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Photograph by George Sakkestad

No Use for a Name: The San Jose Arena may soon be trolling for corporate sponsorship if the Sharks get their way. But first they have to win city approval, a process which may force the hockey team to accept a second sports franchise there.

Surf 'n' Turf

Sharks go fishing for more revenue and could end up in turbulent waters with another big fish: a national basketball franchise

By Will Harper

THE ONE-INCH-THICK, 106-page management agreement between the city of San Jose and the San Jose Sharks is a monument to athletic franchise worship. Among its contents: section after section ceding the hockey team almost absolute control over operations and revenues at the city-funded San Jose Arena, which cost local taxpayers nearly $150 million to build.

The agreement was created in 1991, in the city's flush of excitement about gaining its first-ever major professional sports team, and officials willingly gave away future bargaining chips with their future tenant like they were tossing chum into the ocean.

Except one.

Section 6.03 of the agreement states: "City shall have absolute approval rights as to the purchase and ... the terms of any agreement for the naming [emphasis added] of the Arena."

But since the signing of that document, corporate names on sports facilities these days are everywhere: Arco Arena in Sacramento, Staples Arena in Los Angeles and, of course, Pacific Bell Park in San Francisco.

Sharks president Greg Jamison estimates that more than two-thirds of National Hockey League franchises now have a naming-rights deal with private companies. One month ago, Sharks and city representatives started formal talks about the Sharks' desire to sell the Arena's name. Jamison says that the team doesn't want to sell the Arena name just for the sake of being like everybody else.

The Sharks, he says, need more revenue because they are losing money. Lots of it. He says the team lost more than $1.2 million for the 1998-99 season, an amazing claim given that the team's management agreement with the city was considered one of the most generous in the NHL when it was signed a decade ago.

"We are looking to sell the naming rights," Jamison says, "to cut into a deficit, not to add to some kind of profit."

The Sharks are taking other measures to cut into that deficit next season by raising ticket prices--some seats in the lower bowls are going up 12 percent--and boosting fees on some luxury boxes. The rent on the box Metro has shared is going up from $105,000 a year to $165,000.

Of course, per the agreement, the team doesn't need permission from the city to jack up prices on tickets or luxury boxes. But the Sharks do need the city's permission to hock the Arena's name.

And in seeking to sell the Arena's naming rights, the Sharks might have opened a door to discussion about some other parts of their contract that they might have wished stayed closed.

IN THE PAST, city leaders have been cool to the idea of giving up the name of "San Jose Arena" and selling it off to the highest corporate bidder. In a 1994 financial settlement with the Sharks under then-Mayor Susan Hammer, the city inserted language into the settlement document saying it had "no intention of selling the building name."

Hammer and other city leaders felt that practically no amount of money the city could get from selling the Arena's name could equal or surpass the value of keeping San Jose in the building's title.

At the time, Sharks executives seemed willing to concede naming-rights revenue.

But this May, Frank Jirik, the Sharks' longtime chief operating officer and senior executive vice president, wrote a letter to the chairman of the Arena Authority, a copy of which was also received by city officials, in which he described the financial challenges faced by the team.

Jirik, who is retiring this month to be near his grandchildren in Minnesota, said in his May 5 letter that "several things must occur to protect the viability of the San Jose Arena and all of its tenants."

For one thing, he said, "The Arena must be upgraded to incorporate the conveniences our customers expect to keep the Arena a state-of-the-art facility."

But perhaps more importantly, Jirik says, the team needed "new or expanded revenue sources" to remain competitive in the NHL.

Which, of course, is where selling naming rights comes into play. Jirik estimates selling the Arena's name could generate $1.5 million to $3 million a year, proceeds the team would split 50-50 with the city.

Two weeks later, Mayor Ron Gonzales wrote Jirik back. Gonzales didn't reject the suggestion of selling the Arena's name. In fact, the mayor didn't mention naming rights whatsoever. Instead, he outlined a few of the city's concerns.

"Just as your organization faces challenges," Gonzales coolly replied, "the City of San Jose faces many challenges as it pertains to the San Jose Arena. San Jose residents made a substantial investment in the Arena, and I want to protect our investment."

At the top of the mayor's list was the difficulty in recruiting "a second major tenant that would provide entertainment to our residents and heighten San Jose's profile as a world-class city."

While the letter wasn't specific about which "second major tenant," sources in City Hall say Gonzales meant a pro basketball team.

Five years ago, the city tried to woo the Golden State Warriors away from Oakland to San Jose. But under the terms of the team's management agreement with the city, the Sharks have ultimate say over who can use the Arena. Sharks executives decided they didn't want to share space or revenues with the Warriors and that was that.

Jamison says people unfairly blame the Sharks for killing a basketball deal, while Warriors officials escape any criticism for their role in not making things work. "We worked hard to make something happen," Jamison says.

Not hard enough for the new city administration. While the Sharks could hypothetically negotiate a deal with another National Basketball Association franchise, Jude Barry, the mayor's chief of staff, says they haven't done so, as far as he knows.

Barry confirms that the mayor specifically wants to address a clause in the agreement regarding an NBA team using the Arena.

"We think that's an important issue to discuss," acknowledges Barry.

But it's not the only thing the mayor wants to discuss. In his May 19 letter to Jirik, Gonzales concluded, "To address your concerns and ours, I think it is important to review the document that defines our partnership, the San Jose Arena Management Agreement."

AT THE TIME THE CITY originally signed the management deal with Sharks owners George and Gordon Gund in 1991, it was widely regarded as the "sweetheart deal" of the decade.

For one thing, the city paid for the bulk of the development costs for the Arena--at least $147 million. But that wasn't all. City leaders, led by then-Mayor Tom McEnery, gave the Sharks and its alter-business ego, the Arena Management Corp., total control over building operations and revenues. That meant the Sharks got money from all Arena events, including non-sporting events like Disney on Ice and the recent Dixie Chicks concert.

The 15-year lease didn't actually go into effect until the Arena opened in 1993. The team has three five-year options to renew after the first 15 years.

In return, the Sharks agreed to pay the city an annual fee of $500,000 for the first six years of the lease. The city also negotiated a small cut of the net proceeds from luxury box rents. This past fiscal year, the Sharks paid the city $588,807 in fees.

Sharks executives say it's a myth that the team got a sweetheart deal. Frank Jirik of the Sharks says it was city officials, not the Sharks, who insisted that the team assume control of arena operations. That's because city leaders feared that if the Arena was a failure, they would have to dip into the general fund--which pays for basic services like police and fire protection--to subsidize facility operations.

Even today, mayoral chief of staff Jude Barry says city negotiators were smart in making the Sharks take all the financial risks of running the Arena.

But by giving the Sharks control of the Arena, the city also cut itself out of any of the potential profits.

The Mercury News reported in 1994, at the end of the Sharks' first season in the Arena, that the team was one of the most profitable in the NHL, estimating the team made a profit of $10 million on $40 million gross revenues. The Mercury News attributed the Sharks' financial success to the agreement with the city, citing industry experts who described it as "the league's sweetest lease."

But Jamison says that the first season was one of the team's only profitable ones. Since then, player salaries have escalated.

"People have been under the illusion that we're making money," Jamison says. "It's absolutely not true. ... We run a good shop here, but our business is an expensive one."

Expensive, team executives say, because of escalating player salaries. In 1994, news reports pegged the team's payroll at $8.3 million, the second cheapest in the National Hockey League at the time. Jamison says that last year the team's payroll hovered around $38 million, putting the Sharks in the league's top 10.

Forbes magazine reported in December that during the 1998-99 season the Sharks grossed $51.2 million, but ended up $1.2 million dollars in the red after expenses. Jamison will only say that the team lost more than what Forbes estimated. He says the team also lost money this past season, even though the Sharks made it to the second round of the playoffs, thereby adding more home dates.

Even though the San Jose Arena is only eight years old, Sharks executives argue that The Tank has already become a dated facility and has fallen behind the curve. Jirik says that when the 17,100-seat Arena was designed in 1991, it held more fans and boasted more luxury boxes than the average NHL team. Nine years later, Jirik says, the average NHL arena holds 19,300 fans and has 89 luxury boxes compared to San Jose's 65 suites.

TEAM OFFICIALS won't go into details about how much the team is losing. The Sharks, after all, are privately owned by the Gund family and don't have to show their books to anyone, including San Jose city leaders.

That is why team critics are skeptical about whether the Sharks are really losing money.

"If they're claiming poverty, let's see their financial statements," says longtime season ticketholder Dennis Teifeld, chief executive officer of Teifeld & Co. Insurance Services. "It's creative accounting," adds Teifeld, who shares a luxury suite with Metro. "Until they open their books, no one is going to believe they are losing money."

Jude Barry says the mayor's office has "no opinion" as to whether the Sharks are really losing money.

All city leaders know is that the team seems eager to boost revenues by selling the Arena's naming rights, something the mayor says he's open to discussing--for some other benefits.

The Sharks' desire to pawn the Arena's name is a bargaining chip the city can use to re-negotiate aspects of the 1991 management agreement and open the door to bringing an NBA team to San Jose.

So far, Sharks and city representatives have met three times over the past month or so and have scheduled another meeting for later this month.

The Sharks have hired former Deputy City Manager Dan McFadden, who sat on the other side of the negotiating table a decade ago, as a technical consultant. The city, meanwhile, has brought on ex-San Francisco Giants executive vice president Corey Busch, who also advised the mayor during recent discussions with the Oakland A's.

While naming rights and basketball aren't the only topics the two sides are talking about--parking, city use of the Arena and electronic equipment upgrades are also on the table--they are clearly at the top of the negotiators' lists.

Barry cautions that the mayor's interest in renegotiating the NBA clause in the agreement "shouldn't be misinterpreted as meaning we are actively talking to [an NBA team] right now."

The Houston Rockets are rumored to have expressed interest in coming to San Jose. Houston voters shot down a ballot measure in November to build a new facility for the Rockets, who play in one of the NBA's oldest arenas. Rockets officials did not return phone calls. Barry says no one from the mayor's office has had any talks with the Rockets or any other NBA team.

Jamison sounds cautious when asked if the Sharks could ever share the Arena with an NBA team.

"With the right situation and the right team," Jamison says, "there's potential to cut a deal" with a basketball team to play at the Arena.

Such a deal, of course, would have to work for the Sharks, Jamison says. But the Sharks are not the only variable, he adds. NBA team owners, for instance, might want to go somewhere they can get an exclusive naming-rights deal without sharing the proceeds or be able to manage an arena themselves. "It would need to be a deal that works for everybody," Jamison says.

Thus far, both sides describe talks as cordial. "These are not hard-edged negotiations," says McFadden.

The mayor, meanwhile, says the negotiations are an opportunity "to build upon an already successful relationship" between the city and the Sharks. The success of the Arena, after all, still depends greatly on the success of the city's top sports franchise.

Still, there seems to be a palpable shifting of the political currents since 1991, when city leaders were desperate to bring a professional team to San Jose.

Earlier this year, Gonzales took a hard line in talks with the A's, refusing to put any public dollars directly toward building a new stadium. The A's have since redirected their efforts to moving the team to Santa Clara instead.

The mayor's latest effort to make it easier for the city to recruit an NBA team suggests there could be a new era on the horizon in which the Sharks are no longer the biggest fish in San Jose's pond.

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From the June 22-28, 2000 issue of Metro, Silicon Valley's Weekly Newspaper.

Copyright © 2000 Metro Publishing Inc. Metroactive is affiliated with the Boulevards Network.

For more information about the San Jose/Silicon Valley area, visit sanjose.com.

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