Arena Deals Breakable, Pacts Show

At the news conference called last week to demonstrate their trustworthiness, downtown sports arena developers incompletely described the circumstances under which the Lakers and Kings could terminate the contracts obligating them to play in the arena for 25 years--the period necessary to recoup a public investment.

L.A. Arena Co. Vice President John H. Semcken III told the news media that the contracts “demonstrate . . . that the teams are obligated to play in the arena for 25 years from the time it opens and that there are no outs that the teams can exercise to get out of this lease.”

However, an analysis of the contracts by the Los Angeles city attorney’s office, as well as a reading of redacted contracts made public at the briefing, shows that the teams have ways out, even after the arena opens, if the developer fails to perform as promised.

The developer is a company owned by Edward P. Roski Jr. and Philip Anschutz, who also own the Kings.

If the developer fails to live up to any of its obligations--ranging from paying teams a percentage of luxury box receipts and hot dog sales to providing janitorial services--the teams can terminate the agreement, the contracts state.

The teams also can leave if the developer declares bankruptcy or if the arena suffers extensive damages from earthquake, fire or riot or is crippled by an extended labor dispute, and cannot be repaired or otherwise resume business within two years.

Arena developers acknowledged Tuesday that they had not spoken about these possibilities for early termination but said they were not trying to mislead anyone. They said they considered the contracts’ remedies for natural disasters or breaches of duties owed by the developer to be too obvious to spotlight.

Kings President Tim Leiweke said at the news conference: “We’re here to make sure everyone understands there are no . . . loopholes in these documents that ultimately are going to create any risks whatsoever to the citizens of Los Angeles.” He said the teams have only five options to terminate their contracts, two of which have already passed.

The options kick in if the developer does not select a site within six years and develop plans within seven--both of which have been done--begin construction within eight years and open within 10. The developer also has to make certain payments to the teams until the arena opens. The first of those option payments has been made.

“If you review those five, those are the only five options that allow the parties to terminate this particular contract,” Leiweke told the media.

On Tuesday, Leiweke said he was “not trying to pull the wool over anybody’s eyes” but had distinguished between the teams’ options to walk away from the contracts and the remedies available to the teams if the arena operators breach their contracts. He said he considered those remedies “minutiae . . . that has to be put in any deal.”

David B. Rogers, a lawyer for the developers, said “that remedies would arise on a default [by the developer] is so obvious that I didn’t think it needed to be described at a press conference,” adding that some of the remedies were nonetheless described in a written summary of the contract that was made available to reporters.

Senior Assistant City Atty. Patricia Tubert, who has reviewed the contracts for the city and is preparing a report on her findings for the City Council, agreed that the remedies for breaches of contract are “common contract provisions. . . . But they are termination rights.”

Tubert’s findings that there are additional escape clauses are unlikely to derail negotiations to build the basketball and hockey arena near the Convention Center.

Similarly, they may have no impact on taxpayers, if the developers deliver on a public promise--also made last week--to guarantee to make up any shortfall in revenues needed to pay off the bonds.

But the findings provide a lift for City Councilman Joel Wachs’ arguments that he was being prudent--and not an obstructionist--when he insisted that developers make public the contracts and give an ironclad guarantee that no tax money would be in jeopardy.

Saying that Tubert had apprised him of some of her findings, Wachs said Tuesday that the developers’ statements at the news conference were part of “a pattern that has caused concern right along. They make bald statements that something is so, when it isn’t necessarily so.”

He said he was also troubled that Roski and Anschutz will own the arena as well as the Kings. “You have developers signing deals with themselves,” he said. “It’s always easier for people to break deals with themselves.”

The developers’ lawyer, Rogers, noted that arena mortgage holders will have a stake in the arena’s success and will have the opportunity to repair contractual breaches by the developer.

Wachs, who has emerged as the arena deal’s chief critic, announced plans last week to launch an initiative drive that would require stadiums relying on public funds to be approved by popular votes rather than by the City Council, as is now the case.

Concerned that delays caused by the initiative process might kill their deal, developers countered by seeking to exempt themselves from the initiative. They pledged to take out what amounts to an insurance policy that would guarantee repayment of city bonds, even if the Kings or Lakers leave early.

Wachs said he would exempt them only if they persuaded him that their guarantee was ironclad. They are trying to persuade him now.

Meanwhile, City Councilman Mark Ridley-Thomas offered harsh criticism of Wachs and two council allies, Rita Walters and Nate Holden, in a Labor Day press release, saying that he believes the developers’ guarantee “and yet, arena detractors continue to ‘pick the bones.’ This madness must stop.”

Ridley-Thomas, who is mounting a major drive to interest the National Football League in his district’s little-used Coliseum, said the detractors could also “drive away the NFL, but they don’t seem to care.”

He said “Wachs, in particular, continues because he has an issue to milk, an issue that feeds into people’s anger toward government--attitudes created in no small part by those who themselves would lead the public to believe that they too are angry at government.”