Friday, September 15, 2006

In Sacramento – The Billionaire Boys Club strikes out

The Sacramento Kings are one gigantic step closer to leaving the northern California city for the bright lights of Las Vegas. Joe and Gavin Maloof, charter members of professional sports Billionaire Boys Club, decided the best arena deal ever offered by the taxpayers of a major North American city to the owners of a professional sports franchise wasn’t good enough for them. It would appear if you’re members of the Billionaire Boys Club, your belief system gives you with the necessary tools to turn down hundreds of millions of dollars because you believe it isn’t a good enough deal.

The Maloofs playing a version of “Deal or No Deal” that even Howie Mandel and the producers of the hit NBC show couldn’t have dreamed up, are walking away from what is the worst arena/stadium agreement ever forced upon any municipality. The Maloofs reached an agreement with the City of Sacramento in August, whereby taxpayer dollars would contribute $470 million of the reported $542 million cost to build a new sate of the art arena for the NBA Kings. Not only are taxpayers being forced to at cover 74 percent of the estimated arena cost, a clause in the agreement forces taxpayers to cover any and all arena cost overruns.

"There are no more negotiations; we've already discussed all the issues," Joe Maloof said in a phone interview with The Sacramento Bee. "They know what we need. We've told them."

The Bee reported in Thursday’s edition, the Maloofs' are upset with parking, the size of the arena site, and on what, if any, kinds of retail or housing also would go into the sports and entertainment zone.

The real question, how can too self proclaimed world-class entrepreneurs walk away from The Deal of the Century? Was there any sincerity in the agreement the Maloofs’ reached? Did the Maloofs negotiate and in good faith? And what exactly are the Maloofs’ really trying to do, what exactly is there end game?

Two words, one city – Viva Las Vegas (all right that was three words). The Billionaire Boys Club opened the $285 million Palms Hotel and Casino on November 15, 2001. Las Vegas is hosting the 2007 NBA All-Star Weekend. The Maloofs’ are setting the table the Kings move to Sin City, the gambling capital of the universe.

If you admire arrogance, the sheer gall of the Maloofs’ move is stunning. Sacramento taxpayers are scheduled to vote on a measure on November 7, that would see a quarter-cent sales tax increase that will last for at least 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."

Last Thursday, the group who is supporting the arena (and the tax increase) and also those against, held separate media conferences. This was to announce how they will attempt to convince taxpayers to support their side.

"We don't have a $5 million bankroll from the Maloofs’; this is strictly a grass-roots campaign," said Sacramento City Councilman Steve Cohn, one of the opposition leaders.

"Theirs is a vision of the past; ours is a vision of the future," declared Doug Elmets, a spokesman for the Yes on Q and R campaign. Elmets questioned why Cohn and those opposed to the arena believed the Maloofs’ where ready to contribute $5 million to the Yes side. Elmets has disputed a Bee report that had the Maloofs’ contributing a minimum of $1.5 million to the YES side.

That’s no longer an issue, with the Maloofs’ ending their support of the YES campaign Thursday. Needless to say any financial support the Maloofs where going to offer the YES side evaporated Thursday, a stunning reversal.

"The fact that the (arena supporters) are having a falling out underscores how bad a deal this is and why taxpayers should reject it," Jones told The Sacremento Business Journal Thursday. "It's a very bad deal for Sacramento taxpayers to pay $500 million for a company that has the ability to do this itself."

Jones added in yet another twist of the knife in the backs of Sacremento taxpayers, taxpayers are also responsible for the entire associated infrastructure costs associated with the agreement. The San Francisco Giants paid every lost dollar to build AT&T Park, mortgaging their future to stay in San Francisco. San Francisco politicians did agree to cover the infrastructure costs.

"The taxpayers are going to foot the bill and get none of the revenue," Jones added in The Sacramento Business Journal report.

"One of the ironies of this process is the opponents of this idea think the Maloofs’ are going to make an obscene amount of money off the arena, while the Maloofs’ are concerned they're not even going to break even," County Supervisor Roger Dickinson told the media.

"What we don't want to have is simply bringing a suburban arena with parking downtown," Dickinson said. "We want people to use public transportation. We want people to walk to the venue. We want people to have a street experience of taverns and restaurants and a lively, active downtown atmosphere."

Sacramento Mayor Heather Fargo and Vice Mayor Rob Fong who staked their respective political futures on keeping the Kings in Sacramento had to convince the Maloofs’ to return to the negotiation table after the Billionaire Boys Club pair walked away from the first set to negotiations six months ago.

The breakdown coming seven weeks before the November 7th vote is more then a little setback for the YES side and the politicians who where ready to stand up for what they believed was a good business decision for their taxpayer. In the end, the Maloofs’ wanted their cake, the icing and everything and anything else they could get their hands on.

Maloof said his family supports putting an arena in the rail yard, but won't locate in a place that "puts the franchise in jeopardy."

"Why would we move to a different area if it hurts our revenue," Maloof said.

"There's tremendous risk in running a sports franchise. It's not a normal business," Maloof added. "People are sweeping that under the rug."

The sports industry generates more then a half trillion dollars annually. The sports industry isn’t a game for the faint of heart, it’s a game with a take no prisoners attitude where those playing the game off the court, field or rink play the game at a win at all costs attitude.

How divided is the YES side, the group supported and reportedly financed by the Maloofs?

"We respect the Maloofs and applaud all they have done, but this isn't their decision and it's not their arena. The community has decided that the rail yards is where it's going to be and this committee is committed to moving mountains to make it happen." Sandy Smoley, the former Sacramento County supervisor who is chairing the Yes on Q & R campaign said in a release.

"If these guys don't get things straightened out and the team leaves, Sacramento will go from being one of the top NBA cities back to being like Fresno. The Kings are a major part of what the town has to offer. I need them.", Doug Dean, owner of Top Notch Limousine and Executive Service, who says 70 percent of his fleet's trips involve Arco Arena events, mostly Kings games.

Jones offered an Op-Ed piece earlier this week in The Sacremento Bee, not only making it clear how angry he is with billionaires putting a gun to the heads of taxpayers, demanding a depraved world of corporate welfare, but drawing on respected sports industry experts to make his case even stronger.

Respected University of Chicago economist Allen Sanderson said: "If you want to inject money into the local economy, it would be better to drop it from a helicopter than invest in a new ballpark." Economists who have studied the impact of arenas on downtowns found little if any positive impact on the surrounding community. Why? In part because sports arenas are designed to keep spending inside the arena.

Jones makes raises a valid issue. Sports franchises love to talk about the economic impact a sports franchise can have on a local economy. The "if you the taxpayers build it”, the money will pour in philosophy. That isn’t just a misnomer, its insulting the intelligence of successful businesses everywhere.

Any business that believes its success or failure is based on the 50 odd nights an NBA team might generate is a business doomed to fail. One of the greatest misunderstandings is the ‘sports franchise party line’ the suggestion that cities will suffer economic failure without sports arenas and stadiums being built. Sports franchises can add to cities lifestyle and quality of life, but they are not economic engines, and investing hundreds of millions of dollars is a fool’s errand