Heat arena deal set for Miami-Dade Commission vote

06/02/2014 7:17 PM

06/02/2014 8:55 PM

As the Miami Heat preps for the NBA finals this week, the team also hopes to score a political win with a new subsidy package from Miami-Dade County.

Commissioners are set to vote Tuesday on a new deal at the county-owned AmericanAirlines Arena that would eventually give a boost to the Heat’s current $6.4 million annual subsidy in exchange for yearly $1 million donations by the team to the county’s parks department.

The current subsidy would increase to $8.5 million yearly in 2031, and continue through 2035. That means an additional five years on the current agreement, which expires in 2030.

“It allows the Heat to stay here in town longer,” said County Mayor Carlos Gimenez, who negotiated the deal. “I think that’s good for the community.”

Miami-Dade would end a widely derided 1997 profit-sharing deal with the arena, which, after 14 years, has yielded a single payment of about $260,000 to the county. Because team owner Micky Arison privately financed the arena’s construction, the current arrangement allows the team to pay itself back with interest out of profits that otherwise would be shared with Miami-Dade. The deal also lets the team keep the first $14 million of arena profits, a threshold the Heat crossed for the first time last year.

The failure of the current profit-sharing arrangement coupled with the immediate Heat payments to parks have softened criticism of Miami-Dade for increasing its tax support of the NBA’s hottest team.

“In the grand scheme of things, Miami is getting off easy compared to a lot of other cities,” said Neil de Mause, a Brooklyn-based author who runs the Field of Schemes blog, which rarely has favorable words for sports subsidies. “This is not something where you’re breaking open the treasury and handing every bit of spare money you can find to the Heat.”

A summary by the county’s finance department said the deal would cost Miami-Dade an additional $19 million through 2035, though inflation is likely to reduce the entire cost to just over $2 million in 2014 dollars. While the proposed deal extends the Heat’s agreement through 2040, the key elements — the subsidy and yearly parks donation — are locked in only through 2035.

If the County Commission accepts the mayor’s proposal, it will mark the first successful stadium deal Gimenez has closed since coming to office in large part thanks to the backlash against the 2009 funding package for Marlins Park. Gimenez voted against that plan as a county commissioner, and continues to cite his dissenting position as proof of his fiscal stewardship.

Along with the Heat deal, voters may have two other stadium deals to judge Gimenez on: He is weighing a proposed incentive package from the Miami Dolphins that would pay the team for bringing Super Bowls and other major events to a renovated Sun Life Stadium, and he has already endorsed a plan by David Beckham to use private funds to build a soccer stadium on public land in Miami’s Museum Park.

Gimenez aides said the mayor wanted the sports deals off his plate before commissioners and the public begin focusing on the budget process this summer. Miami-Dade faces a revenue gap estimated at about $200 million, and Gimenez is asking county employees for a 10 percent pay cut.

Miami-Dade pays the Heat’s subsidy with hotel taxes, a revenue source the Gimenez administration has used in recent years to free up property-tax dollars usually spent on the parks department. While the Heat wanted an additional 10 years of subsidies from Miami-Dade, Gimenez said he agreed to only five out of concern that hotel taxes would be strained after 2035 from payments on more than $350 million in Marlins debt.

The current Heat deal runs until 2030, but the Heat said it needed the agreement to be renegotiated now in order to justify significant investments in the county-owned facility. Team executives also cited the looming contract discussions with LeBron James and fellow “Three Kings” Dwyane Wade and Chris Bosh.

For the first time since coming to Miami in 2011, James’ contract allows him to leave for another NBA franchise this summer. Heat business chief Eric Woolworth said a new arena deal will remove significant uncertainty regarding arena expenses as team owner Micky Arison decides how much to spend on retaining Miami’s star players.

“We have some very big decisions to make in terms of keeping the team intact,” Woolworth said in an earlier interview. “We want to find out what some of our business expenses will be.”

A proviso in the proposed agreement retroactively ends this year’s profit-sharing agreement with only 27 days (and a maximum of three home games) left before the arena’s budget year ends June 30. The arena brought in a record $70 million in revenue in 2013, but paid out only $257,134.12 to Miami-Dade thanks to the deductions allowed in the original 1997 deal.

County officials said they did not try to forecast what the profit-sharing arrangement might yield this year, saying past performance made the $1 million guaranteed payment from the Heat a wiser option.

“We’ve been waiting for two birds in a bush for 14 years,” Gimenez said. “All we got out of it was $270,000.”

In an email Thursday, the Heat said it did not expect to generate any profit-sharing dollars for the county this year under the current agreement.

Heat executives have been pushing to get the deal approved as quickly as possible, a timetable county officials attributed to the NBA post-season and the urgency linked to the James contract decision. The proposed contract is bypassing the commission’s normal committee system, and late Monday the county released 13 pages of corrections and additions to the 400-page contract sent to commissioners two weeks ago.

Arison declined an interview request, and has not spoken publicly about the deal. His one commentary on a proposed agreement came in an April 23 email to fans. The message touted a deal with Gimenez that called for a $15 million yearly subsidy and Miami-Dade surrendering its claim on future naming-rights revenue on the arena.

Gimenez protested he had not signed off on the agreement, and the terms up for a vote Tuesday preserve Miami-Dade’s right to share in naming-rights revenue once the current American Airlines deal resets in 2020. American’s $2.1 million-a-year sponsorship is one of the least costly in the NBA.

Tuesday’s vote comes on heels of former Microsoft CEO Steve Ballmer bidding $2 billion for the Los Angeles Clippers. Forbes valued Arison’s NBA franchise at $770 million this year, and the magazine estimated the Carnival chief is worth about $5.9 billion himself. That makes Arison the wealthiest person in Florida, according to Forbes.

About ten cents of every dollar Miami-Dade collects from a countywide hotel tax currently goes to the arena. In a statement Monday, the Heat characterized the subsidy payments as Miami-Dade “reinvesting a share of funds that the Arena helps generate, back into the County-owned arena.”

Part of the new agreement provides for an independent building inspector to scrutinize whether the Heat is maintaining the arena in the required “first-class” condition. While the deal mandates about $3 million a year in arena improvements, Heat executives cited an engineer’s report showing they would probably need to spend far more — $8 million a year — to keep the facility up to date. Team executives and Gimenez point to the Heat’s original home, the since-demolished Miami Arena, as an example of what can happen when upgrades are not made to a facility.

Commissioner Dennis Moss was in office during the original Heat negotiation 17 years ago, and he called this one an improvement.

“It’s not the Miami Heat’s arena,” he said. “They built it, but it’s the county’s arena. It needs to be maintained.”

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