Warriors, Coliseum JPA dispute arena debt

It just keeps happening this week. Shortly after the flareup regarding the A’s and JPA’s dueling 10-year lease offers, the Warriors get into their own little fracas with the JPA. After the team announced their Mission Bay arena plans, they were also asked what would happen to the current Oracle Arena, which will have its debt retired in 2027, nine years after the W’s plan to leave. Through team spokesperson Raymond Ritter, the team denies it has any additional obligation to pay off the arena after the team leaves. The JPA countered that the team is fully obligated to pay off the full remaining debt, even if they leave after the 2017 season.

Just as with the “A’s owe back rent” allegation, I figured it was best to look through some documents to figure out the truth. It’s pretty simple:

From the arena bond filing

From the arena bond filing

In case you don’t want to read all of that, the language from the MoU is:

“After June 30, 2007, the Warriors may terminate the license by paying the Authority a termination payment in an amount sufficient to retire all of the then outstanding Bonds, as well as other debts associated with the Arena Project.”

It’s highly unlikely that concert revenue or other non-game receipts will make up the difference in the meantime, so chances are that the W’s will be liable for $61 million. Here’s the payment schedule for the remaining arena and stadium debt:

schedule

Arena and Stadium bond payment schedules

And that’s that.

22 thoughts on “Warriors, Coliseum JPA dispute arena debt

  1. The way I read it the agreement is for 20 years, they can extend but the license is for 20 years… they can terminate the agreement after 2007 and pay the bonds but if the stick it out through 2016 they’re off the hook. I don’t see anything that the Warriors are obligated to extend the additional 10 years otherwise why not make it a 30 year license with an escape clause if they repay the bonds.

  2. So when are the Frisco-East Bay media going to hate on Lacob the way they hate on Wolff? Oh, that’s right – Lacob wants to move the team within the boundaries of the East Bay-Frisco family. Wolff wants to do the unforgivable and move to San Jose. Big difference…Sounds like the Warriors are going to have to pay this money…

  3. @pjk I agree with you, I also think the JPA. May have the upper hand on this one, but the Warriors want to get to San Francisco so bad (out of Oakland), they may consider the 61 million the cost of doing business in the end.

  4. Not sure how you’re getting that they’d owe anything. It says that, starting for the 1997-98 season, they have a 20 year license to play at the arena. However, after 10 years (in 2007) they may terminate the license, but then they have to pay off the debt. I don’t see anything in the wording that says they are responsible for debt after the original 20 year license is up, which it will be after the 2017-18 season.

  5. Ezra, I’d guess the question is what happens if they don’t take that out in 2007. If they stay, it may still obligate them to pay it off. Without digging into it, 2017 may just be another one of those out clauses that still require the debt to be paid off.

  6. Not a lawyer but it does say ALL outstanding bonds.

  7. Agreement entered in 1996 for a 20 year license. That ends in 2016. After 2007, if the Warriors want out of a 5-year extension, they must repay the debt.

    The way I read it, are the Warriors trying to get out of a 5-year extension? If not, the JPA (Oakland taxpayers) is (are) screwed.

  8. The claim from the Coliseum Authority is that Warriors are on the hook for payments until the year 2027. When you read the comments from people like Chris Dobbins who basically said he hopes enough public pressure can be put on the Warriors so that they will do what’s best for the taxpayers and agree to pay down the debt – that doesn’t sound like someone who is confident they’ll get the money.

    BTW, at today’s Coliseum City meeting developers were talking up their desire of a new arena. Unless I misunderstood, it sounded like they wanted to consider a new arena even without the Warriors. As much as the developers and politicos don’t want too, I wish more time was devoted publicly to issues such as this one since outstanding debt could/would greatly affect any development no matter how big (or small) on the Coliseum site.

  9. I should add this may come down to the definition of “terminates”. Perhaps? As ML pointed in the post, the arena debt was to be retired in 2027. Here’s the lease language on that from sfgate about that date:

    “if the licensee terminates this … agreement for any reason prior to June 30, 2027, and there is a principal balance remaining on the project debt … then licensee shall pay an amount equal to the excess of scheduled debt service.”

  10. This Donald Sterling thing leaves a real bad taste in my mouth. What’s up with these rich old white guys who think they are the Kings of Sport?

    If I were Wolfe, Fisher, Lacob, Silver, Selig, I’d start backpedaling, fast. Swim for distance. This bomb is blowing up.

  11. My reading is there is an initial term of twenty (20) years. The W’s have the option to extend the initial term four (4) times for five (5) years each. During the initial twenty (20) term or during one of the five (5) year options, the W’s can TERMINATE by paying off the outstanding debt. The term will EXPIRE at the end of the twenty (20) years and at the end of each five (5) year extension option (unless another option is exercised). Major difference between terminate and expire…

    Unless there is some other language in the agreement talking about exercising the options or payoff, technically the W’s can walk free when the initial twenty (20) year term expires.

  12. Time for the NBA to take control of the Clippers and force Sterling to sell, similar to what happened to Marge Schott. Please don’t paint all owners with the same brush as Sterling. The guy is a zero.

  13. Freddy, your use of false equivalence is disturbing. And you’re not the only one using it either. I saw someone else on SFGate backhandedly accuse Wolff of racism just because Sterling is a piece of shit human being. Not all old guys are racist dicks. In fact most aren’t. Sterling is his own level of douchebag.

  14. Macdamike, that’s my reading of it too. The lease expires and their obligations on the debt expire with it. Which makes sense.

  15. Some of you seem to be tying the debt service to the lease options (license agreement). I think this is mistaken. 20 lease years brings the W’s to the 2016-17 season. Up to four 5-year options can be exercised after that point. The early lease termination could’ve triggered starting after the 2006-07 season, ten years in. To me that reads more like a poison pill than an easy out for the W’s. No language after that indicates that they’re not obligated after a certain point. Plus, note that the deal splits things into two payments: rent at $1.5 million, and premium seating revenue at $7.4 million. If anything, terminating the lease indicates that the W’s would rid themselves of the rent obligation, but they’d still be on the hook for debt service.

  16. @ML – no doubt that the debt payment upon termination is supposed to be a poison pill. Point is, however, that the language quoted above specifies only two conditions under which the W’s are responsible for paying the debt – W’s terminate or the license term continues (and W’s extend license options), in which case $ from premium seating pays the debt. Neither situation applies if the W’s simply let the term expire.

    Of course, this all changes if there is other language in the license addressing the debt…

  17. As a first observation, the excerpt above appears to be taken from a secondary source (i.e. the bond filing) rather than the actual governing agreement. It’s not entirely clear to me whether it’s a verbatim excerpt or merely a summary. It also seems quite possible there are other provisions in the License Agreement and/or other relevant agreements that could factor in (e.g. a clause stating which provisions survive expiration or termination of the agreement). A definitive analysis is not possible without seeing the full document set.

    Having said that, based just on what’s in front of us I would tend to agree with Macdamike’s analysis. There’s a difference between affirmatively terminating an agreement vs. allowing it to expire by declining to exercise an option. Other than the provision stating the Warriors can terminate the license after 2007 by paying off the bond (which on its face would not be triggered by simply allowing the license to lapse), I don’t see any language in the provision excerpted above which specifically says the Warriors will pay off the debt.

    The excerpt says the Authority “will receive” certain monies from premium seat revenue “up to” $7.4 million that can be used to retire debt service. However, it doesn’t say that the Warriors guarantee or are responsible for that revenue stream nor that it will definitely materialize. In fact, the phrase “up to” seems to suggest the Authority will get a certain cut of whatever premium seat revenue comes in, but not that any specific amount is guaranteed or that the Warriors would necessarily be the ones generating that revenue (as opposed to other tenants).

  18. After reading this I am in agreement the Warriors are off the hook after the 2016-2017 season.

    The lease reads the Warriors initial license is for 20 years until 2017 with 4 options of 5 years running until 2037.

    Therefore it is inferred the Warriors are only on the hook for any debt service until the end of the current option. That option they exercised in 2012 runs until 2017.

    Here is the kicker, it says after June 2007 the Warriors can terminate their license when it says clearly the initial license is for 20 years. Very vague by the JPA and this is the core of the argument.

    The “poison pill” only applies if they leave before the initial 20 year license that ends in 2017 or the difference between years remaining, 5 years or 10 years in this case.

    Had the Warriors terminated the license in 2007 for example they would have owed 10 years of debt service, if they did it 2012 then they owed 5 years of debt service. Essentially the difference in years until 2017 or when the original license expires.

    The Warriors did not exercise any of these 5 year options yet. They cannot until the original license expires in 2017.

    Hence why the JPA hedged their bets just in case they left to SF or SJ so that they were protected for the 20 year term and any debt service over that 20 year period.

    Had the JPA written after “June 2017″ if the Warriors choose to terminate the license then they would be on the hook until 2027 to pay the remaining debt.

    JPA is not known for being “smart” with these kind of things. They were desperate to keep the Warriors from San Jose at that time.

    After how they shit on the A’s letting the Raiders come back it would not surprise to me see them lose on this.

  19. Correction- *

    Therefore it is inferred the Warriors are only on the hook for any debt service until the end of the current option. That option they exercised in 2012 runs until 2017.

    They did NOT exercise an option in 2007 or 2012, they simply did not “OPT OUT” and terminate early and pay the debt service until 2017.

    My apologies

  20. Something else that is glaring:

    The Warriors have been paying 7.6M per year to retire debt service. If you look at the schedule above in 2014 the debt service is 4.9M.

    That means the JPA instead of clearing more debt on the bonds they are pocketing the difference.

    My thinking is it is 1.5M (rent) plus 7.4M (Premium Seating)according the document above is 8.9M max per year and maybe more depending on the language.

    Wow….JPA is getting a sweet deal, I cannot believe Cohan agreed to this. Even until 2017 the JPA is raking in the dough…

  21. I’m a corporate lawyer for a living, and I agree with the others who say the Warriors are NOT on the hook for the debt.

    But there may be other documents that govern this.

    If this is in fact the definitive legal agreement (an MOU is often the interim step before a longer more detailed agreement), then this is really horrible drafting and bad lawyering.

  22. But I agree with Bartleby that this looks more like a disclosure document summarizing the terms than the actual legal agreement.

    For JPA’s sake, I hope he’s right.

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