Sacramento Mayor Kevin Johnson, the Kings owners the Maloof brothers, and the NBA announced yesterday that after a weekend of marathon talks, they’d agreed on a “tentative deal” for a new arena — what most of the rest of the world would call a “plan,” since it still needs to actually be voted on by the city council and the county board, not to mention have a bunch of unanswered questions nailed down. And the plan is … nobody’s saying, not until Thursday, just five days before the council will have to vote.
What details have emerged, though, are of a fiendishly complex funding scheme with oodles of revenue streams headed this way and that, such that it’s hard to figure out exactly who’s paying for what. Let’s give it a shot, though:
- Of the estimated $387 million arena cost, the city would put in the largest share: anywhere from $200 million to $250 million. This may be from the leasing of rights to future parking revenue at city-owned lots as previously planned — something that could raise anywhere from $100 million to $200 million — or could mean selling bonds against future parking and hotel-tax revenue, which could raise more money but would bring with it the risk of shortfalls in paying off the bonds. Other possibilities: new cell phone tower leases or revenues from electronic billboards outside the arena. The city would also own the building, which presumably means the Kings would be excused from paying property tax, which they currently pay on their existing team-owned arena.
- The Maloofs would put in $75 million in cash (at least partly raised by selling the site of their current arena), plus $75 million in “arena-related revenue,” which looks to be from a ticket surcharge of anywhere from 3 to 5% (a pretty big spread) that would go directly into the city’s general fund to make up for part of the $9 million a year in future parking revenues that would disappear from the city treasury. Ticket surcharges are generally considered to be a legit team expense — if the market will bear $50 for a ticket, then a 5% surcharge means the team can only get away with charging $47.62 as a face value — but this would actually be a surcharge on tickets to all events, not just Kings games, meaning much of it would actually fall on…
- AEG, which is now offering to kick in $60 million for the rights to run the arena, including collecting money from rock concerts and the like on nights the Kings are off. Exactly what share of the revenues they’d share with the city or the Kings isn’t clear, but past history shows they drive a hard bargain in these matters.
That’s a plan, certainly, but one with so many ifs and maybes that I’d hate to have to be a member of the Sacramento countil voting on it in just one week. Among other things, the rest of the $9 million in lost future parking revenue is supposed to be paid off by the ever-popular “other sources,” including a cut of future parking revenue on arena event nights — something that you’d think the companies bidding to lease the parking lots would want for themselves if they’re going to pay top dollar. And there’s no agreement on who’d pay for cost overruns, though there’s talk of trying to find an arena builder who would agree to pay for overruns in exchange for getting to keep any savings if it comes in under budget.
At first glance, at least, this looks like it could be a marginally better deal for the city than what was being discussed a week ago, if only because of that ticket surcharge that would help make up for the lost parking money. That’s a huge “could be,” though — if, for example, the ticket surcharge was achieved in exchange for the city agreeing to share parking proceeds with the Kings, and this cuts into how much money the city can get for its future parking rights, we’re right back where we started. And most important, without knowing who’ll be getting what share of arena revenue, it’s impossible to say who’d be getting a return on their investment and who’d be getting the short end of the stick.
None of this, naturally, stopped Mayor Johnson from exclaiming, “It’s game over! Sacramento deserves to win, and this is our chance to win. I’m so emotional, I can’t even articulate it.” After spending a weekend locked in a room with David Stern, KJ is understandably ready to celebrate, even if only being let out of the room. But while this may be game over as far as this round of negotiations go, it promises to be only the first game of a long, grueling Sacramento arena season.