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SODO group claims clause in OVG contract could hinder return of Sonics

Rendering of Oak View Group's plans for KeyArena in Seattle.

A clause in the proposed Memorandum of Understanding with developer Oak View Group to renovate KeyArena could put a huge wrench in efforts to build a SODO Arena.

The clause, Section 1 (b) of the MOU that deals with “exclusivity,” says in part “…the city shall not provide financial support, benefits or incentives (other than those generally available to any potential developer) with respect to the construction of any live entertainment venue with a capacity of more than 15,000 seats within the jurisdictional boundaries of the City of Seattle.”

Last week, the city’s Committee on Civic Arenas opted not to amend the proposed MOU to eliminate the clause.

The question is whether a street vacation – which the SODO group is seeking – falls under the category of a public benefit.

“It shouldn’t be. Absolutely it should not be,” SODO investor Wally Walker said in an exclusive interview with Q13 Fox. “But our concern is that somebody uses a leverage point and says ‘Oh, we can’t vacate the street. We can’t have a vote because we have this MOU that has this clause.’ It has all the makings of exclusivity and being anti-competitive.”

Walker argues that, if this clause boxes out the SODO arena, it also reduces the city’s leverage in negotiations with Oak View Group and prevents the city from collecting future tax revenues from a private building, including property taxes.

“Their upside is capped,” Walker said of the city’s financial benefit in the proposed MOU with OVG. “The city can only make so much money – at most three percent a year from a low baseline. If you’re going to be capped there, why wouldn’t you try to get tax revenue from another project?”

And while Oak View hopes to bring an NBA team to Seattle, what happens if the project goes over budget? OVG has pledged to pay any cost overruns over the current price tag of $600 million.

“Those are contingencies that no one knows,” Walker says. “The higher that number goes up, the more money they’re going to need to use to pay for the building, and less would be available for the team or teams.”

Added Walker: “Say the KeyArena remodel costs $750-800 million. That’s less money that would go to a team on a revenue split that now has to go to the building.”

Last week, city councilmember Sally Bagshaw asked whether there would be enough of a piece of the financial pie for a future NBA owner. The city’s independent financial consultant said yes, since they’d be a partner in the development of the building.

Walker disagreed.

Even if they get a cut of the building revenue, Walker says, “It’s cut three ways. An NBA team is used to getting at least 50 percent of the revenue if they’re splitting a building with a hockey team. But the trend is that 100 percent of the building revenue (goes to NBA owners).”

Walker added: “The average NBA team gets $30-35 million a year currently. That number is trending up currently. So for an NBA owner to say ‘I’m gonna spend $2 billion (for an expansion team), but take less than average arena revenue? They won’t do that. They won’t come. And when we’ll know that is, it’s too late. And they say ‘Oh, that deal won’t work for us.’ OVG saying, ‘We’ve got to pay off the building,’ the hockey team saying, ‘we were here first.’ The numbers just aren’t big enough.”

Which means, if a redeveloped KeyArena doesn’t work, and there’s a clause preventing a SODO Arena option, the city has essentially boxed itself out of bringing the Sonics back to town.

Q13 Fox reached out to the city and Oak View Group for comment on their legal interpretation of the clause in the proposed MOU. Neither has yet responded.