Ailene Voisin of the Sacramento Bee, in a column that’s otherwise devoted to the dubious notion that the Sacramento Kings owners need to end “their ongoing silence” about the team’s future (what, and give up leverage?), drops a few hints about WTF is going on with all these rumors about the Kings talking about moving to Virginia Beach:
- George Maloof – the architect behind the near-move to Anaheim in 2011 – is particularly intrigued with a proposed arena deal in Virginia Beach that would be 90 percent publicly funded, with $195 million coming from the city, $35 million from developer Comcast-Spectator and another $150 million from the state.
Family members and/or their representatives also have had recent talks with officials in Seattle, San Diego, Kansas City, Mo., and St. Louis. … George is the naysayer. Joe and Gavin are attached to Sacramento, but they are unsure about how to breach the emotional and financial separation between the family and the community.- The Maloofs are united in their refusal to sell the team, which means the folks in Seattle might look elsewhere. This should be reassuring to Sacramento, because a sale would virtually ensure the Kings’ departure. (The Chris Hansen group in Seattle, for example, would outbid any investors interested in keeping the team here.)
This doesn’t actually sound like the most effective way to leverage the best deal for your team — “Hey, everybody, let’s refuse to sell to the guy who wants to throw money at us and then bicker among ourselves about what to do instead!” — but then, the Maloofs have a long track record of head-scratching moves, so maybe they really are this dysfunctional. Unless that’s just what theywant us to think, and this is really the world’s longest-running grift.
A funny thing, meanwhile, has started to happen out in the cities that are supposed to be bidding against each other for the Kings: They’ve started to pay attention to what the others are doing, and not just in an “Oh my god, somebody else wants the team too!!!” kind of way. From an editorial in yesterday’s Virginian-Pilot:
In Seattle, which is building a $490 million arena, the city has required the developer to personally guarantee the $200 million public investment if rent and admissions taxes fall short. His net worth must remain at least $300 million, and Seattle will audit him each year to ensure he’s capable of making the payments.
Admittedly, this isn’t the most important part of the Seattle arena plan — that would be that Hansen is agreeing to sizable rent payments that will rise to meet the bond payments if there’s a shortfall in tax revenue, something that Comcast hasn’t promised to Virginia Beach so far as I know. But at least newspaper editors have learned to look at other cities for examples of how to negotiate better sports facility deals. Baby steps…
One man’s rent is another man’s (or the local public’s) tax revenues. Hansen’s only promised $1M per year in new money (rent) and the rest of the $14M per year would come from various tax streams paid from the arena/teams (B+O taxes), the fans (ticket taxes/parking taxes), and the local public (property tax increases passed on to the public get kicked back to the bond payments).
But, yes, you’re right that the MOU’s current draft says Hansen will personally pay for any shortfall in annual bond payments for up to 5 years of this 30-50 year deal. Of course I think the statistics are rather low for any 25+ year NBA/NHL arenas not being renegotiated during their lifetime.
Hansen’s ArenaCo would still be responsible for paying the additional rent for the entire lease, though, no? (At least that’s what it seems to say in the version of the MOU I have, which I think it from May.)
I guess if the arena were really racking up huge rent payments Hansen could have it declare bankruptcy and then duck out himself five years later, but that still seems less worrisome than what Virginia Beach would be looking at, which is “Hey, what, the taxes aren’t what we said they’d be? Bummer, dude. No, we’re not paying you more rent to make up the difference — where’d you get a crazy idea like that?”
The most recent MOU is from October. www.seattle.gov/council/issues/arena.htm ArenaCo is signing the document but is an entity that doesn’t exist yet and so the city/county haven’t been able to really evaluate their finances (as an LLC, they’re always a few transfers away from seeming to have none). The bond debt is on the city and payments are due from ArenaCo LLC (via tax streams/rent/etc). A different LLC will own the teams. Hansen’s put in a personal guaranty for up to a consecutive 5 years (and the clock doesn’t reset) during which time they’d be trying to work out a new deal or find new ownership, presumably. The trick is that the public would own the arena and Hansen will have not-insignificant private financing to build the arena (and one would presume those private loans to an LLC would be backed by the arena). So the question is, if there’s a default and all the private lenders are also expecting payments from the arena, where does the private lender’s payments come from ? Those financial transaction terms are a “to be determined” in the MOU.
But, yes, Virginia Beach’s arena proposal sounds significantly more costly for the public. But I expect it’s just the opening salvo of the negotiation with the local/state governments.
Got it. On some level, then, Seattle has doubled down on its risk with the arena: If the building does lots of business, then it’s guaranteed of getting its payments, but Hansen isn’t likely to want to bail under those circumstances anyway. If it’s a flop, though, then suddenly everybody could be scrambling to avoid being left holding the bag. In fact, Hansen would be in a fine position to pull a “Renegotiate if you don’t want to see ArenaCo go kerblooie” move…
I actually think the Maloof’s position makes sense. So many people are aware of the fact that they won’t sell that it would just seem disingenuous to pretend to be willing to move to Seattle. (I realize that other owners have done similar things, but Hansen’s stated requirement to own the team seems to kill that option.)
As far as “emotional ties” to Sacramento, I think that boils down to the Maloofs understanding that Sacto is a great NBA market. If they leave there’s a good chance that someone else will get a team there and end up being successful. It may end up being a situation similar to Charlotte where the owner so poisoned his reputation in town that he has to go somewhere else, but the NBA actively works to find a new owner in a known quality market.
“This doesn’t actually sound like the most effective way to leverage the best deal for your team — ‘Hey, everybody, let’s refuse to sell to the guy who wants to throw money at us and then bicker among ourselves about what to do instead!’ — but then, the Maloofs have a long track record of head-scratching moves, so maybe they really are this dysfunctional. Unless that’s just what theywant us to think, and this is really the world’s longest-running grift.”
Any conversation involving the Maloofs has to start from one basic premise – that they are window-licking morons who happened to luck (by birth) into a fabulous fortune built up by their father, and who have proceeded to systematically blow said same fortune.
They need to hold on to the Kings because in their mind, what with the loss of the Palms (not to mention the pawning of the beer/liquor distributorship to try to recover the Palms), the Kings are about the only thing that keeps them relevant – and is also the only thing that generates cash revenue for them. Well, at least until Zing vodka takes off.
The most astonishing thing to me is that cities are actually willing to talk to these morons about building an arena to house the Kings.
Hansen wants to control both sides of the operation. With both sides he’d be able to “Hollywood bookkeep”/hedge any NBA team profits away from the CBA revenue sharing as efficiently as possible. But by doing so, it puts a real pinch on any potential NHL owner because they tend to require more arena revenues to operate (and they still go bankrupt more frequently in the US market).
Neil hasn’t posted yet, but Hansen’s architects have put out 3 different designs for the Seattle arena. No cost estimates and some impractical things (like a 240 ft by 65 ft training facility in Option 3… no NHL rink will fit in that) but there’s pictures for fans to salivate over.
When people are posturing, I’m not sure how much you can take at face-value. I do think there might be a point at which the Maloofs agree to sell; the question is whether or not Hansen is willing to make that offer.
I think that’s where Voison’s column is flawed. It’s foolish to think the Maloofs would give us a daily update as to where the offers all stand.
The fans here have given up. Just go to stubhub and you’ll see what I mean. Season ticket holders are having enough trouble giving tickets away. I think the Maloofs are wondering how many tickets they’ll sell next year. The answer is probably not a very large number.
Sadly, they can’t lose. If ticket sales pick up, they win. If not, they get a new arena elsewhere and also win.
There is room for a compromise between the Maloofs and Hansen, but only if he offers some sort of option for the Maloofs to buy more of the team back later.
Mike – what you say makes sense, except for the fact that the Maloofs are dead-ass broke. Not just NBA broke, but probably functionally bankrupt. They can’t sell their last remaining semi-liquid asset, the Kings, and recoup the level of their current collective indebtedness to the league and to the City. They can’t leverage their other remaining asset (a large block of Wells Fargo stock) because their father probably understood that he sired a collection of idiot children.
The only way for them out of the trap is if either a) someone offers them $Texas for the Kings, or b) if someone pays their freight while they get a new/renovated building gifted to them, and then attempt to sell the team for $Texas two or three years down the road. They tried this in Anaheim last year and failed. They almost had this in Sacramento, but they balked at $3M in predevelopment fees (or at least used it as an excuse) even though the league was going to front them their nut in the Railyards Arena.
The Maloofian combination of formerly rich and incredibly stupid is an interesting one to watch. It’s a bit rough on the Kings fans around here, but watching the Maloofs stumble from PR disaster to PR disaster makes for great copy.
I can’t understand why any city would want the Maloofs as partners. They screw up everything they touch and regardless of any Arena deal they will never put a winner on the court.
One of the most painful ways to amass a small fortune is to start off with a large one.
The Maloofs’ refusal to sell the team is baffling, but as the Bee has been reporting, there’s about $200M in debt against the team. If they sell the team and use the proceeds to settle that debt, I wonder if they’d even recover their initial investment. So it’s possible that even a $450M sale leaves them in the hole.
They were insufficiently capitalized from day one. I’d blame the NBA for allowing them to buy the Kings in the first place. But I still don’t see why this should ever become the problem of any branch of government. This team should probably go the way of Hostess. The Sacramento Twinkies, if you will.
I’m not going to say the Maloofs are financial wizards or have made the best business decisions, but I believe they still own nearly $400M in Wells Fargo stock and probably still have a fair amount of money from selling their distributorship. Of course they’ve also learned a harsh lesson about piling money into a sinking ship with the Palms and don’t see it as wise to invest it all in an NBA team that hasn’t been competitive for a decade.
The reports I’ve seen are that the AEG thing fell through when their “partner” was projecting extremely high profits for the Maloofs ($160M in the first year) which probably would mean AEG and the city would be saying “wow, look at all the money you’ll be making… that’s why we charge more” during their negotiation of the finer details. When the sales man points to the brochure where everyone is in nice clothes and looks like models, you’d be wise run if they tried to say buying their car/faucet/etc would be the ticket into that lifestyle.
I do think the BOG likes the idea of having the lowly Kings sell for a record-high price in order to boost the perceived value of all teams.