Sacramento wants Kings promise, NBA backing

The city of Sacramento fired off another round of letters Wednesday in an attempt to stop the Sacramento Kings from moving or at least get assurances in writing that they’ll repay a $77 million loan from the city.

A day after the Anaheim City Council approved issuing $75 million in lease revenue bonds to entice the team to relocate, Sacramento officials sent a letter to the Kings requesting the team’s owners promise in writing to repay Sacramento.

Assistant City Manager John Dangberg also sent a letter to National Basketball Association Commissioner David Stern and the NBA Board of Governors. Dangberg wrote that the city is asking the board to make its approval of the team’s relocation contingent upon the Kings paying its debt.

"In recent weeks, the Kings have taken steps and made statements that indicate it would be prudent and appropriate for the city to request that the Kings now put in writing the assurance" owner George Maloof has made publicly, but not to the city, Dangberg said in the letter.

None of the Maloofs wished to comment Wednesday. But on Tuesday, Kings owner Joe Maloof issued a statement to the media calling the loan from Sacramento a "non-issue."

"We’ve always paid our financial obligations in the past, we’re going to do it in the present and we’re going to do it in the future," Maloof said in the statement. "Whatever the future holds to ensure the long-term viability of the team, the city of Sacramento will be paid in full.”

Sacramento Mayor Kevin Johnson also said Tuesday that the Maloofs personally assured him on Monday they would pay off their debt.

The city could sue the Kings for breach of contract if they fail to pay off the debt and any other outstanding obligations. But city officials are making these requests in an effort to follow standard business protocol as the team’s owners make a serious effort to leave, city spokesman Maurice Chaney said.

“I think we just want to take some reasonable precautions to protect the taxpayers of Sacramento,” he said. “The Maloofs have been very great owners. The comments they made are encouraging.”

NBA representatives could not be reached for comment Wednesday afternoon.

 

Suzanne Hurt is a staff reporter for The Sacramento Press. Follow her on Twitter @SuzanneHurt. 

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March 30, 2011 | 9:37 PM

I have to trust that the City already has a written contract for the $77 million (or so) loan. It’s simply idiotic if the City loaned or obligated $77M without a contract. What good would another written assurance provide? The original written contract is as it stands and that is what will bind the two parties–in court if necessary. I would like to see the contract. That document would be a public record, since it involves public funds, and the City is a party to the contract. It might even be to the City’s disadvantage if they obtained something “new” in writing. That would make it a new contract which might cloud the enforcement of the original contract.

It might be worth noting the operating costs and upkeep of the arena and its surrounding property. In addition, I would like to know the property tax that the City would “lose” if it were to take over the arena.

The “real value” of the arena might be it’s “market value” less $77M. Let’s determine “market value” — What is the value of the annual cash flows to/from the arena over the years that the City seeks to own and operate the arena? What is the value of annual property tax payment “lost” by the City when the City takes ownership? What are the annual operating/maintenance/insurance costs? When we figure out the costs, we can add in the annual revenue that might be earned through bookings other than the Kings. After all that, what is the price that the City can get for the arena when it decides to sell it (residual value)?

An example of why it is risky to take ownership of the arena is the Pontiac Silverdome. Check out the financial history on that one. The City of Pontiac sold the Silverdome maybe a year or two ago–for $583,000. It cost about $55M to build in 1975 (not sure if that figure is inflation-adjusted). Yes, that’s about half a million. The operating costs were about $1.5M per year. The City of Pontiac owned the property and consequently they didn’t collect property taxes on their own property. They desperately needed to get that Silverdome property off their hands. An example of a successful arena operation might be Green Bay. Of course, these are/were NFL and not NBA but the financial principles should still apply. I would be interested in how Green Bay operates (but they also own/operate the NFL franchise).

March 30, 2011 | 10:56 PM

I would like to see the original city contract too. Because I too can’t believe they would have entered this agreement without one. In fact, you raise many issues that I find very interesting.

Also excuse my ignorance on this issue but I have a question. Assuming the Maloof’s don’t use any of the bond they receive from Anaheim to get situated in Anaheim and they use it to pay Sac in full where does the money go? If the Kings give Sac back the full $75 million bond at once what can the bond/ money be used for?

March 31, 2011 | 12:49 PM

Loan from anahiem 25 mill towards Honda center upgrades 50 mill to maloofs for NBA relocation fee. Money is not used for sac loan. Bond money owed to sac goes back to lender, not sac general fund.

March 31, 2011 | 9:49 PM

joell83- thank you for the info. That’s what I wanted to know. I appreciate your comment.

March 30, 2011 | 10:38 PM

What the heck? “a day after the Anaheim City Council approved issuing $75 million in lease revenue bonds to entice the team to relocate, Sacramento officials sent a letter to the Kings requesting the team’s owners promise in writing to repay Sacramento.”

A day after? What about the year before? What about when they threatened to leave the time before? What about during last years budget? the year before?… I’m confused, if the Kings have made every payment on time WHY are our officials acting as though they don’t trust them now? And if they don’t trust them now why would they trust them before now? If you know their is a snake in the grass that bit you before why would you pick it back up? WHY were they fighting so hard to keep the Maloofs team if they don’t trust the Maloof’s?

P W
Avatar of P W
March 31, 2011 | 9:47 AM

It’s called “Payback”.

March 31, 2011 | 12:54 PM

If maloofs default in sac loan we get Arco arena worth 30 mill and 25 mill stake in team. We would be o the hook to repay 77 mill to bond lender.

March 31, 2011 | 9:52 PM

joell83- Your above comment is also something I did not know. Thank you for the info

March 31, 2011 | 10:19 AM

If you look beyond the arena issue, it certainly explains a lot about the Sacramento City Council that they don’t seem to understand the legality of contracts.

March 31, 2011 | 10:57 AM

I agree. There is a lot of room for improvement in the functioning of the city officers, the council, and the mayor. I have to imagine that the City legal team would have a lot of influence in the wording of the contract. Is it possible that the City actually realizes that it holds a poorly written contract and it is now trying to cover its tail end with a new demand for a new contract?

March 31, 2011 | 10:20 AM

From http://basketball.ballparks.com/NBA/SacramentoKings/index.htm
(copyright MediaVentures Sep 9, 2010):

“…The arena and the immediate acreage around it are valued by the county assessor at $47.4 million. According to county documents reviewed by the Bee, the Kings have requested that the official value of Arco Arena and surrounding land be reduced to $23.7 million…”

So, if we “split the difference” between the Maloofs number and the City’s number, we arrive at an unscientific guess of $35M. If the Maloofs can “walk away” from $77M for the price of giving up a $35M property securing that loan, it’s almost like “gaining” over $40M for them. Of course, this is based on the bold assumption that “nameless arena” is worth $35M. The numbers are different, but this is similar to a homeowner/investor walking away from a mortgage on a home that is grossly underwater. Only problem is the the City and the taxpayer instead of the “bank” is getting the raw end of this deal.

Amazingly, the City is also junior to the $75M NBA line of credit extended to the Kings, based on a 2003 change reported in the article linked above. That’s similar to my mortgage holder agreeing to line up financially behind my credit card issuer.

It remains to be seen how the City’s $25M stake in the team will shake out.

For sure, no one is asking me, but since I am a City resident and taxpayer, I would not recommend that the City engage in arena management.

March 31, 2011 | 10:59 AM

What a fine mess you’ve described. Let’s play it out…just one scenario…

The Maloofs walk on the debt. The City gets title to Arco. The default triggers payment obligations to the bondholders. The city liquidates the asset but is junior to the NBA (where’s the credit line now? and how much has been drawn lately?) The NBA collects on it’s senior debt and the city gets…probably very little to nada. The bondholders sue to collect. The City sues to collect. The Maloof’s countersue. The city’s credit rating tanks. And then there’s the 2012 elections…

Expect to see the council members fingers begin pointing in all kinds of directions. This is going to be one sick show. Buckle up.

March 31, 2011 | 12:04 PM

Ohhh, I like that one MyQuest!

Our city leaders are hopeless except when they need to spend other peoples money :)

March 31, 2011 | 12:26 PM

I think all of this demonstrates the problem in the debate that is playing out via disjointed announcements, letters, and statements. The City says “Pay your debt as obliged” and the Maloofs say “We’ll pay our debt as obliged.” But it’s not clear that they are talking about the same debt, or level of debt. So, on one level it seems like it’s an unnecessary war or words and on another level it seems like a disjointed semantic battle that is actually obscuring what’s being discussed. Until the statements include actual dollar amounts and deadline dates, it won’t get any clearer.

March 31, 2011 | 5:14 PM

The city has a debtor to the tune of $77 million and never thought to extract a surety bond and/or lien everything the Maloofs own? Get behind on your city utilities for two months and see how quickly the city slaps a lien on your property…

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