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Tuesday, March 28, 2006

Sonics Recap

The Sonics want a theme park. The Seattle City Council doesn't want to pay for it. What are the economics?

First, the financing....

Key Arena was renovated last in 1995, to the basketball team's specs, with money from revenue bonds. Revenue bonds actually use money generated by the building to pay for its construction, a concept that was called "unique" .... Of course, they are tax-free bonds, so even these imply a significant public subsidy.

As late as October of ‘03, Sonics head man Wally Walker said, "Key Arena is a wonderful place to watch a basketball game. We are not unhappy with it." (PI, 10.20.03)

Then, as councilmember Jim Conlin puts it, "for reasons on which the interested parties do not agree," the revenues betan to fall short, and the city began to pay debt service out of the General Fund.

During this past legislative session the team pitched the legislature with a plan for a $220 million reconstruction of the Key to be financed by an extension of the current hospitality taxes. The new rehab was not so much to improve the "wonderful" basketball arena as to create internal capacity for dining and drinking .... Financed by taxes on restaurants.

Like Disneyland... The creation of Disneyland's Orlando site came about because the company looked across the street in Anaheim and saw all those motels and fast food stores making big bucks off being across the street from Disneyland. So the company built where it could own "across the street," capture the positive externalities, as it were. That's what the Sonics want to do. So there goes the last fig leaf of economic benefit for the city. Oh, and after the city builds it, the Sonics want to run the new building.

Now the politics ....

The city council was not too happy about the broken spokes on the revenue bond wagon. Times are tight in a post-Eyman world. So the Sonics went directly to the legislature, and they brought in David Stern, NBA commish, Mr. Fatuous, to say "A substantial amount has been done for the baseball and football teams. I'm here to personally find out whether the same is being considered fairly for the NBA. If not, that's a decision we can accept. But we'll have to act on it ourselves."

Meaning they'll move the franchise. And not to Bellevue. Oklahoma City, maybe.

Stern called the Key Arena deal the "least competitive lease in the league."

But sports are popular. Especially when the team is winning. Openly opposing a stadium or arena is a good way to get unelected. Gary Locke's finest hour was in leading the fight to keep the Seahawks in Seattle when they tried to sneak out the back door.

The current Guv did not object to the Sonics' request, but insisted that they get agreement with the city and then have a public vote of the taxpayers. Neither came true.

That brings us to the economics ....

A 1922 Supreme Court ruling essentially exempted pro sports from monopoly control because they are "exhibitions" and not interstate commerce. For many decades team owners used their monopoly position to exploit fans, and they used their monopsony (single-buyer) position to exploit the players. When players won free agency, they joined the owners in exploiting the fans.

There is only one league in each sport, baseball, hockey, basketball, football. Leagues intentionally keep the number of franchises below the number of markets which could support them in order to extort concessions from cities and arenas and to keep the value of the franchise high. If competition shows up, they coopt it or suppress it.

The supposed economic benefits for a city of having a team do not exist. Check out the bomb blast zone around Royal Brougham, the site of the baseball and football fields. Ringed by parking lots, the facilities are cut off from the surrounding area. The only businesses benefitting are a few in Pioneer Square catering to beer sucking.

One estimate is that a sports franchise has the economic impact of a small department store, hardly what you'd spend $220 million to keep.

The jobs are primarily low-wage seasonal jobs. The three dozen (max) good salaries in the Sonics organization don't stick very close in the off-season. (It's ironic that California and New York, with income taxes, actually see more contributions from Sonic players than Washington does. Incomes are pro-rated and allocated to the sites where teams play.)

The bottom line ....

Maybe Howard Schultz will sell or move the team. Fine. We'll just get a team from the other league. What? No other league! Talk about non-competitive.

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