SEATTLE POST-INTELLIGENCER
Analysis: City's Sonics options limited
Analysis: City's Sonics options limited
Either sue or settle for an NBA future
Last updated May 1, 2008 11:14 p.m. PT
By GREG JOHNS
P-I REPORTER
As the city of Seattle and Sonics ownership continue on their collision course toward a June trial date over the KeyArena lease situation, three simple scenarios remain: The city will win the lawsuit, lose the lawsuit or settle the lawsuit in the six weeks that remain before the trial.
Each scenario is fraught with variables that would determine the future of professional basketball in Seattle. Here's a look at the potential outcomes:
The city wins the court case
On the surface, this seems the best outcome for Seattle and its sports fans. But even a favorable ruling from Judge Marsha Pechman wouldn't represent an all-out victory for the city.
A court victory would merely lock the Sonics into playing their home games at KeyArena for the final two years of their lease, through the 2009-10 NBA season. The team would still be free to move to Oklahoma City in 2010 and, indeed, NBA owners have already voted to approve that move, even though another relocation rubber-stamp vote would be required at that point.
From a purely fiscal perspective, a court win would be a money loser for the city. If the Sonics move in two years, the city will still owe about $25 million on the bonds used to finance KeyArena's last remodel in 1994. That number currently sits at $37 million, with the city paying $6.3 million a year toward ultimate debt retirement in 2014.
Assuming attendance and interest in the team wane in two lame-duck seasons, the city will need to dip into its general fund for more than $6 million over those two years to make up for the expected revenue shortfall.
The original concept of the KeyArena remodel was that Sonics-related revenue from suites, club seats, naming rights and admission taxes would cover operating costs and payments of the $74 million in construction bonds. But since 2001, revenue has declined to the point where the city has had to subsidize the facility from its general coffers.
Tom Israel, director of finance for Seattle Center, said Sonics revenue for 2007 was about $3.3 million, leaving a $3 million shortfall for the city to absorb in order to make the $6.3 million debt payment. With the team's continuing struggles and uncertain future, Seattle Finance Director Dwight Dively expects that subsidy to continue in the $3 million range each year the Sonics remain at KeyArena under their current lease.
Thus the idea of "bleeding (Clay) Bennett" and making the Sonics chairman pay by binding the Sonics to KeyArena for two more years would have a similar, though smaller, effect on the city itself, given an offer to buy out the lease would presumably take care of that remaining debt. But that factor isn't weighing into Mayor Greg Nickels' decision to fight the Sonics chairman in court.
"This has never been about the money, and it's not now," said City Attorney Tom Carr. "Obviously the city doesn't like losing money and budgets are tight, but it's really about having pro basketball in Seattle. That's what (the original) $74 million investment in KeyArena was about and why we're suing to enforce the lease now."
What a court victory would buy is two more years for the city to see if a solution might evolve. In theory, that would be two years in which to convince the Legislature to help fund a KeyArena remodel or for area business leaders to unearth a privately funded arena solution that would help make the NBA again work financially in Seattle.
Some feel if the region comes up with a modern facility, the NBA will find a way to keep a team in a city that has 41 years of history with the league.
There is risk in this scenario, given that a full-court legal battle with the NBA would do little to quiet the growing discord between NBA commissioner David Stern and city officials. Not to mention an all-or-nothing court fight excludes the possibility of any settlement that might pave the way for a replacement franchise or help pay off the remaining arena debt.
If the only benefit of a court victory is to have the current Sonics play two more money-losing seasons in Seattle before fleeing to Oklahoma, that would seem a shallow victory to most.
Yet the flip side is that a victory in Pechman's court could put the city in stronger negotiating position to gain a replacement franchise after the trial, given the NBA and Bennett would then know the only way to avoid two extremely difficult seasons in Seattle would be to negotiate their way out.
Some Sonics fans don't want the city to give an inch to Bennett and would be furious if a settlement to allow the team's departure occurred after Seattle had actually won in court.
Carr said it's always possible to negotiate a post-trial agreement, but downplayed the likelihood of one.
"It would have to be something acceptable, and I haven't seen anything indicating that," he said. "I'm not optimistic about resolving this (outside the courtroom)."
Another element to the city's case is its relationship to a separate lawsuit filed by former Sonics majority owner Howard Schultz, who wants the court to rescind his 2006 sale to Bennett's group. That suit also has been assigned to Pechman.
If the city wins its case, Schultz has more time to pursue his allegations that Bennett's group failed to abide by a good-faith agreement to keep the Sonics in Seattle.
Should the city lose, Schultz likely would seek an injunction to prevent the team from being moved to Oklahoma City before his own trial.
Talk of a preliminary injunction being filed by Schultz's lawyers before the city's June trial seems unlikely, given that they'd need to essentially lay their case before the judge at that point without benefit of discovery and hope for a favorable ruling. By waiting for the city's trial, Schultz could gain the same outcome without waging, and paying for, his battle prematurely.
The city loses the court case
This is clearly the worst-case scenario for those hoping to save pro basketball in Seattle, since a defeat in Pechman's court would allow the Sonics to move immediately to Oklahoma City.
All that would be left to work out would be the financial obligation required from the Sonics to pay off the remaining two years of rent on their lease. The team's lawyers filed a motion last week asking Pechman to make that financial determination during the trial rather than leaving it hanging for another court battle.
The city responded Wednesday by saying it would seek a six-month trial delay, as well as a jury decision, if Pechman agrees to include the financial decision in the upcoming case.
This particular battle should not be mistaken for a buyout offer. A buyout would be a way for the Sonics to avoid the whole legal scrum and just move to Oklahoma by satisfying the city in a settlement. The Pechman decision refers to what amount of money the city would be legally owed under the terms of the lease, should the Sonics win their case and be allowed to move immediately.
Ultimately, a loss in court would leave the city with no remaining leverage. The Sonics could move, the league would have no motivation to guarantee any future team and KeyArena would still have a large debt with no major tenant.
A KeyArena analysis done for the city by an independent group in 2006 said if the Sonics did depart, the city would still need to spend at least $20 million to upgrade the facility to keep it competitive for other events.
That report indicated Key- Arena could remain viable if the Sonics moved, but would need to be dramatically restructured if another competing multipurpose arena were built in the Seattle area for pro basketball.
The sides agree to settle
Lots of areas of gray in this scenario, which could include any variety of agreement between the city, Sonics and NBA. There's plenty of motivation for all parties to settle, so don't be surprised if this is the ultimate outcome as the trial date nears.
Nickels and Deputy Mayor Tim Ceis insist they're not interested in settling, but that could change if Bennett and Stern offer up a scenario in which the city can save both face and money.
Carr rejected Bennett's $26.5 million buyout offer in February, but that attempt generated interest from the City Council, which remains fiscally responsible for solving Seattle Center issues.
Given that Stern said the Sonics will lose $30 million a year if forced to continue at KeyArena, it seems as if any offer of less than $60 million would save Bennett and his partners money. Not to mention, the Oklahoma City owners are eager to avoid all this unpleasantness and begin reaping the rewards of moving to their hometown.
Former U.S. Sen. Slade Gorton, who heads the city's legal front, has said it would make sense now to pursue an agreement with Bennett as long as such a settlement included a guarantee of a replacement team.
But Carr, the man ultimately responsible for such negotiations, said Gorton was offering his own opinion, and the city's position has never wavered.
"The city's stance is we're going to trial," Carr said. "There's nothing on the table. We don't have a settlement position. We had the $26 million offer and rejected it. There really isn't anything else. There has been no offer and nothing to consider."
Common sense -- and Carr himself -- indicate there is always a price that could entice city leaders. But Bennett would need help from Stern in coming up with any solution that involved either assuring an expansion team or relocation of an existing franchise to Seattle.
Bennett appears quite willing to leave the Sonics' name and history with Seattle. His lawyers included that as part of the initial $26.5 million buyout offer.
Additionally, Bennett indicated in an e-mail obtained by the city's lawyers that he likes the idea of allowing Oklahoma City a fresh start with an all-new team name and colors.
The hard part figures to be assuring Seattle in any of these scenarios that it might have another team to call the Sonics at some point down the road. Unless that little problem can get resolved, any sort of settlement before the June 16 trial seems unlikely and the sides will duke it out in U.S. District Court.
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P-I reporter Greg Johns can be reached at 206-448-8314 or
gregjohns@seattlepi.com.
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