Long live the Kings?
Sacramento tends to fail when it comes to public subsidies and arenas. And Seattle's offer is a slam dunk. Yet K.J.'s mastered the NBA game. Will Sac get Maloofed again, or does the mayor win one final buzzer beater?
It will always be known as Arco Arena, and deep inside its bowels is a secret tunnel. Developers built this passageway with the hope that it would one day connect to a baseball stadium. But the major leagues are a Sacramento dream denied, so the tunnel leads to nowhere. Stand at its entrance, stare into the unknown.
Nowadays, the tunnel is a metaphor for Sacramento. And not just because the future of Arco's No. 1 tenant, the Kings, is uncertain. Even if you don't give a damn about basketball, the city's fate—hope for its downtown, quality of life, a balanced budget—also hinges on the NBA's imminent vote to either keep the Kings in town or relocate them to Seattle.
Will they stay or will they go? It's anyone's guess. And, lately, guessing is the hot ticket.
Mayor Kevin Johnson’s confidence borders on braggadocio. He likens Sacramento’s chances to a “Steve Nash free throw” (92 percent this season). After last week’s NBA meeting in New York, where commissioner David Stern announced that the league would take more time to fine-tooth comb the two cities’ plans, there’s reason for confidence. More time means more momentum for his city.
“People in Seattle three months ago were ready to pop the champagne,” reminded Chris Daniels, a Seattle journalist who’s covered the Sonics saga going on seven years. Today, Seattleites are losing sleep: Even Seattle Arena Plan on Twitter’s “Relocation Meter,” a very unscientific measurement of the team’s chances for return, is down to 57 percent from the 80s in February.
But reality check: Seattle investors still possess an actual signed contract to buy the team from the Maloof family. Sacramento also tends to get Robert Horry’d when it comes to public subsidies and sports complexes, including last year’s eleventh-hour arena-deal collapse. And when 70 percent of the 58,260 ESPN.com readers who answered last Thursday’s online poll—which asked, “What would you rather have happen to the Kings?”—responded, “Move to Seattle,” alarms go off.
If the Kings stay, it means the city goes forward with a billion-dollar arena and downtown-revitalization plan, the largest and most expensive redevelopment makeover in its history (Sacto’s annual general fund is but $365 million). Proponents tout this deal’s slam-dunk upside: rich “whale” development partners, the Kings 35-year reign, a sports complex, a vibrant and growing new downtown. But even the council members who voted for this proposal call it risky, and the reality could very well mean millions of dollars of debt.
The drama continues. But this week, all Sacramento can do is wait, speculate—and wade into the tunnel.Bad arena luck
When it comes to building publicly financed sports arenas, Sacramento boasts a 40-year track record of failure.
During the 1970s, Sacramento fumbled a ballot measure to build a sports complex on county land, a plan to erect a stadium on Bradshaw Road and, in 1979, another ballot measure to rezone parts of north Natomas to allow for a stadium.
The city tried to persuade the Oakland Raiders to move here in 1989 with a $40 million bond, and also attempted to build baseball stadiums next to Arco Arena and in the rail yards in the mid-’90s. No dice. In 1996, the Kings owners asked the city for public-private partnership money and threatened to move the squad, to no avail. Moves for arenas at the rail yards, paid for by a tax on local businesses (this was Mayor Heather Fargo’s idea), and also at Seventh and K streets in 2004 didn’t excite. Two years later, the measures Q and R sales-tax vote tanked, and on the heels of that, “Convergence”—a land-swap ménage à trois with the state fair, Natomas and downtown—flopped. And then the handshake deal with the Maloofs, to build a $387 million arena on the rail yards, imploded around this time last year.
None of these deals, however, had the pedigree of this year’s proposal:
Silicon Valley billionaire Vivek Ranadivé, who made his money by selling Wall Street software, and millionaire Mark Mastrov, who owns 24 Hour Fitness, would buy the Kings and be tenants in a city-owned complex. These investors, plus members of the Jacobs family that owns telecommunications powerhouse Qualcomm, will put $189 million into a new Kings home at the current Downtown Plaza mall. Its owners, JMA Ventures, will also partner with supermarket mogul Ron Burkle on an additional 1.5 million square feet of downtown redevelopment projects, a $500 million investment that could include a hotel, retail and office space, and housing.
Councilman Steve Hansen, whose district would house this proposed arena, said it’s these intangibles, and not the Kings, that seal the deal. “I’m not a basketball fan—I’m not opposed, but it’s not what I live and breathe for—but these other opportunities are so compelling,” he told SN&R.
In exchange, Sacramento forks over an unprecedented $258 million in public money. Most of this sum, $212.5 million, will come from bonds backed by future city parking revenues. Another $38 million comes from selling land.
But local watchdog group Eye on Sacramento pointed out that the city also will give the investors $57.8 million in the form of 2,700 parking spaces underneath Downtown Plaza, and six new digital billboards worth an estimated $18 million, which isn’t included in the arena plan.
The nonbinding agreement was vetted for barely 72 hours before the council’s “yes” vote on March 26, and the lack of prevote transparency has lead to much after-the-fact debate. The city manager’s department insists the investment makes sense. Others say it’s a budget bust in the making.
“I think the truth is somewhere in between the two.”
That’s how University of the Pacific professor Jeff Michael views things. He heads up the school’s Business Forecasting Center, which produces economic outlooks for cities including Sacramento. He isn’t opposed to the latest arena plan, but questions whether the city’s math adds up.
“I don’t see how the general fund goes unscathed,” he told SN&R.
Skeptics finger the parking scheme. Sacramento says it will create a nonprofit corporation to manage its parking assets, which reap $32 million annually and net $9.5 million for the general fund.
This nonprofit corporation will borrow against future revenue for a lump sum of $212.5 million, and will replenish the general fund with parking revenues and arena ticket surcharges and revenue sharing. If funds fall short, the city will dip into its hotel-tax monies to backfill. Michael and others believe dipping could very well happen.
On top of this, there’s also an estimated $13 million to $15 million in annual bond payments that the city’s private corporation must pay back. Officials suggest that parking revenue will grow by more than double, because of all the new redevelopment from the downtown arena, so the bond payments won’t be a problem.
Is that possible?“I’ve never seen it anywhere else,” said Neil deMause, a Brooklyn-based journalist who’s studied city arena and stadium deals for more than 10 years and wrote the book Field of Schemes. He reasons that Sacramento probably won’t “pay back the bonds with the money that they say they’re going to.”
But city officials aren’t necessarily pulling a fast one. “It doesn’t mean that they’re lying, per se, it means that they’re shaping their projections so that everything will work out.” (The City Manager’s Office did not respond to email questions or phone-interview requests by this past Tuesday’s print deadline.)
It’s a risky game. Very few local governments, deMause said, have monetized their parking like this. In 2007, the city of New York created a similar nonprofit corporation to sell $237 million worth of tax-exempt bonds backed by parking-garage revenue at the new Yankees stadium. But last week—only three years after the stadium’s opening—the garages went into default. The city and the team are insulated from the debt, however, and bondholders will suffer the losses.
Sacramento, though, wouldn’t be as lucky: Taxpayers are on the hook to fill in any gaps if the city can’t pay back the bonds.
“It’s not by any means the worse arena deal I’ve seen,” said deMause. “But that doesn’t make it good.”Silver linings playbook
The good news for Kings fans and city leaders is that history can be damned. And the only holes in Sacto's arena deal that matter are those poked by NBA fingers.
In New York City last week—when a dozen NBA owners from the league’s finance and relocation committee met to hear the Seattle and Sacramento investor groups’ pitches—many anticipated some kind of verdict soon after.
A source close to the Maloof family said they had “a strong suspicion that we’ll know where it’s all headed by Thursday morning,” the day after the pivotal fact-finding meeting.
“Carmichael” Dave Weiglein, radio host and Kings booster who’s driving a purple RV across the country right now in a grassroots effort to keep the team, predicted on his way to New Orleans that “someone’s going to get a leak that the owners are leaning toward this way or that way.”
But no one’s talked (at least not yet; something informal, of course, might trickle out while you’re reading this, but that’s unlikely). In fact, when SN&R asked locally based USA Today basketball writer and former Sacramento Bee reporter Sam Amick if the NBA might just kick the can down the road, he responded, “There’s part of me that just shrugs when you ask that.”
Yet kicking the can is exactly what happened: Commissioner Stern, looking dogged during an end-of-the-day press conference, announced on April 3 that the league could feasibly not make a decision by next week’s goal of doing so at its annual owners meetings.
“You never know. This is interesting theater. And, obviously, an unprecedented place for the NBA,” Amick added.
Author deMause, perhaps cynically, also chimed in, “When you have a bidding war going, it’s always in the seller’s interest to keep the bidding war going as long as possible.”
According to reports by insiders like David Aldridge, who covers basketball for TNT and NBA.com, sources close to NBA owners say the league’s decision about who gets to keep the Kings will be based on “which city can get a viable arena deal completed the quickest, and with the least amount of financial difficulty.” Sacramento could very well win this race.
There’s light at the end of the tunnel.
Seattle’s led this chase so far. Journalist Daniels, who reports for TV news station KING5 up north, latched on to the Sonics saga some time ago and was even featured prominently in Sonicsgate, a documentary about Oklahoma City’s fleecing of the team. “It’s really been like a six- or seven-year journey,” Daniels said last week via phone. “It’s a good story about this nexus of politics, public policy and sports.”
Daniels was one of few connecting the dots three years ago when Microsoft CEO Steve Ballmer sold $1.3 billion worth of shares in his company. Or when Chris Hansen, a Bay Area hedge-fund manager and Seattle native, stealthily began swooping up real estate south of downtown. Both men now possess a contract to buy the Kings. “The Hansen camp has been very quiet this whole process,” he said.
Indeed, there wasn’t much noise here in Sacramento when, in 2011, Hansen approached Seattle to build a new $490 million arena. Or last October, when the city and King County gave the arena its final thumbs-up.
The lid blew this year on January 9: A post on Twitter by the daughter of an NBA agent revealed that Hansen and Ballmer were in talks to purchase the Kings from the Maloofs. Twelve days later, ESPN and other media outlets confirmed that the Maloofs had agreed to sell their 65 percent ownership stake in the Kings to the Seattle group, and for a record franchise valuation of $525 million. The steal was on.
But then Sacramento Mayor Johnson cobbled together a counter blueprint in 49 days.
The two roads to an arena are quite familiar. Both involve a public subsidy (Seattle’s is less; 25 percent, or $125 million, of its $490 million price tag, but many say more public dollars is more impressive to the NBA), and both will be located downtown. Sacramento has all the real estate lined up; Seattle still needs a few more pieces. But Seattle’s process is further along, having been rubber-stamped by the city’s design commission. It also faces two lawsuits, one by a longshoremen’s union and another by a private group that says it violates public-investment laws. Meanwhile, two Sacramento attorneys also have threatened to file a suit over its arena, arguing that it violates the California Environmental Quality Act.
Environmental review will be a sticking point. In Seattle, it could take anywhere from eight months to a year-and-a-half to multiple years. But in California, where Sacramento’s Darrell Steinberg heads the state Senate, legislators pass environmental-review streamlining bills like notes in math class. In 2011, Steinberg rammed through two last-minute bills, one fast-tracking CEQA review exclusively for the proposed NFL stadium in Los Angeles. There are 19 CEQA bills vying to hasten the process in the Capitol this session.
City officials in Seattle predict arena completion by “mid-2017,” according to the county CEO. Mayor Johnson says his arena will be ready by NBA opening day 2016. It helps that Burkle, part of Team 916, has done all this before: in Pittsburgh, with NHL squad the Penguins. And that six NBA owners also own NHL teams, and Sacramento only needs eight of 30 owners to vote to block the Kings sale to Seattle.How's it all gonna end?
The Pre-Flite Lounge is a '70s-inspired bar with an old-school jukebox and unmistakable Sacto charm. It's a popular haunt, but it also rests underneath the Downtown Plaza mall at Fifth and L streets—the exact location of the city's proposed new Kings arena.
But bar owner Jason Yee told SN&R he’s “excited” about what could happen, even though Sacramento’s success would mean the end of his business. “We’re in the heart of downtown, and I think it would revitalize the downtown area,” he said.
If Sacramento fails, the reasons are many. Seattle’s too lucrative a market—those Fortune 500 companies, that 5.3 percent unemployment rate, its top-notch investor group of Wall Street, Microsoft and Nordstrom.
TV-deal revenue for the NBA in Seattle would far surpass that in Sacramento, experts say. Here, the league’s struggled to lock in contracts of value. The current partnership with Comcast SportsNet is $11 million a year; the league’s most lucrative contract, for the Los Angeles Lakers, nets $2.5 million per game.
“Seattle undoubtedly has a better market, on micro standpoints,” said University of Pacific’s Michael. “But there’s also a lot more competition.”
The Hansen-Ballmer group also has already spent “close to $100 million” on its plan, according to Daniels—a land purchase, down payment of $30 million to the Maloofs, lawyer fees, improvements to the temporary home at Key Arena, the environmental-impact studies. The league has only once blocked a sale and move, the Minnesota Timberwolves failed relocation to New Orleans in 1994. But that was because of concerns over that ownership group’s financing. The NBA would be uncouth to deny these billionaires, right?
“It’s setting a strange precedent,” Daniels said. “On the other hand, they’d be setting a precedent by walking away from a quarter-billion-dollar public subsidy” in Sacramento.
Amick, who travels the country covering NBA games, says the gossip outside the Sacramento bubble “has gone from ’It’s too lucrative of a market,’ to ’It’s too perfect of an ownership group,’” to sources in the league office saying it’s “a 50-50 type thing.”
“It would be unprecedented to leave a market where the fans and the city officials show this kind of support,” he said. “And David Stern already has a black mark on his legacy of relocation.”
He also says that the Stern-K.J. relationship is “very unique.”
Carmichael Dave, who’s credited with saving the Kings from moving to Anaheim in 2011 as a member of the Here We Stay campaign, says in public that his city’s chances at keeping the Kings are “96 percent.” In private, though, he told this writer, “Anyone who thinks they know what the fuck is going to happen is full of shit.”
Maybe he’s right. Back inside Arco, they call its secret tunnel the “clown cave.” When Ringling Bros. and Barnum & Bailey visits each year, the tunnel’s lights pop on and the clowns hang out inside, waiting for their turn, kicking their oversized feet around and tagging the wall with merrymaker graffiti.
Is this whole Kings debacle a case of “Fool Sacramento once, shame on you. Fool Sacto twice …”? As history suggests, this could just be another big-top show—with the city ending up wearing the pie.
“I don’t think the NBA, for the third year in a row, wants the Kings circus happening at their board of governors meeting” next week, countered Dave. It’s simple: “Sacramento needs eight votes; Seattle needs 22”—and he insists Sacto will get its eight men out.
The math works. Kind of. Ranadivé, the Kings suitor, also owns part of the Golden State Warriors. There’s one vote. He’s also good friends with Washington Wizards owner Ted Leonsis. Two. Mayor Johnson played in Phoenix, so that should be three. Both Kobe Bryant and Magic Johnson stated that the Kings should remain in California, so the Lakers makes four (granted, Lakers general manager Jeanie Buss’ boyfriend, Phil Jackson, has been rumored to join the Supersonics front office). And remember, six NBA owners also work with popular Democratic fundraiser Burkle in the NHL; that could manifest in a fifth or six vote at least—or even 10.
But, as was announced this past Monday, billionaire Burkle is out; he’s no longer part of the team-investor or arena-development groups (due to a conflict of interest with his partial ownership of a sports-management company). The mayor says this isn’t a big deal. But many say Burkle is the man who gives the Sacto deal its gravitas. And Johnson and Burkle were the principal arena-pact operators—the mayor tweeted that he and Burkle “officially closed the deal a few minutes ago” on March 23—so the billionaire’s departure intrigues.
If the NBA does block the sale and move to Seattle, there could be legal ramifications. A source close to the Maloofs says that the “NBA doesn’t have anti-trust protections,” Hansen has given the Maloofs that $30 million—and they even tossed around legalese such as “tortious interference” to describe Sacramento’s role in the brouhaha.
So, even though the NBA likely will make a decision next week, the reality is that anything could happen:
Will Sacto get Maloofed again? Or this time, does Robert Horry miss his big shot?