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February 24, 2012
NBA extends Kings deadline as Sacramento scrambles for funds
I'm sure there's been other stadium news while I was afk the last 48 hours — say, this and this — but since heck's a poppin' in the Sacramento Kings arena saga, let's focus on catching up with that, and deal with any other loose ends on Monday.
So, on the Kings front:
- On Wednesday, Mayor Kevin Johnson announced that rather than the city council voting next Tuesday on an arena plan, it would vote the following Tuesday, March 6. Since March 6 comes after March 1, the alleged NBA deadline for a deal to be finalized, NBA commissioner David Stern agreed to accept just the announcement of a term sheet by that date as meeting the deadline.
- Stern said that while arena operator AEG was expected to put $50 million into the arena, that would be considered part of the Kings owners' $85 million share of funding. Hello, another $50 million in funding hole!
- Sacramento County offered to let the city use three of its downtown parking lots during arena events — something it estimates could generate $2.5 million a year — if the city agrees to kick back $500,000 a year toward county parks. That'd be enough to finance either about $30 million in arena costs, or fill in $2 million a year of the $9 million a year the city would be giving up by leasing its own parking spaces to fund arena bills, depending on how they want to allocate it.
And... that's pretty much it. (Big thanks to reader MikeM for collecting Sacramento arena stories in my absence, incidentally.) The upshot appears to be that everybody involved is still pedaling madly in hopes of coming up with a deal by March 1 or thereabouts, but there are still huge questions about how they're going to get the money numbers to pencil out — in fact, if Stern is right about AEG's $50 million counting towards the Maloofs' share, things have even gone backwards.
In any case, the week's delay can be looked at in two ways: Either Stern is happy to extend things by a week because he thinks they're close to a deal, or he's throwing Sacramento some more rope in the desperate hope that somebody will strike oil under Sutter's Fort in the interim and save him from having to figure out a Plan B for the Kings. In other words, pretty much the same as he did last year.
In regards to the parking revenues from Sacramento County ...
Unfortunately the County website is experiencing difficulties right now and wish I could link to it but here is some of the language from the County's Resolution Supporting Financial Contributions Towards the Entertainment and Sports Complex and County Regional Parks:
"County resources will be used solely for the purpose of financing the ESC and the City will not use these resources to supplant other City funding or finances."
"Debt Related Issues – The facility located at 625 7th Street was originally constructed with proceeds from tax-exempt County Certificates of Participation, and most recently refunded with the County’s 2010 Refunding Certificates of Participation (the "2010 COPs"). Due to the taxexempt nature of the 2010 COPs, there are limitations on changes in use of the facility that are dictated by the Bonds’ Tax Certificate, which will be effective until the 2010 COPs mature in 2030. A change in use is triggered if there is a transfer of management or lease of the facility to a nongovernmentalthird party. A minor amount of change in use of this type is allowed under the Tax Certificate, with the general rule being that it cannot exceed ten percent of the proceeds of the 2010 COPs. The change in use being contemplated for the seven-story employee parking garage appears to fall within this ten percent. However, County staff will work with County bond counsel to confirm this and will seek bond counsel advice for the necessary language to be included in any management agreement or lease that will be required to preserve the tax-exempt nature of the 2010 COPs."
Here's a link but not sure if it will work
Anyway, this is basically my long way of saying this sure doesn't look to backfill $2 million of the the $9 million a year gap in the general fund (I personally really thought it would before reading the document) and I would even question whether it is really going to be used for financing $30 million of the arena costs.
Okay, maybe technically it would be to finance about $30 million of arena costs but it almost looks like it is not being used to finance a new loan or anything like that but it seems like the City is trying to figure out whether they can lease the property to a private property or not. Sure seems to me that this is a plan to give AEG/Kings parking revenues near the arena as a revenue source attached to the arena doesn't it? To me, this looks like the City scrambling to make sure the NBA and AEG pay up the amount they have wanted those parties to pay up in the first place. Basically, it looks like the City might be trying to sweeten the pot to get one of these parties or both of these parties on board.
Am I crazy to think that?
John, I think KJ sees the funding hole, and is desperately searching for a way to fill that hole that does not involve selling bonds. So he does what I do: Essentially, the Maloofs, the NBA, AEG and Taylor-ICON are a group. Between them, he wants them to come up with $30M, which we'd repay as if it was a bond (3.5%, 30 years, approximately).
The interesting part is that this does not plug the $9M-$10M annual gap that the parking concession agreement would immediately cause. I haven't seen the solution for that -- and I can't imagine one either, at least until the arena is built, occupied and is holding events.
I also think those 1,500 parking spots do not put upward pressure on the amount potential parking concessionaires will be willing to bid. This is new parking not covered in the RFQ. New competition, as it were.
The normally-sleepy BOS meetings will be interesting next week. This is something like item 57 on their all-day docket that starts at 10 a.m.
And, you're welcome, Neil. John's been helping out too.
I don't know if I can wait to hear your thoughts about Santa Clara. Can you get to it before Monday? Pretty-please?
I heard Stockton, CA is on the verge of going bankrupt. I guess that publicly financed downtown arena in Stockton didn't work as planned.
Neil - the press here has reported nothing about the pending court case - if you read the news here, you'd think there wasn't a case.
The SCPF website has the links if you want to read the court briefs yourself.
And Neil, no one in the press has noted that the 49ers Stadium Company (StadCo) is suing not only the citizens of Santa Clara to deny us the right to vote, but is suing our Stadium Authority too - demanding that our Stadium Authority deny us the right to vote.
Not a good beginning to a 40 year relationship.
Stockton's arena isn't working out? Funny, our new city attorney Ren Nosky was the old city attorney in Stockton. The council apparently wanted his expertise in these matters...
He also told the citizens who signed the petitions for referendum to "drop dead". My tax $$ at work.
My thoughts about Santa Clara are the same as when the 49ers first announced they were moving up the groundbreaking earlier this month: They're likely trying to get the facts on the ground going their way before a court can stop anything. So it's most likely all going to come down to whether opponents can get an injunction before the shovels hit dirt.
KJ might be leaning towards some bonds...
"There's a lot of ways (to get a deal done) if you don't have dollars to spend in your pocket," Johnson added. "You can borrow dollars and there's favorable interest rates going on right now, so there's a lot of ways to be creative."
Well, it looks like my guess on the parking money might be wrong. Doh!
Neil - what they're spending in Santa Clara right now are 'preconstruction' RDA dollars. The loans haven't funded yet. They're moving utilities and they ripped up Centennial Way - showing people that they are creating a loss of use of the soccer park, which was denied for the past couple of years.
In other words it's not 49ers money getting spent. I'm not sure how it's even RDA money if they supposed to be eliminated by
Governor Brown. Maybe in the end the 49ers loan the city funds at 8.5% interest for this pre-con. Basically it's a big show to impress the media (who loves it). They are so blatantly obvious about everything they do. About as subtle as a knee to the groin...Why are people so stupid?
Another day, another "the Maloofs don't have any money" story.
Shouldn't the NBA just assume ownership of this franchise? I mean, how long are they going to do the negotiation for them, scare up (other people's) funding for them, etc.
Whether this team stays or goes, it's hard to see how it is better with the Maloofs in charge.
Here's what I think is happening with the Maloofs. they don't have the $85M. It's been reported this amount represents a 30 year prepaid lease. I first thought the NBA would loan them the money or at least "co-sign" if their credit sucks. If the NBA won't loan them the money then perhaps this county parking revenue would be the source of repayment for a conventional loan to the Maloofs. That would coincide with the County language saying that funds must go to ESC funding not for the City's general fund. So, this would allow the Maloofs to say they are putting up the $85M and are repaying the loan from county parking proceeds of perhaps $2M/yr. However, even with low interest rates the debt service would still be probably $5M/yr. So maybe the Maloofs would still need to pay $3M/yr + $6M/yr for the existing Natomas property bond debt or $9M/yr for two facilities.
This again doesn't solve the city's $9M backfill problem, nor the true direct costs for the arena, nor the offsite infrastructure costs in the Railyards, nor the supposed contribution by the hotel consortium of $30M, nor the AEG contribution amount etc. etc. So many moving parts and they want the council to only have 5 days to review the Terms Sheet. All Think Big did was to successfully drag this issue out for a year to try to manufacture support, repeat a lie often enough so that it becomes accepted as truth and then at the last minute rush the decision. This has been nothing more than a political play based upon no economic fundamentals and just Kool-Aid drinkers emotions.
Cal, that's the best two-paragraph synopsis of this I've ever seen.
What's more, if any loan to cover the Maloofs is paid off using parking revenues, then you can't really say the Maloofs are contributing anything.
Of course, the Maloofs will say they are, because of all the parking revenue they'll be missing by giving up the lots they currently "own" ("pay rent to occupy" is a more accurate description).
@Cal 'All Think Big did was to successfully drag this issue out for a year to try to manufacture support, repeat a lie often enough so that it becomes accepted as truth and then at the last minute rush the decision. This has been nothing more than a political play based upon no economic fundamentals and just Kool-Aid drinkers emotions.'
Santa Clara all over again. Only our city's cost numbers are much much larger.
Reading Tweets from the Sacramento Bee about David Stern's press conference. The Bee seems shocked, shocked that the NBA is playing hardball with them. Of course, the NBA's Relocation Committee will monitor the situation and of course, the NBA wants to minimize their contribution. Shocking!
Man, is this getting ugly in a hurry. This isturning intoa refi/loan-forgiveness deal. The NBA is refusing to lend the Kings any money, which is leaving this to a City refi. Just, wow.
The Maloofs don't have cash to contribute. Well then, why do they even own an NBA team?
There will be term sheets by Feb 1, but the Council won't like them.
Eight months into their reprieve, why does this turn into a big deal 4 days before the deadline?
Bye, Kings. We barely knew you, as it turns out.
No surprise the Maloofs have nothing to contribute. They sold their beer distributorship, lost control of the Palms Casino, sold naming rights to a company with a dubious product who just filed for bankruptcy, ran a team that everyone in the area loved into the ground, and abandoned ship on the last (way more lucrative) arena deal offered to them. I'm getting the vibe from what I see on the Internets from the local media that if the Kings leave, the local media is ready to put that blame on the Maloofs.
Apparently, everyone is re-arranging their schedules so they leave town tomorrow, not today.
The impasse, as I see it: The Maloofs won't put up the $70M-$90M (currently being reported) in cash, but the Council won't accept bonds to cover any of that amount. It's a gap that will take a lot of work to fill in.
Will there be a plan on the table that backfills the lost parking revenue and doesn't include an additional bond sale? And why are we talking about this 4 days from a deadline that was set nine months ago?
As may have been referenced before, the county's parking facilities proximity may lower the value of the city owned parking garages and have the effect of lowering bids if bidding takes place...
...also, a little bird just told me that the Maloof's only seek to contribute the land immediately NORTH of ARCO, with a claimed worth of $25Million but whose true worth is less than HALF that amount, plus $2 million in cash.... If this is the case, it means that the Maloof's are in far more serious financial trouble than anyone really knew, and that their Wells Fargo assets are not liquid at all, and leveraged already to other interests....
There are reports of a framework for an agreement in Sacramento. Framework?
Yup, they've reached a deal.
Let's see the regional participation. Can't wait to see those details.
The numbers on the term sheet will be held together by spit, gum, and a few paper clips. Kevin Johnson says, "Game over!" Nice try.
I like the Bee's reporting: "The Maloof has agreed to contribute $70 million upfront to the project." Are they a singular entity now, like the Borg?
The spin is getting going here that this is an inevitable, final deal. But I've already heard words like "tentative" and "framework." And what is this "$150 million" Maloof contribution? I can hardly wait for the details.
The details will contain a refi on the current outstanding bonds, which means there's going to be more borrowing.
That will be the sticking point.
Maloofs are paying 70 million up front, and another 75 million out of ticket surcharges over the next 30 years according to SI.com. Looks like they're not as broke as everyone assumed.
Are the ticket surcharges considered Maloof contributions or direct contributions from the fans?
Maybe it would be better for fans to just purchase stock in the team and consider that arena contributions, at least so future revenue goes to the team rather than dubious investments and lifestyle upkeep to this family that obviously has no clue how to manage finances. Cut out the middleman.
The term sheets don't come out until Thursday, but already we know the current loan will be redone -- we just don't know who will carry the papers yet.
I'm actually fine with considering a ticket surcharge to be a Maloof contribution - they're going to raise ticket prices as high as the market will bear anyway, and "as high as the market will bear" doesn't change regardless of whether $3 of the total price goes to the city treasury or not.
What I'm more concerned about is the fuzziness of "millions of dollars" a year being generated by this fee, plus the fact that a chunk of the Maloofs' share is from the sale of the Arco land. While we'll obviously know more Thursday, I'd feel better knowing who's on the hook if either ticket surcharge money or land sale money comes up short.
Actually, reading more - since the ticket surcharge applies to both Kings games and other arena events, a good chunk of that money should really count as coming from AEG, no?
Frankly it shouldn't count as coming from either. It's coming from ticket surcharges, not from AEG or the Maloofs. All they're both doing is passing it on.
I think that is a good point about losing money in that they could charge market rate without the surcharge, but I think that fan knowledge of the surcharge will also create an acceptable ~$1-$3 uptick in what the market rate would otherwise be. What concerns me is a narrative of the Maloofs contributing x-amount of money when another group of stakeholders (i.e. fans or AEG) who should get the credit for paying for the arena.
They're planning on sitting on the 100 acre site on which the arena sits until a market uptick. Which is all well and good if you have the cash sitting around to cover yourself -- but what if you don't?
If you don't, I think you have to sell bonds.
Also, they're saying that the $75M up-front from the Maloofs may be financed; the Maloofs will borrow money to raise the $75M up-front fee, and the remaining $75M will be paid over time. That sounds an awful lot like the Maloofs will borrow $150M. Who'd loan the Maloofs $150M right now?
This is all pointing to a pretty large muni bond issue, if you ask me.
Is this a record-length thread for FoS?
I'm not buying it until there's a shovel in the ground. There's way too much borrowing, speculation and fuzziness involved here.
I think Mayor Johnson was ahead of himself when he said "Game Over".
Other interesting questions. I read that the ticket fees would cover the budget shortfalls lost from the parking deal. What happens if they don't? I also read that David Taylor/ICON would cover arena cost overruns. In exchange for what?
I had the same questions jjo916, nothing seems to ever go as planned. And basing anything off potential money made from ticket sales is a bold and speculative move. They're banking on the Kings really turning around and becoming a playoff contender.
Dan and Scott: I buy a fair number of sports and concert tickets, and I can't think of a single time I've thought to myself, "Oh, it's more than I want to pay? Well, if it's for a surcharge and not the ticket price, that's okay." And it's doubly so in the age of StubHub.
MikeM: The Maloofs wouldn't be borrowing the $75 million paid over time, they'd be paying it off, um, over time. With the ticket fee money. Nobody needs to borrow anything.
Finally, not only isn't this a record for comments, it isn't even a record for comments in the last week. (Until one more person posts, anyway.)
To me, this deal doesn't seem that bad does it? This is nothing like the travesty that is the Santa Clara Football Stadium. Even if the Maloofs over time can't make-up the loan payments, they do have Ed Burkle (an AEG friend and offered to buy the Kings) that can purchase the team. The Maloofs will cash-out big-time once the new arena is built. I'm happy for Sacramento and I'm surprised that the comments haven't been super negative like they usually are.
I think that one aspect of the debate of putting a new arena in Downtown Sacramento has been somewhat of a litmus test of whether Sacramento would treat itself like a big city - whether it could afford (or try to afford) an NBA franchise and bring in other events like the NCAA basketball tournament. Many Sacramentans on my facebook feed are talking about how this will ensure that basketball stays in Sacramento and how this will attract larger events and entertainers (they are even talking about the NBA All Star Game, which is a stretch).
The debate has been public enough that I think that some Sacramento fans will be more willing to pay a premium on tickets with that knowledge that without subsidizing the arena through the surcharge, they would not have those events in the first place. For this reason, I bet many will not gripe so much about a $3 surcharge as if it were not going to the arena and being pure profit to the AEG or the Maloofs. (If they were smart, AEG or the Maloofs would actually make it so the charge showed up as an "Arena Development Surcharge", or something of that nature to keep it off the sale price and remind customers where that $3 is going.) I grew up in Sacramento, but I now live in Brooklyn (I think as you do?) and of course I would never have that mindset about paying for an event at the new Barclay's Center or even the renovated MSG. But Sacramento is very small by comparison. I think locals - at least in the short term - will be more mindful that paying a little extra keeps Sacramento on the national stage and pay a little extra for that luxury.
One item is coming out in the "leaks" as well: The City will "un-lease" the parking on event nights. So if you're a parking bidder hoping to capitalize on all those Barney crowds, too bad; the City has decided to keep those revenues. The parking concession stops operating on event-nights.
"The city also will collect all parking revenue from arena events at its downtown parking garages, even those it plans to lease to a private operator, the source said. The city will split those revenues with the Kings during Kings games."
How can this not limit the bids on the parking concession? I think they plugged one hole by ripping a gaping hole elsewhere.
Neil, there has to be borrowing. The $73M over-time the Maloofs will be paying more-or-less forces that issue. The cell phone tower revenues more-or-less forces that issue.
I find somewhat amusing the idea that a city has to "afford" to be a "big city." What exactly does that mean? It would seem that you either generate the wealth to be a "big" city or you don't--and is a basketball arena really the difference?
Seattle has no NBA team, and its NFL and MLB teams have been mostly known for their mediocrity (or worse). Yet it has a worldwide reputation as a business and cultural center. Cleveland also has lots of teams, yet continues to lose people and prosperity. So is this really something that makes a difference?
GDub: I think it depends on how a big city is defined - there are multiple ways. Wealth is a primary determinant, but not the singular. Part of it is also whether a city is in the national or international consciousness - whether events on that scale take place there. Sports plays a large part for many in having a reputation as a big city (as does whether they get big events or musical acts), and leagues/promoters claim that there must be modernized facilities to house those teams (as well as other events). To create such a venue, a city definitely needs a certain amount of wealth - the question is whether those funds come from the city government, specific interests, or directly from consumers of the arena (or some combination). The question is also whether it can be afforded over the long term, especially when the city government is responsible for much of the costs (this worries me for Sacramento).
Without any modernized arena, Sacramento may maintain some big city characteristics by being the capital of California, having 2.5m people in the region, and being one of the 30 wealthiest metropolitan areas in the USA. But without that new arena, Sacramento may cease to be a big city in that it loses leisure-based amenities - from sports teams to Lady Gaga concerts to political conventions - that may demand an updated arena over time. Again, I think that people in Sacramento would pay a per-ticket premium to ensure that it maintains facilities for its NBA franchise as well as the other events that may potentially follow.
I'm not advocating theft of private funds for a public building, but Scott does have a point about perceptions of 'major cities.'
Let me ask the thread which cities they consider 'big cities':
Norfolk or Nashville?
Providence or Milwaukee?
Hartford or Raleigh?
Richmond or Salt Lake?
In every case above, the first city is actually bigger than the second, and wealthier too in the cases of Providence and Hartford. But the average American probably would say all the second cities are 'bigger.'
"Again, I think that people in Sacramento would pay a per-ticket premium to ensure that it maintains facilities for its NBA franchise as well as the other events that may potentially follow."
You're probably right. Sufficient "premiums" could probably be built into the cost of tickets to pay for building the venue. But building the venue isn't the only goal here - the team wants to use somebody else's money to build it. Otherwise, they'd just build it and charge enough to pay for it.
@Keith - I totally agree. I think that fans would pay a premium, but I don't think they would pay the entire bill through premiums or that the ownership would want that, either. I was referring specifically to the 3%-5% proposed surcharge.
Also, I agree that private interests (fans, owners, operators, etc.) want the public to pay for almost all of the arena. It's very unfortunate and I wish that Sacramento - a city that has seen a drastic loss of wealth over the past few years - could stand up and tell AEG, the Maloofs, and the NBA they won't be coerced into an unnecessary $300m arena.