Millions at stake as Warriors clash with landlord
The cheery glow from a championship victory parade that saw Warriors executives and East Bay officials alike beaming down at throngs of Oakland revelers has faded, and now the two sides are going head-to-head before an arbitrator to resolve a dispute worth tens of millions of dollars.
Alameda County and Oakland officials say that when the Warriors leave for San Francisco in 2019, they will owe taxpayers in the East Bay roughly $40 million to pay the remainder of the bonds that a public agency put up in the late 1990s to finance renovations to Oracle Arena.
The Oakland-Alameda County Coliseum Authority, the agency managing the Oakland Coliseum and Oracle Arena, uses an annual payment from the Warriors of $7.4 million to help pay off the debt. The Coliseum Authority’s last bond payment is scheduled for 2027.
Team leaders, however, say once they depart in 2019, they’ll stop making the $7.4 million payments.
Both sides agreed to binding arbitration, which means they are allowing a third party to make a final ruling in their dispute. The parties will make their cases at a hearing beginning Monday in San Francisco that may span the week.
Like a courtroom trial, witnesses will be called, documents will be submitted into evidence, and lots of questions will be asked. Unlike a trial, no members of the public or press will be allowed inside the room. And the arbitrator has no obligation to explain his or her ruling — or even follow the law, according to Clark Freshman, a UC Hastings law professor who has worked as an arbitrator and teaches the subject.
“This is really quite the wild card,” he said. “It’s a total black box.”
The dispute comes down to the interpretation of a 1996 contract signed by the Warriors and the Coliseum Authority — the joint powers entity created to finance and oversee the sports complex that’s also home to the A’s and Raiders.
At the time, the public agency had issued $140 million in 30-year bonds to completely revamp the aging basketball arena that first opened in 1966. The contract with the team was only good through 2016 but has been extended with a series of amendments, most recently through June 2019.
The 57-page pact lays out requirements for food (must be “good quality” and “a reasonable selection”), satellite dishes (OK, but in “mutually agreed upon” locations) and even armed conflict (nobody is obligated to do anything if there are “hostilities with or without a formal declaration of war”).
But the key paragraph now at issue says that if the Warriors terminate the agreement prior to 2027, they are required to pay the outstanding project debt.
In a court filing, attorneys hired by the team said that clause would apply only if the Warriors were actually terminating the contract. Rather, they are allowing the agreement to expire in June 2019, as they depart for San Francisco.
“This predicament is entirely of the (Coliseum Authority’s) own making, as it bargained for a 20-year term in the License Agreement while issuing 30-year bonds,” the lawyers wrote about the contract.
A Warriors spokesman said he wouldn’t comment because of the ongoing litigation.
Oakland and Alameda County officials, though, have kept up public pressure on the team. City Councilwoman Rebecca Kaplan created an online petition demanding the Warriors “don’t steal $40 million from local taxpayers!”
City Councilwoman Lynette Gibson McElhaney, also a commissioner on the joint powers board, said she wanted team executives to “honor their commitment and be an honorable East Bay business and civic leader.”
“The new owners maybe didn’t look at that clause when they bought the team,” she said, referring to the 2010 acquisition of the Warriors by Joe Lacob and his firm. “When they bought the team, they bought the obligation. It’s my hope that the arbitrator honors the spirit and intent of the document.”
The team will own and operate Chase Center in Mission Bay, so it won’t run into similar landlord-tenant disputes after moving.
Neither side says the debt disagreement — which lawyers for the Warriors describe as closer to $50 million — has affected the team’s relationship with the city from which it will soon depart.
“Business is business. We have these processes in place because sometimes people in business disagree,” McElhaney said. “I see this as people doing what they’re paid to do.”
Although both parties say the plain language of the agreement is on their side, the arbitrator doesn’t have to use a contractual interpretation in deciding how much to award and who will have to pay it, said Freshman, the UC Hastings professor.
“As a practical matter, arbitrators do not have to follow the law, because all they have to announce is how much one party pays the other or some other order,” he said. “Arbitrators can do whatever they want. To some extent, that’s the purpose of arbitration — to decide things according to industry standards or religious standards. The aim is to be fair rather than legalistic.”
If one side loses big, there are few, if any, legal remedies, Freshman said.
“Once the arbitrator makes the decision, that’s it,” he said. “It’s very fast, with very few grounds for appeal.”