Friday, August 18, 2006

The Billionaire Boys Club or what might be the worst deal in sports history!!

The time is now, and this is the issue. Corporate welfare for professional sports franchises. Its time someone finally told members of the Billionaire Boys Club – “I'm as mad as hell, and I'm not going to take this anymore!”

In this case, the recent agreement the City of Sacramento reached with the Maloof brothers the billionaire owners of the Sacramento Kings is a hallmark arena building deal – one of the worst in a very long time.

The Maloof’s have agreed to pay 26 percent of the proposed Sacramento Kings arena’s $542 million cost. Taxpayers will decide in November if they’re prepared to accept a quarter-cent sales tax that will last for 15 years to offset the $470 million taxpayers they’re being asked to invest in the future of the NBA in their city. The proposal has enflamed many Sacramento residents – wondering why two charter members of the Billionaire Boys Club are going to taxpayers with their hands open demanding hundreds of millions of dollars in taxpayer dollars.

"I think the game is rigged," Dave Jones a former Sacramento city councilman now serving in the state Assembly, told The Sacramento Bee earlier this week. "The NBA is a monopoly. They purposefully limit the number of franchises. By reducing supply, they drive up their profits. And they pit local governments against each other to fund sports arenas.

"When the market is rigged like that, there is no point in playing. Sports is supposed to be fair, it's supposed to be about letting the best person or the best team win based on a fair competition. This isn't fair. It's a rigged game. And I think you walk off the court when the game is rigged like that."

The deal the Maloofs reached includes an immediate $20 million payment for a capital repair fund and another $4 million a year over the term of the team's 30-year lease. The Maloofs also agreed to pay the city the $71 million remaining on an outstanding loan they inherited when they bought the franchise in 1998. The outstanding loan repayment isn’t part (nor should it be considered) of the Maloofs investment in the new arena.

"The Maloofs can say what they want, but this is not a terrific deal," said Andrew Zimbalist a sport economist and a professor at Massachusetts’ Smith College, who has been critical of public subsidies for sports.

"It's worse than an average deal. The typical financing package these days in the NBA is somewhere in the neighborhood of 70 percent public, 30 percent private."

Joe and Gavin Maloof collectively are worth billions of dollars. In July of 2000, the Maloof family sold the operating interest in the Fiesta Hotel Casino for over $185 million. The family immediately re-invested the money into the construction of the Palms, a $285 million hotel casino just off the Las Vegas strip with a 42-story tower and 447 guestrooms. The Palms, which opened for business on November 15, 2001, features outstanding customer service, unique architecture, and award winning restaurants, entertainment, nightlife, and amenities. In just four years of operation, the Palms has become the hottest property in Las Vegas with thousands of visitors daily. The Palms is currently undergoing an expansion that will include additional rooms and amenities for use later this year.

In addition to their gaming business, the Maloof’s have exclusive proprietorship rights to the distribution of Coors, Miller, Corona, Heineken, Tecate, InBev, Boston Beer, and Guinness products throughout New Mexico. The Maloof Companies also is one of the largest single shareholders in Wells Fargo Bank, which operates banks and branches in 23 states throughout the Western United States with over $200 billion in assets and 15 million customers.

The Maloofs are in the process of expanding their business in the entertainment industry with the development of Maloof Productions and Maloof Music. Maloof Productions is committed to developing and producing quality television and motion picture entertainment. The Maloof Music label debuts as a joint venture with Interscope/Geffen/A&M Records, which is the largest record company in the world under the direction of chairman and legendary music mogul Jimmy Lovine. In fact, Maloof Music is the first joint venture with Interscope/ Geffen/A&M without a previous music industry background such as an artist, writer, or producer.

"We did the best we could," said Dan Barrett, the sports financing consultant hired by the city and county to negotiate with the Maloofs told the Sacramento Bee.

"In smaller markets, the trend has been public financing of these facilities," Barrett added. "I would say this is a deal that is comparable to other markets of similar size. In fact, in our opinion, it's better than three out of four of them."

The Maloofs stand to keep all of the revenue(s) the arena generates. Assuming the Maloofs find a corporate partner willing to pay $2 million to $3 million per year for the buildings naming rights, the $141.7 million the Maloofs are paying towards the arenas costs over the 30-year term of their lease, will be largely paid by a corporate partner.

Sacramento voters will be asked to support a measure at the ballot box on November 7, 2006. What will make the November vote so intriguing – California politicians and voters have never shown an interest in supporting the building of sports facilities.

Two recent examples in Northern California. The San Francisco Giants built AT&T Park largely with private dollars and the proposed San Francisco 49’ers stadium will be built with private dollars as well. In the case of the Giants and the proposed 49’ers stadium, taxpayers paid the infrastructure costs. The proposed $1 billion New York Giants/New York Jets stadium will be built with private dollars with the State of New Jersey offering the land (valued at over $1 billion). The New York Yankees $1 billion stadium will be paid for in most part by George Steinbrenner. The Staples Center the home of the Los Angeles Lakers, Clippers and the NHL’s Kings was built with private dollars as well. Built in 1992, Chicago’s United Center (the home that Jordan built) was paid for by private – not taxpayer dollars.

Warren Cushman, a member of the coalition People United, a public service group opposed to welfare for billionaires made it clear, he and his group are not pleased.

"Dickinson (Sacramento County Supervisor Roger Dickinson), Steinberg (former Assemblyman Darrell Steinberg) and Fong (Vice Mayor Rob Fong) have betrayed the trust of the public by not having a public dialogue on this issue," Cushman said. "They go around cutting deals, in secret meetings. The big three aren't going to be allowed to do it without public fallout."

D.C. Mayor Anthony A. Williams worked tirelessly to bring Major League Baseball back to the District, succeeding in finally convincing MLB to move the Montreal Expos (at the time owned by MLB) to Washington at the end of the 2004 season. MLB, who paid Jeffrey Loria $120 million for the Expos in 2002, sold the Washington Nationals to Ted Lerner for $450 million in May. The District forever in debt has broken ground on a baseball specific stadium that will cost taxpayers more then $500 million. Williams realized his days as a politician had ended when he spearheaded the District’s MLB rebirth. He will not run for reelection in November’s elections.

It remains to be seen if the same fate befalls Sacramento politicians who supported the measure – political suicide.

"It was a strategic decision," Sacramento Mayor Heather Fargo, who wisely stepped back from the talks said. "Sometimes it's helpful to change the faces. I think we have a very strong team."

Fong who clearly put her political future on the line with what may be the worst stadium deal California taxpayers have faced in decades, stands by her belief the deal is a great one for Sacramento taxpayers.

"I know that any deal around trying to build a new arena is going to be controversial -- it has been and it will be," Fong said. "But to me, that doesn't mean it isn't the right thing to do. It doesn't mean you don't roll up your sleeves and take it on."

"It's a big problem and a big challenge," Steinberg added in the Sacramento Bee report. "One of the things I've prided myself on is being unafraid to get involved to help solve big issues."

Clearly few if any recognized sports business analysts believe the agreement as proposed is one that will benefit Sacramento taxpayers.

"If they're trying to energize development in the railyard, you could actually lose money on the arena and still net money if the larger neighborhood pencils out," said Robert Waste, a professor of public policy at California State University, Sacramento.

"The fair way to evaluate (the deal) is to add up all the known and possible costs and all the known and possible benefits and evaluate how we feel about spending public money on those things," he said.

Dave Jones, the state assemblyman who for years supported a taxpayer built arena for the Kings, has clearly changed his tune, adamant the deal that’s been worked out will be a disaster for local residents.

"There are a lot of seniors and ordinary Sacramentans who are going to be hit by this who are struggling to make ends meet now and are going to be asked to pay for something that they will never be able to afford to go to," Jones says.

The deal is so one sided – all cost overruns will be paid for by taxpayers – adding insult to what is one the worst arena deals in recent memory.

The Maloofs are part of a new breed of NBA owners – the billionaire boys club. Along with Dallas Mavericks owner Mark Cuban, the Maloofs like to be seen and heard as Kings. While not as vocal or visible as Cuban, the Maloofs who did a guest appearance on the NBC series “Vegas” love the limelight.

What happens if Sacremento voters make the right decision and suggest in no uncertain terms – the Maloofs can take their bid for corporate welfare and pay for the arena with the billions they’re making from their Las Vegas properties? The Maloofs have suggested they’ll move their team to Las Vegas if they don’t get what they want from Sacramento taxpayers.

As recently as November the Detroit News reported the Maloofs were looking at moving their team to Las Vegas. The report was in part based on a belief the NBA might be ready to allow a team to relocate to Las Vegas after awarding the 2007 NBA All-Star Game to Las Vegas.

Las Vegas Mayor Oscar Goodman has long desired a major league sports franchise for Sin City. Goodman approached the Florida Marlins about moving to Las Vegas, an idea that for the least has been torpedoed by MLB commissioner Bud Selig. Goodman isn’t interested in an NHL franchise moving to Las Vegas.

One important condition to any major league sports franchise setting up shop in Las Vegas would likely include that Vegas sports books agreeing to not only end betting on that teams games, but likely for that sport. Given that betting on National Football League games accounts for more then 50 percent of all money bet on sports, there will never be an NFL franchise in Las Vegas. Goodman may be prepared to build an arena for the Maloofs, but it isn’t likely as long as David Stern is running the NBA they’ll be a franchise allowed to move to Vegas.

Other markets interested in an NBA franchise include Anaheim and Kansas City. However there are a finite number of cities (maybe a few more) capable of being home to an NBA team. Portland and Orlando may both be looking for new cities sooner rather then later, with Seattle likely moving to Oklahoma City in two years time. The Maloofs are playing a classic game of chicken with the people who support their team – Sacramento taxpayers. One has to question if putting a gun to the heads of taxpayers makes any sense given how limited the Maloofs options are.

The proposed arena deal is remarkable in every detail. It reeks of arrogance and an attitude that should no longer exist in communities wanting interest in being home to a professional sports franchise. While the Maloofs could pay for the stadium by themselves that wouldn’t be fair either. What should be considered is a true partnership, a public/private partnership. An agreement where the costs are shared on an equal basis. The deal as proposed with taxpayers paying 74 percent of the upfront costs, all cost overruns and through an increase in a sales tax isn’t only one of the worst public/private deals ever – it’s an insult to common decency.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The Sacramento Bee