In what has to be considered a potential game changer, a Sacramento group wants to buy the Kings and build a privately-financed arena to keep the team in town. The kicker is that the group is headed by current Kings minority partner John Kehriotis, who owns 12.2% of the franchise. According to FOX 40 in Sacramento, the plan is to spend $750 million to buy the Kings and build an arena at either of the downtown sites or elsewhere in the region. The group claims that their plan won’t require any public money, such as the pledging of parking revenues from the 2012 arena plan.
This surprise news comes before the expected unveiling of the “whales” group which could contain Ron Burkle and/or Mark Mastrov. That’s supposed to happen towards the end of the week, when the league-imposed deadline for Sacramento to make a proposal (March 1) comes. The City-backed plan includes a public-private partnership on a downtown arena.
An unnamed source within the Kehriotis group explained that the group has $350 million in hand and a verbal commitment for the remaining $400 million. The key to the Kehriotis group’s bid is that Kehriotis, as a minority partner, has a right-of-first-refusal clause for any team sale. When this was revealed last month, it wasn’t clear that any of the minority partners would be able to put together the resources to put in a bid. If Kehriotis can pull this off, it could be the best and most politically easy way to keep the Kings in the capital. As big as $750 million, it’s well under the $1 billion Seattle and the Hansen-Ballmer group expected to put into Sonics 2.0. In addition, I’ve thought for some time that the cost estimates for a Sacramento were lowball, with the true cost of the arena approaching $500 million when completed.
The Kehriotis bid would also have to come under scrutiny first. The list of failed NBA team buyers is long and generally forgotten, and in a competitive situation, ROFR doesn’t necessarily mean the Kehriotis bid will be accepted. The group will undergo the same kind of vetting Hansen-Ballmer is getting, though Kehriotis’s status as a partner in the Kings should automatically generate some goodwill. The issue for the NBA will be the group’s ability to pull together all of its financing plan, which considering the size of the market, is extremely aggressive. It even contradicts a City staff report released Monday ahead of Tuesday’s city council meeting, which states that a fully private arena would not be “not economically viable” in Sacramento.
Unlike the NFL and MLB, there are a number of privately financed and owned arenas throughout the NBA, spanning both older venues (Madison Square Garden, The Palace of Auburn Hills, EnergySolutions Arena) to newer ones (Staples Center, Rose Garden). The Warriors plan to build their own privately financed arena with the league’s approval. If the Kehriotis group can make the numbers work, David Stern and the Board of Governors may see the arena as the path of least resistance. Both the Seattle arena plan and the main Sacramento plan involve large pledges of public money, which are subject to public review and referenda in all likelihood.
Ironically, the Kehriotis bid is sort of a double-edged sword for Sacramento, whose Mayor, Kevin Johnson, has been making the rounds and working the phones to put together a big bid of their own. With a public that is already predisposed to oppose a large public investment for an arena, citizens could easily look at Kehriotis and proclaim him the savior, rendering the “whales” bid and public arena investment unnecessary. There’s a delicate bit of negotiating at work here in that if both Sacramento groups’ ultimate goal is to keep the team in town without breaking the bank, one may have to step aside to avoid their own internal bidding war. Another possibility is the merging of groups to lighten the load, but if both have fundamentally different new arena plans and financing approaches, it may be difficult to come to a consensus. Besides, it’s a bit late to start merging plans.
Like the very hot Warriors sale situation in 2010, I would expect Stern and the BOG to simply pick the bid that works best for the league and the Maloofs. That means dollars, dollars, dollars. Stern will wake Tuesday morning to news of the Kehriotis bid, and I can’t imagine that he’ll be frowning about it.