City Gives Staples Center New Terms for Repaying Subsidies
Six years after Los Angeles demanded and won a $76-million letter of credit to guarantee repayment of subsidies for Staples Center, the City Council eliminated the requirement on Friday, agreeing with developer’s protests that it is no longer necessary.
The action does not remove the obligation of the Anschutz Entertainment Group, which owns Staples Center, to repay the $70 million remaining to be reimbursed to the city. But the city’s chief legislative analyst, Ron Deaton, said Staples’ successful track record since opening in 1999 suggests the risk to the city no longer warrants such a costly guarantee.
“Now that there have been several years of operating results, the repayment risk to the city is substantially reduced,” Deaton said.
Even so, the council vote came after the city released a report showing that parking revenues used by Staples Center’s owners to reimburse the city have not been as high as expected. To make up for the shortfall, AEG has agreed to pay $14.7 million upfront to cover the shortfall during the next 20 years.
The arena owners will also give the city $1.8 million, which is half of the developer’s savings on fees for maintaining a $70-million letter of credit. The new agreement requires AEG to put up a $1.75-million letter of credit to cover any possible shortages in payments in future years.
The council action benefits a firm formed by the politically influential partnership of Denver billionaire Philip Anschutz and real estate investor Ed Roski Jr.
Roski’s Majestic Realty Co. was one of the largest donors to Mayor James K. Hahn’s anti-secession campaign last year, giving $250,000. The L.A. Arena Co., which is affiliated with AEG, also gave $50,000.
In addition, Roski and corporate entities associated with Staples Center have contributed $35,250 in the last few years to campaign committees for Hahn, City Atty. Rocky Delgadillo and City Council members Tom LaBonge, Janice Hahn, Jan Perry, Nick Pacheco, Ruth Galanter, Cindy Miscikowski, Eric Garcetti, Bernard Parks, Alex Padilla, Wendy Greuel and Hal Bernson, as well as Councilmen-elect Antonio Villaraigosa and Tony Cardenas.
Councilman Nate Holden expressed concern about reducing protection of the city’s investment in the $400-million arena, which is home to the National Basketball Assn.’s Lakers and Clippers, the WNBA’s Sparks and the National Hockey League’s Kings.
“What if the Kings decide to move out of Los Angeles?” Holden asked city administrators during a hearing Friday. “What happens to the debt that has been incurred by the city of Los Angeles?”
City officials said the Kings are owned by the same partners who own Staples Center, and the team is contractually obligated to stay at Staples for at least another two decades. Deaton, who recommended the change, said that in the unlikely event the owners defaulted on their obligation, the city could take possession of the arena.
The council insisted on the $76-million letter of credit in 1997 to protect the city’s investment, which includes bonds issued to buy land for the development.
The change was proposed after Anschutz decided to create AEG, which does not have the same financial resources as its parent company, to run Staples Center, Deaton said.
As a local subsidiary, AEG is in a better position to pursue development of a sports and entertainment district next to Staples, he said. But the separation of AEG from its Denver parent company makes the $70-million letter of credit unfeasible because of the capital reserve requirements and fees associated with it, Deaton said in a written report to the council.
Chris Modrzejewski, a representative of AEG, said after witnessing the council vote that the city remains sufficiently protected. The former “agreement was put in place when there was a question of ‘Could an arena be built, would it be built on time, and once opened, would it be successful?’ ” he said. “All those things have occurred.”
