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KC arena shows Sacramento what not to do
Posted by Paul Clegg
Think Big Sacramento, which is aggressively promoting a downtown arena for Mayor Kevin Johnson, wants us to look to Kansas City, Mo., and its downtown Sprint Center as a model for what can happen in Sacramento.
The mayor's task force is correct. Kansas City provides a terrific example of the financial mess that Sacramento is headed for if it pursues a publicly funded arena at the downtown railyard site. If you want to see an example of failed expectations, growing financial headaches, faulty calculations and bad timing, Kansas City is the perfect model.
Think Big Sacramento had the chutzpah to bring former Kansas City Mayor Kay Barnes to town recently to tout the Sprint Center she helped get built as well as KC's deal with the Anschutz Entertainment Group, which operates the center. Barnes proclaimed that the AEG agreement was "a model that has worked beautifully for Kansas City," according to a Bee story.
Think Big Sacramento is eager to bring AEG to the capital to operate the estimated $387 million downtown arena in return for some upfront capital. In Kansas City, AEG put up about $50 million of the $276 million cost of the Sprint Center, which opened in 2007. KC's contribution was about $165 million. Guess who got the better deal.
A revenue-sharing agreement between AEG and the city has generated roughly $6 million for the city so far, The Bee story said under a headline proclaiming "Kansas City offers model for arena." There was no mention of AEG's profit, nor were there any details on the mess facing KC, which is on the hook financially for decades to come.
Take a look at just two aspects of this boondoggle:
• The Sprint Center was sold to the public as a state-of-the-art arena that would attract an NBA or NHL team as an anchor tenant. AEG, a powerhouse in the sports entertainment business, and its CEO Tim Leiweke virtually promised they would land a team, said Sam Mellinger, a writer for the Kansas City Star newspaper. This professional team would serve as an economic engine to jump-start a nearby entertainment area called the Power & Light District and make it self-supporting. In 2006 the city approved issuing $295 million in bonds for the downtown entertainment project.
Alas, things have not turned out as expected.
"The chances of landing an NHL or NBA team have gone from Leiweke's purported lock to cautiously hopeful to dying to now mostly forgotten," Mellinger wrote in a July 23 article, adding the Leiweke hadn't talked to KC officials for some time. "AEG's failure to follow through is at least partly to blame for the Power & Light District's becoming a public money-suck."
Instead of becoming self-supporting, the entertainment district will likely require an annual taxpayer subsidy between $10 million and $15 million, a July 14, 2010, Star front-page story said. That comes to at least $230 million by the time the bonds are due in 2033.
• The opening of the Sprint Center has drained away money and activities from the city's Kemper Arena, home of the Kansas City Kings until they headed to Sacramento in 1985.
"Kemper Arena has turned into a 19,000-seat money-loser since the Sprint Center opened in 2007," said an Oct. 25 story in the Star. It's running up an operating deficit of $1 million a year.
Unfortunately, the city can't simply close the doors and raze the arena. According to a Nov. 18 Star follow-up story, an incredible 50-year lease agreement signed in 1995 with American Royal, an equestrian group, puts the city on the hook for more than $70 million. A proposal to turn Kemper into a 5,000-seat coliseum would cost about the same amount.
By my calculations, Kansas City faces $300 million in debt over the next 35 years tied to the Sprint Center. It has gotten about $1.5 million a year from its investment. The math doesn't look good for the city's taxpayers, who unwisely voted to subsidize the center.
Would a pro team at Sprint Center turn things around? Kansas City Mayor Sly James is dubious. The city would suffer if a mediocre basketball or hockey team – the kind the city would be likely to attract – became an anchor tenant, James said in a July 15 Star story.
"The trade-off is that teams won't come to an arena and pay millions," James said. "They want a sweetheart deal on their lease and locked-up dates," the mayor said.
Given all the uncertainty with the Kings and the NBA season, Think Big Sacramento has taken to promoting a downtown arena as a viable project with or without the Kings. The Kansas City experiment should make it clear that Sacramento taxpayers would be the losers either way.
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