Hansen, Part 2: "This arena is not a hobby"

Hansen, Part 2:

Chris Hansen, King County Executive Dow Constantine and Seattle Mayor Mike McGinn

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by Art Thiel

SportsPressNorthwest

Posted on April 30, 2012 at 8:31 PM

Longtime Sonics fan and Seattle native Chris Hansen surprised the local sports and civic scene in February with his offer of $290 million in private capital to help fund a $500 million arena in the SoDo district.  He sat down for lunch with Sportspress Northwest columnist Art Thiel Thursday for an exclusive, extensive interview.

Part One of the question-and-answer session was published Friday at Sportspress Northwest and can can be found here. In Part Two, Hansen talks about what he's looking for in partners, his "wrestling" with being the lead investor, the "under-appreciated" virtues of the proposed funding, and the arena's size. As has been his custom, he declined to answer specific questions about potential team re-locations, nor identify potential local partners.

Q. Please clear up some public confusion about the potential timing of simultaneous pursuits of re-locations from the NBA and NHL.

A. Seattle has a a 41-year history with basketball, and as interested as people are in bringing a hockey franchise here, basketball is a multiple of that  The chances of two teams signing on the same day is difficult. We could get an agreement from the NHL sooner, but I would consider that unlikely. I think people want basketball first and hockey to follow soon after.

Everything we’re doing is to bring both sports. When you see the design, you’ll see we are building an arena to accommodate hockey that will be substantially more expensive and technically inferior for watching basketball. We have to make compromises in seating pitch, seats in relation to the floor and other compromises to the fan experience, at significant cost. There’s no way we would do that if we weren’t planning on hockey.

Q.The capacity at 18,000 seems only a little bigger than KeyArena (17,072). Is that a function of the building’s footprint on the available land (seven acres so far)?

A. I don’t think we need bigger capacity. We need to build the arena to the market. To build more seats increases the construction cost. The quality of the arena is more important than seating capacity.  You want appropriate supply/demand balance more than you would excessive seats, both from a fan experience standpoint and a financial viability standpoint.

If you have trouble selling out for your events, the arena becomes cavernous instead of intimate. Fans like to be part of games when it’s packed. It makes it more exciting. You err on the side of under-supplying the market for main events.

Q. Is the size of the lot a part of the decision on capacity?

A. Partially. More importantly, its supply/demand, the cost to build the extra seats and the fan experience, the liveliness and not being cavernous.

Q. What besides the two sports-team schedules is needed to make the building financially viable?

A. You’re going to see a lot more top live acts at this arena. The load-in, load-out is a real problem at KeyArena for the bigger acts. The acts either make do, bail, or come to Seattle in the few summer days when the weather is a good for an outdoor stadium.

Katy Perry probably travels with 14 tractor-trailers. They need to get in one day and out in one day to get to the next stop. That’s not a solvable problem at the Key in its current configuration. The Key needs a major reallocation of space and a major infrastructure upgrade.

Our assumptions for the new arena are between 10-15 major concerts and 15-20 minor concerts. The rest of the events are family and community things that don’t draw on the building’s full capacity. We’re not going to put in 200 full-capacity nights. Not gonna happen.

The venue is viable with NBA and NHL. Everything else is gravy. In the right market, you can do it with one team. What doesn’t work is if you have rival arenas of the same size that promoters can pit against one another to the point of insolvency.

Q. What does the MOU say about KeyArena?

A. Our assumption all along is that KeyArena will be non-competitive. Our job is to give the city options to make KeyArena viable. We’ll have more to say about that. Without us, the city is having a tough time financially at the Key with things like capital improvements.

Q. AEG (Anschutz Entertainment Group of Los Angeles) is the the manager of KeyArena right now. Is that company, which was co-investing in the proposed arena in Sacramento that apparently has been scrapped, going to be involved with your arena?

A. I’d rather not say right now. There’s still a lot up in the air with KeyArena. It’s the city's decision what to do with this.

Q. How do you define your role with the arena?

A. It would be as co-owner with the city and NHL team.  A tri-party agreement. The city will own $200 million worth of the arena and the NBA/NHL will own $300 million of the arena.  The NBA/NHL would be operators of the arena. The city has no desire to be the operator. Not even a point of discussion.

Q. What would be the relationship with a potential NHL team in your building?

A. It will be 50-50ish. All the dynamics between myself and a co-owner have yet to be determined. There would be enough in the deal to assure that it would be operated in the mutual best interests of all.

There can be problems with rival ownerships, but that’s why it’s important to get it in writing, up front.

Q. Are you open to being the NHL owner?

A. Less so financially, but I think it’s beyond my reach from a bandwidth perspective. I wouldn’t want to assume responsibility for being an NBA owner, NHL owner, a dad and and my business. My priorities are my family and my responsibilities to partners and employees in my investment business. The sports project is third. If I spread myself too thin, I won’t be effective.

I’m passionate about basketball and Seattle. There’s probably someone equally passionate about hockey in Seattle. That’s the person Seattle should want to be the owner.

Q.  Sports-team ownership often becomes far more consuming than most imagine who haven't done it before. Do you see yourself phasing out of your investment business?

A. Absolutely not. And getting to my kids softball games, being there for my wife, mother, brothers and sisters . . . it depends on how you define your role.

In my view, owners overreach. I don’t imagine I’m going to be successful in basketball-player evaluations.  My objective is to put the right people in place and hold them to certain ethical and moral standards. My job is more about hiring the right people and setting a standard, and assuring the financial solvency of the ownership group.

Some owners have this god-like belief they can fix the sports business like they fix their own business. That gets dangerous.

Q. How will you feel when your kids get made fun of when your team loses a lot?

A. I have a very thick skin. I have to in my business. I’m very patient, very long term in everything I do. I’m happy to be engaged in this (arena-building project) for four, five, six years, however long it takes to nurture the project as required.

Q. Why do this now in your life?

A. I wrestled with it. There’s an adverse selection process for most owners, where many choose not to get involved with professional sports for the reasons you described. That leaves sports with some owners who are more egotistical and focused on the short term. Then you see some bad outcomes. Some of it’s due to the job, some of it’s the people. I’m very happy to deflect attention and success to people in my organization who are more deserving of it.

If there’s one thing that I want to resonate, it's that in the neighborhoods I grew up in (Rainier Valley primarily), professional sports are unique in their ability to affect youth. It’s a cop-out for ownerships to not recognize that.

I don’t have to be standing on the sidelines cheering. The owners who are less seen, tend to be more successful.  I don’t mean detached. You can’t be detached. This is not a hobby. It requires commitment at the highest level.

Q. Would you move to Seattle?

A. I wouldn’t move. I will be here a lot. My entire family lives here. I will come up here as much as it takes, and to support the team.

Q. Is it imperative for you to be the managing general partner, or do you see another scenario?

A. No. At this point it’s imperative that I be a majority owner. That’s an NBA rule too. I think we crossed the line of no one else stepping forward to do that, which is what I wrestled with it for a long time. If I could have laid it out for myself, I would have preferred to be a minority investor, with longer-term aspirations to be a majority owner when the time was ripe for me in my life.

I’ve spent a lot of time thinking about what should be done in an organization. I basically will be handed a blank canvas to re-create the priorities of fan experience in basketball, as opposed to someone who just buys a team. It would be very difficult to sacrifice those things right now. I can have a big impact.

Q. What kind of person and profile are you seeking for an investment partner?

A. My first objective is to assure that if something happens to me, the business will be in good hands, with the same principles I have, which will assure the team never leaves Seattle. I have a short list (of people) for that. The rest will be similar-minded people who are advocates for the community, who you would want in ownership and who would view the world the same way I do.

I'd rather not comment on specifics. But I think many could put together a list of those people who would fit that description in Seattle. It’s a puzzle. You don’t want too few or too many. You want them to share your morals and values, and are going to take the time to make an impact.

Q. Every potential owner-partner can come with his or her own agenda. How do you manage that?

A. The previous group had 58 members. That’s too many. Less than 10 is a better number. I would encourage a diversity of opinions and perspective. You want them to have your values but not necessarily your perspective. That’s helpful.

Q. Have you made agreements with any investors?

A. Let’s put it this way. There’s nothing to sign up for right now. There are a lot of people who are interested. There’s a question for me as to how they fit in, and a question for them of how it fits into their lives and priorities. I’m not under any pressure to to put a group together. I’m financing the land acquisition myself. There will be plenty of household names on the list. I think you guys (media) should rest assured that a lot of the right people are interested.

Q. Have you vetted some candidates?

A. A lesser known aspect of my job (as a hedge-fund manager) is that I’m constantly vetting people. We invest in companies all over the world. A starting point is: How good is the management team of this company? I make a living at it. It’s both intuitive and fact-based. We also look at companies where we bet against. We find frauds and crooks too. And the NBA vets these guys too.

Q. Regarding the public portion of the funding of the arena, you believe the value of the contribution has not been widely understood. Please review the proposal.

A. The basis of our understanding with the mayor was that we wanted the very direct, non-substitutable, tax revenues from the city generated by arena activity that otherwise would not exist. Everything that's indirect belongs to the city -- we don't want a rental car tax, or an incremental increase in the local sales tax.

That means that coming to us would be the admission taxes on our ticket sales, property tax on the stepped-up value on which we're building on the arena itself, taxes on sales and merchandise, as well as B&O taxes. A bond against these revenues is the public contribution. For that, we will sell the public the land at fair market value. It's not as if the public contribution goes to some mythical place.

The city will own the real estate, and if the city decides to blow up the arena in 35 years, I'm pretty sure that land will be worth a helluva lot more than it is now, given its location.

The rest of the public contribution is going into the building shell, for which we we pay a negotiated amount of rent. In addition, we'll put up the security to guarantee the revenue stream. Part of this deal that is not well understood is that ownership will have so much equity in the deal that we will not miss a rent payment. If somehow we did, someone else (another ownership) would step in and buy this (franchise) before it went into default.

Rather than us debate with the city about whether we think the tax revenues are X and the city thinks it's Y, it won't matter, because we will make up any shortfall in any year. Doesn't matter about (tax revenue) projections. Doesn't matter about rent. We will have so much equity, $300 million, in the project, why would we ever throw our arena into default over $2 million or $3 million in annual rent? It's crazy.

The city has asked: What if revenues go to zero? Well, property taxes won't go to zero, and people are going to show up for games and pay something. (The fear) is just not realistic.

Still, the city wanted more security, so we're working on something for more funds to guarantee it. The levels of security for this transaction are unprecedented. Compared to any other arena deal ever done, the safety and the amount of equity we have in it, default is a near-zero probability.

It's a new arrangement, and probably held up to the detriment of other cities (laughs) as the way to do arena deals. I think (the virtues) are under-appreciated. We could have come in with a deal for a free arena, and still some people would have objected. I think people forget what a great deal we're giving the city.

Q. Why not do a privately funded building similar to what the Giants ownership did to create AT&T Park in San Francisco?

A. Seattle isn't as big a market as San Francisco. It's hard to get a return on any building like this, so there's no doubt the public contribution enhances its financial viability. Make no mistake about it, we getting our taxes forgiven, getting that back in form of a bond.

We are getting a waiver on taxes that would not exist if we had not come. That makes the project net neutral for the city. But this is not a zero sum game for the region. (Arena attendees) are going to come from outside the city limits to spend entertainment dollars here rather than in their local communities. So this benefit is to the detriment of tax revenues in other cities: Seattle’s plus is other cities' minus. If we bring 150 event nights to the city, there’s no doubt tax revenues would be generated for the city outside the four walls of the arena.

To make the argument that the funding plan is not net neutral to the entire Puget Sound region is somewhat fair. To make the argument that it’s not net positive for Seattle would be incorrect.

It's a complex mechanism, and we've spent a lot of time with the city and county staffers on it. But it comes down to the fact that we are seeking dollars that wouldn't otherwise come to the city.

Q. What remains to be done on the MOU?

A. I won’t say there’s resolution, but there’s an understanding between county, city and us. We're solving minor, technical issues. Our negotiations with the city have been about 'How do we get this done?' We've never asked anything more. The city and county have been good on their word.

Q. If the traffic study you are funding comes up with an expensive mitigation cost, what happens?

A. There's a dual obligation. It's my obligation to make sure that for this project, the pluses outweigh the minuses -- a net positive. And there's some obligation from me to be part of the discussion that resolves the longer-term issues facing the project.

And the city and county have an obligation. Pinning the entire (traffic mitigation) issue on me, I would say, is unfair. Pinning the broader issues that pre-dated me and will post-date me, is unfair. We would be one of many constituencies down there to figure it out.

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