Miami Heat

Amid Heat mania and mounting costs, team shoots for extended arena lease

Before the era of the Three Kings has a chance to end, the Miami Heat has begun talks to rework a deal for public subsidies at AmericanAirlines Arena in exchange for a longer lease and a significant upgrade of the 13-year-old facility.

Citing mounting costs for keeping the 19,600-seat arena competitive for concerts and to provide basketball fans more amenities, Heat executives say they will need more help from Miami-Dade to sustain the arena’s current top-notch quality into the middle of the century. They warn that without the start of a new wave of upgrades, the facility faces the fate of the team’s original home at Miami Arena, which was demolished five years ago.

“We are saying to our partners: ‘Let’s extend this run for as long as we can,’ ’’ team lobbyist and lawyer Jorge Luis Lopez said in an interview Friday in a team conference room at the arena. “We need you in good faith to contribute your share.”

Miami-Dade pays the arena $6.4 million a year under a deal that runs through 2029. In exchange for building and financing the $360 million arena on county land, owner Micky Arison negotiated an agreement that includes the yearly subsidy and a profit-sharing formula that has yet to deliver any money for Miami-Dade.

Heat executives say the urgency to extend a deal with 15 years remaining is driven by the age of the county-owned arena, and not the current championship run — the third since LeBron James joined the team in 2010. County officials questioned the timing of the Heat’s request for an extension, saying they would prefer to wait, people on both sides said.

The team has another reason to start talks now, given the current state of Heat mania. James will have his first chance to leave Miami at the end of the next season, when his current contract expires. Private talks are underway at County Hall, with the Heat pushing for a quick decision in order to give them more leeway to plan the next 20 to 30 years in downtown Miami.

“We’re amenable to talking to our partners on anything that makes sense,’’ said Ed Marquez, the Miami-Dade deputy mayor heading up discussions with the team. “The Heat is a valuable component of the community. If they want to talk about extending, we will talk to them about extending.”

Last fall, Heat executives formally exercised their right to negotiate a 10-year extension with the county. While the team technically rents space from the arena, both business entities are part of the corporate umbrella run by owner Arison, the CEO of Carnival.

Public dollars are sure to be a sticking point in the talks. Lopez said to fund the Heat’s planned upgrades, Miami-Dade may need to increase its current subsidy to as much as $17 million a year in the extended term that would begin in 2029.

As for the short-term, Heat executives say they aren’t trying to alter the current 1997 agreement. “We’re not looking to renegotiate,’’ said Sammy Schulman, chief financial officer for the Heat. “We’re looking to extend.”

At the same time, though, team executives are pointing out that Miami-Dade’s current subsidy payments could jump by $2 million in 2019 if American Airlines drops its sponsorship of the arena. The county essentially receives the naming-rights dollars, and Heat executives said they’re willing to consider reworking the current deal if Miami-Dade officials want to eliminate the risk of lost sponsorship money when the American deal expires.

“Let’s assume American Airlines ... says, ‘It’s been awesome. We hope you keep the plane on the roof. But we’re done,’’ Lopez said, referring to the jet outlined in lights atop the arena. “The county immediately has to come up with $2 million.”

E.J. Narcise, whose firm helped negotiate naming-rights deals for FedEx Field near Washington, D.C., and Reliant Park in Houston, said the $2 million paid by American is modest for today’s market.

“We’ve done collegiate arenas that are close to $2 million a year,’’ said Narcise, a principal at Team Services LLC in Rockville, Md. With James playing there, the arena could probably get as much as $3.5 million a year and would be able to get at least $2 million without him, Narcise said.

“I don’t think they’re going to be in any danger, regardless,’’ he said.

The team’s pursuit of more public assistance comes on the heels of the Miami Dolphins’ failed attempt to win higher hotel taxes to fund a $400 million renovation of Sun Life Stadium. The defeat was in part blamed on lingering ill will from the 2009 vote by Miami-Dade commissioners to spend hotel and property taxes to build the Marlins a new ballpark in Little Havana.

Unlike the other two teams, the Heat has provided Miami with championship runs in recent years and it has made downtown Miami the undisputed power center for professional basketball since James, Chris Bosh and Heat veteran Dwyane Wade were crowned the “Three Kings” in 2010.

The Heat commissioned an economic-impact study that had the arena adding about $1.5 billion a year to the local economy. Schulman, the CFO, said the Heat plan to spend $10 million improving the arena this year, a record amount and evidence of the growing expenses at the facility that debuted on New Year’s Eve in 1999.

“We are forward-thinking here because we don’t want to be in a Miami Arena situation,’’ he said. “If you wait until the last minute, that’s what happens.”

With James’ departure for another team a possibility once his contract expires next season, the Heat could see the eventual return to the mediocre ticket sales that marked the years without the arena’s super-stars: James and Shaquille O’Neal, who played for the Heat between 2004 and 2008.

The talks come as the arena seemed on track to issue its first payment to Miami-Dade after 13 years of occupying the facility in a rent-free deal. While the arrangement includes the yearly subsidy, it also allows Miami-Dade to collect 40 percent of all arena profits above $14 million. But before the arena pays the county, it can deduct losses from past years.

The windfall in ticket sales after James arrived finally wiped out past losses last year. In 2012, arena profits hit $16.4 million, according to records filed with the county. If not for the past losses, the arena would have paid Miami-Dade almost $1 million.

Revenues were strained last year given the shortened season from an NBA labor dispute, so the 2013 season has the potential for more dollars. But team executives Friday said it was too early to say how much profit would remain once the arena’s budget year ends on June 30.

Miami-Dade pays the Heat out of hotel taxes, and those are used to cover debt payments on Marlins Park and fund museums and other cultural institutions. Jennifer Glazer-Moon, the county’s budget chief, said this year Miami-Dade also shifted about $25 million in hotel taxes to fund the parks department as a way to ease pressure on general funds used to pay for police and other basic services. While hotel taxes are growing by as much as 7 percent a year, demands for the extra money have, too.

“Other people are asking us for this all the time,’’ she said.