Santa Ana, Anaheim’s Big ‘If’ : Without Pro Team, Arena Could Be White Elephant

Anaheim and Santa Ana, Orange County’s two largest cities and historical competitors for center stage in this inchoate sprawl of 2.3 million people, are at it again. This time, each wants to put a glamorous new sports arena in its back yard to lure a basketball or hockey franchise.

Santa Ana last week announced plans for a $75-million sports arena, creating a race with Anaheim, which is almost a year into efforts to build an $85-million arena for some team to call home. And that’s the catch.

Neither the National Hockey League nor the National Basketball Assn. expect to expand in the near future, and owners in both leagues say they don’t know anyone who plans to sell. So if the pros won’t play ball, Anaheim and Santa Ana may find themselves with municipal white elephants trying to survive on trade shows and tractor pulls.

Officials of both cities say the primary gamblers in the race are private developers, not the cities or their taxpayers. But Anaheim already has offered the county $8 million in city funds for an arena site.

“When you talk about how much these facilities cost, it’s a lot of money not to make big money,” said Owen Beisch, an executive of Laventhol & Horwath, a national accounting firm and a consultant on sports arenas and convention centers. “Without a team, you’re somewhere between acceptable and a marginal rate of return.”

Franchises, he said, “are the difference between money and big money.”

Although the NHL will consider expansion at its board of governors meeting in December, “we can’t say how soon, how much or where,” league spokesman Gerry Helper said Friday.

To his knowledge, no one had even contacted the NHL about bringing a team to Orange County, Helper said. And any franchise wooed to Orange County probably would require the approval of Los Angeles Kings owner Bruce McNall, he said.

The Kings, the only surviving NHL Sunbelt team, have struggled for almost 20 years and only now are beginning to prosper with the addition of superstar Wayne Gretzky, said Steve Nesenblatt, a Kings vice president.

Support Predicted

“If we don’t want a franchise in Orange County, I think the other owners would respect that,” Nesenblatt said. But down the road, under the right circumstances and at the right time, the Kings could support a nearby team, Nesenblatt added. “A cross-town rivalry would be great,” he said.

The expansion picture for Orange County is bleaker with the NBA. The league rejected Anaheim’s bid almost 3 years ago, in large part because no arena had been built. The NBA added two new teams this season and another two begin play next season. The league has no further expansion plans for a long time.

“I know the league is very excited about that area, but it’s going to be another 10 years,” said Pat Williams, general manager and vice president of the Orlando Magic in Florida, an expansion team starting next season.

“We are a hot property now and the rumors are going to fly,” said Brian McIntyre, director of public relations for the NBA in New York.

Still, many of the arguments for forging ahead with an arena even without a pro team signed to a lease are tempting. Orange County should be a natural market for big league sports, as the Angels and Rams have shown. Officials with the NBA and the NHL recognize these attractions.

Perfect Demographics

More than 5 million people live within an hour’s drive of either Santa Ana or Anaheim. Freeways crisscross the county, major airports are close and the population demographics--relatively young people with a lot of disposable income--are perfect. And both cities are in the nation’s second-largest media market, a potential major source of television and broadcasting income.

“We have all the right things to have an arena,” said Phillip R. Schwartze, senior vice president of Phillips Brandt Reddick, an Irvine land-planning company working on both arena proposals.

The county’s prospects attracted a joint venture last year of the Nederlander Organization and Ogden Allied Services, New York-based firms, to prepare Anaheim’s bid for an arena. The companies have national experience in sports, entertainment, food and arena construction.

They would finance and build the 21,000-seat arena, then deed it to Anaheim in return for a 30-year lease agreement. Revenues would be shared by the companies and the city, but exactly how has not been decided. The city would own the land and the arena.

In Santa Ana, Spectacor Management Group, a Philadelphia-based firm that oversees about 20 arenas around the country, would operate a 20,000-seat arena built on private land owned by the Santa Fe Pacific Realty Corp. How the arena would be financed, who would build it or how the city might become involved, has not been decided yet.

City Funds at Issue

The president of Spectacor, however, said last week that an arena probably could not be built without city money. Santa Ana Mayor Daniel H. Young said it is too early to tell if the city will help.

Some arenas in the United States make money without a sports franchise, but most of those were built with federal subsidies and little city money in the 1970s as part of urban redevelopment programs.

With or without a sports team, the economics of an arena typically requires that it be packed at least 170 days a year, financial experts say. Depending on how the construction is financed, it can take even more event-days just to pay off the building bonds.

“Maybe 250 to 300 events a year puts you there” at the point of profit, said Laventhol & Horwath executive Beisch.

Given these numbers, Santa Ana and Anaheim could find themselves homes to arenas running events every other day that turn a small profit at best or even lose money.

“Just because the facility has its lights on and is in use at night doesn’t mean it’s making money,” said Michael Gebauer, a former director of the Tacoma Dome in Washington state who has 18 years of experience running arenas. “You can find that the more events you do, the more you lose.”

A Critical Factor

Sports teams can be critical in such deals. An NBA franchise, for example, brings to an arena at least 40 event days a year with large crowds--even more if a team makes it to the playoffs. No other activity can guarantee that kind of annual draw.

“The franchise makes the money,” said Jim Ruth, Anaheim’s assistant city manager and lead negotiator with the people seeking to build that city’s arena. “Without the franchise, it’s almost a break-even deal. But no one’s going to invest $85 million on a break-even deal.”

Neil Papiano, the Los Angeles lawyer heading the Anaheim arena’s private venture, says he has had talks with several NHL and NBA teams about a move to Orange County. But he declines to name them.

One NBA team’s name became public after Los Angeles Clippers owner Donald K. Sterling revealed earlier this year that Papiano’s group had offered him $30 million to come south. But last week Sterling flatly ruled out any move.

Spectacor Vice President Don Webb refused to comment about whether any teams had been approached about a move to Santa Ana.

Moreover, in pursuing an NBA or NHL team, Anaheim and Santa Ana will be joining a crowded and determined throng of other U.S. cities, including San Diego. Some cities courting the pros already have arenas built. Milwaukee, which built a new arena that NHL spokesman Helper calls “beautiful,” has tried unsuccessfully for years to draw an NHL franchise.

Dangers Foreseen

Gambling on drawing a team in the future by building an arena first can be risky and expensive.

St. Petersburg, Fla., learned this lesson the hard way with its Florida Suncoast Dome. Hoping to bring major-league baseball to town, the city broke ground on a domed stadium in January, 1987. Hopes soared later that year when the Chicago White Sox, unhappy with their lease at Comiskey Park, talked about coming to St. Petersburg.

But by July, 1988, with the Illinois state legislature offering concessions to the Sox to keep them in Chicago, the team said “thank you” to St. Pete and stayed home.

Meanwhile, the cost of the Suncoast Dome jumped from $85 million to $100 million, it fell 6 months behind schedule, and it apparently will remain empty for some time to come. Boosters and taxpayers were burned. City tax dollars backed the bonds that were issued to pay for the dome.

Gebauer, the former director of the Tacoma Dome, says Orange County’s arena boosters may be mistaken in shaping their proposals around professional teams. Gebauer was a consultant in Orange County’s last bid to build an arena: Santa Ana’s Westdome project, killed in 1986 by neighborhood opposition.

Arenas make money by through parking fees, food and beverage sales, ticket sales and advertising rights within the facility, Gebauer said. With the right mix of concerts, trade shows, sports events and other local attractions, arenas can still be profitable, he said.

“The biggest mistake Westdome made was allowing everyone to zero in on whether or not it had an NBA team,” Gebauer said. “In reality, sports is not a moneymaker. You negotiate away an awful lot for a pro team. And they are more experienced negotiators than those on the public side, who often act on emotion and then give away the show.”