How much are the Kings worth to would-be Sacramento owners?

Not much new on the Sacramento Kings-to-Seattle front today, aside from more Burkle-Mastrov rumors, which pretty much come down to “Ron Burkle has a lot of money, so he could buy the team.” But would he want to, when the sale price for 65% of the team is $341 million (based on a total franchise valuation of $525 million)?

I’ve been saying for a while now that Chris Hansen’s group is overpaying in its attempt to land the Kings, and there’s new evidence of just how much from Forbes, which yesterday released its NBA team valuations. With knowledge of Hansen’s bid in hand, Forbes dutifully prices the Kings at $525 million — a number that would make the Kings the 11th most valuable franchise in the NBA, just behind the Brooklyn Nets and San Antonio Spurs and ahead of such larger-market teams as the Los Angeles Clippers, Philadelphia 76ers, Detroit Pistons, and Washington Wizards.

Now, there are a couple of possibilities here. One is that the rest of the Forbes numbers just haven’t caught up with the new reality of multi-billion-dollar cable deals, and all these other NBA teams are really worth more than their Forbes numbers. (There’s some evidence that sale prices have tended to run a bit higher than the Forbes valuations in the past.) Another, though, is that Hansen is paying for what the Kings franchise would be worth in Seattle — which is a good bit larger media market than Sacramento, with a larger corporate presence to sell club seats and advertising to — not what it’s worth if it stays put. Which means that Burkle and friends would need to pay a premium over what the team is really worth in order to be the saviors of the Kings.

Of course, the third possibility is that Hansen and his friends are overpaying in order to be the saviors of the Sonics, so it’s always possible that the Sacramento crew will do the same. In which case, we’re going to be set up for a battle before the NBA Board of Governors — and, quite possibly, after that in a court of law — for which, as Sacramento Mayor Kevin Johnson said yesterday, “there is no precedent.” Or as I told the Seattle Times, also yesterday: “There are no real hard-and-fast rules here. … This could get back into the extremely murky world of what rights do sports leagues have to govern franchises, and it never usually gets that far in court, so we don’t have any idea what would happen if push came to shove.”


23 comments on “How much are the Kings worth to would-be Sacramento owners?

  1. If Sacramento is somehow able to put together a level-pegging offer from a local ownership group, the NBA would be absolutely nuts to allow the move to go through.

    Were that to occur, though, I believe the Maloofs would then keep the team for themselves, with the freshly minted higher valuation intact, and use that higher valuation to leverage more money out of the franchise. Right now, for them, it’s personal. They don’t want to sell the team to anyone who would keep the team in Sacramento at a matching price for the Hansen-Ballmer offer; the only way they allow a sale to a local group is if it comes in drastically higher than the already drastically high $525M price point.

    Best-case scenario for the NBA is to approve the sale and (if Mayor KJ does come up with the local owners and the solid arena proposal) grant Sacramento an immediate expansion franchise to begin play in the 2016-17 season in the new arena. It gets Seattle back in the NBA, it keeps Sacramento whole (albeit with a two-year drought), all the owners make money from the expansion fee, and the Maloofs are out of the league.

  2. Hansen is actually doing both things.

    He’s overpaying, because he reeeeeeally wants a team in Seattle, and sees this as his chance.

    And

    The media deal he’ll get up there will absolutely dwarf the deal the Kings currently have.

    There is no “or” here. It’s both A and B.

    Burkle, Ellison and Mastrov didn’t get this far by being stupid.

  3. New article in the Bee, regarding a court ruling that just came out:

    The minority owners will have right of first refusal to match Hansen’s offer. Ordinarily, that would have no impact, because none of the minority owners have the resources to match $341M. However, in this particular case, because one of the minority owners is bankrupt, his 7% stake in the team is scheduled to be auctioned off. The auction for that 7% could get pretty heated, I would think.

    If Larry Ellison overpaid for that 7%, in theory he could then match Hansen’s $341M offer. But if the team was to stay in Sacramento, would he do that? The team is definitely worth more in Seattle than in Sacramento.

    Also, the NBA would have to approve him as an NBA owner. That’s a rubber-stamp, but it’s not an immediate rubber-stamp. These things take time.

    Yes, I view this development as a legitimate threat to Hansen’s bid.

  4. Anytime bankruptcy court is involved, it’s a threat to anything and everyone in sight.

  5. Mike, your also too easily discount the other minority owners. There’s nothing in the agreement reportedly that would prevent any of the other minority owners from partnering with say, Mastrov/Burkle, on straight buying the team bypassing the bankruptcy court altogether (not unlike how Michael Jordan became majority owner of the Bobcats). Still plenty of chapters left in this story.

  6. Dan, here’s the problem.

    How do you partner with an existing owner? That would mean that, for example, Larry Ellison actually purchases some number of shares from an existing owner. They cannot simply GIVE the shares to Ellison, or that would be seen as a gift by the IRS. It would also be seen as an attempt to circumvent the BOG with regards to ownership of a team.

    It would require money changing hands, and it would require BOG approval.

    Just as there are clauses in the team’s bylaws that allow ROFR, there are probably also bylaws that prevent changes in ownership structure after a purchase and sale agreement has been submitted to the NBA.

    I just don’t see how that would work. It would definitely require the cooperation of the owners, and I’m thinking that Hansen already has a voice there. Sure, he could agree to it — but he wouldn’t.

    While the type of structure I’m talking about might not exist within this team’s owners, I absolutely do not think that’s the case. It would be absolute mayhem every time a team is sold if it didn’t.

  7. Mr. deMause, just curious, but what did you mean in that Seattle Times article where you said that Sacramento’s arena deal is “still a mess”?

  8. Yeah, because if Burkle buys the team, there is no way it will move. I mean, it’s not like he owns a team elsewhere in the country that has a brand new arena, and has no NBA team in that city so it wouldn’t be hard to move there, and there’s no way he would threaten to move the Kings to that city if he doesn’t get the new arena that he wants from Sacramento, and there just is no way he would actually move the team to that city if everything fell apart in negotiations with Sacramento……………OH WAIT
    The fact is Sacramento is fucked, and theres about to be a third city involved in this. It’s just no one has figured that out yet.

  9. This is becoming increasingly obvious to me: All the minority owners EXCEPT Cook have exercised their ROFR already. They declined it.

    They are happy to receive a check instead of paying bills.

    The Bee basically went with a false alarm. There’s really nothing to stop this deal now. You simply cannot buy ROFR after a sales agreement has been submitted. Otherwise, Burkle would always have the power to stop the 65%, by buying 7% way after the new buyer and seller have reached an agreement.

    This all reminds me of the VW ad where the guy claims ownership of a car by licking the door handle. Yeah, that probably doesn’t work.

  10. Well, yeah, if a guy’s share of the team is being held during bankruptcy proceedings then the first people offered to would be other shareholders. Nobody wanted to increase their holdings in a Maloof-led Kings. So what, now the Maloofs are resigned to not be leading the circus and the Right Of First Refusal (stop with your acronyms rising sonics fans) is something with more weight.

  11. And if you don’t like that, you don’t like NBA basketball, right, Grunt?

    It seems that Larry Ellison is now being announced as one of the whales.

    Wow, so much money floating around. Too bad the Maloofs have already accepted a drunken-sailor overbid, eh?

  12. I honestly don’t understand why people post things like what Grunt said above. (Which is untrue, in case anyone’s wondering.) Unless they’re Google employees looking to boost frantic news searches.

    And MikeM, where are you hearing that about Ellison? I see that some people are trying to recruit Ellison, but that’s all.

  13. Jared, I think this spells out the mess pretty clearly:

    http://www.fieldofschemes.com/2012/03/02/3334/secrets-of-the-sacramento-kings-arena-term-sheet/

  14. http://www.sacbee.com/2013/01/24/5139356/kings-minority-owner-says-oracles.html sac bee saying Ellison to meet with mayor Johnson.

  15. Neil, the poster called himself Grunt. The Kings’ announcer is Grant Napear. Haha get it lol?

    As for the Ellison story, just check sacbee dot com. The story is right there.

  16. I see that Cook has asked a mutual friend to try to set up a meeting between KJ and Ellison. That’s not within a mile of “Larry Ellison is now being announced as one of the whales.”

  17. It’s Cook, too. The bankrupt one. Well, the way I said it is the way some are interpreting it. Read the genius comment thread.

  18. Not sure about the “Whaling” but it’s certainly interesting with all the interest in the minority shares. The bankruptcy trustee is certainly earning his keep on this one.

    I wouldn’t expect the minority shareholders to have the funds available to equal Hansen’s insane price, but maybe they could “bake sale” some special commemorative Kings Jerseys to Ellison for $100 million each and a contract to transfer ownership to him in the next 5 years or return the money.

  19. It’s really difficult for me to see how anyone can now buy in as minority owners. Any new minority owners would have to be approved internally and by the BOG, or else this would be seen as a way to circumvent the pending sale of the team.

    1) All the minority owners (none of whom could come close to the $341M offer for 56% of the team) get in on this;
    2) One of them agrees to bring in Ellison as a new partner;
    3) That new partner then says, “I’ll match that offer!”;
    4) That new partner now owns 56% of the team, all with no BOG involvement.

    That’s what they envision, and it is just flat not legal. If they tried, the NBA would definitely reject it. The FTC would reject it. The IRS would reject it.

    And furthermore, the dream of a new expansion team in Sac would forever disappear after pulling a stupid stunt like that. So in a way, I guess I hope they try.

    What KJ is now doing is getting awfully close to tampering. I think he’ll end up crossing that line and actually will start tampering. He is now very close to that.

    His best hope is that the NBA and the courts find something illegal in the existing Hansen offer.

    It’s foolish to think Ellison would bid $341M to keep the team in Sacramento anyway. That takes “drunken sailor overbid” to levels never previously seen. All of these whales — Ellison, Burkle, whomever — can see that.

    Mastrov isn’t really a whale. He’s pretty rich by my standards, but $350M as a net worth makes him a junior partner, at best. I no longer include him in this pod.

  20. Well, if the 7% share is on the market to a new owner, then the bankruptcy court could always sell it to someone with really deep pockets like Ellison. Would the NBA mess around with trying to block a bankruptcy court’s sale ?

    So, then Ellison is a minor owner of the Kings under the original terms of those shares. Ellison would then be entitled to a right to buy the rest of the team according to what’s being said about right of first refusal, right ?

    There’s some places that don’t even have to really respect the “wishes” of the NBA’s kangaroo boards, and that’s the actual courts.

  21. A minority owner could start a separate business, which takes the the money from the investor; then the separate business could pay its CEO, which would be the minority owner, a bonus of 278.25 million dollars, which the minority owner could then take from his own bank account, and use to purchase the Maloofs 53%. Now there are probably manipulations, and the transfer of monies through other set up business entities to gain tax advantage that could be done; but why strain the mind with conjecture based upon too few facts?

    Maybe because it is fun. The game would be to find a way to fund the minority owner, and gain a tax refund/credit, over and above the invested money. Maybe some of the money could be osmosised through a “green” corporation into a new health insurance exchange corporation, then into an overseas account (Chris Hansen could help with that. I sometimes have fun reading the paperwork for Cayman Island accounts Hansen files with the California Secretary of State. Hansen stays in the lines when he fills in the boxes), which then directs the money to an entrepaneurial poverty relief program in Haiti, then back to a new Cayman Island account, then to Washington DC for a few days fluttering around compliant politicians, back to the minority owner, and then used to purchase the Kings. A start; but needs refinement.