CASE STUDY $4-1$

A New Arena for The Golden State Warriors

The NBA$$s San Francisco Warriors played in San Francisco for nine seasons before

relocating to Oakland, California, in $1971$ and renaming themselves the Golden

State Warriors. Their new home was the Oakland Alameda County Arena$$a $$24$

million, $13,000-$seat facility built in $1966.$ In $1997,$ a $$121$ million renovation

expanded the facility to $20,000$ seats; in $2007,$ it was renamed Oracle Arena. The

Warriors won three NBA Championships in $1975,2015,$ and $2017$ in that facility.

Despite playing in the oldest arena in the NBA, the Warriors$$ success on the court

led to a season ticket waiting list of approximately $40,000$ fans.

Oracle Arena is owned by the joint city$$county governmental agency called the

Oakland Alameda County Coliseum Authority $($OACCA$).$ The city and county

taxpayers covered the original arena construction cost and in $1996$ issued $$140$

million in construction bonds for the renovation. That year the Warriors signed a

$20-$year lease that included paying $$1\mathrm{.}5$ million for rent as well as the first $$7\mathrm{.}4$

million of the team$$s premium seating revenue to the OACCA. The OACCA retained

$5\%$ of each ticket sold, a portion of the naming rights, parking revenue, and concession revenue. The OACCA share of annual ticket revenue tripled to $$6\mathrm{.}5$

million in the period between $2011$ and $2016$ as the Warriors$$ popularity grew. The

OACCA also covered costs including maintenance and operation of the arena,

some game$-$day production and marketing expenses, and approximately $$22$

million for the principal and interest on the loan. In $2016,$ the OACCA required

contributions of $$11$ million from both the city and the county to balance its

budget.

In $2012,$ the Warriors announced their intention to leave Oracle Arena and build

a new facility on the waterfront in San Francisco. After years of opposition and

ballooning costs, the team altered its plans and in April $2014$ paid a reported $$250$

million to purchase a different plot of land south of the San Francisco Giants$$ AT&T

Park. After several years of lawsuits from a local hospital concerned with arena

crowds reducing patient and ambulance access, a ground$-$breaking ceremony for

the arena took place in January $2017.$ The $11-$acre development built and owned

by the Warriors encompasses the $18,000-$seat Chase Center arena, $100,000$ square

feet of retail space, and $580,000$ square feet of office space. Half of the office

space has been rented out by ride$-$sharing firm Uber, and JPMorgan Chase paid

$$300$ million over $20$ years for the naming rights.

Despite excitement about the new arena, the Warriors are responsible for the

$$1$ billion cost. Arenas need to book events $200$ or more days per year to break

even. When the Chase Center opened in $2019,$ it had to compete to fill those $200$

dates with other local arenas, including the newly abandoned Oracle Arena in

Oakland, the $80-$year$-$old Cow Palace south of San Francisco, and the SAP Center

$45$ miles away in San Jose. Notably, there are no other large, modern arenas within

San Francisco, leading some to suggest the Chase Center will have the upper hand

in booking events. As evidence of the Warriors$$ hopes for high profit potential, $2$

years before opening the facility the team announced that prices for suites would

range from $$525,000$ to $$2\mathrm{.}5$ million in the Chase Center, whereas they cost only

$$200,000$ to $$300,000$ at Oracle Arena.

Back in Oakland, Oracle Arena expected to see its average of $110$ events per

year decrease by about $50$ because of the loss of the Warriors games. In addition,

there was still approximately $$55$ million remaining to be paid on the bonds that

the OACCA issued in $1996.$

Questions for Discussion

$1.$ From a finance perspective, why did the Warriors allocate $$1$ billion to build a

new arena?

$2.$ Which new revenue streams might the Warriors generate that could cover the

cost of the new arena?

$3.$ Which specific risks do the Warriors face in taking on the full cost of the

project?

$4.$ Which specific risks does the OACCA face in paying off the principal and

interest on its existing bonds?

$5.$ If the Warriors used bonds to finance a portion of the new arena$$s costs, which

criteria would lenders use to evaluate their ability to repay the loan $?$