If all goes well, the San Jose Sharks will be staying in San Jose at least until 2051, SAP Center is getting some much needed renovations and a new Arena District could be on the horizon. The San Jose City Council is expected to vote on Aug. 26 on an agreement with San Jose Arena Management LLC, the legal entity for the Sharks, through June 30, 2051. According to this memo of understanding, the Sharks will “guarantee” that hockey will stay in San Jose or pay the price.
“If the hockey use agreement is modified to allow operations outside of San José, the Sharks will be subject to a financial penalty substantially equal to the outstanding principal and interest on the City’s debt service. This amount fluctuates over the term of the agreement according to the payment schedule,” reads the City’s Memorandum of Understanding.
In this new deal, the Sharks will no longer have the right to “unilaterally terminate the lease at any time ‘for any cause and no cause.’” Under the agreement currently in place, the Sharks can terminate with or without cause and there is no recourse for the City of San Jose.
The new deal worked out by city staff will change that. According to the Memorandum of Understanding, if the Sharks want to relocate, “They will owe a termination fee approximately equal to the City’s outstanding debt plus interest. The recovery of these funds is protected by a stipulated judgment held in escrow, which allows the City to move immediately to collections with minimal legal action, should the Sharks default, and block a sale or relocation of the team if the termination fee is not paid. The Sharks will be allowed to relocate within the City of San José without penalty.”
Conversely, there are also financial penalties if the City of San Jose defaults, such as if the city fails to pay the money needed for renovations on time or if it fails to provide the minimum level of parking spaces within a certain distance of SAP Center — 3,175 within 1/3 of a mile or 6,350 within 1/2 of a mile.
This could become an issue in the future if Google begins the development of its headquarters, something that has concerned the Sharks in the past.
If approved, the new deal will be retroactive to July 1, 2025, when the Sharks’ rent was scheduled to increase from $1.4 million per year to $4.0 million per year. According to the Memorandum of Understanding: “The Sharks have historically operated at a loss, and in 2023, they notified the City that they would not agree to remain subject to the rent increase without a plan to address the facility’s condition.”
SAP Center Renovations
Which is why the renovations of SAP Center are the biggest aspect of this deal. And they need to be. As Sharks fans know, the SAP Center is one of the oldest buildings in the NHL. Built in 1993, it is the fourth-oldest building in the NHL, only Madison Square Garden (New York), the Scotiabank Saddledome (Calgary) and Honda Center (Anaheim) are older. Madison Square Garden underwent major renovations in 2011, Calgary is building a new stadium and the Honda Center is in the midst of a $1 billion renovation project.
For the Sharks, this was something that needed to be done. The city’s documents cite things like the fact that the opposing team’s lockerroom is located on the other side of the ice, an issue that cannot be fixed without “a total reorganization of the ground floor of the Arena.”
It’s also clear that winning is something City staff are cognizant of.
“Bringing the SAP Center’s back-of-house facilities in line with market standards is also important for player attraction and retention, which is a particular focus of the Sharks’ franchise as they are currently assembling a new core group of players that will be the face of the team’s next generation,” read the City of San Jose’s Memorandum of Understanding.
City staff also points out the recent competition to attract top musical talent when the nearby Chase Center is available as one of the needs for renovation.
Renovations will take place in the summer so that hockey will not be interrupted. According to the Memorandum of Understanding, the work will include the following:
- Facility Deferred Maintenance: Improvements to building systems (including mechanical, plumbing, electrical, and technology), refreshing finishes, repairing Lots ABC, and updating other items that have outlived their intended lifespan.
- NHL Requirements: Renovations and improvements required to comply with NHL facility and operating requirements.
- Code Upgrades: Retrofits and other improvements to meet updated building and fire/life safety codes, fire insurance underwriting standards, and other applicable requirements.
- Architectural Enhancements: Renovations to enhance the building, including layout reconfiguration, addition of new finished spaces, and large-scale changes to the building.
- Enhanced/New Premium Products: New revenue-generating enhancements and the addition of new premium seating and other premium products.
- Food Service/Merchandise Revisions: Renovation of existing spaces and creation of new food service and merchandise spaces.
- Entertainment Enhancements: Program space and other features, including green rooms and other amenities expected by contemporary acts, will be added to attract top entertainment acts.
- Other Modernizing Improvements: Upgrades related to environmental sustainability, technology, lighting, audio/video, sponsorship assets, and activation.
Financing for the SAP Center renovations and moving forward
In the deal, the City of San Jose and the Sharks will jointly spend $425 million. The Sharks will put up $100 million, along with any cost overruns. The city anticipates issuing a “financing framework” for $350 million.
The Sharks will make sure that it adheres to the Citywide Project Labor Agreement, while the City of San Jose agrees that permit fees don’t exceed 1.3% of the total construction costs as long as the Sharks meet certain timing and quality control requirements.
While the City of San Jose has not identified exactly how it will pay for these renovations, the documents say the city “could include a combination of short-term commercial paper notes and long-term lease revenue bonds paid by the General Fund – with the expectation of significant support from a new revenue stream, such as an increased Transient Occupancy Tax as well as a general obligation bond measure.”
The city won’t be able to increase ticket taxes or parking taxes aimed “primarily” at SAP events, though it didn’t say anything about whether it could raise these fees city-wide to increase revenue.
Most of the major renovations are expected to be completed in seven years by the end of the 2032-33 fiscal year. During that time, both sides will pause $32 million combined annual payments (30% Sharks, 70% City split) into a fund for capital repairs and replacements. Once the major renovations are done, the Sharks will resume payments into the fund. The City’s contributions to the fund will be delayed for five years and weighted on the back end of the term to help offset the impact on the City’s General Fund.
A new arena district
Both sides agree that after 2051, it’s infeasible to use the SAP Center. So, the Memorandum of Understanding creates a deadline of Sept. 1, 2027, for identifying a new Arena District, though the two sides are only bound to negotiate until March 31, 2027.
The Arena District would include a surrounding entertainment district with retail, restaurants, hotels, arts and cultural venues and other gathering spaces. The goal is approximately 12 acres of land that would remain under City ownership or control.
Other details, such as potential sites, were not presented in the document.
Other details of the new lease deal
Other particulars of the deal include the continued use of Sharks employee parking along Sharks Way which was formerly W. St. John Street between N. Autumn Street and N. Montgomery Street. San Jose is in the process of acquiring two new parcels of land along Sharks Way according to the documents.
The Sharks have also agreed to continue to contribute $475,000 per year in community benefits to the City of San Jose. $100,000 goes to a Community and City Events Fund held by the Sharks. $375,000 annually goes to the Sharks Community Fund held by the City. Of that money, $250,000 is distributed equally among all of the City Council districts, with the rest going to the city for any public purpose.
The Sharks also help support the Arena Authority, which manages SAP Center, Sharks Ice, Tech CU Arena and Excite Ballpark.
The Sharks will still pay for traffic and parking management costs around the Diridon Area. The City will contribute $150,000 in the first year and $100,000 annually thereafter to an arena safety program to help enforce a peddler ordinance and event security coverage around the arena.
The rent for Sharks Ice and Tech CU is currently $8.6 million. It will increase to $8.8 million next year and stay there through June 30, 2051. The two sides will work together to reduce energy costs, with the City receiving financial compensation from the Sharks if any cost reductions are realized.
Again, all of this still needs to be approved by the San Jose City Council before it becomes official. It will be addressed at the Aug. 26, 2025 council meeting.
