VA Beach, Comcast declare arena plans dead (for now)

And this just in from WAVY-TV in Virginia Beach:

Today, Virginia Beach Mayor Will Sessoms and Peter Lukko, the president of Comcast Spectacor, will release a joint statement regarding their ongoing negotiations to get the arena deal done.

Unfortunately, those negotiations are at a stand-still.

So, the Kings will not be signing an agreement to come to Virginia Beach if the arena is built.

At least not now.

And here’s the text of the Sessoms-Comcast statement, which says that while “we both firmly believe that Hampton Roads is ready for a large sports-and-entertainment venue,” “we have not reached a level of progress that will allow the city to go before the General Assembly to request the necessary funding.”

So on the spectrum of possibilities, this is pretty much “nothing has been accomplished but that everyone will reconvene at a later time to try again.” Sessoms will not ask the state legislature for $150 million toward the arena project this session, Comcast Spectacor will take their ball and go home for now, and everybody will forget this entire “NBA in Virginia Beach” thing ever happened. Until the next time there’s talk of a team moving somewhere, when suddenly people will be able to raise Virginia Beach as an option without people laughing (too loud, anyway). This is arguably moderately good for Virginia Beach’s profile, and outstanding for NBA teams seeking leverage with their current cities.

And speaking of NBA teams, this still leaves the Kings without a relocation target, less than two months before the March 1 deadline for the 2013-14 season. There’s always Seattle — KING-TV reporter Chris Daniels is already predicting the Seattle rumors will heat up imminently — but that would require selling the team to Chris Hansen, which the Maloof brothers still insist they don’t want to do. Unless Hansen is prepared to swoop in and overwhelm the Maloofs with an offer — which would be kind of dumb now, since he’d be bidding against himself — and the Maloofs are prepared to accept it — and the Maloofs have never been known for being ready to take action on anything more complicated than ordering appetizers — it’s probably a pretty safe bet that the Kings will be back in Sacramento, for next season at least.


39 comments on “VA Beach, Comcast declare arena plans dead (for now)

  1. Hampton Roads is a strange place anyway. A hodgepodge of small cities, quite a distance apart, if you are planning on going to 41 basketball games. Maybe eight football games, maybe. But, it’s somewhat of a transient type of a place, anyway, everyone would be rooting for the visitors. Probably like Vegas in that regard. Sacramento is not my favorite city, but it’s a proven market with surprising metro-area size. I hope they stay. I guess seeing the Sonics again would be all right, otherwise Sac is fine. I read that Kevin Johnson has an announcement today(?), but it’s probably unrelated to this.

  2. Oh yeah, you guys must be right about some of the other markets. I mean KC, Pitt and Louisville have buildings ready to go, and no one is interested. That building in KC isn’t really that new, anymore and they got nada. Profits are profits, I guess, even if it is Madonna and not the NBA. It is the Maloof’s we’re talking about, I guess they figured a sweetheart deal that would never become reality is better than places that are ready to go. Seattle or bust, now? Can they stay in Sleep Train Arena forever, or be contracted. Any other cities out there? How about Toledo? (kidding)

  3. Congratulations to VB for making a decision that was considerably better than the one the Sacramento City Council made. It’s scary to know that if the Maloofs went groveling back to our Council to revive the deal they rejected last Spring, the Council would probably give it a try.

    Yup, 2013-2014 in Sacramento is now a given. I felt that way if they were moving to Seattle, though. While Hansen may be willing to spend $56M (and counting) on land in Sodo for that arena, it’s highly doubtful he’ll be willing to spend $500M for a team when their environmental reports are not complete. So, yup, for several reasons, the Kings will be in Sacramento next year. And then, that’s probably it.

    Hopefully, VB won’t go through this iterative process very many more times. Maybe the voters will decide new leadership is needed if they try this a time or two more.

    I keep hearing that there’s an active movement to get the Kings to Louisville. Do you know much about that, Neil?

    The Maloofs are doing everything they can think of to not repay that 1997 Arco Arena purchase-leaseback deal (which everyone calls a loan). It’s pretty disgusting. Hopefully, our Council will continue to insist that the Maloofs repay those bond-holders AND contribute up-front to any new arena. I personally think the dead Sacramento deal was a bad one for the City (the parking sale wasn’t going to raise enough funds), but at least they insisted on repayment of the existing loan and contributing up-front to a new arena.

  4. As for an “out there” prediction, here’s mine: The Maloofs file for bankruptcy, which throws the repayment of the existing bonds into doubt. As a part of a reorganization, the Maloofs attempt to “give” the arena and the land to the City of Sacramento to either fully or partially settle the bond terms. That’s a court battle that could take years.

    My basis: The Maloofs think their team is worth about $450M. They own 43% of the franchise, and control it because a couple other owners always vote with the Maloofs.

    43% of $450M is $193.5M.

    However, they owe the NBA $125M and the City $67M, which is $192M. So a sale of the franchise would net the Maloofs only $1.5M (it’d probably cost more than $1.5M to sell the team, so even this might be optimistic). That’d be an unqualified disaster for the family. Now, I believe that the $192M in debts is spread out over all owners, but I’ve heard it argued that the Maloofs own 100% of the debt. Frankly, that makes no sense to me. But if it’s true, I can see why they’d file for bankruptcy.

  5. Hampton Roads is a –very– transient place, thanks to the abundance of military installations. Several of the cities are enormous in terms of acreage and used to be counties. Distance between the populated parts of the cities isn’t far at all. Virginia Beach, Norfolk, Portsmouth, Suffolk and Chesapeake all butt up against each other. Hampton and Newport News are only separated from the rest by a river. Virginia Beach is big enough that the arena could be moved much closer to the population center of the region and still remain in the city.

  6. In order for the Maloofs not to have to sell the team moving the team to Newark is still a possibility-the Nets waived their territorial indemnity rights in exchange for playing in the Prudential Center and Cablevision would probably waive theirs in exchange for the television rights on the MSG network.

    With the Devils reorganization being approved favorable lease terms could be arranged.

    If the Devils would agree to a short-term lease (i.e., 5-10 years) the Maloofs could then look to try to help finance a new arena in the Meadowlands to replace the Izod Center.

    Knowing the Maloofs they will probably try to hold on in Sacramento.

    The real question is: how long will the NBA allow them to?

  7. Newark without the benefit of the NY-area cable rights, though, would be a fairly dismal market. Especially when you factor in that the Devils would get to keep most of the venue revenues, and make the Kings pay rent as well. (Otherwise there’s no point in locking up winter dates that could otherwise be used for concerts.) They’d be better off staying in Sacramento.

    Louisville… maybe. The Colonels did okay in the ABA, and the arena there is way more desperate for tenants than some others. It’s still a very small market, though — again, I’m not clear on whether they’d be better off there than staying put in Sacramento. Best bet would probably be to find a local owner to buy the team and move it there, a la Oklahoma City, but if the Maloofs are willing to sell, Hansen’s probably going to outbid everyone, so doesn’t seem all too likely.

  8. Seattle – filling the role Kansas City used to play for the NBA and NHL. When your billionaires need a relocation threat with a two to three year horizon rather than an actual arena to point at (and a more believable media market).

  9. ChefJoe, given what Seattle’s council has done so far, and what Hansen/Ballmer’s clearly stated position is, I think this is way more than a theoretical/hypothetical situation. It actually exists.

    Hansen is one step closer to NBA team ownership today. This is perhaps the one way the Kings can leave town this year; by a Hansen/Ballmer purchase, which would move the team to Seattle for 2013 (there are at least 20 votes in favor of this today).

    The last things left to negotiate are the relocation fee (and if that’s substantially more than what OKC paid, look out for an antitrust suit), the purchase price, the ILWU suit and the environmental report. Seattle is very close to having a team within 3 weeks.

    I wouldn’t completely discount a Maloof bankruptcy, though. Or at least a Maloof Sports and Entertainment (MSE) bankruptcy. I think MSE is a corporation in which the Maloof family has a controlling interest.

  10. Keep in mind that if the Maloof’s price is $500m, we’re getting close to a billion dollars in cost for the team plus the arena. (And that’s not counting what Hansen already spent on land.) Yes, cable rights fees are going up, but once they do, NBA salaries will too. I find it hard to believe that Hansen can generate any kind of return on that investment, though I guess if his investors are more into owning a team than making money, it’s conceivable they’ll just lump it.

    Still, if Seattle is such an awesome market that it’s worth a billion dollars to be a part of it, I have no clue why Howard Schultz sold the Sonics…

  11. What? It’s over for VB???? Dammit! They were SO close….

    Was this about anything other than Sessoms getting his name in the paper??? Well, and the Maloofs making another “How much money can we get for nothing at all” hopeful cast?

    MikeM: I’m with you on the equity the Maloofs have in the team. Like many of the other things they notionally “own”, I don’t think there’s much that isn’t mortgaged (possibly including the stationery and coffee makers). Don’t know a great deal about the old man, but the bros seem very much to be all hat no cattle (sorry for the western reference…but it fits…)

  12. “…Still, if Seattle is such an awesome market that it’s worth a billion dollars to be a part of it, I have no clue why Howard Schultz sold the Sonics…”

    Good question, Neil. The fact is that while Seattle loved their team, they weren’t exactly showering it with discretionary spending the way some other markets were. And Schultz was never able to extract the kind of concessions he felt he should get from the city.

    Arguably, Hansen has accepted more meagre terms than Schultz was willing to take to get a new arena deal (and I applaud Seattle for their strong negotiation). Clearly, he wants to be the Sonics owner (unlike Heisley in Vancouver/Memphis, and others, for whom ownership is a nice ego boost, but it’s almost all about the money) and is willing to pay to get there.

    But yeah. For $1Bn, you could get your pick of run of the mill franchises in “pretty good” markets in any league – probably including MLB and the NFL. Either he “really wants” to be the sonics owner, or there is another shoe to drop that none of us have considered yet…

  13. Will Hansen have to pay for the team and the arena? Will that be close to $1 billion? How far is he willing to take some hobby? He may never make his money back on the deal, maybe his grandkids will.

  14. Regarding Seattle as an NBA market and why Howard Schultz sold the team, we have to consider the building and lease he was dealing with. While Key Arena was substandard, it was the lease that really killed the Sonics in Seattle.

    Usually, when you have a smaller market or arena that doesn’t generate a lot of revenue, you have a sweetheart lease to make up for it. With Key Arena, they had the worst arena AND the worst lease in the NBA. Lots of club seat and suite revenue went back to the city to pay off the debt on the arena. Plus they were paying annual rent on top of that. I still don’t know why Ackerley didn’t just take on the $75 million himself and then control all revenue. That would’ve been a better deal in the long run. Nevertheless, Schultz was overwhelmed by a lease that he originally thought he could handle but couldn’t so he sold the team.

    Had Seattle gotten a deal that some of these other places got, they never would’ve moved. In fact, I’m betting that Ackerley never sells to Schultz in the first place. Unfortunately, Seattle politics got in the way and the team left.

  15. @Mike

    Hansen doesn’t have to pay for the entire arena. Just $290 million of it and he doesn’t have to purchase the entire team. He’s got Ballmer and Nordstrom as co owners and I’m betting they’ll own close to half the team so Hansen is going to wind up paying around $225 million for a $450 million team. That puts his investment at around $515 million.

    Keep in mind that he will own and control the arena for the first 30 years. At that point, the city will have the right to buy it from him. But controlling an arena in Sodo that will host many other non sporting events makes his investment even more sound.

  16. Chris Daniels, one of Hansen and Save Our Sonics’ “Media Partners” is already pretty good at stirring up the rumor mill without help from others. He was the reporter that trailed Clay Bennett until he offered up the quote about seeing an eye doctor (in response to a question about did he SEE a team returning to Seattle in the future).

  17. Regardless of how much $$$ Hansen has to pony up himself, the total cost could still be around $1B so the question of “Is it worth it?” remains.

  18. Yeah, the point is that whoever’s putting up the money, there has to be enough generated by the arena to pay off construction costs and provide ROI on the purchase price. At a $500m team price, that seems crazy optimistic.

  19. @Keith

    It depends on how you define “worth it”. While Hansen, Ballmer and Nordstrom won’t get their investment back in whole, they are doing something that is important to them and that’s bringing the Sonics back and having a sports and entertainment complex in Sodo. My guess is that they’ll be happy if they get anywhere from 50 to 75% of their investment back plus they’ll still have the value of the team to sell if they want to completely recoup their investment.

    @Neil

    But isn’t that what we want? If the private investors expect a return on their investment and return only then they are almost justifying public contributions to these stadiums and arenas. Otherwise, a completely private investment will usually NOT give them a good return. I would think that this site is in favor of owners completely ponying up and losing in the long run for the good of the fans.

  20. Sure, if the plan is to buy the Kings for the good of humanity (non-Sacramento humanity, anyway) and move them to Seattle and live it up while losing money, no complaints. I’m just baffled why, if that’s the plan, these same guys didn’t then do the same thing back when Schultz was selling, and the price was cheaper.

  21. @Trueblood… from a 2006 Seattle Times article titled “The secretive world of Sonics owners” we have a then-Sonics owner (one of 58 or 59 putting in at least $5M) and now Hansen collaborator Pete Nordstrom saying –
    – On the other hand, people who can afford to invest in teams didn’t get rich by being fools. “There is a difference between being civic-minded and philanthropy,” Nordstrom said.

  22. Trueblood:

    By “seattle politics” do you mean those pesky elected representatives looking out for the taxpayer rather than the billionaire owner? You seem to have structured your argument in such a way that it suggests it is the responsibility of the city to meet the demands of the team owner first and foremost… was that the intent?

    Arguably, even if one is a Seattle basketball fan and taxpayer the gov’t of the day did the right thing. The owner had agreed to a lease that covered (most of) the reno costs required out of arena revenues. By refusing to renegotiate the deal, the city forced the then owner’s hand (sort of) and the club was put up for sale. It ultimately left (creating a ‘sort of’ windfall of some $75m back to the city to cover unfunded arena obligations, as I recall), of course, and is now a burden on the taxpayers of OKC.

    The new arena deal appears to be as close to revenue neutral for the city over the long haul as possible. Thus, Seattle goes without basketball for a few years, but gets better owners and a new (rather than renovated) building along with the “new” Sonics.

    Doesn’t seem like a losing proposition to me… unlike dealing with Schultz/Bennett would have been.

  23. Although I have to wonder if any of the ownership group is eying an arrangement with significant losses as acceptable due to tax write-offs from the first 7 (or 15?) years of ownership to claim depreciation of the team/players . Ballmer is certainly on the retirement threshold and would be expected to shift a lot of money around between stocks and various other investments that could generate income. He already sold a few billion in MSFT stock a few years ago.

    http://seattletimes.com/html/localnews/2002911235_ownertaxes05m.html

  24. This all ignores how owners really make their money — equity gains. No one understands this better than Chris Hansen. When the Kings first came to Sac, I think the purchase price was under $10m. Hard to believe now.

    It’s hard to tell what Hansen’s investment will be worth in 20 years.

  25. According to the post mortem article in today’s Bee, the total debt on the Kings is actually $205m. Even worse than I thought. It will probably cost the Maloofs money to sell the team. There is also a $10 prepayment penalty on their loan, so they owe Sac $77m if the team moves.

  26. The Seattle proposed arena is for a welfare arena. It entails 140 million dollars of Seattle public funds; and then Seattle pays the debt service. Several hundred million dollars of public funds. Seattle would also give Hansen/Ballmer complete Seattle tax exemption. Seattle would gain no revenue, or profit from the proposal. There are other smaller things that are giveaways to Hansen but those are the biggees.

    The Seattle politicians did not have tough negotiations with Hansen. Burgess, a Seattle City Councilman in charge of the Committee working on the proposal, increased the Seattle public fund amount by 20-25 million dollars over the MOU Hansen submitted. The rent Hansen would pay was reduced by 50% to one million dollars a year for thirty years.

    Seattle gained nothing. The “negotiations” were a joke. One of Burgess’ political insider friends, Christian Sinderman, was hired by Hansen as a lobbyist, Sinderman met with Burgess, and Burgess came across with more goodies for Hansen. Sinderman is now on the staff of the Governor-elect, Jay Inslee. The billionaires have their crony tentacles everywhere in Washington State it seems.

    There is currently a lawsuit filed against the arena proposal. Reports say it will open in February. Further lawsuit will be filed; if the public funds, and subsidy, are not removed from the proposal.

  27. One can argue about the merits of the Seattle arena deal, but “It entails 140 million dollars of Seattle public funds; and then Seattle pays the debt service” is just wrong. At least some of that is going to be repaid by Hansen via rent payments — both the million a year in base rent, plus the additional rent payments that he’ll need to pay if arena tax revenues aren’t sufficient to repay the rest.

  28. What ultimately makes Seattle now a legit threat to Sacramento is the fact that, while considered “substandard”, the Key Arena is set up and ready to go for NBA play, and would serve nicely as a temporary arena while the SoDo arena is litigated and built. Besides, Key is probably in better shape right now than is Arco/PowerBalance/SleepTrain.

    Even if it took 5+ years, I believe the NBA would accept the return of the Sonics (even if they were playing at Key) with gladly open arms. It gets the NBA back into a bigger market than Sacto, and it gets their ownership ranks rid of the Maloofs. Win-win for the association.

  29. All that being said, Jhande, this is still one of the smaller arena subsidies we’ve seen recently. It stands in stark contrast to both VB’s proposal and Sacramento’s.

    Pretty crazy, huh?

  30. The “Kings have been sold to Chris Hansen” rumors are hot and heavy this morning.

    I think it’s possible that the Maloofs decided they’re never going to get a deal out of Sacramento; and that Hansen has decided to pay a premium; and that dealing with Hansen was financially better for them than the other alternatives.

    Twitter rumors obviously have a way of getting away from people, so this rumor is probably not true. But, we shall see.

  31. The Maloofs have agreed to sell the Kings to Chris Hansen for approximately $500M.

    It’s a nearly completed deal.

    Twitter Adrian Wojarnowski.

  32. @ John Bladen

    I wasn’t so much against the manner in which Key Arena was funded as I was defending the ability of the Seattle area to support the Sonics.

    No, it’s not up to the politicians to look out for the billionaire owner. I agree with that. But that’s why I said that Ackerley should’ve just taken care of the $75 million on his own. It would’ve made sense in the long run as opposed to paying the city back over the long haul and losing money on interest and bond payments.

  33. Neil, Sure there is the so-far 1 million dollar rent, and Hansen will supposedly pay if revenues do not meet expectations; But the Seattle City Budget Office says that if the full 200 million dollars of upfront public funds are payed to the arena, then Seattle is on the hook for over 350 million dollars in debt service.

    So the rent as of now would be 30 million dollars over the 30 years, and any further payment by Hansen is not currently quantified. That is just with this revised MOU. which will be revised again at the end of the Environmental Review.

    The payment by Hansen of rent was mentioned in my post. Any further payment by Hansen is not quantified, and so cannot be counted. So, there are many details to the revised MOU, they will not fit into a short comment. I guess I should have clarified that Hansen payed rent, and the amount of the rent; but, I did. So, I am not seeing in what way I am wrong.

  34. The revised MOU says that Hansen will pay any additional rent necessary to pay off the bonds. That’s pretty specific, even if it’s not a fixed number.

  35. Right, but that could end up not happening. The additional rent could end up being zero. I only count the actual figures put down in a contract. I do not count any additional rent as there is no guarantee that there would ever be additional rent. In assessing the proposal, ambiguous clauses about money should not be counted. There is no way that anyone can say that Hansen ever would pay any additional rent. So, additional rent cannot be counted. Now, if there was a specific number that Hansen payed every year, that is countable.

    So, no, the additional rent is not “specific”, and does not mean that Hansen would ever pay it.

  36. The only way the additional rent doesn’t happen is if the arena sales and admission tax revenues are so high that there’s nothing left for Hansen to pay.

  37. Per the MOU Hansen also keeps any parking tax revenues at any lots he’d own or have a contract with. Still not certain it’d be enough to push it into “no additional rent” but you’d also have to believe Hansen’s LLC would pay that until the city’s/county’s bonds are paid off. Seattle has learned before about owners crying that they made a bad deal and shouldn’t be held to it with the KeyArena renovation. It resulted in shuffling of seat/luxury box revenues.

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