David Stern’s Arena Arms Race and How Orlando Raised The Bar
(Part two of an eight part series on the NBA‘s arena and fiscal strategy, published October & November, 2010)
When the city of Orlando opened their new $480 million Amway Center earlier this month, it rendered every other arena in the league obsolete.
Magic GM Otis Smith called it “the best building in North America,” according to the Orlando Sentinel, while NBA commissioner David Stern gushed, “There is nothing better than this facility in the world.”
Contrary to the reception given to Sonic owner Howard Schultz in Washingtonstate while attempting to convince skeptical lawmakers to fund a new facility in spite of Key Arena’s barely-dried paint, in Orlando city leaders were far more receptive. Plans were being finalized to build a new “events center” that would seat 18,500 people in the new 875,000 square foot facility.
Orlando’s new building is hailed as the most technologically advanced sports arena on the continent. It boasts seven levels, amenities like bars, restaurants, stores and even a play area for kids. Each designed not only to keep fans happy but to improve the bottom line for the team and the city, which share some of the building revenue.
The Orlando Magic’s “Fan Cost Index”—the price of a family of four’s average tickets, food, drink, parking and merchandise as calculated by the industry publication Team Marketing Report—is $234.
That’s among the lowest in the NBA, which has a league average of $289.54.
With more options, Magic execs and city officials hope people will spend more.
Part of downtown’s Master Plan Three, it also involves improvements to the Citrus Bowl and a new performing arts center in Orlando.
Orlando’s new $480 million Amway Center is over twice the size if their old home, the 367,000 sq ft Amway Arena where the Magic played for over a decade.
Patrons had to climb steps to enter, and were packed into a single concourse while forced to walk up or down more stairs to find their seats. They wove around long concession lines as they were jammed elbow-to-elbow on the concourse. After this battle of crowded walkways, fans eventually made their way to their seats or crowded restrooms.
At the new Amway Center, fans enter at street level, where they’ll find a fantastic 80-foot lobby atrium. They board express escalators or can choose from 18 separate elevators to take them to one of five concourses. Their seats are a bit more spacious, some as much as four inches wider with more legroom.
Ironically while Orlando’s new palace was opening, NBA Commissioner David Sternwas in New York threatening potential contraction of fiscally shakey existing teams. Whether an idle threat or merely the first shot fired over next year’s problematic collective bargaining debate, NBA players are likely to be locked out which might doom the 2011-12 season.
In Orlando, local papers claim the Magic put up anywhere from $50-150 million towards the new facility, depending on which report you believe.
Curiously, that is dangerously close to the same amount each of the surviving NBA franchise would be liable for to fold four existing teams, assuming each franchise is valued at $350–450 million.
Kevin Colabro, the former voice of the now-departed Sonics put it this way: “I think the fact that the league swapped Vancouver for Memphis and Seattle for Oklahoma City speaks volumes. It’s all about which city will give the league a building.”
Certainly that is the correct analysis if recent history is any indication, however it is not a new phenomenon.
In May of 2006 the Seattle PI pointed out, via Kevin Quinn, an economics professor atSt. Norbert College in Wisconsin who has studied the stadium-building phenomenon, that “Some sharpie thinks of another revenue stream that can be captured by the team and the next guy wants it, too. It’s a keeping up with the Joneses. I think of it as an arms race,” he said. “You have this leapfrogging one-upmanship that’s going on.”
In Orlando, the new building rises 15 stories and features a dramatic glass tower and an outdoor public balcony twice as big as its basketball court. Which is just wonderful for fans of Orlando, but there is no evidence that it actually helps teams win.
How can cities attempting to attract the next available NBA franchise ever hope to convince state legislatures for public financing, when state budgets are already overblown from the slumping economy? Pony up half a billion dollars for a team that does not exist? In Seattle where fans feel back-stabbed by David Stern and the NBA, it is an even more daunting challenge.
Going back and studying the stay of NBA teams since the league was formed in the 1940’s, simple math shows a league-wide average of only 10.5 years.
The lease the Sonics signed to get Key Arena built was an above-average 15 years, which Clay Bennett broke at 13 years.
The LA Clippers are in the middle of a six-year lease at Staples.
The length teams stay in arenas is disturbingly small, given the price tag of building new arenas.
Think of those numbers in comparison to the settlement Seattle’s Mayor Greg Nickels accepted to move the Sonics to Oklahoma City in terms of dollars. Nickels agreed to let the franchise leave Seattle two years early for $45 million, concerned that the city would be left paying that much in debt for Key Arena once the franchise left, with no certain revenue stream.
Forty-five million dollars divided by two years equals $22,500 per lease year.
Compare that to Orlando’s cost to build this new facility divided by 11 years, or the average length that NBA teams stay where they are, and that equals $43,636,364 million per lease year, assuming the average length of a lease for NBA teams stays constant to what history shows us they are.
The other new trend is for teams to own the Master Lease of the arena, which gives them revenue from events held that have nothing to do with basketball or the NBA. Which is great for the teams, but makes it even more difficult for communities that funded the arenas to find revenue to pay for the facilities.
It brings up questions of morality in terms of public economics and interest. Sports fans are a minority in nearly every city.
How can cities afford to spend this kind of money on a facility to host a franchise that most people do not care about? And what about the activities that others DO care about that are not sports-related?
Are cities supposed to spend half a billion on their hobbies, too? How many hobbies are cities supposed to build facilities for?
Add to that the tendency of franchise owners to break leases early, and it seems unlikely that cities can continue to fund these types of projects without far longer leases and more assurance from the NBA to honor those leases.
Especially when owners of these franchises have demonstrated, as they did in Seattle, that they can escape leases early by via smooth talking corporate lawyers.
Lawyers that frankly, are better than the lawyers cities can afford!
Read Phil’s latest article on this subject at: http://bleacherreport.com/articles/610697-time-for-a-competing-professional-basketball-league-in-north-america
Read part one – Seattle and The Ironic Message Sent By The NBA by Phil Caldwell October 5, 2010, at: http://bleacherreport.com/articles/483219-seattle-and-the-message-sent-by-the-nba-by-banning-key-arena
Read part three – NBA’s Financial Situation: David Stern‘s Conflicting Message About the Thunder http://bleacherreport.com/articles/510189-david-sterns-conflicting-message-about-the-thunder-nbas-finanical-situation