Sacramento council approves Kings arena term sheet, as watchdog group calls it “horrible deal for taxpayers”

As expected, the Sacramento city council voted last night to approve the Kings arena term sheet by a 7-2 margin; only councilmembers Kevin McCarty and Darrell Fong voted no, on the grounds that they wanted more details and more time to examine the deal. The four-hour meeting was mostly a celebration of Mayor Kevin Johnson’s plan, with supporters donning white “Crown Downtown” t-shirts and doing, um, this.

Only 13 of the 58 people signed up to speak at the hearing (in two-minute increments) were opposed to the deal, but that’s not necessarily a sign that the deal is popular with the public. Rather, the t-shirt-wearing supporters had jammed the hearing room by 5:30 (the hearing began at 6:30), and anyone who showed up after that was not only barred from attending, but from signing up to speak. Which if it sounds vaguely familiar, should.

One of those shut out was Eye on Sacramento president Craig Powell, who earlier in the day had issued a detailed 30-page report on the city’s proposal, calling its financing plan “seriously flawed” and saying the rush to vote without sufficient time to analyze the deal raises “significant dangers to the city and taxpayers of stifling public input in these decisions.” Among the issues addressed by the nonpartisan watchdog group:

  • The official $258 million figure for the public contribution to the arena omits the value of the 3,700 parking spaces being turned over gratis to the team, as well as the value of several electronic billboards that would be gifted to the Kings, plus additional tax breaks and infrastructure costs. Including those raises the total public subsidy to $334 million.
  • The financing plan, in which future parking revenues would be funneled to a nonprofit corporation and be repaid in part by more future parking revenues, “exposes the city’s general fund to potential liability, ties up the city’s TOT [hotel tax] revenues, involves very high interest rates, is of a type (garage bonds) that are causing problems in other cities and involves the payment of over $80 million of additional interest in order to secure $24 million in lower payments in the first eight years of the bonds – a horrible deal for taxpayers.”
  • Asked whether the city of Sacramento’s general fund would be on the hook to pay for the arena bonds if parking revenues weren’t sufficient, city attorney James Sanchez replied, “The city has some ultimate responsibility for payment of the bonds.” Meanwhile, the city staff report on the arena insists, “The revenue bonds would not be a debt obligation of the City.”
  • While the city report touts the lower interest rates that would be made available by using a nonprofit corporation and backstopping the parking money with hotel taxes, the projected interest rate on the bonds would still be very high by current standards (5.5 to 5.75%), which will mean even more parking revenue would be needed to pay off the bonds.
  • The figures for the projected new revenue expected to fill in the parking revenue siphoned off to pay the arena bill are nearly all “shaky and/or overstated.” In particular, “with the city giving away one-half of its garage parking spaces to the investors (the 3,700 parking spaces at Downtown Plaza), how in the world is the city going to service current debt payments on garage bonds, pay debt service on $221 million plus of new arena bonds and also backfill $3 million to the city’s general fund?”
  • There’s the likelihood of an initiative or referendum campaign to repeal any Kings arena funding deal. (Indeed, at least one speaker last night promised to lead such an effort.) If this happens, suggests EOS, it could “secure funding from Seattle sources if the NBA board of governors turns down the request to relocate the Kings to Seattle.”

Finally, the report pointedly cites Harvard stadium researcher Judith Grant Long’s new book, in which she writes: “[T]he burgeoning number of public finance crisis with roots in sports facility deals points to a clear need for better understanding of the long-term risks and implications for taxpayers. Yet this kind of long-term financial analysis has been absent from much of the public discourse associated with the latest rounds of subsidies for major league sports facilities.” Hint, hint.

The council, though, didn’t get the hint, or at least didn’t want to hear it with an NBA vote looming next month on moving the Kings to Seattle. And that decision is even less likely to turn on whether the Sacramento arena plan will cost taxpayers, or whether it received due diligence — the NBA doesn’t care about any of that crap — and more likely to focus on one issue: Which city represents a more lucrative future for the NBA?

It’s going to be a tough choice, as the league is now presented with two arena deals that, from its perspective, would be a huge step up over the current Kings situation. On Seattle’s side is that it’s a bigger market, that its plan is more completely signed off on by government agencies (though an environmental review is ongoing), that the ownership group has been well-vetted, and that the NBA will no doubt want to show that it’s willing to reward cities that offer to erect new arenas to lure teams. On Sacramento’s side: The Kings wouldn’t be competing with as many other local sports options, the team’s owners would be saddled with less stadium debt, and the NBA will no doubt want to show that it’s willing to reward ciies that cough up money for new arenas to keep teams. A tough decision, yes, but having too many bidders for your services is the kind of problem that it’s good to have.

Take Xanax for 14 years now. As the majority of us, I have virtually no side effects. Take 2mg per day. Because of recurrent trauma from my previous life. Overall, I can live well, but only with the med. I am now 61 years old and will go on like this. Or is there an alternative? At at probably?

If there’s one potential fly in the ointment for the Sacramento plan, it’s that what was voted on last night wasn’t actually a financing plan, but rather a nonbinding term sheet — the council will still need to vote again in coming weeks or months to formally approve the arena funds. Given last night’s vote, that looks pretty likely to happen, but “pretty likely” isn’t the bird in the hand that is the Seattle deal, especially with the possibility of a referendum challenge in Sacramento as well.

Right now, I’d say that the Seattle sale vote is too close to call, by which I mean, “Who the hell knows what 30 NBA owners will do when they get in a room, or why?” If I had to pick a dark horse outcome, it’d be that maybe they’ll do nothing: Postpone the vote until a later date, and wait to see whether the Sacramento plan survives further scrutiny and a possible referendum. Then if Sacramento puts its money where its mouth is, it’ll be a safer decision to tell the prospective Seattle ownership group, “Sorry, next time.”

That’s not a slam dunk for the NBA, either: The Seattle group could get tired of waiting and back off its arena plan, and at best it’d likely mean another lame-duck year for the Kings in Sacramento while everyone waits out the decision. And it’s also always possible, let’s not forget, that the Maloofs could tell the league that if the team has to stay in Sacramento, they’re not selling — they’d be pretty dumb to do that at this point, but dumb sometimes seems to be their middle name. Still, though, calling a timeout would have the advantage of forcing the two cities to fight some more to distinguish themselves as the better candidate — and if there’s one rule of staging a bidding war, it’s that the more bidding you can encourage, the more that you win the war.

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88 comments on “Sacramento council approves Kings arena term sheet, as watchdog group calls it “horrible deal for taxpayers”

  1. “Only 13 of the 58 people signed up to speak at the hearing (in two-minute increments) were opposed to the deal, but that’s not necessarily a sign that the deal is popular with the public. Rather, the t-shirt-wearing supporters had jammed the hearing room by 5:30 (the hearing began at 6:30), and anyone who showed up after that was not only barred from attending, but from signing up to speak.”

    49ers supporters did the same thing when the Santa Clara term sheet was approved in June 2009. They arrived early, saved seats, and most of the opposition was in an overflow room with poor TV reception of the council proceedings. The meeting ran so late that many people opposed to the deal couldn’t stay so lost the chance to speak.
    But at least here, everyone who wants to speak and can stay late enough is given their 2 minutes. Sacramento is under the same California Open Meeting Law (The Brown Act) so how can they get away with barring people from signing up to speak? Why didn’t they have overflow accommodations?

  2. Be careful what you wish for, Kings fans. We built a new arena for the Magic (mostly on our dime) here in Orlando a few years ago, and look how that’s turning out.

  3. How about we throw some real drama into this thing?

    Hansen and Ballmer decide they’re tired of this crap and tell the NBA theirs is a now-or-never offer. The NBA goes all “Oh, no you di’n’t!” and tells them to take a hike. With the competition gone, a few Sacramento councilpeople find their way out of the darkness and require some serious changes to the deal. Hilarity ensues.

    I know, it’ll never happen. But the major sports leagues have been playing hardball to their own advantage for so long that it would be great to have just one instance where things didn’t go their way.

  4. I really don’t think they’ll postpone this to a later date. The Maloofs and Hansen signed a business agreement to sell and purchase an item. Delaying a decision past April 19 could easily interfere with this business relationship; the Maloofs really need that money, and if a delay harms their other business interests, the courts would not be happy. This has “tort law” written all over it.

    But I want to ask about the changes Council Member Hansen got in, which essentially removes the TOT as the backup funding. Basically, his changes, which were approved with no debate whatsoever, made it so the City cannot tap into those funds if arena and parking revenues fall short (in my mind, this is a lock). It amazes me when the Council can look at changes like that and simply approve them, with no debate at all.

    It really is a fundamental change to this outline of an agreement, and it’s hard for me to see that change making it into the final agreement. If the TOT can now not be used as the backup funding, then what is the backup funding? Wait, I can answer that: The general fund.

    That’s precisely how these things end up harming cities, people. Why is this so hard to understand?

    Anyway, I think the house of cards will come crashing down next Wednesday. I really do think they have to go with the existing business relationship that they have already vetted. This isn’t just ANY bird-in-hand; this is probably $125M more than the team is worth in Sacramento. I seriously doubt that the Sacramento Whales have come close to $525M.

  5. Kei, Orlando is one of the shining examples of a successful arena project the geniuses around here use when they talk about how arenas can revitalize downtowns, solve the homeless problem, end drug abuse, cure alcoholism and allow all the kiddies to go to Disney productions in a family-safe environment.

    Orlando’s arena has done all that, plus funded fire and safety programs for the next century, right?

  6. What Keith recommends is exactly what I wish Hansen/Seattle CC would have done from the very beginning. NBA and SAC are both under the impression that Hansen is just going to keep trying if this doesn’t go his way. His loyalty is actually working AGAINST him. If he, along with the Seattle City Council, had said from the very beginning that you have one year to locate a team and have it start playing in Seattle, then no way NBA turns down this opportunity to reenter 12th biggest market. But because the council gave Hansen 5 years and Hansen was dumb enough to say publicly that he was in it for the long haul, NBA is not afraid to turn down Seattle, knowing that they can go back to the well anytime they please. Although they may be mistaken in that type of thinking, I worry that is exactly what is going to run through their minds.

  7. Mike:

    None of us have read Hansen’s agreement with the Maloofs, obviously. However, as discussed previously, the Seattle Supersonics are not the Maloofs to sell. In addition, the sale agreement/contract will absolutely include language surrounding the requirement for NBA approval, and that condition cannot be waived. The Sacramento Kings are not a portable asset who’s owners are free to relocate or sell at their sole discretion. Nor can the Maloofs sell to a local ownership group intent on keeping the Kings in Sac without NBA approval. We tend to think of sports franchises like mom & pop stores. In fact, they are amongst the most encumbered of asset class in the nation (for the owner). Being an owner of a pro sports team isn’t like owning a shop or a factory… not even close.

    No matter how ironclad the Maloofs sale agreement is, it isn’t worth anything unless the NBA approves it. And both Hansen and the Maloofs know it. In the US, you can sue for anything. But winning is another matter entirely.

    The Maloofs agreement with the NBA states that they cannot sell without approval of the league itself. They signed it, and that is what they must live by.

    If they get less money for a local sale (or simply can’t sell), they might try to sue for damages, but they are unlikely to win anything as the league has absolute discretion in such matters. It’s also possible the NBA would (as Selig did w the Orioles) guarantee that when the Maloofs sell, they will not get less than what Hansen offered. But, generally speaking, for that to happen the commish has to like the owner in question… so I wouldn’t hold my breath on that one either…

  8. MikeM: Do you have a link to what exactly Hansen’s amendment says? This was after I went to bed, and I haven’t been able to find any mention of it in the morning press coverage.

  9. Griffin/Keith:

    It’s absolutely true that Hansen’s enthusiasm is working against him. So, in some ways… it’s understandable why so few prospective owners declare their position so clearly so early.

    I would imagine Hansen and his partners are regretting agreeing to the lease deal they accepted also, as that clearly shows their interest to all parties (I still think it was a good thing for Seattle, and that host cities should use the Seattle model as the basis for their negotiations… but that doesn’t change the fact that his interest is hurting him here).

    We’ll see if the bloom is off the rose for Hansen anytime soon. I doubt it myself, he seems genuinely interested in doing what he claimed he would do (I know! It’s almost unbelieveable in this day and age!!). My guess would be that Ballmer is already turning beet red and screaming at people… but at least so far, not in public…

  10. Neil, the last time Council Member Hansen got amendments into resolutions, I couldn’t find them anywhere on the web, so I emailed him directly to get his document. He emailed it to me within 4 hours.

    I can try that again, and then forward that to you; or you can try that approach yourself.

    Just tell me what to do, Master.

  11. What did Hansen add add that term MikeM ?
    I tuned in late, but I heard him add only two things at the 3h 15 minute spot – a study/recommended solution on how to mitigate removing parking from “the crocker” art museum and some plan for ADA upgrades for a community theater/children’s theater.

    re: Orlando, Seattle’s $20k a month arena consultant put that deal together !
    Mr. Hirsh has been retained by the City of Orlando to negotiate a comprehensive, mutually beneficial agreement with the NBA Orlando Magic for development of a new state-of-the art arena in downtown Orlando. He is leading the negotiations and is Advisor to the City and the Mayor.

  12. Okay, I’m stupid.

    Why is Hansen’s enthusiasm a detriment here? I suspected from the very first second I heard about Seattle’s arena plans that Hansen was extremely motivated. Wouldn’t you rather have that than someone who appears to have a “One way or the other, I don’t care”-attitude?

    He seemed highly motivated 2 years ago; he seems highly motivated now.

    And this is a problem because…?

  13. ChefJoe: That link is 404ing.

    MikeM: Hansen’s enthusiasm is good for Seattle, but bad for his leverage. If he wants to force the NBA to give him the Kings, he should really be saying he’ll walk away from the arena deal if he doesn’t have a team for this fall. But idle threats don’t seem like his style for some reason.

  14. By the way, the Crocker is really an outstanding museum.

    Two of the pieces of property the City is proposing to give to the developers are parking lots that serve the Crocker. Without those lots, which get very full about 7 days a week, parking for the Crocker will be pretty challenging. Also, it turns out that the Crocker uses some of those revenues to fund their operations — think of it as a little arena (I’m kidding here).

    The original plan harms Crocker in 2 ways: Makes parking more difficult, and removes a funding source for Crocker.

    As for the TOT, they don’t want to harm the Community Theater’s funding. There’s a 10% TOT that goes toward the theater, and they are under threat to be closed down if ADA improvements are not made. They are counting on those funds to make about $50M in ADA improvements. If that funding goes away, the theater might go away, too.

    So by changing the term sheets so those two lots cannot be part of this, and by removing the TOT as a backup funding source, you potentially knock this agreement out of balance.

    I have a feeling they’ll simply ignore the changes Hansen got it.

    I’m waiting for an email from Hansen, by the way.

  15. I can see how enthusiasm increases his leverage, though. When things change, they know they can always go to him and see what he’s willing to do.

    One of these days, he’s going to say, “I am not willing to do this.”, and people will be forced to take it at face value.

  16. Link works fine for me. It uses Microsoft Silverlight stuff that probably won’t play well with Macs.
    Here’s the council’s video page. Props for Sacramento’s video team actually posting their meeting within hours of it ending. Seattle wasn’t so quick.

  17. Yeah, they do a good job on those videos, but I simply don’t understand the audio quality. I have to have my TV on full-blast to hear them at all.

    Mac is a great guy. I can barely understand a word he says, but if everyone was that enthusiastic and engaged, every town in America would be better off.

  18. Nobody can force the Maloofs to sell to those that they don’t want to sell to. Otherwise, a deal with Sacramento would have been made long ago! The only way I see the Maloofs (who obviously holds a grudge against Sacramento) selling to Sacramento, is if they can bleed tons of money from them. Once again, it all boils down to money, and the combined net worth of the investors that Sacramento has right now is nowhere close to Steve Ballmer’s net worth alone! Ballmer and company could toss out more money if they choose to do so. The only way Sacramento is going to counter that, is to get someone with a really high net worth on board that’s willing to pay the big bucks that the Maloofs want from Sacramento investors!

  19. “the t-shirt-wearing supporters had jammed the hearing room by 5:30 (the hearing began at 6:30), and anyone who showed up after that was not only barred from attending, but from signing up to speak.”

    Absolutely not true whatsoever. California law. I was there and have been for many meetings that have filled up. Once the main council chamber is full, people can either wait in line until a seat opens up or they can go sit in overflow seating where there are TVs. No one is ever barred from speaking, even if they don’t have a seat in the main chamber. Several of the opponents who spoke last night did not have a seat in the main chamber room and had to come in from the outside. Only 1 opponent speaker was a no show.

  20. What I say here might shock some, though: This deal is way, way better than the one proposed in the term sheets a year ago. So much better, it’s not even close.

    But that really just proves that some people did not care, and do not care, what it costs to retain this team. I do not want those people making the decisions. Shirey, Dangberg and KJ were just as enthusiastic last year. That’s pretty terrifying, when you think about it.

  21. MikeM: Just listened to the Hansen amendments, twice, and didn’t hear a word about the TOT.

  22. Damon: Here’s what I was told by the EOS member who emailed me last night: “I called Craig’s cell phone to find out why he hadn’t spoken — he said he wasn’t allowed in the chamber to sign up, nor was there any provision for signing up. He sent a text to one of the council members who has indicated opposition, but received no answer or acknowledgment. So he went home to watch it on his TV.”

  23. The Sacramento City Council failed to do its due dilligence. Now it’s up to the courts and the people.

  24. I was unable to attend last night’s meeting but watched it online. I have been actively engaged in this issue and effort for the past 5 years. I know the subject matter well. With that said here are my 5 observations about this new non-binding terms sheet deal.

    1) The project cost of $450M is low given that previous studies have stated it would cost $500-600M to build at Downtown Plaza. But, because the “whales” now have taken on the cost overruns liability, no one cares what it will cost. What happens when a true cost estimate is done and it is substantially more? Will the “whales” come up with the added money, renegotiate with the city or walk away?

    2) There has been absolutely no discussion of the offsite infrastructure costs for this project and who pays for what. My guess is that they will form some type of CFD i.e. Community Finance District and assess all of the surrounding properties who will “benefit” from this new facility. I would think that is a taxpayer impact. Or they may try a TIF financing model but either way these violate the rule of no taxpayer impacts.

    3) As Isaac pointed out last night, the “whales” have the option of “financing” their “investment”, meaning they aren’t actually putting up any cash, just using their balance sheet for collateral for the loan. This means that rather than receive a return on their equity, they will pay interest on a loan instead. This is a business risk mitigation strategy whereby if things don’t work out they can walkaway and let the lender foreclose on their “investment”. They also can hire an “operator” to run the place. So, in the end these “whales” don’t want to invest per se in the project, own the facility or operate the facility. Everything is potentially going to be farmed out to others. So, what’s in it for them and what about this talk of charity and becoming part of the community? Nonsense to me.

    4) Much of this new proposal is speculative in nature. They are speculating on the future parking revenues. They are speculating on future attendance and revenues generated at the arena. They are speculating on the backfill revenue sources (with a convenient plug number of $3M in increased parking revenues coming back to fill up the $9M hole). They are speculating on 1.5M of new space being built downtown. They are speculating that the CEQA review will be relatively painless and won’t delay the project. They are speculating on the amount of money they will receive from a parking bond issuance which doesn’t take into account offsetting considerations. Everything about this proposal is speculative and when that happens ultimately the taxpayer will be on the hook for shortfalls.

    5) It is quite clear to this observer that the retirement of the existing $77M in bonds and refinancing presents a problem to the city. Per their own admission the 100 acres next to Sleeptrain is worth $20M post floodzone resolution. So, that means that the adjacent 85 acres and arena property are also worth the land value of $20M. So, the collateral for a refinancing of those bonds is $20M vs. $77M that needs to be paid off. So, they’ve come up with the 5% ticket surcharge to try to lower the principal balance. This is a major issue that has been glossed over.

    So, for me, this deal continues to be the mess it was last year. This is truly an amazing spectacle Team KJ has put together. The lack of critical thinking on this issue by the City Council is pathetic. I don’t know what the silly seven were thinking but that kool aid must taste really good.

  25. I do agree with MikeM is that this year’s plan is better (I thinking bonding out the parking money rather than turning it over into a private operator is a huge improvement, Downtown Plaza is a step up, as well as having better capitalized business partners) but because of the costs to taxpayers, this just means we have a shinier turd this time around.

  26. Neil, while I won’t dispute what that person says, my hunch is that he didn’t want to wait outside, perhaps feeling it was beneath him and that’s his spin on it. All 13 opponents were given the first opportunity to speak. Of the supporters that were allowed to speak some did not have main chamber seats either, and had to come from the outside. It’s pure conspiracy sour grapes from them to say he was barred from giving his 2 minutes, as if it really mattered. There were also dozens of supporters who weren’t allowed their time when KJ cut public comments short (thankfully, as I might still be sitting there!).

  27. Since the City failed to do its due diligence and supporters and opponents did not speak last night, it would be good public policy to have the people vote on this issue. If the people support this investment through popular vote, I’ll live with the results.

  28. @Cal “1) The project cost of $450M is low given that previous studies have stated it would cost $500-600M to build at Downtown Plaza. But, because the “whales” now have taken on the cost overruns liability, no one cares what it will cost. What happens when a true cost estimate is done and it is substantially more? Will the “whales” come up with the added money, renegotiate with the city or walk away?”

    What the 49ers did is promise to pay cost overruns for a $937 million stadium (the price in the term sheet when the stadium went to the ballot, and the price in the Yes on the Stadium ballot materials and all of the pro-stadium speeches/debates), and then lo and behold the price went up during the writing of the contract (DDA and Joinder) and suddenly the price in the contract ($1.2 billion) was ‘the price’ above which the 49ers would pay cost overruns. The difference between $937 million and $1.2 billion isn’t considered a cost overrun. A non-binding term sheet does not set a contractual price, and the promise to pay ‘cost overruns’ means nothing if the total cost in the term sheet isn’t specified in writing somewhere as a document that binds the private parties paying for the ‘private’ portion of stadium construction costs.

    All of the tricks for how to work these types of deals have been worked out by other teams, and I’m sure there’s a playbook (in addition to Neil’s book) telling teams exactly what to do to extract maximum public dollars for stadiums/arenas.

  29. Well, what happened just a few minutes ago pretty much wipes out what the Council did: Chris Hansen purchased the 7% from bankruptcy court for a mere $15.1M. That is way below the valuation I expected.

    Sometimes, proving that you are sincere in your efforts is a good thing.

    And since Hansen has already been vetted by the NBA, there is no chance they reject this sale.

    This is the same set of shares “Sacramento’s Mini-Whales”, which included Mitch Richmond, was going to make an offer for.

  30. Chris Hansen just bought another 7% of the Kings in bankruptcy court.

  31. The 7% purchase still has to be approved by the NBA. But I agree it should help Hansen look extra-serious in the eyes of the league.

  32. You did beat me on the 7%.

    I’m really surprised that Hansen was the only bidder for those shares. Sacramento has been one step behind on all of this. Instead of gathering the “whales” in January, why didn’t Buklestrovjacobsadive come together earlier to make an offer to the Maloofs?

  33. Thanks Santa Clara for that information.

    One other thing regarding the “whales”. If the total cost of buying the Kings and building an arena is going to cost close to $1B, how does anyone make any money, either the team owners, the investors or the city in this deal? I don’t think we have enough entertainment dollars in the entire Sacramento region to make this economically viable. The “whales” in Seattle may have a different motivation and agenda than the “whales” in Sacramento who are purely in it for the speculative development potential downtown. I think they are overestimating how much new development can take place downtown. The Saca Towers was to be two residential skyscrapers across the street from new arena location and 8 years later its still a hole in the ground. We just don’t have the jobs here.

  34. I’m very surprised about that purchase price, too. It seems like $37M should have been the starting bid. Maybe the group of 20 KJ assembled wasn’t that serious? Certainly the trustee would have known to contact parties that have shown interest. I wouldn’t be surprised if that group simply neglected to fill out some sort of form with the bankruptcy court.

    I guess this starts a 15 day period where any partner can match that bid, too.

    Yay! Something else to watch!

  35. via twitter: “@nickmonacelli @KJ_MayorJohnson says local group offer for 7% will come in a few days. “No shop” prevents solicitation of offers, can still review them.”

    so is the bidding (for outside buyers) closed? or as Jason has said, the KJ group is simply a step behind? what gives?

  36. It seems that KJ’s whales are “unable” to bid on this 7%. Not clear yet why. It is possible that only the current minority owners were able to bid but chose not to. (Right of first refusal). There are reports that Hansen’s bid was the only one that came in.

  37. tenfourteen, it’s this simple: Hansen was the only potential bidder to make a bid before a known deadline.

    The April 15 hearing was only to decide on competing bids that were submitted before a known deadline. I refuse to believe the judge would simply call “time!” before that deadline; that would be much too easy to overturn in court.

  38. (sacrasm) Somebody submitted an offer of $1,000 on my e-bay auction of my McLaren Spider that’s scheduled to finish in 20 days. Obviously the best way to maximize my return is to stop the auction and just sell it to that guy, as he’s the only bidder. (/sarcasm) <= Apparent business sense of the bankruptcy officer being tweeted to have called this

  39. Well, ChefJoe, that would be stupid to end an auction 20 days before the scheduled end, when you know the bidding was at about 1/10 of one percent of the final bid.

    I don’t want you to think I don’t appreciate your humor; that was pretty funny.

    But… I don’t think the judge did anything illegal here. If you read the fine print, I think you’ll see that the judge has these ducks in a row.

    The party that screwed up here is KJ. This is one of those, “Molly Ivins can’t say that… Can she?”-moments.

    Yup, the judge can do that. Yup, he did.

  40. I’m still shocked. For a team that’s #playingtowin, I’m surprised one of the “whales” didn’t grab the low hanging fruit of this 7%. They are up against a group that has already paid $30 million, have exclusive negotiating position with the Maloofs, and has picked up this 7% at a discount. On the Sacramento side, all we have are a few pep rallies, a non-binding termsheet, and a lot of talk. It seems like Carmichael Dave and his sponsors are the only ones that have spent real money on these efforts.

  41. Sac fans keep saying they should keep the Kings because the Bucks will likely be available in a few years. Seattle is CLEARLY ahead in their arena plan and their ownership group is much more qualified and prepared to own a franchise NOW. Sac has definitely made good progress over the last few months, but they’re way behind Seattle. If they really think the Bucks will be the next relocation candidate, perhaps they should continue solidifying their arena plan to ensure they’ll be ready when they become available. They’ll have a big headstart on any other cities interested in bringing an NBA team to town. Quite frankly, I think Seattle has set the example for other cities to emulate if they want to bring professional sports to their community.

  42. Jeff S is absolutely right. Keep plowing forward with an arena plan, but with one key difference: Revenue shortfalls must be backfilled with PRIVATE dollars, not the TOT or the general fund.

    Just change that one little thing. Put in guarantees that are backed by private developers, not public money.

    Just like… Wait for it… Seattle.

    Then, when that arena is all built and ready, you’ll be able to move the Bucks in practically a moment’s notice.

    Now, what kind of odds do you give this idea? One in 10? I don’t think I’d bet on that. One in a hundred, MAYBE it’s worth risking twenty bucks.

  43. Bonding out the parking might be worse than just selling it, at least when it is sold the new parking operators will just be trying to make a profit from parking proceeds, thus there would probably be a limit to how high they raise rate. If the city needs revenue from parking to make bond payments they may have to keep raising and raising the rates to keep up with the debt service.

  44. By the way, I still really doubt that buying that 7% gets one FROR. This has to do with timing; if that 7% had been purchased before the PSA was signed, sure, you probably get FROR. But after the PSA is signed? Forget it. The NBA would see right through that.

    Suppose that offer had come from a known Colombian drug lord, and it was for $70M; do the NBA and other co-owners have to accept that bid? No. It’s subject to BOG approval and probably FROR.

    Nah, this was just a nice way for Hansen to get 7% of the team at a discount. NOW he has FROR, since he’s an owner-of-record prior to some future PSA being signed. In the remote event Ranadive signs a PSA to buy the team, Hansen will exercise his FROR.

  45. Preliminary pre-approval of bidders by the NBA to bid at an auction controlled by bankruptcy court ?

    I wonder if there’s a small stack of pre-qualification requests quietly making their way to an NBA headquarters shredder…. or somebody forgot to put paper in the NBA pre-qualification fax machine.
    The Sale Procedures provide for, among other things, (i) a Bid Deadline of April 1, 2013, (ii)the requirement that Qualified Bidders obtain preliminary pre-approval by the National Basketball Association (“NBA”) (a process estimated to take not less than three weeks) by the Bid Deadline, …..

    As of March 26, 2013 the Trustee had received only one serious offer for the LP Interests, understood that no other interested purchasers had even submitted an application to the NBA for pre-qualification, and had received no firm indication from any other interested party that was in a position to and intended to submit a Qualified Bid by the Bid Deadline.

  46. Bucks owner Herb Kohl has said he won’t sell to anyone who won’t promise to keep the team in Milwaukee. If the arena talk goes nowhere he could always change his position, but it wouldn’t shock me to see him sign a long term lease before he puts the team on the market.

  47. “If the city needs revenue from parking to make bond payments they may have to keep raising and raising the rates to keep up with the debt service.”

    If they can. There’s a point of diminishing returns beyond which when you raise prices, people go park across the river, or carpool, or just stop going to events. That’s what happened with the Yankees garages — they were losing money at $25 a car, so they raised it to $37, and lost even more money.

  48. No, ChefJoe. That’s not it at all. You’re not even close.

    KJ said today he was getting his bid ready. But these have to go through the NBA before they can make an official offer. That takes about 3 weeks.

    KJ’s people just didn’t read the fine-print, and badly missed the deadline of about 2 weeks ago. They messed up. They really don’t know what they’re doing. Seriously. They made a blunder, and now KJ will have to cover it up.

  49. Neil,
    Your point is well taken. My comment was in reference to the general rates for parking in Sacramento. The rates for meters in midtown (several miles from downtown), the rates for garages used by state employees, etc. My concern is that the rates for these parking spots could rise even more under the bond scheme versus private parking operator.

  50. Fair enough. In which case it would effectively amount to a new parking tax to pay for the arena…

  51. I do seem to recall somebody — Dangberg? Shirey? — claiming last night that no rise in parking fees will be necessary to raise an extra $10 million a year in parking revenues. Which sounds crazy, but a lot about this deal sounds crazy. Which is why I’d like to see their numbers.

  52. Sacramento Teams: Sacramento State Hornets, Sacramento Mountain Lions, Sacramento River Cats, and don’t forget the ‘Little Kings!”

    You have all sports covered(Baseball, College Football, Football and Basketball. Now please from the rest the Bay Area( who is even embarrassed that Sacramento is the states capitol) stop connecting yourself with us.

    I can’t figure out who was the genius that made Sacramento the capitol over intelligent and progressive Silicon Valley-San Jose?? Home of the Sharks and 49ers and possibly the A’s.

    Every metro region in California has housing that is always rising (price wise) and has a ton of buyers, except for the market of Sacramento. I know a person who has a 3 bedroom 2 bath house in Sacramento that is worth about 49,000.

    This same house in the Bay Area would be nearly 500,000.

    For those that love South Lake Tahoe, we have the mis fortune of having to drive by this generic, dull city.

    I hate to say it if Sacramento is picked by the NBA over Seattle, it would be very insulting.

  53. @KevinS iirc last night, the City Treasurer emphasized there will be no drastic parking increases like there was in Chicago (his comparison), which left me baffled to where the necessary income would be generated aside from kissing nights and weekends goodbye.

  54. Who knew that so many 49ers fans could be so pointless?

    Sorry, man, I’m still going to root for the 49ers and Giants. I’m sure my money is every bit as green as yours.

  55. Neil, I’m not going to run off and do a whole bunch of research on this, but I think they based their numbers on 1.4M arena users. I take that to mean about 500,000 cars.

    So you need to figure out a way to get $10M in additional revenues out of 1.4M visitors and 500,000 cars (but I think they said 750,000 cars. Like I say, I’m not going to look this up right now — feel free to correct me).

    To me, getting an additional $10M out of 1.4M visitors and 500,000 cars doesn’t seem easy or “conservative.”

    (Does any of this even matter in light of the BK judgment today?)

  56. Names for the new Arena:

    Amway West Garden

    Del Taco Center

    Dollar Tree Forum

    Chester Johnson Pavilion

  57. The Seattle arena proposal is intitially funded with General Obligation bonds; this puts risk on Seattle. The so-called “Seattle Model” has city funds at risk, and major subsidy to Hansen. The Seattle arena proposal is not for some privately financed areana.

    Hansen would get immediate windfall profit on his land, Hansen would get up-front money for an arena, Hansen does not have to pay back the money, Hansen gets complete Seattle tax exemption, Hansen gets MOU mandated (Section 20) Seattle assistance in maximizing Federal tax benefit to the amount allowable by law, Hansen gets diverted Key Arena revenue, Hansen gets diverted Seattle property tax revenue, Hansen gets all revenue at the arena including parking and naming rights (Section 13b of the MOU). Then the MOU identifies contracts that would need TBD. The MOU does not mandate that these identified TBD contracts may not extend more subsidy to Hansen. The only way Hansen is on the hook for any of this money is if the team fails in Seattle, and if Hansen feels like paying. Otherwise General Obligation bonds have Seattle on the hook for this money.

    I have e-mailed Seattle City Council Members several times to get an answer to the question; would Hansen’s other properties in the area be considered part of the MOU defined “project” and get no straight answer. That seems to be up in the air. Given the secret meetings between the Mayor and Hansen, and the secret lobbying done by a Democratic Party apparatchik and insider, Christian Sinderman, on the Seattle City Council, the inclusion of Hansen’s other land (or select parcels of it) as part of the “project” is probable.

    The Washington State Senate, and Legislature, have also been lobbied by Hansen operatives. No word yet on what tax benefit the State would extend Hansen. The State hands out tax benefit, and tax incentives to wealthy interests as if they were candy.

    The major money making area for Hansen is development in Seattle. Hansen has bought property around the site of his proposed publicly financed arena. Development interests in Seattle have been wishing to build condos in that Industrial District for two decades. Developers wish Seattle to be San Jose, a bunch of condos, filled with suit/slack wearing yuppies. Hansen is working as hard as he can to enable this toxic to Seattle development.

    So, those that tout the Seattle arena as some privately financed arena proposal are incorrect, the proposal is for a subsidized, tax sucking, welfare arena. The arena would drive zoning changes that would allow further non-industrial development in an Industrial District. The process in Seattle has been disgusting. It has been transparent influence peddling and corruption in Seattle. Hansen people can spin it all that they wish, the Seattle arena proposal is not some model of responsible arena development.

    Also, If individuals in Sacramento file a referendum or such, in this interim period before the BOG vote; then a referendum, or such, gets filed in Seattle within three business days. If the Sacramento individuals get tricky and wait for the last day, then a Seattle referendum (or initiative, or Charter Amendment) gets filed that day as well. Personally, I do not trust that Hansen, or hired Hansen operative, would not instigate the filing of a referendum in Sacramento.

    Also, Carl Hirsch was hired by the Seattle Mayor in secret, and has worked in secret. The Mayor will not divulge information about his 9 months of secret meetings with Hansen and Hirsch. The Mayor will not divulge the activities of Hirsch. Hirsch was instrumental with the renegotiation of the strategic bankruptcy of Portland’s Rose Garden Arena. Hirsh was involve in the formation, and writing of the Seattle MOU. I would not be suprised if Hirsch has the MOU written with, for lack of a better term, “poison pills” in it, in order to facilitate some future renegotiation of the Seattle arena contracts.

    The Seattle arena proposal is no model for anything but the ease of lobbying craven politicians to gain subsidy, tax benefit, and special privilege.

  58. I feel your pain, jhande. I don’t think these arena deals are necessary either.

    San Francisco is one of the few cities that’s getting it right. Being a Giants fan is just about guilt-free (but it’s driving my wife crazy).

  59. My hunch tells me Chris Hansen has a couple more “dealings” up his sleeve that will be presented April 3rd. This guy is a no quitter, flies under the radar, plays to win. Obviously, he is trying to tip the scale in Seattle’s favor.

  60. Something seems weird about this reported sale of the 7% of the Kings. Based upon the reported valuation of the Kings franchise at 525 million dollars, the 7% should be valued at 36.75 million dollars; yet, the reports say it was sold for 15 million dollars. It would seem to me that the sale of this 7% in a bankruptcy proceeding for 15 million dollars is stiffing the creditors of at least 21.75 million dollars. Now, assets are supposed to gain the highest possible value in a bankruptcy, the 15 million dollars is not even half of the current demonstrated value of the 7%. Something seems wrong with the reported sale.

  61. Minority shares jhande. They have a different level of worth when you’re along for the ride. Doubly so if there’s a chance somebody is about to move a team to a new city and tell all the minor owners “ok, now now I’ve got a $1B arena/team deal and need to make payroll next year…. you owe me… 7% of the 500 M I’ve used to finance the SoDo arena and make payroll…. oh, you don’t have $35 M for that team that’s now 800 miles away from your home? I guess Steve can cover that for 6% of your shares.”

  62. Besides being opaque and seemingly fanciful, the parking revenue bonanza being depicted is deeply ironic. For more than a decade city leaders have been lusting to put the arena downtown because downtown, unlike North Natomas, is served by rail and bus. The point of a downtown arena is that you don’t have to drive there. So now the city is counting on fans to drive to an arena being built so you don’t have to drive there. Welcome to the Twilight Zone.

  63. An earlier commentator stated that a league can control the movement of a team. True But post Al Davis and his NFL lawsuit a league has to worry about antitrust issues. So if the NBA forces a sale to the Sacramento group for $50M less than Hansen I think there is the risk of an antitrust suit and a penalty of triple damages.

  64. @Neil and TenFourteen: I wouldn’t be shocked if they didn’t even have numbers to support their assertions. There is no possible way they can backfill that kind of a loss to the GF without a drastic increase in parking rates (and enforcement).

  65. Hansen/Ballmer are signalling that they plan to go on the offensive on the Downtown Plaza site. Will KJ respond by saying that the Ballmer, Hansen, and Nordstrom group aren’t financially solvent enough even though the State of CA (based in Sacramento) consumes a lot of Microsoft products and that there’s a Nordstrom store within city limits?

  66. I liked the Bee editorial today, where the hearings were rushed and not deliberative.

    Um, yeah.

    But this lack of deliberation will come back to haunt them. There are major cracks in that term sheet, and Hansen’s people are scrutinizing it thoroughly.

    Plus, KJ really screwed up on the bid to buy Cook’s shares. The court’s documents clearly showed what parties had to do to bid: They had to prequalify with the NBA in order to make a bid, and the trustee knows this is a 3 week (or longer) process. We are now less than 3 weeks from the auction, and only one party prequalified: Hansen. So he submitted a qualifying bid to the court, and they had no choice but to take it.

    KJ could have stopped this. No question about it. But he dropped the ball. What a mistake.

    Now KJ is counting on one of the current limited partners to buy Cook’s 7%, but I really don’t think they have the motivation to do that. It would only buy them one thing, and that is something they already own: Right of First Refusal. Why would they strain themselves to buy 72% of the team, in addition to shares they already own? I’ve seen this somewhere; at $525M, none of the minority owners are interested in buying; they are very interested in selling, however.

    I don’t think KJ is doing a very good job here. He loves to pretend he is, though.

    A little knowledge is a dangerous thing. That’s KJ for you.

  67. I’ve been really surprised that no one on Team KJ tried to pop in and buy Cook’s 7%. But he didn’t bag his two whales until late February, early March. And those whales weren’t going in for a small piece of the team without knowing what the city would give them in terms of an arena deal, an arena term sheet that wasn’t finished until last Saturday. On top of that, the whales were bargain hunting, as evidenced by David Stern’s response to their original offer. Even then, the club of $1M local investors could have, very quickly, come together on a bid, but they probably couldn’t form such a partnership so quickly. This shows that Hansen is way ahead, he’s been vetted for the last two months, he’s assembled parcels, and is farther ahead with his city council. So far, Sacramento has been all hat, I mean, white Crown Downtown t-shirt, and no cattle.

  68. Could one of the existing minority owners match the bid by proxy? Could Benvenutti match using Mastrov’s $?

  69. Also, where’s Kehriotis? As a minority owner he could have matched and started accumulating shares.

  70. Jason, it’s not like any of these characters are personally buying the arena (the thing you can’t move and that depreciates). They’re all assembling Limited Liability Corporations that, for the most part, can be a few contracts away from being insolvent. Most deals actually have the local government own the arena and instead lease it back to the LLC, further blurring the obligations. There’s numerous examples of arena LLCs owned by the wealthy going bankrupt, but my favorite example is Portland’s Rose Garden.
    Ground broke on the Rose Garden in 1993, and the building opened two years later in 1995. The Rose Garden cost $262 million to build, $155 million of which was financed through a loan from a consortium of lenders led by pension fund TIAA-CREF. As Allen was unwilling to personally guarantee the loan, the lenders demanded an interest rate of 8.99%, with no opportunity for prepayment. Other major creditors included Prudential Insurance, and Farmers Insurance. A shell corporation, the Oregon Arena Corporation (OAC), was chartered to oversee the construction and operation of the Rose Garden, as well as operation of the Rose Quarter as a whole. The sole shareholder in OAC was Allen.

    Oregon Arena Corporation filed for bankruptcy on February 27, 2004. After negotiations concurrent with the bankruptcy failed to produce a settlement—Allen offered US $90 million, and creditors demanded US $198 million—the United States Bankruptcy Court ordered on November 8 of that year that the OAC transfer the Rose Garden to the creditors.

    Seattle is, I hope, being advised on how to avoid this because the $20k/month consultant the city hired (besides being lead negotiator for the wonderful downtown arena in Orlando) takes credit for developing the financial restructuring plan of the Rose Garden.

  71. I’m not sure about that… the crackpot theory that Cook has that it’s a personal right to bid on the team (rather than that of his LLC which probably owned his share of the team) seems dubious. I guess if somebody really rich wanted to personally give Mr Cook $30 M and then watch him take the federal tax hit on such a gift, something could happen.

  72. I guess it’s possible that Cook’s business interests were what was in Chapter 11 (restructuring) and that Cook’s got tons of other assets he personally has that could be made available. But whether he, personally, has the right to buy that is another matter.

  73. Joe, the “whales” won’t own the arena but they’ll be on the hook for some of the cost to construct it and to operate the building and they expect to eat up the lion’s share of whatever profit comes out of there.

  74. Sure, though a shell company intermediary. My reason for pointing out the Rose Garden was because Paul Allen, the sole shareholder of the shell company, certainly wasn’t bankrupt when OAC went bankrupt. See his personal offer to creditors of $90 million as evidence of how shielding personal wealth from LLC wealth can work (or the fact he’s got $15 B now, like Ballmer).

  75. The Rose Garden financing model (before it blew up) actually won awards in 1993 from Institutional Investor as the “deal of the year”.

    In the way back machine (the proofreading gnomes are coming for Neil)

  76. Comparing the wealth of your ownership group really doesn’t matter once you’ve got a team. It may help shoulder losses, but obviously some owners care more about losses (or perceived lack of profits) than others.

    I don’t know much about Cook’s wealth, but I could totally see him being fed up with his minor ownership stake being tied to the future of a maloof-run team and the cash calls that came with continuing to blow up deals. It may well have been a strategic thing to let his team-owning LLC go bankrupt as a way to exit back in 2011.
    In this case, however, Bob Cook’s share is worth somewhere between 34-40 million dollars.
    Sacramento Business Journal pointed out in Apr 3, 2012
    Cook’s debt is owed to a company called Omni Financial, which claims he owes $15 million. The company filed a claim against the bankruptcy estate.</em

    Mysteriously, Hansen offered $15.1 million to buy the shares… if I were a bankruptcy trustee I'd be happy and call it a day (seems like selling the shares of the team for more than the debt would be beyond the scope of duties).

  77. All the creditors want is to be made whole so if Omni get’s its $15 million, all is well and good. But even despite the challenge of getting a group together, it’s surprising that Hansen was the only bidder. If those shares are worth something closer to $34-$40 million, he already doubled his investment at this point.

  78. God, it’s painful to follow the local conversations regarding this bankruptcy auction.

    People read the document, and still insist outside bidders can still bid. Which part of the rules of the auction are they not understanding?

    “Yeah, but an outsider can still bid!”

    Well, as Neil said, it is a bankruptcy proceeding, so maybe it really will end up being litigated for decades.

  79. If you want to avoid a truly ridiculous conversation about this topic, stay the heck away from this page:

  80. “I can’t figure out who was the genius that made Sacramento the capitol over intelligent and progressive Silicon Valley-San Jose??”

    You realize that it’s MORE EXPENSIVE to live in a state capital than it is to live anywhere else? There’s a reason why (with the exception of a few states) most people prefer non-capital cities like New York, L.A. and Chicago etc., because it’s CHEAPER to live there than it is in the Albanys, Sacramentos and Springfields of the world. You’ll be wise to remember this next time you complain about state capitals.

  81. there is a reason that sports team owners do not want to own or have anything to with a arena/stadium!! Cause they lose money and cost lots to maintain!!

    kj has placed an expensive albotros around Sacto taxpayers!!

    How many times did Sacto taxpayers vote to NOT pay for or build a stadium with taxpayer money??? looks like voting is a waste of time!!

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