Kings get Anaheim lease, get Sacramento counteroffer and reject it

That mystery plan to finance a new Kings arena in Sacramento was revealed on Friday, and the details include … you know what, never mind. You know why?

1) The source here is the same apparently unhinged TV news guy who excitedly reported the plan last Wednesday (and who has previously shown himself to be willing to say just about anything to get ratings).

2) Though the report says that “a revenue source to pay for the plan has been found,” it doesn’t actually indicate what it is, how much it would pay for, or whether it’s politically feasible.

3) Kings owners Joe and Gavin Maloof didn’t even wait out the weekend before rejecting the plan outright, on the grounds that the revenue source wasn’t really a revenue source, and in any case it only would have financed a renovation of the Kings’ existing arena, not the new one they crave.

Far more interesting are the details of the Kings’ proposed lease in Anaheim, which were also released on Friday. (PDF here.) Highlights include:

  • The Maloofs, it turns out, would actually get that loan from Anaheim Ducks owner Henry Samueli, though it’d only be $50 million, not the $100 million that was originally rumored. Also, Samueli would in turn be borrowing it from the city of Anaheim, which would sell bonds to raise the needed funds. Another $25 million in city money would go to build new locker rooms and such for the relocated Kings.
  • The Kings would have to pay Samueli rent equal to 7.5% of their gross ticket revenue and half of parking and concession revenue; at the same time, the Maloofs would get a one-third cut of all arena ad revenue, plus an additional naming-rights fee that Honda has agreed to pay on top of what it already gives to Samueli. (In case you’re wondering, the city of Anaheim, which actually owns the building whose name is being sold, gets a big pile of nothin’.)

How the bottom line from this deal compares to what the Maloofs now earn in Sacramento is tough to say, especially given the one remaining wild card in the deal: how much the Kings would have to pay the Los Angeles Lakers and Clippers in territorial rights fees. ESPN is reporting that the arrival of the Kings could cost the Lakers nearly $300 million in lost TV revenue alone, though it’s not clear whether that’s in current dollars or spread out over the 20-year life of their new TV deal.

Either way, it seems likely that the Lakers and Clippers are going to be asking for a significant chunk of change in exchange for allowing the Kings to horn in on their SoCal market. The question now is how much support from other owners they’ll be able to drum up before the NBA owners’ meetings on April 14 and 15 — and then whether the price they can get the votes for turns out to be too rich for the Maloofs’ blood. Expect this one to go down to the wire.

(Thanks to FoS reader Mike M for many of the above links.)

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12 comments on “Kings get Anaheim lease, get Sacramento counteroffer and reject it

  1. You’re welcome.

    And on top of all that, now sources say that a third team in the LA-area market reduces the value of the Lakers’ new TV contract by about 10%.

    abclocal.go.com/wjrt/story?section=news/sports/pro/basketball&sa=NBA&eid=6265516

    Would the Lakers demand compensation? Hmm… Why wouldn’t they?

    We’re almost into a “no way out”-situation for the Maloofs. If the Kings can’t move, they’ve already burned all their bridges in Sacramento to a crisp, and the Maloofs are struggling big-time financially. I was only sort of half-way kidding when I suggested that they might abandon the franchise if it gets to be too large a burden. It could get to be too large a burden if the other teams vote against a move.

    “Why not the Hornets?” also seems to be a legit question. They get a vote on the Kings relocation, but since they’re league-owned, how do they vote? Maybe we’re into a situation where only 28 teams get to vote. And why not move the Hornets instead of the Kings?

    This is going to get uglier. Blech.

    The cleanest situation here would be for Larry Ellison to buy the Kings, and for the Hornets to move to Seattle. But is Ellison interested, and would the Hornets have a place to play, and what of the relationship between the Maloofs and Samueli? Samueli wants the Kings; that’s really what this is all about. If Samueli can’t get the Kings into Anaheim, that probably sinks the Maloofs financially. They need money to shore up the Palms, and that’s where Samueli comes in, many believe.

  2. The “cost the Lakers 10%” report is actually the same one as I cite in the item as costing them $300 million. (It’s a $3 billion TV deal.)

    The problem with abandoning the team is that, even in Sacramento, it’s currently worth $293 million (per Forbes), so you don’t just walk away from that. Selling makes more sense, even if it’s selling to the NBA a la the Hornets. Except then the NBA has a ton of money locked up in two franchises, with nowhere to put them. Stern has already sworn he won’t go back to Seattle without a new arena, and there are almost as many obstacles to one there as in Sacramento. They could threaten to contract them, but then they’re just burning that equity and getting nothing in return.

    This is definitely going to get uglier, yes.

  3. Basically, George Shinn did abandon the franchise. I can’t see anyone who’s calling it that, but his debts got so deep that the NBA had no choice but to step in. They didn’t want to contract the franchise.

    I think the danger of two forced contractions is very high, and very scary for the remaining owners. If they contract, that’s a payoff to former owners — the team ceases to exist, for sure, but the former owners get compensation. How do they value the teams to determine the compensation?

    The Maloofs owe a lot of money to a lot of people. They are so far underwater with the Palms that they may have a negative net worth. Moving to Anaheim was their only way out; Samueli wants more than just the Kings.

    If the NBA comes along and says the Maloofs owe $30M to relocate, and another $30M to each LA team, that’s $90M the Maloofs don’t have. But they can no longer stay in Sac; that’s now entirely out of the question.

    If the Maloofs declare bankruptcy and the NBA refuses to buy the Kings, the Maloofs will abandon the franchise. It’s ugly, I know, but not as ugly as continuing to incur losses.

    Would a $90M payoff to the two LA teams and the NBA even be enforceable? If the NBA said that, couldn’t the Maloofs move anyway, refuse to write the 3 checks, and say “Sue us”? I think there’s a chance they’d win that suit; the NBA doesn’t have an antitrust exemption.

  4. Oh my, now the City is checking with its lawyers:

    blogs.sacbee.com/sports/kings/archives/2011/03/city-taps-law-f.html

    Did anyone who voted for this “loan” in the first place READ THE DAMNED THING?

    Seriously, it’s a 2 hour read, at most. At most.

    I am dumbfounded.

  5. Contraction actually makes more sense, even if it means paying some money (although not full market value) to the Maloofs. The Hornets’ and Kings’ share of the ESPN/ABC and TNT deals is $31 million per team per year, so if you figure a $200 million buyout of the Kings (since the league has them by the balls at this point) they’ll make that back in less than 7 years and solve the Hornets problem as well. Looks like a win win.

  6. Except that $31 million a year for seven years isn’t worth $200 million in present value. (More like $179 million by my count.) And lopping off the New Orleans and Sacramento markets would reduce the value of the next TV deals by some small but non-zero amount, so you have to deduct that as well.

    I think it’s just barely possible that, if the NBA could convince the Maloofs to sell at a discount, it might break even on contraction. And that’s if the union, the cities, etc., didn’t file an antitrust suit that either won or kept the whole thing tied up in litigation forever. It’d be a huge, huge gamble on the league’s part.

  7. I would be shocked if any team got contracted. Vancouver, New Jersey, Anaheim, San Jose and possibly even Louisville are all good markets with good arenas. Plus there’s Chicago/Rosemont, where the arena is subpar, but the market is so good that a team like the Hornets might gain $100M in value overnight by moving there.

    To me it looks like the Maloofs know that the Anaheim Royals are worth $150M or so more than the Sacramento Kings and they’re willing to take whatever crappy lease they can get in hopes of landing an L.A. TV deal. As long as that carrot is out there, I can’t see how contraction happens.

    The messy part is probably going to be the relocation fee. As much as the NHL deserves criticism, at least they realize that a Phoenix-to-Southern Ontario relocation is worth at least $100 million. I have a feeling that NBA owners are so eager to spite the Lakers (who are able to have the smallest marketing budget in the NBA, which has to sting) that they’re going to let the Maloofs get in there for only $30-50 million.

  8. Okay, this has now entered into comically misguided territory:

    blogs.sacbee.com/sports/kings/archives/2011/03/city-of-sacrame.html

    Whiskey. Tango. Foxtrot.

  9. www.ocregister.com/sports/-293739ÔøΩ.html

    The terms of the bonds being floated state that the City would delay its share of the profits from the Honda Center until the bonds are paid off.

    The bonds themselves are being 100% funded by ÔøΩprivateÔøΩ investors from the Orange County area. A flex of muscle from the local corporations.

    It also states in the event the bonds go bad and the project fails the investors take the risk of non-paymentÔøΩ..that is unheard of! Hence why the City is making a sacrifice short term by not taking payments.

    It seems Anaheim and their private sector are very confident on the Honda Center generating enough profit over 10 years to cover the bonds principal and interest for these bonds.

    Right now one could infer the Honda Center is making 12M a year or so from the Ducks and all the events. They must be estimating an additional 5M-10M a year from the Kings being tenants.

    At first glance I would have to agree this is a good move where the private sector is essentially paying for the Kings to move to Anaheim.

    The Orange County and Anaheim taxpayers are in no way responsible for the bonds and they get an NBA team local to them for no cost to them.

    This has to be one of the best deals that any city
    has ever reached for a professional team to relocate.

    If OC could pull this off I am sure Silicon Valley could do something similar for the AÔøΩs and a NBA team.

    I now see why Lew Wolff says he can build in San Jose and not Oakland.

    What private investors would invest in bonds to build an Oakland ballpark? A San Jose ballpark could use the exact principles that Anaheim used with its large private sector to fund a stadiumÔøΩOn a larger level of course.

    The SVLG letter has to be 3 or 4 times the support OC had for an NBA teamÔøΩ.It is hard to argue otherwise.

    Kings are long gone, this is a good deal for everyone involved.

    BTW….There will be ZERO paid to the Lakers and Clippers. There are zero territorial rights in the NBA, NFL or NHL…They only unjustly used in MLB.

    The Kings will pay a $50M relocation fee to the whole league and the Lakers/Clippers will sit there and take their measly crumbs from that amount…1.72M each team x 29.

    San Jose should take note of what Anaheim did with its private sector and use the same model to get an NBA and MLB team to their city.

  10. When the Ducks paid their $50M expansion fee, $25M of that went to the LA Kings. The Lakers and Clippers will get paid, though maybe not as much as they want.

  11. (Semi) correction to Sid…there are territorial rights in the NHL, but they’re kinda secretive and not talked about for fear of anti-trust litigaiton. NJ had to pay rights to NYI, PHI, and NYR when they moved; ANA had to pay some to LA; and the rumour here is that the big reason the Balsille move was 86’d was Buffalo and Toronto.

  12. Anaheim CC passed unanimously tonight. Looked like there were no reservations or waffling; just “Woohoo!”.

    As these deals go, I think this one is better than average. Much better than average.

    The loan Sacramento gave the Kings in 1997 isn’t even a loan. They bought the arena, and lease it back to the Kings. The Maloofs now way the arena is worth $30M; so the collateral is a $30M arena and a $25M slice of the team; $55M. But the loan balance is $77M. Sounds like it’s cheaper to let the City gain custody of the arena and take the slice of the team. We’ll see, but this will get litigious.

    A Sacramento attorney already claims the bonds are illegal. I doubt it, but we’ll see.

    blogs.sacbee.com/city-beat/2011/03/sacramento-attorney-says-anaheim-bonds-for-arena-are-illegal.html

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