Comparing the 2012 and 2013 Sacramento arena deals

It took an extra couple of days, but the City of Sacramento finally released its arena term sheet. The document was supposed to be made available late Thursday, in order to give the public and the City Counsel the customary three business days to review it. The Saturday evening release gives 72 hours of lead time in advance of Tuesday’s City Council meeting, which will have the term sheet on the agenda.

I’ve taken some time to review the document, live tweeting observations as I went. Field of Schemes’ Neil de Mause also made notes on Twitter, going straight into the financial aspects of the plan. In the term sheet is a comparison of the deal to the 2012 deal negotiated by the City, Maloofs, AEG, and NBA, the same deal that the Maloofs backed away from weeks later.

comparison

Comparison of 2012 and 2013 arena plans

A big immediate takeaway is that the price has gone up $56.5 million, which City Manager John Shirey attributes to inflating materials costs. A 14% increase? Probably not. Instead, either the 2012 estimate was not sound and prone to cost creep, or the Ranadive-Mastrov-Burkle (RMB) group pushed for better finishes or features in the arena. It could be a little of both. The amount of the public contribution is the same, though the public percentage of the project is smaller due to an increased private share. AEG is not onboard this time around (yet), so the private share is listed solely as a Kings ownership responsibility.

Just like the last plan, the bulk of the public share ($212 million) will come from the sale of parking revenues. The difference in this plan is that the City is not selling the revenue rights to a private parking operator. Instead, the City is going to the trouble of creating a nonprofit, quasi-governmental corporation to control the revenues and distributions. The corporation will contract out with private companies to manage the lots and garages. The reason for this change is simple: it allows the City to refinance debt for existing garages ($50+ million) by continuing to use tax-exempt bonds. Under the previously negotiated arrangement, the City risked losing tax-exempt status on the bonds. The corporation would control parking revenue on all downtown lots except for Downtown Plaza, the arena site. Those revenues would stay with the Kings.

Despite the added complexity in the parking revenue arrangement, projections are fairly similar. The City receives $9 million annually from its downtown lots, which is being pledged towards the arena. The task is to find sources to adequately backfill that $9 million. The City projects $1 million in profit from arena operations, $3 million in new parking revenues, and a possessory interest tax payment of nearly $900,000 every year. Due to the lack of granularity, I’m naturally skeptical of these figures, as they seem like placeholders for a much more thorough accounting later. For now, the incremental $3 million is highly suspect, as the expected increased revenues from arena events are different line item altogether. If revenues fell short, the City could use hotel taxes to complete the backfill. The term sheet is nonbinding, as the deal is subject to CEQA and other approvals. Sacramento’s City Council will have to come back at a later date and approve the whole deal including the financing and the DDA, just as Santa Clara did for the 49ers.

2012’s aborted deal had the Kings locked in for 30 years. 2013’s plan has the team in place for 35 years to start, plus two 5-year options. Capacity and estimates for premium accommodations were carried over from 2012. RMB will handle cost overruns, plus ongoing maintenance and capital costs via a $1/ticket fee. Another carryover is the noncompete clause at Sleep Train Pavilion once the downtown arena opens. In conjunction with that, the City is selling 100 acres of land near STP for future development purposes.

One item lightly addressed was the fate of the $75 million the Kings still owe per the 1997 purchase/leaseback of the STP land in Natomas. The City indicated its willingness to refinance those bonds in order to get the arena deal done, but exactly how that would occur is left completely wide open. Mastrov and Burkle appeared to have erred when submitting their bid by factoring in that debt. The NBA didn’t factor it in and asked the bid to be raised to reflect a value without a discount.

Assuming the City Council approves the deal on Tuesday, this term sheet will be part of the submission to the NBA in 10 days.

Is this a good deal? I’m inclined to say no for taxpayers, yes for the NBA and the Kings. For Sacramento, it’s an enormous price to pay to keep the Kings in town, though it isn’t as bad as fully funding an arena with taxpayer money as is frequently done outside California. RMB generated a good deal of PR by pledging up to 1.5 million square feet of ancillary development at Downtown Plaza. Unlike the arena’s projected completion date of September 2016, no date was given for any ancillary development completion. Clearly that will only be done with regard to market conditions, which in downtown Sacramento have been spotty.

If we’ve learned anything from past attempts to use arenas as part of a grand urban renewal scheme, results are mixed at best and many of the successes come in established cities with properly targeted transition areas (United Center in Chicago, Staples Center in LA, Verizon Center in DC). Most of the time, arenas and ballparks bring visitors from within the region on event days only instead of creating the oft-desired 7-days-a-week metropolises many cities aspire to become. Cleveland, Phoenix, and yes, San Jose are prime examples of this phenomenon. If you live in Sacramento and you support this plan, don’t lose sight of what this is really about: basketball. Over the last month I’ve seen social media campaigns about the arena being bigger than basketball. That’s nice from a campaigning standpoint, but it’s not reflective of what’s really at stake. Even if the Kings leave, someone will buy and operate Sleep Train Pavilion, bringing in concerts to help pay for it. Sleep Train Amphitheater will continue to operate during the summer. Concerts will be held in the area because the region’s large enough to demand them. Basketball, on the other hand, won’t come back if the Kings leave. Is basketball worth the $258 million public cost? It’s funny, the people who desperately want the Kings to stay are sometimes will to pay any price to make it happen. Those opposed to an arena couldn’t care less and think pro sports are close to worthless. It can be hard to establish a middle ground between those extremes.

16 thoughts on “Comparing the 2012 and 2013 Sacramento arena deals

  1. David stern better be careful, if a city is able to match the offer to keep their team from moving, screw the owners…u can’t just sell to anybody just because they hate the city.

  2. That is my only knock against owners I understand the tussle they have with city leaders but if the city or if the city gets a private finance champion then too bad for the owners…that goes double for lew wolff…I’m sure there are plenty of potential buyers wanting to buy the A’s in the past and right now…if there was more clarity from MLB , I know someone would try to build in Oakland and still might be able to get some public help to get it done..

  3. @berry – Let’s hear someone in Oakland actually offer public help for a stadium and then we can talk.

  4. I know ml just using it as an example, but it would be b.s for the kings to leave when they are actuall money backing up a new stadium, again Jerry brown down the street and this will make relations tougher with sports ownership in California regarding New stadiums

  5. @berry – Why do you keep bringing Jerry Brown into this? It’s clear that he doesn’t give a rat’s ass about pro sports. What’s true is that the NBA is having a hard time dismissing a city in CA willing to provide public funds. But Sacramento is not the same as the Bay Area or LA.

  6. The reason why I bring it up is because who do u think coached today’s city leaders of Oakland or any California city giving tax money to pro sports???…..jerry Brown, its not a accident that city leaders in Oakland and san Diego (might change with new mayor) are dragging their feet with new stadiums, there all about real estate like ur boy Wolff and brown who kille victory court for some over expensive (not now) apartments

  7. @berry – Brown didn’t coach anyone. There are some Oakland politicians that would be willing to talk public funds if it was even the slightest bit popular politically. It isn’t because of Mt. Davis, so they won’t. Besides, Staples Center and AT&T Park were completely, privately built before Jerry Brown took office in Oakland.

  8. Well we will see.. but back on your topic.. i like the old Sac deal.. but with the new Sac deal especially with new private funding help.. i would be excited to see a Downtown Sac Kings arena.. it would attract nba free agents, hell maybe Lebron James would be a Sacramento Kings lol), and i think it would do wonders in the Sacramento area… just get the community involved and change the losing culture..plus the Malloof will get their money and ride off into the pits…

  9. I lived in Sacramento from 2000 through 2007. It’s sad what the Maloof’s have done to the team, but it was tremendous what they did for the longest time.
    .
    It’d be great to have an arena downtown. I think the public is about to get raped on this deal. It is what it us… Maybe Seattle will get the grizzlies.

  10. The Grizzlies are not going to move any time soon. They are locked into their lease for the next 15-20 years. Cities like Memphis are locking teams into long term leases when ownership groups changes. It’s something learned from the Sonic debacle a few years ago.

  11. KJ needs to pickup the phone and call the Maloofs and beg them to sell to Randive-Mastrov. KJ does not understand the Maloofs can always back out from their deal with Hansen-Ballmer and do nothing if they so please.

    KJ cannot force the Maloofs nor the NBA to sell to his group. The NBA knows moving the Kings to Seattle is a good thing for the league. If not, the Maloofs would have never sold the team to the Hansen-Ballmer group.

    It was in the news late last year that the NBA called the Maloofs and strongly suggested they sell their team to the Seattle group. The Maloofs turned around and by January had a deal struck.

    What does that tell you? The NBA is on this as they gave up on Sacramento and their crummy politicians.

    The Kings are gone, KJ is going through the motions but he is fighting a lost cause. His only prayer is get in front of the Maloofs and beg….That probably will not save the Kings either.

    The money is too big for the Kings not to move. Every franchise gets a boost in value, a new TV deal in Seattle and Nor Cal for the Warriors plus a relocation fee for every owner to pocket.

    The Maloofs did not sell unilaterally to Hansen-Ballmer. It was the NBA that setup the meeting and pushed for it.

  12. @Sid
    I disagree…NBA would be foolish to say no to a new downtown Sac arena + New downtown San Fran arena, the NBA allstar games in northern cali almost every year… That will make the owners more money and keep California basketball strong.

  13. @ Sid/Berry

    I don’t think the NBA cares where it has it’s team plays so long at it get’s the best deal for the owners. If you look at it’s history and compare it to the NHL, the NHL is more stable when it comes to franchise relocation. Having said that it would make sense for the owners to approve the relocation to Seattle. It would be moving from the 20th to 13th TV market in the US. I personally would like to see the Kings stay in Sacramento, I do miss the old Kings/Lakers rivalry from the late 90’s. It would be a shame to see that go.

  14. Has Jean Quan done a slight fraction of what Johnson is doing for the Kings? And yet, it’s ALL Lew Wolff’s fault. Johnson seems to be trying to make things happen, at least. I really hope Sac doesn’t lose out, because it’s a really cool market.

  15. *sigh* More silly claptrap from @Sid.

    Stern worked for years trying to broker an arena deal in Sac, so sure, he then went and told the Maloofs to sell to the Seattle group …. riiiiiiight, makes perfect sense! [/sarcasm]

    Johnson “just going through the motions”. Right! That’s why the competing bid includes Burkle, Mastrov, Ranadive, and now the Qualcom founders. Sure, they’re just doing it for show … makes perfect sense! [/sarcasm]

    “Sacramento’s crummy politicians”. Hmmmm – mayor Johnson has done waaaaaaaaay more than either Oakland or SJ pols have done regarding the A’s. Riiiiiight Sid, makes perfect sense! [/sarcasm].

    As for the Maloofs – they’re broke, well worse than broke. They’ll take their money and run, no matter who it comes from.

    As for the NBA setting up the Seattle deal – nope, no evidence. They did nudge the Maloofs to sell, because they’re broke. But it was never said by anyone (except pundits with an agenda) that it was specifically to the Seattle group.

    The Maloofs in fact said the team was not for sale, until the Hanson/Ballmer bid knocked their socks off. That is a fact.

    Sure, the NBA wants to be in Seattle. But it also wants to be in Sacramento (why else would Stern spend so much time and money brokering a deal, and not allowing the Anaheim move?). Seattle is the 13th largest media market, Sac the 20th. But with Seattle, that’s divided up with the Seahawks, Mariners, Sounders FC, and Washington Husskies. Add in the Sonics/Kings, and that’s divided by 5. With Sac, it’s 100% for the Kings.

    Then look at the arena deals. Seattle – 200 mil public money, Sac – 258 mil public money.

    And the actual competing bid is going to match, or exceed, the Seattle bid.

    I think at this point it’s 50/50 – Compelling arguments for both.

    But Sid, stop acting like you actually know anything regarding this issue, and stop making stuff up and presenting as fact. And your Warriors and/or NBA to SJ bias (whatever it is) is obvious.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s