Tuesday, February 28, 2012

Why the Maloofs agreement to monetary terms with the City of Sacramento is such a big deal


For a lot of people not in Sacramento, who don't follow this story (and don't care understandably), and for a lot of people who thought there were good odds that the Sacramento Kings franchise would either relocate to Anaheim or Seattle, guess again. Yesterday TPBT's Payton Wales posted the news in the Daily Dribbles that I think is a strong reflection of how outsider non-Sacramentan/King fans view this ordeal.

News yesterday after intense all weekend slash all day long negotiations have come filtering out from Sacramento reporters and a press conference with Kevin Johnson, the mayor of Sacramento, and the Maloof family the majority owners of the Sacramento Kings. The Maloofs have agreed to a 70-75 million dollars (that specific monetary amount is still being tossed around), and potentially 75 million dollars over the life of a new arena deal (a likely minimum of 30 years). Here is video (and a nice writeup of the affair by Fran Blinebury) of the announcement made in the lobby of the Waldorf Hotel at le monde de Disney. This is probably the most important summary of the whole process in a co-written piece by Sacramento Bee City Hall/Political reporters Ryan Lillis, Tony Bizjak, and Dale Kasler.

For an arena deal that has usually tossed around a number of 387 million dollars as the potential number to get a new arena built, this is huge. (Note: This number has also been mentioned as high as 406 million dollars. There is, pardon the pun, a lot of moving parts in this deal from every angle imaginable.)



There is rumors that the City of Sacramento will probably fetch somewhere in the neighborhood of 200 million dollars (towards a new arena--that's not likely the total amount) for the leasing of parking garages at a 50 year period. Then, there is the possible amount that AEG (Anschutz Entertainment Group--also the largest arena operator in the world), who happens to run a number of swanky venues including the Staples Center in Los Angeles, the Barclays Center in Brooklyn when it's finished, the O2 arena in London, Key Arena in Seattle, the Kemper Arena in Kansas City among others) have supposedly agreed to a ballpark figure of 60 million dollars in contribution of building a new arena in exchange for operating a new Sacramento arena over the life of the agreement. Just these 3 totals (city of Sac's share, Maloofs share & AEG's share)  would pay for 335 million of the noted 387 million dollar figure.

While there is plenty of ways to go in the Sacramento arena story, starting with the agreement of the Sacramento City Council to lease these parking garages on March 6th after an agreement of a term sheet by March 1st (that's needed because the council has to have 6 days of review before voting), will be the next step in this decade plus long saga of securing a long term lucrative future for the Sacramento Kings in the River City. There are a lot of people who question the need of Sacramento (as you would expect) to keep the Kings. This is a great piece illustrating exactly how many in Sacramento see the place for better or worse. At the same time, a piece like longtime sports columnist Ailene Voisin of the Bee wrote today is often the type of sentiment that leads to criticism such as the piece in the previous sentence.

This is only the ending to this particular story at this particular time. (The real ending is in 2015 or 2016 when the arena opens for business.) There is a lot of back story here that a lot of fans around the country are not aware of, and I feel it's time to share that story with them.

Starting in 1985, because this is when the Kings move to Sacramento from Kansas City, a new arena needs to be constructed. This is the construction of Arco I which is only a temporary building seating about 10,333 people. The most famous moment of this building is probably Larry Bird, of the 85-86 Celtics Championship team who almost never missed FT's throughout his career, missing 2 FT's down the stretch (it's included in this video) of the Celtics-Kings game in Arco I. Arco I is long gone, and if you click on the link you'll notice it looks like an office building. That's because that's all there is of Arco I today.

In 1988, Arco II is constructed and is the current building in use today as we speak. It's very clear that within 5 years of the construction of the new arena, that the building will not have a long shelf life. For instance, the Palace of Auburn Hills (the Detroit Pistons home) is still fully functional and considered a fine building.

In 1997, Jim Thomas, the then majority owner of the Kings (who would end up selling majority shares to the Maloof family in 1999) asks for a 100 million dollars from the City of Sacramento. When the smoke clears the City Council ends up voting on a 70 million dollar loan that the Maloofs are still responsible for and have not completely paid off to this day. (This is due to the terms of the loan, not the Maloofs ineptitude.)

From 2000-2005, there are multiple visits by the Maloofs (who took majority control of the Kings in July 1999) to City Hall with then Mayor Heather Fargo (she stepped down in 2008 which led the way to now Mayor Kevin Johnson) to figure out financing for a new arena.

In 2006, the ill-fated Q&R attempt to get a new arena built with an increase in sales tax is voted down by the margin of 20-80. (That's 80% against.)

In 2007, the Maloofs and the NBA announced that the NBA will take over negotiations on a new arena and the NBA will give the Maloof family guidance on how to pursue a new arena in Sacramento.

In 2010, A convergence plan after years of discussion comes to bear nothing after the plan calls for a swap of 3 properties in the City of Sacramento (not all owned by the City however) that dies when the Board of Cal Expo (land owned by the State of California and managed by said board) votes to not agree to a swap of the land.

In 2011, the Maloofs start negotiations with Anaheim to agree to move to Anaheim starting this season. Obviously, it does not bear fruition. However, there were many obstacles that exist with Anaheim that still exist today. The main source of this agreement with Anaheim was Henry Samueli, the owner of the Anaheim Ducks, and the City Council of Anaheim who would agree to bonds to get a deal done. The deal then falls apart for the following reasons:

Chief among them:

  • The Los Angeles Lakers have signed a new TV deal with Time Warner ranging anywhere in the 5 billion range(yes with a B!), and this deal stipulates that a new team in the market would decrease the value of this TV deal by about 500 million dollars(according to Sam Amick)
  • The suggested TV deal the Kings would get in Anaheim is from a local TV station owned by Henry Samueli
  • The Maloofs have divisions within their own family on whether to move to Anaheim or stay in Sacramento and ultimately Joe and Gavin, the biggest proponents of staying in Sacramento ultimately prevail
While these are only 3 of the parts that are moving in order to accomplish a deal to Anaheim, it's clear that revenue sharing would then become an aspect that the Kings would have had to accomplish in order to convince the NBA's Board of Governors that moving to Anaheim would be in the NBA's best interest (aka making money).

During this time, multiple active citizen groups starting with Here We Stay and then Here We Build (which eventually becomes Think Big Sacramento) are created to illustrate that citizen will to get a new arena in Sacramento is very much active and alive. Last month, a documentary showing some of the process in getting to the current stage named "Small Market Big Heart" was released in a local downtown theatre in Sacramento.

On April 16 2011, Kevin Johnson heads to the Board of Governor meeting in New York to discuss why Sacramento should be the long term holder of the Kings franchise. Among other things Johnson reveals to the BoG , there is corporate sponsorship not tapped by the Maloof family to the tune that Johnson says the city and various other interests have gotten pledges of 7 million dollars in corporate support in just a week, and that there is a potential owner in Ron Burkle (the supermarket magnet) who would purchase the franchise from the Maloofs if the Maloofs/city of Sac could not agree to a deal. David Stern supposedly says to Kevin Johnson," You have got Burkle?"

In May 2011, Think Big Sacramento is created, co-charied by 2 California State Legislature persons, Darrel Steinberg (Democrat Pro-Tem in the California Senate) and Ted Gaines (R-Roseville), and includes some prominent people in the negotiating process such as Chris Lehane. This group is tasked with coming up of what is termed as a "menu of options" to finance a new arena. What is ultimately is settled on is asking for AEG, the Maloof family, a variety of small total dollars contributing to the project, and the leasing of parking lots currently owned by the City and County of Sacramento.

In September 2011, the Nexus Report (this is my writeup of the thing--it has lots of links included within it including the Nexus Report PDF at the top of the page) susses all of these details out and explains a number of the processes (including the RFQ and RFP processes which I'll explain in a minute) by Dan Barrett.

Who is Dan Barrett? This is Dan Barrett. The same Dan Barrett who was with city of Sacramento staff through Monday negotiating the agreement with Joe, Gavin and George Maloof (of the family of 6).

In December 2011, the RFQ process begins with the City Council of Sacramento beginning the initial discussions of whether or not the City should lease these parking garages to lease a new arena.

The RFQ process is simply a feeler that asks what potential purchasers of this long term lease would pay. An RFP process is the agreement that actually agrees to the set amount of years and dollars a potential leaser of these garages would pay to get these locations. Right now the City of Sacramento is currently in the RFP process. Got that? There's more.....

Along the way, Kevin Johnson angers the City Council with the infamous 5-4 vote that both Chris Webber and Reggie Miller proclaim on TNT as a bad sign of things to come for Sacramento. (Webber and Miller confused the "strong mayor" initiative Johnson was trying to pass for the arena vote that actually was voted down.) Webber/Miller are confused because they don't understand why the motion started by Sandy Sheedy (a loud vocal opponent of Johnson's and thus the arena) is actually voted down. The proposal by Sheedy is to allow the City of Sacramento voters to vote on whether or not the City should be allowed to lease parking garages in order to get an arena built. Along the way, a council member named Bonnie Pannell is visibly upset going on a rant many City Hall observers believe connected to the strong mayor initiative. The next week, agreement to move forward with the RFP process passes 9-0 (there are 9 votes on the City Council including Kevin Johnson's).

Now, we are discussing March 6th and it's importance. First off, a term sheet (which is legally non-binding for all parties) for how the arena is financed has to be agreed to. This financing for the "387 million" arena will include:

  • roughly 200 million from leasing of parking garages (whether this is the amount towards the arena or total is not yet clear)
  • 70-75 million contribution up front from the Maloof family
  • 60 million from AEG in exchange for the rights to operate (this is their bid essentially)
  • 30 million dollars over the life of a lease from hotel tax (likely a million dollars annually at most)
  • A ticket surcharge at 3-5% of ticket value for ticket payers and arena users
  • An opportunity to purchase a brick for a specific amount (amount not yet known but is not believed to contribute more than a million or two dollars total for the project)
Now, this is just a part of all this that matters. Remember, there have been 4 mayors, 3 ownership groups, multiple attempts at building a new arena, and it's not until 2012 that Sacramento will get a modern real swanky palace of it's own to call home. As much as there is local opposition to this whole project right now, I'm betting (if I had to hazard a guess) about 55 to 45 percent are in favor of Sacramento getting a new arena at this point using the released financial mechanisms, that number will go up to 75%. One of the typical comments you will see from a "naysayer" is that you shouldn't build an arena for a loser of a team. Or loser owners. While I'm not the biggest fan of the Maloof family (I would love a wealthier owner of the Kings but that's not looking to be likely in the nearby future), there is ample evidence that the entire family is not complete dolts.

Let's start with Joe, Gavin and Phil Maloof. (I'm not sold on their mother as much as I was, even though she's not dumb, Adrienne is a legitimate dumb person--just watch Housewives of Beverly Hills if you think I'm lying--and George Maloof is possibly public enemy #1 amongst all Kings fans right now.) Why Phil? Because he's not in the spotlight at all (with the exception of Phil's time as a New Mexico state senator) and that's a good thing these days. Yet, I guarantee that most Kings fans would like the Maloofs to stop owning the team, the truth is that as long as the Maloofs aren't losing money on the franchise or wouldn't profit immensely from a sale (I'm talking a sale in the 400-450 million range--near the same price the Warriors fetched in 2010), the Maloofs aren't selling the Kings as long as revenue sharing, a better TV deal with Comcast SportsNet is reached (a possiblity), and the new arena with all the available revenue streams not really available at the current "Power Balance Pavilion." (On a personal note: The day I can never say that again will likely be the 2nd best day as a Kings fan after yesterday.)

My point that as long as this saga has gone on, ownership has always been tenuous if not outright ornery. Owning a team in Sacramento certainly has quality possibilities for the long term future of ownership, but only if the right things in place. Currently, and as long as the continued arena plan stays on course through the city council (no guarantee with the Sac city council--or any with any political body really), the future of the Kings in Sacramento looks bright considering all the hurdles and challenges that took building two arena's in the first place, the challenges just keeping the Kings in Sacramento after last year's reprieve, and the challenge of coming to a meeting of the minds between the City of Sacramento and the Maloof family. This is not simple or easily solveable stuff, and for the near future it seems like a real solvable solution has emerged.

I know one thing. There is one clear winner in all of this, especially if the arena is constructed, and that is Kevin Johnson. He will forever be remembered as a guy who not only managed to get an arena built using only monetized asset's, but getting a significant contribution from Kings ownership and the arena operator along the way. Additionally, there will be minor pieces that add up to probably about 5 million dollars in the final tally. More importantly, the most important piece was the actual commitment the Maloofs made directly to Sacramento to Kevin Johnson. That means a lot even if in real terms it means actually little in the final analysis. Recently, the Maloofs hadn't been too committed despite public comments and statements made to the contrary. One way their ownership would be tolerated if they consistently and constantly immerse themselves in the Sacramento community. Within the last year, Joe and Gavin Maloof--to Joe & Gavin's credit--have done just that.

At some point, the jig was up. The jig was in April 2011, and Sacramento potentially came out ahead in the long run anyway. Not many small markets can ever claim that. Which is why the elation and jubilee was so strong from the River City over all of this yesterday. Sacramento hasn't had many victories recently, but for Kings fans and arena proponents alike, they want to silence all arena naysayers (not just in Sacramento but they are a start) with pointing out that in Sacramento the arena works as a catalyst for a real revitalization of what is very clearly a dying and decaying Downtown area that is an embarrassing reality any way you slice it. (Having the biggest urban infill project disappear with a new arena is a great start to make DT Sac look far more, umm how shall I say it, palatable?)

Want to know why Kings fans were celebrating and going on? The 27 years of history in Sacramento both in sporting and real history is why. Hopefully this is the beginning of another 27 years times infinity. So while I apologize for the length of all this, I'm hoping this can help bridge the gap for those curious and to come to an understanding of why accomplishing a deal of this magnitude was so complex. For the first time in my lifetime that I can remember, there is local will in Sacramento to actively pursue and accomplish an attitude Sacramento has never seen in it's 160 years as an incorporated city. This is big stuff, and I suspect it's only the beginning for better or worse.

1 comments:

Jacob Noble said...

Bring your reading glasses! Great post.

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