$500 million and rising

There’s no done deal. And there probably won’t be one tomorrow, or even by next week. We know that the Maloofs and the Hansen-Ballmer-Nordstrom group are in serious discussions about selling and moving the Kings to Seattle. Everything else is just details.

Here’s what we understand about the situation going in.

  • The Seattle group has pitched $500 million at the Maloof family.
  • The Seattle group’s combined net worth is at least $17 billion, with Microsoft CEO Steve Ballmer’s piece being the largest at $14 billion.
  • Murmurs of the Maloofs looking to sell started in the last two weeks.
  • According to Forbes, the Kings are currently worth only $300 million. The Maloofs paid $156 million for the franchise in 1998.
  • The Kings owe $77 million to the City of Sacramento, with the debt secured by Sleep Train Pavilion and the surrounding land.
  • The Kings also owe anywhere from $125 million to $217 million to the NBA as part of loans from the league’s $2.3 billion credit facility. The number is fuzzy because the debt limit for an individual team is supposed to be only $125 million, but the team may have been granted a discretionary exception to exceed the limit by Commissioner David Stern.
  • A relocation fee of at least $30 million will be assessed to the new ownership group.
  • There is no additional territorial compensation cost because there’s no team currently in Seattle. Compensation cost to both the Lakers and Clippers helped sink the Kings-to-Anaheim plan.
  • The reborn SuperSonics would play at KeyArena for two full seasons before moving across town to a new arena in SoDo (near Safeco Field and CenturyLink Field).
  • Environmental studies for the new arena only started two months ago. From now, that leaves less than 33 months to finish all studies and prep work, acquire all necessary land, and build the arena.
  • The new arena will cost $500 million. $200 million will come from public financing to be repaid by revenues from the arena itself. The rest would come from the ownership group.

Got that? Now let’s do a deeper dive.

First, let’s talk about the debt situation. There are two kinds of debt here, the $77 million owed to the City and the ~$200 million owed to the league. The latter debt figure is high, but as is often the case with sports franchises, not unusual. It’s common for debt to be carried and transferred as part of a franchise sale. There are tax advantages to doing this, and given historically low interest rates, it make less sense to buy cash than it is to carry debt and invest one’s cash elsewhere. However, such debt helps inflate the franchise sale price and eats into proceeds for the Maloofs. The $77 million piece consists of a $64 million loan and $14 million exit fee. The loan was part of a purchase-leaseback deal of then-ARCO Arena. The Maloofs did the deal to offload an asset that that had little potential (more on that later). By the terms of the deal, the Kings’ ownership group would have to buy the arena back from the city if the team were relocated. If the team were to default on this debt, the City would assume ownership of Sleep Train Pavilion and sell it on the open market. They’d also go after the Maloofs if there was a shortfall. That’s a big reason why the Maloofs want to get as much as possible. They’d like to escape Sacramento clean and with enough cash to focus on their post-NBA lives, which would be hard to do if Sacramento sued the Maloof family and got a judge to freeze assets. There’s a possibility that a bankruptcy situation could develop, but that’s far more likely with the Maloofs keeping the team instead of selling the team because the family was running very low on cash on a year-to-year basis.

The Game’s Ric Bucher claims that the Maloofs want to get back into the liquor distribution game that they abandoned to keep the Palms casino and the Kings afloat. To do that, they’ll need to clear even more money from the sale of the Kings. Which might explain the tweet from CBS Sacramento’s Steve Large that said that the Maloofs balked at the (presumed) $500 million offer. Removing the two debt obligations, the family would get a pre-tax haul of $225 million, a good amount but not the kind of windfall many team owners have been seeing recently (Chris Cohan, Frank McCourt).

Tweets from Yahoo! Sports’ Adrian Wojnarowski appeared in the 10 AM hour. Seattle Mayor Mike McGinn held an unrelated press conference at noon where he was asked about the Kings/Sonics and was coy about the whole affair. That was followed by Sacramento Mayor Kevin Johnson holding a presser at 3:30 PM, which was staged to directly address the situation. The big takeaway from the event was that now that KJ officially knows that the team is for sale, he will work hard to get a competing group together that could bid on the Kings.

Already, the name Ron Burkle has come up. Burkle, the billionaire former supermarket magnate, could be a well-heeled backer for the cause. After partnering with Penguins great Mario Lemieux to buy the hockey club in 1999, they steadfastly tried to work the public financing/threaten-to-leave model until the economy collapsed, then got $47 million from Pennsylvania to help fund $321 million Consol Energy Center. Bonds for the arena’s financing were raised by a quasi-governmental arena authority, making the deal similar in structure to the 49ers’ Santa Clara Stadium or HP Pavilion in San Jose. In 2010, Burkle and Lemieux quietly met with Pirates owner Bob Nutting in an effort to buy the struggling baseball team. Nothing came of the talks. Burkle could get involved now at KJ’s behest, but why? Unless Burkle has an overarching sense of charity towards Sacramento, it would be a hard sell for him to play, mostly because he’d be entering (or creating) a bidding war. Burkle didn’t get to $3.2 billion by not driving a hard bargain. His name has been associated with the Kings as a potential buyer for at least two years, and he can’t be pleased with the inflation seen among pro sports properties, or the debt being carried by the Maloofs. Like Larry Ellison, he probably isn’t desperate enough to overpay for the Kings, as the Seattle group appears to be.

One player who has been silent since the news broke this morning is former Kings/Warriors star Chris Webber. C-Webb put together a group of investors in 2011 that included Filipino billionaire Manny “MVP” Pangilinan. There may be renewed interest in getting the band back together. Pangilinan scared the bejeezus out of the Philippine government last fall by threatening to repatriate elsewhere. Perhaps it’s time to resurrect the EB-5 plan.

That plan could come in handy if FEMA lifts the ban on development in the Natomas area where Sleep Train Pavilion is located. Instituted in 2008 after Hurricane Katrina forced changes to levee and floodplain planning, the ban allows for no new development in Natomas and even severely restricts rebuilds of existing properties, including a potential on-site replacement for the arena. Whether an owner that kept the Kings in Sacramento preferred the Natomas site or used the site for redevelopment purposes to help fund a Railyards arena, the inability to do anything with the land cripples any ownership group that owns the property while the ban is in effect. The ban could be lifted even as work to shore up the levees remains incomplete. The task of lifting the ban falls on Congress via legislation, and well, it’s Congress. Don’t hold your breath on that one.

It would not be surprising if the final sale price of the Kings rose above $550 million. The Maloof family has the asset and it’s a seller’s market, so they can play hardball for the next few weeks and allow a real bidding war to happen. Even if a white knight group promised to match whatever the Seattle group offered, the Maloofs aren’t obligated to accept such a bid. If Hansen felt that the Maloofs were trying to rip him off, he might not budge past a certain amount. We’ll see how long it takes to complete the deal. As Kings play-by-play man Grant Napear admitted during his radio show on Wednesday, the franchise is a free agent. With free agents, hometown discounts are the exception, not the rule.

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