Monday, April 16, 2012

The Sacramento Kings arena deal – why the deal died

Joe and Gavin Maloof legally own the Sacramento Kings. However, if their business is going to succeed in Sacramento, the Maloof’s, as most owners of sports franchises, need to work with the local business community and have the support of the local population. As simple as that sounds, the Sacramento Kings uncertain future in Sacramento is for the most part based on the local business community and the Sacramento community no longer prepared to work with the Maloof’s.

The Kings arrived in Sacramento in 1985 after failing to find success in Kansas City. The arena seats 17,317, the lowest capacity of any current NBA facility. The arena cost $40 million to build and opened in 1968 and features none of the revenue-generating amenities most NBA arenas include. The arena has 412 club seats and 30 suites. Most NBA arena arenas have between 1,500 and 2,000 club seats and more than 100 suites.

During the NBA All-Star Weekend in Orlando, the Maloof’s and the City of Sacramento announced plans to build an arena. “Under the proposed terms of the deal, the city will contribute $200-$250 million to the estimated $387 million arena, mostly by leasing out parking garages around the facility,” said a person with knowledge of the negotiations in an ESPN report. That person, speaking on condition of anonymity, because the full financing plan will not be made public until at least Thursday, said Sacramento also will create revenue through a ticket surcharge.

“The Maloofs have agreed to contribute $75 million in upfront cash, which includes the sale of land around the team's current suburban arena, along with paying off a current $67 million loan to the city and contributing more over the course of the deal. Arena operator AEG also agreed to pay almost $60 million.”

That agreement blew up in the faces of the Maloof’s and the NBA on Friday night. There is no longer an arena agreement and the Kings face a very uncertain future in Sacramento.

The deal began falling apart Thursday evening when a group of 24 Sacramento business leaders published a letter in the Sacramento Bee, a letter they had sent to NBA commissioner David Stern. In that letter, the business “strongly suggested” Stern and the NBA encourage the Maloof’s sell the Sacramento Kings. The release of the letter was timed with an update the Maloof’s were providing Stern and the NBA Board of Governors in New York.

Late Thursday night, Sacramento Mayor Kevin Johnson (who played more than 12 seasons in the NBA) took an overnight flight to New York, meeting with Stern and NBA owners on Friday in hopes of making one last attempt to save the proposed Kings’ arena agreement.

“I think that upon closer review, which was their right, the owners of the Kings wanted to reexamine certain assumptions that everyone understood in Orlando (where the agreement was announced) about projections and the like.

“And it made them increasingly uncomfortable…they recognized that the fact that it was necessary to bring in a third party, AEG, because we needed their funds to finance, together with their existing funds, that were necessary for the NBA to advance, came with a cost that further burdened the team, and they ultimately decided that this was not a transaction that they wanted to go forward with, and that's their right.” Stern said Friday evening.

Was it really as simple as a bad deal -- one they should have never agreed to?

“It was a bad deal. The main thing was … the projected revenues were too high. They were at 2005 levels, before the housing bubble burst and the economy went down. We kept telling (NBA attorney) Harvey Benjamin that. He didn't listen, he didn't listen.” Joe Maloof told the Sacramento Bee Saturday.

“We feel like criminals, and we didn't do anything wrong. This was just the wrong time and this was the wrong deal. When the time is right, we'll do a deal. We'll look at another downtown deal or something at Natomas. Bring us a deal we can sign. Nobody wanted to get an arena done more than we did. We've been talking about it for 13 years. Everyone just needs to calm down. We all need to cool off.”

Maloof is correct in suggesting everyone needs to calm down, take a step back, and take a moment to reflect. What isn’t comforting is Joe Maloof’s believes that he and his brother feel like criminals. Maloof stepped pretty close to going over a line in attacking Sacramento Mayor Kevin Johnson Saturday in a USA Today report.

"I don't think I'd want to negotiate with the mayor," Maloof told USA TODAY Sports on Saturday. "Maybe there's someone else that I'd feel more comfortable with.

"We're disappointed in comments made by the mayor that we feel were shots to us that were unfair and not truthful."

Mayor Kevin Johnson's office shot back.

"As their bizarre press conference laid bare for all to see, dealing with the Maloofs is like dealing with the North Koreans— except they are less competent," Chris Lehane, executive director of Think Big, a committee formed by Johnson to keep the Kings in Sacramento, told USA TODAY Sports in a statement. "In Maloof-world, facts are fiction; truths are half-truths; and promises are broken promises. The City of Sacramento deserves better."

The arena agreement was announced as a March NBA deadline was approaching regarding whether or not the Maloof’s were going to relocate the team to Anaheim. The Maloof’s had to let the NBA know where their team was going to play during the 2012- 13 NBA season. The City of Anaheim actively negotiated an agreement with the Maloff’s that would have the Kings relocating to Anaheim next year.

There is little, if any, trust between the Maloof’s and Sacramento following Friday’s news. The business community took a very strong stand – demanding the Maloof’s sell the team before the arena deal fell apart on Friday. Is the Maloof’s next and last move to play the year in Sacramento and a year from now announce the franchise will be moving?

“That's not true, that's not true. I swear that is not going to happen. I don't care what rumors are out there. It's our team. We're not selling, and we're not leaving. Our identity is the Sacramento Kings. That's how we're known,” Joe Maloof said in a Sacramento Bee report.

There are a multitude of issues facing the Maloof’s. If they’re going to stay in Sacramento, those challenges start with trust.

An arena agreement was announced six weeks ago and that agreement is now dead. Joe Maloof can suggest the agreement made no sense but why did he and his brother move forward with that agreement only to realize six short weeks later it made no sense? And if the city of Sacramento and the Kings manage to negotiate another arena agreement, is there anything to suggest Joe and Gavin Maloof might walk away from that agreement?

If Joe and Gavin Maloof decide it’s in their best interest to move their NBA team, would the city they move to have any trust issues with the Maloof’s?

Will Rogers once said: “It takes a lifetime to build a good reputation, but you can lose it in a minute.” For Joe and Gavin Maloof, the mishandling of an agreement to build a new arena for their NBA team might cost them much more than that arena deal, it might cost them their reputations.

For Sports Business News, this is Howard Bloom

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