A Royal Dilemma

Two home games remain for the Sacramento Kings, before they presumably fire up the moving vans and head south for Anaheim, whose city fathers welcome to soon-to-be Royals with open arms, a much more updated arena, and a much richer and larger fanbase. One real hangup remains: the Maloofs owe the City of Sacramento $67 million of a loan they inherited from former owner Jim Thomas, plus a $9 million prepayment penalty on that loan.

Sacramento has gone so far as to write Anaheim a letter informing them of the Maloofs’ current debt obligations in an effort to influence Anaheim away from the franchise. So far, that letter has ony drawn scorn from the Maloofs, who don’t want Sacramento interfering in “business matters.” Anaheim approved $75 million in relocation costs and improvements plus a practice facility for the team, which just about seals the deal. On the Kings website there are no efforts to sell season tickets for the 2011-12 season, and the only promotional item is Fan Appreciation Night on the 13th, the final game in Sacramento Kings history against the hated Los Angeles Lakers. Thomas was seen last Friday in one of the Maloof brothers’ courtside seats, probably to see the team he brought to Cowtown play for the last time.

That leaves the matter of outstanding debt, which the cash-strapped Maloofs have promised to pay but haven’t said how they would do it. If they default, they will lose the arena and the 183 acres that surround it, plus Sacramento would get a $25 million stake in the Anaheim Royals. Chances are that the Maloofs don’t want Sacramento to have any stake in the team, so it could offer up the arena, land and a smaller cash payment to settle up. Two weeks ago, San Jose and Santa Clara County settled an ongoing debt issue in part by transferring real estate from the City to the County. It’s not hard to see the Maloofs offering the same kind of deal, since a) they won’t need the arena after they leave, and b) It’s a good asset the City could get for a song, warts and all.

Assessed value of the entire property comes to $61.7 million, with $45 million of that in the arena and practice facility. The assessed value of the arena may be overinflated due to the state of distress that the arena is in and the renovations it needs going forward. The assessed land value is a mere $16.7 million, or $91,000 per acre. Right now, even with that pittance of a land value, for a revenue-needy city such as Sacramento it may as well be worth nothing. There will undoubtedly be some in city government who feel that way. Then again, there are serious long-term strategic opportunities should Sacramento move to acquire the arena.

The uncertain future of redevelopment makes acquiring the land a risky proposition. To fund any improvements to the land, the City would have to create a redevelopment district from which they could collect tax increment after the land was flipped to a developer. (In short, this is the practice of landbanking.) As attractive as the land may have been 10 years ago, it’s not the least bit attractive right now – unless someone is dying to build right now. Given Sacramento’s horrendous housing market, that seems highly unlikely – though that hasn’t stopped recent Sacramento arena proposals from including a large infill housing development component. In any case, should redevelopment agencies cease to exist after this summer the City would have to rush to approve the deal and the creation of the redevelopment district.

The point of accruing tax increment would be to fund improvements for the arena, whose leaky roof and outdated, cramped quarters are pushing the Kings to vacate their premises. If Sacramento is to have any hope to attract a future NBA franchise, at least $250 million in improvements would have to be in order. That would include the following items:

  • Fix the roof
  • Dig 20-40′ further down (a la Oracle Arena) to create a more spacious, flexible event floor
  • Add a club concourse and seating
  • Add another suite level and revamp suites
  • Redo the seating bowl and replace seats
  • Replace scoreboard and signage

If Sacramento were not to worry about getting a replacement team, it could opt for a more modest ($50-100 million) spiffing up of the arena, which would focus on must-fix items such as the roof and the back-of-the-house. The City could immediately turn management of the venue over to a dedicated operator like SMG, AEG, Global Spectrum, or SVSE. The purpose of the arena would be to continue to attract concerts, ice shows, and other non-team entertainment to the region. The arena could have enough improvements to be once again included in the NCAA basketball tournament rotation. All of this has some significance, as the closest large indoor venues to the City are the 8,000-seat UC Davis Pavilion and 11,000-seat Stockton Arena. Those venues are 20 and 50 miles away from Sacramento, respectively. The outdoor Sleep Train Amphitheatre is 30 miles north in Wheatland and ony operates in the summer. Those distances would leave an entertainment black hole in the capital city if the arena were not to continue operating. Even with the mistrust of Maloofs and the need for cash, it may be an offer that Mayor Kevin Johnson and the City Council can’t refuse.

The future of basketball in Sacramento looks bleak, to put it mildly. Even if it were to get a brand new arena deal done in the next six months, there’s no guarantee they’d ever get a NBA franchise anytime soon. That’s Mayor Johnson’s strategy at this point, and it may be the only sound one if you hold out any hope for major pro sports in Sacramento. Johnson could turnaround and pitch the ARCO site to the A’s, but the gloomy market there makes funding a $400 million ballpark extremely difficult, let alone an arena renovation. There are forces who want to forego ARCO and build an arena downtown, as expensive and complicated as it sounds. It’s going to be tough to get a good deal in place, and I don’t envy the decision makers up there one bit.

12 thoughts on “A Royal Dilemma

  1. I’m no Kings fan, but this is a sad day for northern California sports.

  2. What’s the story about that ballpark they started building at the Arco site? I never knew about it until I looked at Wikipedia’s article on Arco Arena just now. Talk about a waste of money and the remains of it are still there at least according to the last satellite view.
    .
    BTW, did San Jose make any attempt to get the Kings to consider HP Pavilion?

  3. The Kings, like the SuperSonics in Seattle, the Browns in Cleveland, Oilers in Houston and Colts in Baltimore, again reaffirm that if cities want to play the “let the rich owners build their own arena/stadium for their millionaire players” game, then they can expect to lose their team. That game has only worked in Frisco so far and, hopefully, it will work in San Jose. There will always be some city willing to take the team away.

  4. re: $250 million in improvements to ARCO. The entire SJ arena didn’t cost that much and it’s a much better facility than ARCO. Looks like Sacto is out of the major pro sports business and that is not likely to change anytime soon.

  5. It would be interesting if Kevin Johnson offered the site and whatever cash he can squeeze out of the Maloofs to the A’s (for improvements)… Wolff would want to say no because of market size and lack of corporations, but it would blow out of the water his assertion that there is no other site in California for a team.

  6. When did Wolff say there were no other sites in California? I believe he said he had exhausted his options in Oakland.

    • @georob – The ballpark “bowl” was supposed to be a smaller facility that could eventually be expanded to MLB specs. Now it’s been 20 years, useless, and Raley Field exists.

      @baycommuter – Wolff’s remarks about Sacramento have been about not wanting to fly up there to catch a game. He’d rather stay local to the Bay Area (or really the South Bay). Plus, when he started with the A’s his friend Art Savage, who owned the River Cats, was still alive and there seemed to be a gentleman’s agreement about not interfering with the good thing Savage had going.

  7. You used to be able to see the slab for the seating bowl of Arco Field on google earth.
    .
    This is a bummer, but it is also not totally unexpected. I lived in Sacramento (and the surrounding area) for 7 years. There was a time when I wondered if the pro sports scene there might expand… But, it seems like the writing has been on the walls around the Kings since the Downtown sales tax Arena thingy went down in flames.
    .
    The distinction between this and the A’s, for me, is that the A’s have options that will allow the local fan base to continue to be the local fan base. Anaheim is quite the hike from Sacramento… Ugh.

  8. The Maloofs did speak with San Jose but there is a problem….Larry Ellison.

    Ellison back in January bid 350M for the Hornets in bankruptcy court. The NBA bid 300M and the judge because of what happened with the Phoenix Coyotes last year gave the team to the NBA despite Ellison having a higher bid.

    The judge did not know if Ellison would move the team or not so he did not want to open a “can of worms”….Makes sense as why would the judge approve a lower bid otherwise?

    The Maloofs own part of the Hornets as well and the NBA is leaving San Jose open for a Larry Ellison team hence why the Kings are moving to Anaheim.

    Yahoo Sports and several news publications are confused on why the Kings did not move to San Jose instead as it is a better location with only 1 team currently in the Bay Area (Warriors) rather than 2 teams in LA (Lakers/Clippers).

    sports.yahoo.com/video/player/nba/24494774

    The logic is that the NBA bought the Hornets for 300M and they will lose 10M or so operating the team so their cost is 310M.

    They will turn around and sell the team to Ellison for 350M and charge a 30M-50M or so relocation fee on top of it. That means the NBA makes 70M-90M dollars for just holding on to the team for 1/2 a season and they save face in New Orleans by showing they tried to find a local owner…..That is just as they say “good business”.

    If San Jose got the Kings then Ellison would not be interested in owning a team and the NBA is in several bad markets (Memphis, Sacramento, Indiana, New Orleans, Charlotte to name a few) and Ellison is someone who can “bail” them out of a bad situation by himself and pay a relocation fee without “sneezing”.

    Most ownership groups consist of several investors that take time to assemble. Ellison is the 5th richest man in the world and can buy a team all by himself and this is the same man who offered Howard Schultz a “blank check” in 2006 for the Sonics on the condition the team move to San Jose immeadiately.

    Joe Lacob/Paul Gruber have a team of investors in the current Warriors regime. It also makes sense why the NBA and Cohan left Ellison out in the cold last year when he came back with a higher bid for the Warriors.

    No way does the NBA leave Northern California with 1 team and have 3 in the Southern California area. The Warriors are voting against the Sacramento move because they know full well (they own the Hornets too) that the NBA is going to put a team in San Jose in the near future.

    One would think the Warriors would be “all for” the Kings moving South because it would expand their TV market all across Northern California where they are currently blacked out because of the Kings….But that would mean nothing if they have to share the Bay Area with a San Jose team eventually.

    The NBA has a plan here and they are going to approve the Kings moving to Anaheim in a landslide. Only the Warriors, Lakers, Clippers, Chicago, and Dallas will vote against it.

    San Jose is going to get an NBA team before the A’s or the 49ers show up in the South Bay. Who would have thought it?

  9. if and when ellison buys the hornets or some other franchise and moves them to sj, i’m thinking a lot of warriors fans will jump ship. cohan is gone but this duo of guber/lacob look no different other than different names at the top, to keep the people they kept since owning the team shows that they have absolutely no clue in what’s gone wrong with this org in the minds of warriors fans.

    hornets moving to sj? hey at least they’ll match the color scheme of the sharks. heck if the a’s move down there eventually too, although they don’t wear teal it’s close to enough to the teal/goal color scheme the hornets have used their entire franchise life.

  10. I will say that “competition breeds improvement”.

    The Warriors have none hence why should Lacob/Gruber fire anyone when the team is making money with a terrible product on the floor?

    A San Jose team will force the Warriors to evolve or lose fans like they deserve at this point. I am fed up of the Warriors losing year in and year out and still making money.

    This is not right and the Kings leaving Sacramento is a blessing in disguise for Bay Area basketball fans as the Warriors will finally have to make smart decisions or lose fans to a San Jose team.

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