Behind closed doors, the San Jose Sharks and the City of San Jose are talking about a new lease agreement for the Shark Tank according to San Jose Spotlight.
While the Sharks are signed to occupy SAP Center through 2040, in 2025, the terms of the lease shift from a fixed lease to a year-to-year lease, meaning the City of San Jose can adjust the rent as soon as 2025. So, while these lease negotiations aren’t urgent (the Sharks are signed on to play in San Jose for many years to come), there is an obvious financial benefit.
The two issues at the heart of the negotiations appear to be the age of the arena and, of course, money.
SAP Center among the oldest arenas in the NHL
Even in 2015, when the current lease was signed, SAP Center was among the oldest arenas in the league. At that time, the team and the City of San Jose agreed to small upgrades and the two entities shared the cost of those upgrades. However, they were upgrades and not major renovations. Now, nearly ten years later, the issue will have to be revisited.
Since then, SAP Center has continued to climb the list of oldest arenas in the league. The New York Islanders have moved into a new arena. The Calgary Flames are in the process of working with the City of Calgary to build an entire event center that includes a new arena. Madison Square Garden and Climate Pledge Arena have undergone substantial upgrades to become more modern. Meanwhile, SAP Center continues to age.
So, what does this have to do with a new lease? Well, according to Spotlight, the Sharks aren’t asking for a new arena, but the team does want considerable upgrades to the 30-plus-year-old building.
Figuring out what those upgrades are is only the first step in negotiations, and it might be the easiest step of all. The big hurdle will be who pays for those upgrades.
Money matters
Obviously, both sides want to pay as little as possible. San Jose owns the building, so one argument could be that the City should pay for the upgrades. However, Sharks Sports and Entertainment maintains all operating rights to the venue, so it could also be argued that the SSE should bear some of the cost. The fight over money is likely to be the most contentious point of all in these negotiations.
Both the City and SSE started laying out their cases in the court of public opinion earlier this month.
According to San Jose Spotlight, San Jose Mayor Matt Mahan said at a recent event that the city makes about $20 million a year in tax revenue from the Sharks. That’s approximately $100 million over a five-year span. On the other side, SSE says it expects to create $1.25 billion in economic impact for the City over the next five years.
That’s a drastic difference in numbers, but it’s not unusual when examining a relationship between a major sports franchise and a city. Often, the cities only report the monies that go directly into the city budget, while major sports franchises look at the indirect benefits their events may have on the city, specifically in the form of tourism, hotel occupancy tax, sales tax, ticket surcharges, parking fees, etc.
An analysis conducted by the San Francisco 49ers regarding the impact Levi’s Stadium had on the City of Santa Clara over the past ten years yielded a similar disparity in how much money the stadium “made” for the city.
What happens next in negotiations?
Both numbers will come into play as the negotiations over ground lease and upgrades continue in the upcoming months. The good news is that Mahan says he’s committed to keeping the Sharks here and SSE appears to be committed to staying in San Jose. For now, Sharks fans don’t have to worry about suffering the same fate as Oakland and the Athletics.
What’s more, just last year, SAP re-upped its naming rights of SAP Center for another five years, meaning the contract will run through 2028. Since the owner of the San Jose Sharks, Hasso Plattner, also owns SAP, the recent contract renewal could be seen as a sign that he’s committed to trying to work things out with San Jose as well.
