NOTE TO READER: Below is a letter from former County Supervisor, Gary Patton and current City of Santa Cruz resident. Patton calls the plan "a high risk venture" and is opposed to the City of Santa Cruz investment of 2/3 of our reserves in a for-profit professional basketball league as currently proposed. He has concluded that the deal will make money for the Seaside Company but not the City. Here is his letter in its entirety delivered and ignored by the Santa Cruz City Council with a 6-0 vote on Wednesday, September 12th. ---- Becky Johnson, Ed.
Gary Patton's letter can be found online here.
- The City would be investing more than $4.1 million dollars in the arena project (various staff and other costs have not been included in the $4.1 million dollar figure, which is thus a “low” figure with respect to actual city costs). The specific $4.1 million dollar investment has been characterized as a “loan” in various public statements made by City Council members, the City Manager, and others. In fact, the transaction is not really a “loan.” That can be seen most clearly from the fact that the so-called “loan” has a 15‑year amortization period, and yet the facility that the “loan” is helping to construct is temporary, and is slated to be removed after seven years. If there is a remaining outstanding balance after seven years (which there is almost certain to be, since the payments are intended to pay off the “loan” in fifteen years, not seven years), then the City and the Warriors will “split” the outstanding balance due. This transaction results in a “contribution” to the Warriors, not a “loan” to the Warriors. Moreover, the Warriors in a certain sense have an inducement to maximize the amount owing at the end of the seven year period, since the bigger that number, the more the city’s payment will be, and the less the Warriors will have had to pay.
- Not having seen the actual documents, it’s hard to tell for sure, but it appears that the City does not even get an enforceable commitment by the Warriors to play their next seven seasons in Santa Cruz. If attendance isn’t what the Warriors had hoped (or maybe if some other city gives them another good deal), it appears that the Warriors will be able to walk away. There will be some security, but it’s not 100% security. Again, a genuine “loan” of the city’s financial reserves should only be made if there is true security that is intended to guarantee the return of the loaned amount.
- Since the city’s contribution is not a “loan,” what is it? In fact, it appears that the city’s investment is a contribution to a kind of joint venture with the Warriors (and not the “real” Warriors, either, but a “shell corporation” using that name, which has no assets of its own). To be clear about it, the recommendation before the Council is that the City of Santa Cruz should go into the basketball and arena business.
- Let’s examine the “basketball business” first. It appears that the city, not the Warriors, is taking the big risk in that business, as this deal is structured. If the Santa Cruz Warriors don’t make money in Santa Cruz (i.e., if basketball in Santa Cruz isn’t the great draw that people hope it might be), the Warriors can move on. But the City of Santa Cruz is left holding the bag for the facility, since the city is the owner, and the value of that asset will be much diminished without a team. In addition, of course, the city will also have a so-called “loan” that will never be repaid in full.
- Assuming that things go well with the basketball business, what does that mean? Has the city reviewed any survey of D-League basketball team attendance/revenue, so that the city can gauge what sort of revenue and attendance might be generated at the proposed facility? It’s not mentioned in the materials available to the public on this agenda. There ought to be such a survey, before the city makes a commitment.
- The proposed location of the arena doesn’t lead me to believe that this is going to be a natural “winner” as a place for a successful arena business. Building a 2,800-seat arena on the fringes of the downtown commercial area, with no adjacent parking, is quite problematic. Those who want to come to the game will first have to locate the facility, and then will have to scout all over downtown for a parking space, and then will have to walk to the arena. This isn’t an automatic game plan for a booming attendance. It could be raining. It could be dark and cold. The Front Street/Spruce Street area in which the arena is proposed is not a great area in which to be walking around during the evening, or at night, and especially not when it’s cold and dark. When there is no parking provided, it makes it really hard to think that this is going to be a great success. Oh, and don’t forget the parking tickets that at least some fans will inevitably get if they do find parking at downtown meters. That’s revenue for the city, of course, but when a fan gets a parking ticket after having had a hard time finding a spot in the first place, that may be the last time that that particular fan ever drives to Santa Cruz for a Warriors game.
- Has there been a survey to see whether there is any D-League basketball team that has ever had success with a 2,800-seat basketball arena when there is no adjacent parking? There ought to be such a survey before the city makes a commitment.
- Now let’s look at the “arena” business. It seems clear that if the city is ever going to break even on this proposed deal (much less make money), the city is going to have to rent out the arena facility when the Warriors aren’t using it. The Warriors are only going to be using the arena from November to April, so during the spring and summer, the city is going to have to find alternative users. If the city isn’t successful in finding other users, it’s pretty clear that the city won’t get its so‑called “loan” back.
- The Council should take a long pause before it puts the city in the position of running an “arena business.” Here are some things to think about:
- Here a few other concerns about the financial and business aspects of the proposal, to the extent that a member of the public can understand that proposal without having access to the actual legal agreements which the Council will apparently be approving:
Yours truly,Gary A. PattonGary A. Patton
cc: City Manager