generate a profit.

But The Basketball Club of Seattle, which runs the Sonics and the WNBA champion Seattle Storm, took an unusual step this spring with a news release declaring a $17 million loss from the NBA season.

State lawmakers have largely ignored a plan proposed by Seattle, the Sonics and Storm to extend the taxes that paid for Safeco and Qwest fields. The money would be used to retire about $60 million in bond debt from the 1995 expansion that built KeyArena, and help finance renovations.

Taxes on King County restaurants, hotels and car rentals and a sliver of the sales tax are set to expire in 2020.

Lawmakers briefly considered the $260 million plan last winter but bottled it up in committee, saying the state had more important issues than an arena.

“We have more desperate needs than KeyArena,” said one leading critic, Sen. Ken Jacobsen, D-Seattle. “We have a financial crunch and we have to do first things first. We’ll have to forget the luxuries.”

Walker also wants the team to take over the operation of KeyArena from Seattle Center, enabling the Sonics to keep parking and concessions money that goes to the city.

The Sonics unexpectedly reached the Western Conference semifinals last season with a comparatively low $54 million payroll. But the NBA average is about $60 million, and the Sonics are at a disadvantage when it comes to paying for top talent.