SEATTLE - Once touted as a "win-win" benchmark in professional sports financing, the deal between Seattle and its NBA franchise has collapsed into a sea of red ink for both parties in less than 10 years.

A report on KeyArena shows that the Sonics' sagging attendance over the past four years has cost the city more than $3.4 million, which had to be taken from other city funds to repay bonds on construction. The city is projected to be $2.8 million short on the bond debt service for 2004.

KeyArena lost $2.2 million in 2002, $1.4 million in 2003 and is projected to lose $1.7 million this year, according to the report, by Dwight Dively, director of the city's Department of Finance.

The Sonics contend that they, too, are losing millions.

The city's oldest major professional sports franchise has approached the city about renegotiating its $800,000 annual lease, which runs through 2010, as well as possibly financing additional improvements to KeyArena. NBA Commissioner David Stern will speak to civic leaders today on behalf of the Sonics.

"I think it's accurate to say that from the city's perspective and the Sonics' perspective, the basic business assumptions at the Key aren't working for either one of us right now," said Deputy Mayor Tim Ceis.

The talks come at a time when Seattle Center, which owns and operates KeyArena, is $9.4 million in debt, forcing more than 50 positions to go unfilled.

At the same time, cash-strapped Seattle Opera and Pacific Northwest Ballet have been forced to ask the city for help to cover the steep interest payment coming due on McCaw Hall. The City Council's budget committee voted Wednesday to split the payment, even though Mayor Greg Nickels has pledged that no general fund money would be used to pay the debt.

The Sonics would like KeyArena to be remodeled, providing more space to generate revenue. Asked whether there was support for spending more public money on another pro sports venue in Seattle, Councilman Nick Licata said, "Well, God, I hope it's zero. I'll certainly do my part to push it in that direction."

Deeper in debt
The former Seattle Coliseum was remodeled before the 1995-96 NBA season using $73.4 million in city-backed bonds. But a continuing decline in suite and premier "club seat" sales, coupled with non-playoff seasons and a decline in attendance, is reducing revenue used to pay off the construction bonds.

The city report shows that suite sales -- revenue directly used to help retire the bonds -- have declined from a high of $4.3 million in 1997 to an all-time low forecast of $1.8 million this season. As of this week, the Sonics have leased 22 of their 53 suites. Club seat sales, also used to help retire the city's debt, have plunged from $3 million in 1996 to an estimated $849,000 this year.

The Finance Department's Dively said KeyArena has been costing the city money since 2001, although the deal with the Sonics' parent company had been successful before that, especially when the team was an annual playoff contender and went to the NBA Finals in 1995-96.

From 1996 to 2000, the arrangement had no trouble covering KeyArena debt, and actually generated annual revenue to the city of between $1.4 million and $2.8 million. But over the next four years, the team failed to advance beyond the first round of the playoffs, missing out entirely in 1998-99, 2000-01, 2002-03 and last season.

The city has known about the impending financial crisis since at least 2000, when a similar report warned: "The rent paid by the Sonics does not cover the city's expenses. KeyArena's cleaning, admissions and security expenses are greater than the $19,500 in rent paid by the Sonics per game."

Now, in its most recent report, the city proposes a "financial recovery plan intended to eliminate the Center's operating deficit by the end of 2010." Coincidentally, that's the year the Sonics' lease runs out, four years before the bonds are to be retired.

"I don't know what they were originally thinking back in 1994 when they didn't have the lease concurrent with the debt service," Ceis said.

But a key element of the recovery plan is the same solution that got the city in trouble in the first place: "Improved Sonics team performance in the period of 2004-2006."

Sonics officials, however, contend that even if every ticket and suite in the building were sold, the financial troubles would still exist.

"The issue that both the city and our organization is grappling with is that this was a deal made in good faith over a decade ago. It made sense at the time, and now it doesn't," said Wally Walker, president and CEO of The Basketball Club of Seattle, which owns the Sonics and WNBA Seattle Storm. "So we're looking for a solution and working cooperatively with the city."

Walker calls any discussion with the city preliminary, but primary owner and club Chairman Howard Schultz started the season by declaring that his ownership group had lost "tens of millions" since buying the franchise from The Ackerley Group in the spring of 2001.

"No, we will not make a profit," Schultz said. "I'm not going to give you a forecast, but we will not make money next year. If we sold out (every game), we wouldn't make money next year."

From suite to sour
The downturn in fortunes for the team and the city began to show up with the downturn in the local economy, coinciding with the openings of Safeco Field and Qwest Field, which both drained away a large part of the luxury suite market, club seats and corporate dollars.

"It was a combination of all those factors," Dively said. "Until then, they had the only product of that type in town, they had a strong team and a newly remodeled facility."

Walker doesn't dispute the assessment, but says the team could be taking in more money from things such as improved concessions, better parking facilities and changes intended to improve the overall fan experience around the building.

"The landscape has changed a great deal in the last decade," he said.

Since KeyArena opened, Walker notes, more than 200 other suites are now on the market at the new stadiums built for the Mariners and the Seahawks.

Discussions have just begun about ways to change the deal to benefit both sides, but there appears to be little mood at the City Council level to make any major concessions or even talk about financing another remodeling until the current financial problems are solved.

Councilman David Della, chairman of the Parks, Neighborhoods & Education Committee, which oversees Seattle Center, has sympathy for the plight of the team but not for any plans to use public money to rebuild the facility again.

"We built the KeyArena around the Sonics, and they just happen to not be doing as well as we would like them to," Della said.

Ceis, a veteran of the politics surrounding the construction of Safeco and Qwest fields, understands that the economic climate has changed for the team, with an overbuilt suite market now in Seattle professional sports.

"That's put a big hole in the finances at the Key, as well as declining attendance has put a big hole in it," Ceis said. "Up until 2000, it was performing right at the mark or a little above the mark to pay off the bonds. The financial plan was working, and then all of a sudden it tanked."

He noted that the original deal was put together to give owner Barry Ackerley a state-of-the-art basketball arena without forcing the company to use private funds to finance construction. As a result, the Sonics don't get to keep all the revenue generated from fans in the building.

"In exchange for the building, he signed very favorable lease terms for the city, giving us revenue streams, lease arrangements for suites, parking and those kind of things," Ceis said.

"For Ackerley, he got a new facility without any investment by giving up revenue streams that normally would have gone to the team, to help us pay off the debt service. That worked for him, and it worked for a while, as long as the team was performing at a high enough level to draw fans."

Ceis also pointed out that the Schultz-Walker ownership group bought the team for $200 million, while Ackerley bought the team in 1983 for $22 million in combined cash and other compensations. Since then, NBA salaries and expenses have continued to go up, making the Sonics' business model even more troubling under the current arrangement.

"Now, it's not looking so good for them," Ceis said. "And from the city's perspective, what was producing $7 million a year to go toward retiring the debt at the Key is now down to $4 million a year. We're picking up that balance and that's not a good deal for us."

Another remodeling?
While Walker said the Sonics would like to retain the basic strengths of the building, the shell of which remains from the Coliseum built for the 1962 World's Fair, he contends that the team has just about half the square footage of most of the other newer NBA arenas.

"What that means is fewer points of sale and revenue opportunities," he said. "We want people to feel good about staying here for a while and spending their hard-earned dollars on us."

The Sonics have hired a consultant to look at ways of opening up the concourses and other modifications that could create areas to generate more revenue as well as cater to fans and larger groups. The discussions have only begun with the city, and Walker said they would proceed behind the scenes until some sort of plan can be agreed on "that will make sense for everybody."

"We want to have a competitive situation so we can invest back in the product," Walker said. "The current deal, because of finances, just puts us at a competitive disadvantage."

With Stern coming to town to make the case, the Sonics hope to find some sympathetic ears.

"I think the city is sympathetic of our situation," Schultz said. "We're in a very non-competitive situation with the other NBA teams in terms of how we share revenue. It's very challenging. And I'm not looking for sympathy. We got into this because we believe in it, but we're still losing a tremendous amount of money."

Ceis, who plans to listen to Stern and possibly meet directly with him today, is sympathetic to the problem, but he is blunt about any talk of using public money to pay for renovations at a time the city already is struggling to slash its budget at all levels.

"It all takes money, and the city doesn't have the money to do that," Ceis said. "We don't have the money to look at an expansion at this time."

Councilman Licata pointed out that the city cut its budget by more than $100 million in the past three years: "We're facing major bills to maintain our roads, to keep our libraries open and to maintain our police force. There aren't spare dollars to subsidize our professional sports teams."

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