THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Thursday, January 2, 1997 TAG: 9701020174
SECTION: SPORTS PAGE: C1 EDITION: FINAL
SOURCE: BY DAN CHAPMAN AND AMES ALEXANDER, CHARLOTTE OBSERVER
DATELINE: CHARLOTTE LENGTH: 147 lines
CHARLOTTE COLISEUM WHICH OPENED IN 1988.
$58 million.
That's what Charlotte taxpayers are being asked to contribute to make a downtown Charlotte arena and entertainment district come true.
``Where'd they come up with that $58 million?'' wondered C.C. Cameron, who chairs a committee helping Charlotte City Council members weigh arena-financing proposals. ``That's one of the things we're going to learn.''
In extensive interviews the past few weeks with NationsBank executives, city officials and others, and after analyzing various financial proposals, a clearer picture emerges of how uptown backers came up with the $58 million figure and how they suggest taxpayers raise that amount.
George Shinn, owner of the Charlotte Hornets of the NBA, insists that a new arena is needed to keep his team competitive - and perhaps to keep it in Charlotte. The Hornets now play in the 24,000-seat Charlotte Coliseum, which opened in 1988 but is located on the outskirts of town and has limited luxury suites.
While proponents have outlined a plan for a far-reaching entertainment district including a baseball stadium, officials are focused on the heart of the plan: the construction of a basketball arena and adjoining entertainment/retail complex. The cost: $192 million.
The Hornets say they'll cover $109 million of that amount, raising $59 million from the up-front sale of luxury suites, club seats, concessions, naming rights and other money-makers. About $6.5 million would come from Shinn's pocket.
The team would also borrow $50 million, most likely from NationsBank or First Union, to be repaid within 15 years, according to a NationsBank official.
And uptown businesses would pay $25 million.
That leaves $58 million.
Why can't the Hornets or private businesses spend more?
Because it doesn't make good financial sense for either Shinn or private backers to kick in any more money, says Ed Brown, a NationsBank executive and architect of the financing plan.
Brown adds that because the city and its taxpayers could benefit greatly from the new building, they shouldn't expect a free ride. And if Shinn doesn't get a new, big-bucks-generating arena, Brown warns, the Hornets might be forced to move.
``Take a look at who benefits from the arena,'' Brown said. ``The biggest beneficiaries are the Hornets and the Hornets' fans. (And) the city's economy will significantly benefit.''
For Brown, every calculation starts - and ends - with keeping the Hornets in Charlotte and finding ways to ensure that the deal is financially tenable for Shinn.
Brown said the driving force determining how much Shinn and the Hornets can pay for a coliseum is the NBA salary cap, which is expected to rise from $24.3 million a year today to $33 million in 2000.
Shinn wants a new arena to pay those salaries and field a competitive team. And Brown said a new arena, with more luxury suites and some higher-priced seats, would bring in enough money to cover those salaries as well as $5 million to $7 million in annual mortgage payments on the arena.
That would leave little wiggle room if, for example, Shinn doesn't get the expected $59 million from naming rights, luxury suites or other premium items, Brown said.
Brown was asked if Shinn has the financial wherewithal to dig deeper into his pockets.
``My assumption would be that (Shinn) can put in more money, but as a businessman he has to leave himself in a position to step up to the plate to cover shortfalls if they arise,'' Brown said. ``He could put $100 million in debt into the arena, but the Hornets would not generate the cash flow needed to cover the debt.''
The city would own the arena. Shinn would make nominal lease payments while avoiding huge property taxes. And he would largely control the arena's bookings.
Brown insists that taxpayers would not be liable for any shortfall. If Shinn is unable to meet his financial obligations, the banks would cover the loans, Brown said.
With Shinn and Brown refusing to divulge the Hornets' financial worth, it's difficult to determine if Shinn could put more money into the project.
According to Financial World magazine, the Hornets appear to be making above-average revenues.
During the 1995 season, the team's operating income - its profits before taxes or interest payments - was estimated at $15.7 million. That exceeded the league average of $14.7 million.
And if Shinn can't cover more of the arena's costs, City Council member Don Reid and other critics of the proposal want to know why private investors can't come up with the cash.
``This venture is a private matter between George Shinn, his financial advisers and uptown arena backers,'' Reid said. ``The public should not be asked for one nickel other than for the normal infrastructure costs like water and sewer and roads.''
The corporate community, led by NationsBank and First Union, is contributing $25 million - or 13 percent - of the $192 million project, but only if the entertainment district is built. The financing plan calls for no private money to be used to build the $155 million arena.
Brown says uptown backers ``took a long look'' at chipping in any money for the arena. But it didn't make financial sense, he concluded.
``That would be a contribution, not an investment because it's owned by the city,'' Brown said. ``Charlotte does not have the corporate community needed to generate the $58 million (needed) to replace the city's investment in this project.''
Brown said Charlotte's corporate community will, in essence, pay millions of additional dollars with the purchase of luxury suites, club seats, advertising and, possibly, naming rights. The private sector's 13 percent stake would lead to ``a marginally acceptable return'' on their investment, Brown said.
Arena backers, known as 24 Uptown Partners, propose that most of the public money come from people who go to sporting events or rent cars.
City officials voted not to raise property taxes to cover the project's costs. So, taxing fans of the Hornets and the Checkers of the East Coast Hockey League is a way to raise most of the public money, according to the proposal.
Starting next July, the so-called Athletic Facility User Fee would add 5 percent - or as much as $2.50 - per ticket to events at the Coliseum and Independence Arena, where the Checkers play. Ericsson Stadium, where the NFL's Carolina Panthers play, would be included in February 1998.
Uptown backers say a seat tax, which must be approved by the General Assembly, could raise $3 million a year.
Taxing folks who rent cars could raise an additional $2 million a year, according to uptown boosters. Brown also suggests that the city raise the 12 percent tax out-of-towners pay when staying at Charlotte hotels and motels.
But Mohammad Jenatian says no. As executive vice president of the Greater Charlotte Hospitality and Tourism Alliance, Jenatian says his group ``absolutely, positively'' opposes increasing hotel/motel taxes.
Brown says the public money is a prudent investment. A study commissioned by uptown backers concludes that at least 2,000 jobs and tens of millions of dollars in new taxes, sales and salaries would be created by the investment.
Charlotte, Brown says, would never be the same.
``We are at a crossroads,'' he said. ``We have the greatest opportunity to differentiate our city from all others. . . . Maintaining our professional sports franchises is critical to that.'' ILLUSTRATION: Color photo
George Shinn
Graphic
Shinn's plans for Charlotte
Total arena cost: $192 million
From uptown Businesses: $25 million
From the team: $109 million
From Taxpayers: $58 million
KEYWORDS: CHARLOTTE ARENA FINANCING GEORGE SHINN