SAN JOSE – An agreement that extends Sharks Sports & Entertainment’s lease at SAP Center to 2051 and commits hundreds of millions of public dollars towards modernizing the 32-year-old arena was unanimously approved by the San Jose City Council on Tuesday.

The deal binds the city to a $325 million investment into the municipally owned facility, with the Sharks, who are owned by billionaire Hasso Plattner, contributing $100 million. The agreement also penalizes the Sharks should they leave San Jose before the lease expires on June 30, 2051.

San Jose Mayor Matt Mahan and all 10 council members approved the deal.

The agreement also commits the city and the NHL franchise to begin planning a new arena by September 2027, which city planners foresee anchoring a district that includes retail shops, restaurants and hotels.

After a lengthy negotiation, the Sharks and the city announced on Aug. 15 they had reached a deal that keeps the NHL franchise at the arena for another 26 years. The Sharks had sought a long-term agreement but wanted the city to make a larger financial contribution toward deferred infrastructure maintenance, with team executives stating that Plattner had already spent over $100 million on upgrades to the facility.

The city is facing a $35.6 million budget deficit this year and a projected shortfall of $52.9 million next year. As of last week, the South Bay Labor Council had requested more details about how the city will fund the agreement.

“By waiting to develop such a plan, at a time when the City projects deficits,” Jean Cohen, executive officer of the South Bay Labor Council wrote in a letter last week to the city council, “we fear the City may be unnecessarily leaving the General Fund and essential services vulnerable.”

To help fund the arena’s modernization, the city is expected to issue a $350 million bond measure, to be paid in five installments of $70 million between 2027 and 2031. Financing options include a short-term commercial paper, increased hotel taxes, or a general obligation bond. The Sharks would be responsible for any cost overruns.

Lee Wilcox, San Jose’s assistant city manager, emphasized that, considering the deficits, no payments will be required by the city in 2026, with the Sharks covering those costs in the short term.

Along with fans and business leaders, several labor leaders spoke in favor of the agreement during public comment on Tuesday. In a statement to this news organization on Tuesday, Cohen wrote, “When corporate sports teams receive public subsidies, there is an expectation that the community benefits. The Sharks are a good labor partner, and we expect that the City will include impacted workers, local neighborhoods, and San Jose taxpayers in the next phase of planning for this partnership.”

Renovations to the arena are expected to take place over seven years. They include widening the concourse areas, introducing new premium seating, and upgrading the back-of-house facilities. Both the team and the city will contribute $32 million toward capital maintenance. The city’s financial commitment is weighted toward the back end of the deal.

In the deal, the city is also required to address parking around the arena, including maintaining at least 3,175 spaces available on the streets and in lots within a third of a mile, as well as an additional 6,350 spaces within a half mile.

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Should the city fail to meet its investment obligations, the agreement imposes a $200 million penalty in 2026-2027, with the fee decreasing to $70 million in 2030-2031.

The Sharks face potentially harsher penalties if San José is no longer their home base. Early termination of the agreement would result in a payment of $100 million in 2025-2026, increasing to $549 million in 2030-2031. The fee would then decrease by $10 million up until 2047-2048.

Other financial terms include the Sharks’ commitment to contribute $12.35 million over the lease’s life for community benefits. The Sharks will also fund traffic and management costs up to $517,000, and contribute $120,000 to the arena authority.

Staff writer Devan Patel contributed to this story. Please check back for updates.