So that’s what the city of Sacramento was waiting for: a Friday afternoon on which to release its revamped Kings arena deal, ensuring that most of the media (and readers) wouldn’t be around to take notice. (Okay, Fridays are also the last day on which they can meet the legally mandated 10-day preview period before Tuesday city council meetings, but the media vacuum has to be a happy side effect.) The final agreement is super-long, but looks in line with the maybe-not-quite-as-bad-as-the-original-but-maybe-just-as-bad-after-all reports that were leaked last month. Some highlights:
- The city will issue $298.4 million in 36-year bonds, at an estimated 6.7% interest, for an annual bond payment of $21.9 million.
- The Kings will pay $6.5 million a year rent, rising by 3% a year (except for years 2-5, when it will remain at $6.5 million before jumping up by 16% in year 6).
- The rest of the bond payments will be made by 1) siphoning off any future rise in city parking revenue and redirecting it to the arena debt; 2) kicking in $5.9 million a year in city money currently going to pay off parking garage debt, starting in 2020; 3) kicking back $1.3 million a year (and rising over time) in property, sales, and utility taxes paid by the team that would otherwise go into the general fund; 4) $2 million a year in hotel-tax money over the first three years, before there’s any parking money to tap; and 5) if all else fails and the parking revenues don’t materialize … I have no idea what the backstop is, but the bond report is 335 freaking pages long, so maybe it’s hidden in there somewhere. Or maybe there is no last-ditch backup funding measure specified, which would help explain that crazy 6.7% interest rate.
- The Kings will pay all arena repair and operations costs, and will keep all arena revenues.
- The Kings owners promise not to relocate the team for the first 28 years of the 35-year term of the lease. After 2044, though, all bets are off. I also can’t find any indication of what the penalties would be if the Kings were to violate this clause, which seems like a pretty important omission.
- The city agrees not to impose any ticket taxes or otherwise tax arena events, meaning no getting out of city debts by trying to take it out of the team’s pocket.
- There’s a really involved clause (section 7.3(B), for those playing along at home) that under certain circumstances (way too many sections to list here, or even to easily reference across multiple PDFs) appears to allow the Kings owners to back out of this agreement and substitute one where they pay off all remaining debts but cut their rent to $1 a year, if they so choose.
In really really short: The city will spend $22 million a year on the arena, and the team will kick in about 50% of that over time via rent payments (the combination of rising payments and decreasing present value gets tricky, but the Kings’ rent should eventually end up covering close to half of the bond costs), with the city cobbling together whatever money it can to cover the rest. And the Kings get to keep all revenue from the arena, while paying operating costs.
It’s not the worst deal ever, but that still doesn’t make it a good one. Basically, the Sacramento city council will be voting next Tuesday on whether to throw about $150 million at an arena that it won’t get back (plus about $76 million in free parking spaces, billboards, and other goodies) in order to keep the Kings in town through 2044. At least we’ve established what this transaction is about.