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.
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.