Mayor to address NBA; city still in dark about arena’s future

The Sacramento Kings’ owners won’t be the only ones talking about their possible departure with the National Basketball Association next month. Sacramento Mayor Kevin Johnson will be there, too, the mayor said Thursday.

Johnson announced he has been granted permission to address the NBA Board of Governors at their meeting in mid-April – just days before the Kings’ deadline to file a relocation request.

He expects to take “a contingent of Sacramentans” to New York with him to help explain that Sacramento would like to continue its partnership with the Kings and is seriously pursuing construction of a new arena, he blogged Thursday evening.

“They will want to know about possibilities of a new arena in Sacramento, and whether after all these years, our community can finally deliver,” he wrote. “But the bottom line is, the opportunity to speak straight to the NBA is a huge step for our community.”

With the Sacramento Kings’ departure looming over the region, the city is facing at least two possibilities that depend on whether the team pays off a $77 million debt or defaults.

City officials have not yet been able to discuss a possible compromise with the Maloofs, who own a majority stake in the Kings.

There has been little dialogue between the Maloofs and the city regarding the team’s plans to resolve the debt and the arena’s future if the Kings leave. However, the Maloofs did indicate this week to Mayor Kevin Johnson they’d repay the debt.

"We are encouraged that they’ve said they will do what’s in the best interests of the city," Assistant City Manager John Dangberg said Thursday.

Two outcomes are outlined in agreements established between the city and the Kings in 1997, when the city sold $73,725,000 in lease revenue bonds to refinance the Kings’ debt on Arco Arena, recently renamed Power Balance Pavilion. The city then bought the arena from the Kings and set the team up on a 30-year plan to repay the debt through lease payments made to the city.

Two Possible Outcomes

The Maloofs bought a majority share of the Kings in 1999 and in acquiring the Kings also acquired the debt.

Under those agreements, if the Kings leave now, they must pay off a $77 million debt – which includes a roughly $10 million early payment penalty – and Maloof Sports and Entertainment will then own the city’s aging arena.

But if the Maloofs default on the debt, that leaves the city to pay back the bond holders. If that were to happen, the city of Sacramento would get a $25 million stake in the team and retain full ownership of the arena, a practice facility and 85 acres of land there.

The city would owe about $67 million if it doesn’t make an early payoff within the next seven years. The city would hire an arena operator to manage Power Balance Pavilion and bring concerts, shows and other events there, rather than operate the arena, Dangberg said.

"The city doesn’t have the capacity to operate the facility," he said.

The Maloofs could still turn over operation of the facility to the city if they pay off their debt and continue to own the arena after leaving Sacramento. City officials hope the Maloofs would give the city control over operations there, Dangberg said.

"Our assumption is they would continue to operate the facility. That’s not an obligation or a guarantee," he said. "So that’s what we are eager to sit down and discuss with them – the future operation of that facility."

However, countless compromises could be negotiated between the city and the Kings.

Other Scenarios

The city could retain arena ownership, and the Kings could offer to pay cash for the difference between the value of the arena, which the city has not had appraised, and land and their $77 million debt. If the city operates the arena or hires an arena operator, the city would receive revenue needed to continue paying the debt service on the bonds, Sacramento City Councilman Steve Cohn said.

In another scenario, the Kings could pay back the $77 million and then sell the property to someone who wants to use the facility or land for a purpose other than an arena, he said.

Cohn and other city officials have said the Kings have made every payment on their loan since 1997.

“Right now, I just want to emphasize, we have no reason to believe they are going to default,” Cohn said.

The city hasn’t spent money to get the value of the arena and land appraised, which is "a lengthy process," Dangberg said.

Within the last few days, the Assessment Appeals Board for Sacramento County lowered a 2008/2009 assessed value of Arco Arena and the land it sits on, which impacts its current assessment, said Assistant County Assessor John Solie.

The board expects the assessed value of the parcel will be $33 million – $35 million for 2010/11, he said. Three other involved parcels are assessed at a total of $5,185,000.

In late February, the Kings asked for an extension on the NBA’s March 1 deadline for relocation requests for next season.

On Tuesday, the Anaheim City Council made a Kings move easier by agreeing to issue $75 million in bonds – $25 million to improve the Honda Center and build a practice facility and $50 million for a loan to the Kings.

Anaheim Arena Management, which operates the Anaheim-owned Honda Center, could not be reached for comment on a contract with the Kings.

The NBA granted the extension, giving the team until April 18 to file a request for relocation. However, the April 18 deadline may be to seek approval to study relocation.

It remains unclear whether the Kings will request relocation before or during a meeting of the NBA Board of Governors April 14 or 15, or later.

The relocation request may be a two-step process involving two separate NBA Board of Governor meetings. At the April meeting, the Kings may first announce they’re pursuing relocation to Anaheim and ask for permission to explore the opportunity.

They may request relocation later. That request would likely be voted on in a different meeting.

Neither the NBA nor the Kings would discuss the timing or the process for the Kings’ relocation request and the NBA Board of Governors’ vote on that request.

"The Kings have not applied at this point, so there is no timeframe," Tim Frank, senior vice president for NBA basketball communications, said in an email Thursday.

"As far as the board meeting, all we know at this point is that Kings ownership wants to discuss this situation with the board. There is no other information I have at this time," he added. "I have no idea what will happen until we see if they apply or not."

Staff reporter Kathleen Haley contributed to this report. Suzanne Hurt is a staff reporter for The Sacramento Press. Follow her on Twitter @Suzanne Hurt. 

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April 1, 2011 | 11:12 AM

“Right now, I just want to emphasize, we have no reason to believe they are going to default,” Cohn said.

Really? I like Cohn a lot but this is patronizing. We’re grown up, it’s ok to discuss the realities of this situation. No reason? Try these…the Maloofs finacial empire is reportedly teetering, the deal they’ve struck with Samueli makes them a tenant getting 92% of the Kings/Royals/Dukes game-day reciepts no arena or parking ownership, they barely scrape enough cash out of the deal to pay their moving costs much less Arco bonds, they trigger repayment povisions on an asset they’ve bad-mouthed for years and the real-eastate market that COULD payoff the bonds has cratered devauling that asset. These are the guys that managed to take a passionate fan base feared throughout the NBA and alienate themselves through one bone-headed move after another. And none of that suggests that their best business move is to default on an obligation that hangs around their necks like a millstone?

These are tough times, we need tough minded leadership ready to rumble for the best interests of the people of Sacramento. This kind of happy talk makes us look like saps. Thanks Suzanne for straightforward reporting.

April 2, 2011 | 7:06 PM

You make good points. However, I don’t think there is any chance whatsoever that the NBA would ALLOW the team to move if the debt wasn’t repaid. That would be a HORRID public relations move, and I think they’re smarter than that…

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