Negotiating a Hornets nest: TWC Arena update costs whittled to $29.9 million

Photo illustration by Ryan O’Shea

CHARLOTTE – Assistant City Manager Ron Kimble was smiling as he told the City Council Monday night that negotiations with the Hornets basketball franchise had trimmed a request for $47.8 million in renovations to the city-owned Time Warner Cable Arena down to $29.9 million.

And, he said, the city would pay only $27.5 million of that, meaning that the city’s portion – which needs City Council approval on Sept. 8 to be a done deal – is 43 percent less than what the Hornets originally wanted the city pay to update the facility the NBA franchise has occupied rent-free for nine years.

But freshman District 7 Republican Ed Driggs, who describes himself as the council’s most fiscally conservative member, did not smile when he said he was “not happy with the whole contract” the city signed with the franchise that was then named the Bobcats, just before the $267 million arena opened in 2005.

The Charlotte Bobcats formed in 2004 – two years after the original Hornets franchise moved to New Orleans – and played its first season in the Charlotte Coliseum on Tyvola Road while Time Warner Cable Arena was being built uptown. The franchise remained the same, but the team changed its name to the Hornets, effective in May, after the New Orleans team was rechristened the Pelicans.

Driggs reminded the council that while no new taxes would be involved, the project would still involve the city borrowing against future tax revenues, which would bring the city “dangerously close” to its debt ceiling if the council votes to approve the draft deal on Sept. 8.

But after Monday night’s information-only dinner meeting – which is usually devoid of journalists but was packed with TV cameras for the arena discussion – Driggs said in an interview that he believed the negotiating team did about the best job it could given the city’s legal commitments in the contract signed with the franchise.

“It was a tough negotiation, and I give city staff credit for whittling it down and staying within the constraints” of the deal, Driggs said.

“It was tough to make sure the city did what was legally required,” to make sure the negotiating parties didn’t wind up being litigating parties fighting over contractual obligations. “Nobody wanted to (have a judge enforce the contract) line by line in the courts.”

The improvements – which under the negotiated deal would be spread out over four years to try to keep them on-budget – would include adding 600 seats to the arena’s lower section; repairing and upgrading flooring; modernizing the building’s 50 restrooms; adding more restaurant choices; adding high-definition screens to the scoreboard; upgrading the arena’s 500 television screens; renovating the arena’s 67 suites; and refurbishing the locker rooms, with special attention to the home-team locker room.

Because the home-team locker room and suite renovations were among the most potentially hot buttons because they are the most likely to look like unnecessary luxuries, Driggs said he was particularly happy to see they would be paid for by the Hornets organization, to the tune of $2.4 million. The Hornets, Kimble told the council, had already kicked in $6.69 million in improvements to the arena over the first nine years of its existence.

The city and the Hornets also saved $6.69 million through improvements made by partnering with other entities, including upgrades to digital cable, Wi-Fi, cellular coverage, wired-telephone technology and digital menu boards at food service outlets.

Driggs said he also believes the scoreboard improvements, which would cost nearly $8 million, are also a politically questionable use of “the public’s money.”

The contract between the city and the Hornets – which also calls for the Charlotte Regional Visitors Authority to operate the “back of house” operations, which essentially means keep the place up and running – gives the proceeds of all events, including rock concerts and Ice Capades shows, to the Hornets.

And it requires the city, every seven years, to pay for prescribed renovations and updates. Those prescriptions mandate that the city:

*Keep the arena legal, complying with the federal Americans with Disabilities Act and other laws.

*Maintain it at NBA standards, as measured by other teams’ arenas: If 50 percent of the franchises have an improvement, the Hornets can ask the city to make those improvements.

*Pay for capital repairs, defects, damage, wear and tear, and obsolescence, items sometimes so ambiguous that “this is where the conversation is liveliest,” according to Kimble.

Kimble credited the team for waiting two years beyond the seven-year limit to come to the city with its $47.8 million request, which was made in March and triggered the negotiations.

In addition to the $27.5 million share the city would pay and $2.4 million from the Hornets, the negotiators also agreed to increase the amounts they each would contribute to an annual capital fund.

The city and the team agreed in 2005 to give $250,000 a year each to the fund, with increases of 5 percent each year up to a maximum of $500,000. This year those contributions are $364,000 each.

The negotiated deal would keep those commitments but each side would also contribute $600,000 a year for 10 years to the pay-as-you-go fund. The first four years of the Hornets’ contribution would go toward the home-team locker room and suite renovations.

To pay for the city’s $27.5 million part of the renovations, Kimble said his staff recommended it come – spread out over five years – from the city’s rental car tax.

The $6 million the city could pay over 10 years into the capital fund would come from the city’s hotel-motel, or occupancy, tax and from the rental car tax.

Kimble said he disagreed with Driggs’ assessment of the city’s contract with the Hornets, pointing out that a University of South Carolina study indicates that the arena has a $263 million economic impact, based only on out-of-towners’ spending and excluding local dollars that would have been spent in the city anyway.

The study concluded that the arena generated $38.8 million in federal, state and local tax revenues in 2013.

But Driggs pointed out that the study specified that only $12 million of those revenues were state and local. And, he said, the study didn’t separate out the state from the local taxes, meaning the city of Charlotte’s portion of the tax revenues remained an unknown quantity.

“Up against the $267 million the arena originally cost, what we’ve been paying, what we’re being asked to pay now, and – in particular – the lost revenue from not collecting rent or sharing in the revenues realized by the operation of the arena, the arena does not come close to paying for itself.”