Golden State Warriors lose bid to escape Oakland arena debt
Oakland and Alameda County, California scored a win last week in their efforts to wind down debt that was issued to pay for facilities for three sports teams, two of whom have since departed to other cities.
The California Supreme Court declined Dec. 9 to review a petition by the NBA's Golden State Warriors in a court case that had gone through arbitration, a superior court and an appeals court, all of which found in favor of the Oakland-Alameda County Coliseum Authority.
That means the Warriors have exhausted their legal remedies in their efforts to avoid paying off lease revenue bonds issued to renovate the Oracle Arena for their benefit in the 1990s.
The Warriors tried to walk away from their obligations to the Coliseum authority when they moved into the new Chase Center in San Francisco in 2019.
The bonds to reconstruct the Oracle Arena were originally issued 23 years ago, with the remaining $80 million outstanding refunded in 2015 into taxable lease revenue bonds. The final maturity on the bonds is 2026, according to bond documents. The outstanding par amount on the bonds was $55.7 million as of June 30, 2019, according to a financial statement filed on the Municipal Securities Rulemaking Board's EMMA disclosure website.
The team’s owner initiated arbitration proceedings in October 2017 seeking a declaration that it was no longer obligated to make debt payments if it allowed the license agreement to expire, rather than terminating it, according to court filings.
Payment of the bonds themselves was never in question; the legal question was whether the basketball franchise still had an obligation to the JPA.
An arbitrator, a Superior Court judge and the First District Court of Appeal all ruled in the authority’s favor, according to Oakland City Attorney Barbara Parker. The owners had asked the high court to review the case in November. The appeals court handed down its ruling in August.
“This is the end of the line for the Warriors’ shameless attempts to avoid their debt obligations,” Parker said. “They have pursued their specious claims as far as they can go, and every court that has reviewed this case has refused to let the Warriors stiff their fans and ignore their debt."
Under the arbitrator's ruling in 2018, the Warriors have to reimburse the authority for any shortfall between the arena net operating revenue and any principal balance remaining on these bonds until maturity.
Annual debt service from fiscal 2020 through fiscal 2026 ranges from $5.1 million to $10.5 million, according to Moody’s. The city and county’s share of total debt service would be less than 0.5% of operating revenues, Moody’s wrote.
The Warriors franchise value is estimated above $4 billion.
“It’s time to pay back the local governments that fulfilled their agreement to renovate the Arena and poured their hearts and souls into supporting the team and yet had to spend years fighting to finally and fully win this battle and justice,” Parker said.
As part of a memorandum of understanding with the Warriors, the Coliseum Authority issued $140 million in lease revenue bonds in August 1996 to renovate the Oakland Coliseum Arena, since rebranded as Oracle Arena.
The county and city issued the bonds assuming the good faith of the Warriors, who agreed to help repay that debt over decades, Parker said.
The Coliseum Authority filed a lawsuit against the Warriors in 2019.
“When the Warriors chose to leave Oakland several years ago, they also attempted to leave their unpaid debt behind,” Parker said. “In August of this year, the Court of Appeal rejected the Warriors’ claim that their obligation to pay the debt ended when they chose to leave Oakland and ordered them to comply with the terms of the agreement.”
The Warriors played in Oakland from 1971 to 2019, aside from one year in San Jose during the arena renovations financed by the bonds.
On February 21, 1996, the basketball team’s owner entered into a memorandum of understanding with the city and county for a new license agreement that was to take effect when the existing agreement ended.
The MOU proposed a 20-year term for the agreement from 1997-2017 with four five-year options to renew. The Warriors could not terminate the lease in the first ten years, and if the Warriors terminated it after June 2007, they would be required to pay all of the outstanding renovation debt, subject to various offsets and reimbursements each year until 2027, according to the appeals court ruling.
The county and city each own half of the Coliseum complex through the joint powers authority. The county has sought to divest itself from the complex for the past few years, and escape the debt load created to finance the Warriors renovations as well as Oakland Coliseum updates for the NFL Raiders, who moved to Las Vegas this season.
The city and county, separately, have been negotiating with John Fisher, the owner of baseball's Oakland Athletics, the remaining tenant at the 120-acre complex. The team offered to pay each government $85 million last year as part of a plan to turn the property into a mixed-use development as part of a plan to finance a new stadium in central Oakland, which he says will involve no public debt.
Initial plans by the Athletics are for a mixed-use development that would feature a baseball stadium on the Oakland waterfront, a tech campus, housing, a hotel and retail. The Coliseum would be demolished, but Oracle Arena could remain as a sports and entertainment destination.
The A’s current license doesn’t expire until after the 2024 baseball season, but the team had said — in a pre-pandemic timeline — that it hopes to open its Howard Terminal stadium for the 2023 baseball season.
Before the A’s could assume ownership of the Coliseum complex the city and county need to void, refund or repay existing debt, which is not likely until 2026 when the debt matures, according to a 2019 Alameda County staff report.
Moody’s analysts wrote in a November 2019 report that the Athletics offer to purchase the Coliseum complex did not affect the ratings as the debt would be paid off before the deal went through, and the city and county would continue to pay their respective shares of the debt.
The county accepted the offer and closed the deal in October, according to published reports.
Oakland initially balked as critics urged the city to use the land to build affordable housing. Facing COVID-19-related budget pressures, city officials finally agreed to sell their half of the property to the Athletics in June, according to published reports.
The authority also in 2012 refunded $122 million in bonds for renovations to the Coliseum, of which $65 million in outstanding par remained as of June 30, 2019, according to disclosure filings.
Neither the departed Raiders nor the Athletics have any financial obligation to support debt service, according to a Moody’s 2017 report.