By Mary Lynne Vellinga and Terri Hardy -- Bee Staff Writers
Published 12:01 am PDT Friday, July 21, 2006
It has taken six years of false starts, recriminations and damaged political careers to come up with a financing plan to build a new arena for the Sacramento Kings. But in the end, the deal hinged on a single, do-or-die round of late-night talks.
Negotiators for the city and county of Sacramento, and for the Kings, announced in a briefing Thursday at The Bee that they had struck a deal to build an 18,000-seat arena with an estimated price tag of between $470 million and $542 million.
Move-in date: 2010.
Most of the money would come from a new quarter-cent sales tax that would have to be approved by a majority of voters in November. About half of the $1.2 billion raised by the new sales tax would be used for an arena; the other half would go back to the county and its cities for local projects.
As late as Wednesday afternoon, participants said they were unsure there would be any deal. Negotiations stretched into the night Wednesday; details were still being worked out Thursday morning.
"It was the most challenging negotiation I've ever been involved in," said former state Assemblyman Darrell Steinberg, who represented the Maloof family, which owns the Kings and the Monarchs. "It would have been easy for either side to give up, but everybody continued that age-old mantra: Never give up."
In the end, he and the other negotiators maintained, the deal they struck was a reasonable one, both for the public and for the Maloofs.
"We were responsible stewards of the public's money, looking for the right deal," said Sacramento City Councilman Rob Fong. "If we wanted to get any old deal … we could have gotten it 67 days ago."
Joe Maloof, one of the Kings owners, said the financing package is "the right deal for Sacramento."
"I think its an important day for Sacramento, because finally we're going to be able to get a decision by the public," he said.
Under terms unveiled Thursday, the Maloofs would sign a 30-year lease for the Kings and Monarchs to play in the new arena, which would anchor a new sports and entertainment district in the downtown railyard.
The Maloofs would pay off their existing city loan of nearly $71 million in a lump sum. In addition, they would pay $4 million annually in rent for 30 years. The family would make a $20 million payment upfront for a capital repair reserve fund.
Their total contribution -- not including the loan payoff -- would be $142 million over 30 years. That's between 26 percent and 30 percent of the facility's cost, negotiators said.
They said the deal is comparable to others reached for new National Basketball Association arenas around the country. The Maloof family is paying more than owners have in Memphis, Indianapolis and Charlotte, N.C., three of the most recently constructed arenas, said Sacramento County Supervisor Roger Dickinson, one of the lead negotiators.
The team owners would operate the arena and receive all revenues from events, parking and concessions. They also would get to keep the lucrative naming rights, likely worth millions.
Arco Arena would be demolished. The Maloofs would sell the 85-acre parcel surrounding it, a gold mine in fast-growing North Natomas that could fetch as much as $650,000 an acre, according to a recent appraisal. They could use that money to help pay off their city loan. The city would sell its adjoining 100 acres and use the proceeds to buy land and build infrastructure in the railyard to serve the project.
The new tax is expected to raise about $1.2 billion over its 15-year life. Up to $615 million could conceivably be used for an arena, but only if it experienced cost overruns. Negotiators said they expect to be able to build one for between $470 million and $542 million, including land acquisition and a parking garage.
The remainder of the sales tax money -- at least $594 million -- would go to Sacramento County and its cities for community projects.
The arena would be owned by a new public joint powers authority, which would control the building's construction and design.
"It was tough, but we're giving up complete control of the design and the construction of the facility," Maloof said.
As difficult as it was to craft an agreement, arena negotiators concede that the next task -- getting voter approval for the sales tax increase -- could prove even more arduous.
First, four of the five members on the Sacramento County Board of Supervisors must agree to place the sales tax increase on the November ballot. By law, the ordinance would require two hearings. Those are set for July 25 and Aug. 2, with a vote expected at the second meeting.
Although Fong expressed uncertainty about achieving this threshold, Dickinson said he's confident the votes will be there.
Opponents are gearing up, however.
"They are talking about half a billion dollars to fund an arena, and the Maloofs would reap the revenues -- that's a massive subsidy," said Dave Tamayo, president of People United for a Better Sacramento, a grass-roots organization opposing the plan.
Tamayo and his group have protested the lack of public input during the top-secret negotiations.
But Steinberg said a business deal is by necessity negotiated in private. Now that the basic terms have been crafted, the public will get to decide.
"Today is the beginning of the public process, not the end," he said.
Previous arena efforts have been led by the city of Sacramento alone. But this time, the county acted as an equal partner, and suburban cities gave input and have been offered millions of dollars in the deal.
But they won't see that money for a while. For about seven years, the joint powers authority will use the sales tax to pay off the arena construction loan, said Paul Hahn, county economic development director.
Only after that will cities get their payday.
"We made that very clear to the cities," Hahn said.
Cities would receive payments based on the increase in sales tax within their borders, negotiators said. That means communities rich in retail stores would get more than those lacking big box stores and auto malls.
Elected officials said they don't know how their constituents will react to the proposal.
Polls show that most Sacramento County residents oppose public funding for an Arco replacement.
Folsom Mayor Andy Morin said he is excited and gratified that an arena deal has been struck, although others in the community might not feel the same way.
"As you can probably guess, there's a lot of hand-wringing and grappling when there's talk about a tax increase," Morin said.
Rancho Cordova Mayor Robert McGarvey said voters in his community will want to see the "nitty gritty" of the ballot measure.
"This is something people are really going to have to think about very carefully, and I am too," he said.
Arena proponents intend to sell the proposal as about much more than just the Kings.
The arena would be a centerpiece in the sports and entertainment district planned for the downtown railyard.
Sacramento Mayor Heather Fargo said a new arena would inject new energy into a dormant portion of downtown. "We're looking at 200 events a year, 2 million people, coming to an arena in the center of our city, within walking distance of our intermodal (transit) station," she said.
THE MAKING OF AN ARENA DEAL
The 18-year drive to relocate the Kings' arena to downtown Sacramento has seen many twists and turns. Here are some historical signposts:
• Sept. 7, 1988: The new $40 million Arco Arena opens.
• Sept. 17, 1996: Sacramento Kings owner Jim Thomas proposes a downtown sports and entertainment complex anchored by a major league baseball stadium and a new arena for his basketball team.
• May 2000: During her mayoral campaign, Heather Fargo calls for construction of a replacement arena at the Union Pacific downtown railyard.
• Oct. 17, 2003: A consultant's report shows a large portion of the proposed $458 million arena cost would be shouldered by the public, which draws much criticism.
• Oct. 28, 2003: The Maloofs accuse Sacramento City Manager Bob Thomas and the downtown railyard developer of sabotaging the arena project. The City Council puts the plan on hold.
• July 19, 2004: Top city officials recommend abandoning a proposal to build a downtown arena at Seventh and K streets, saying that location would prove too problematic and too costly.
• Aug. 5, 2004: Sacramento Kings officials reject plans for a new downtown arena after the Sacramento City Council caps the city's investment at $175 million.
• Sept. 3, 2004: Sacramento County Sheriff Lou Blanas unveils a proposal to pay for a new Kings arena by opening up 10,000 acres of North Natomas farmland to development.
• Sept. 28, 2004: Sacramento city officials scrap plans for a March advisory vote on whether taxpayer funds should be used to build a new arena.
• Feb. 23, 2005: A plan by a consortium of local landowners, lawyers and community leaders to finance a new arena privately through expedited development in Natomas falls through.
• June 29, 2006: After nearly six weeks of intense negotiation between government representatives and the Kings organization, talks are suspended indefinitely.
• July 20, 2006: City and county negotiators work out a deal with the Maloof family to finance a new arena. It would rely on voter approval of a new quarter-cent sales tax that would produce about $1.2 billion over a period of 15 years.
Source: Bee news stories. Bee research/Pete Basofin
Marcos Bretón: After all the dealing, it's up to the people
It seems like a great deal for the Maloofs, but take a harder look.
By Marcos Bretón -- Bee Sports Columnist
Published 12:01 am PDT Friday, July 21, 2006
Let the people decide.
There is no better way to determine whether Sacramento should build a downtown arena at the abandoned Union Pacific railyards to house the Kings.
That's why Thursday was a great day when word came the Kings and the city and county of Sacramento had agreed on an arena financing plan to put before voters in November.
Language for such a measure still needs to be approved by the County Board of Supervisors -- the issue will be heard Tuesday and Aug. 2 -- but our local destiny seems clear:
Unless supervisors prevent an arena measure from going forward, we have an important decision to make this fall. It's a choice that could change the face of downtown Sacramento and determine whether the Kings will stay put or leave.
This won't be an easy sell.
There are already legitimate concerns being voiced by sincere residents opposed to public money being spent on a building where all profits would go to the Kings.
We're not just talking basketball games, either. The Maloof family would get the revenues from all concerts, shows, conventions, tournaments, whatever.
And that's not just concessions but parking and every dime spent at a new downtown arena, and adjoining parking structure, which could cost between $470 million and $542 million.
In addition, the city and county would pay for 70 to 75 percent of the the new arena through a quarter-cent sales tax. And taxpayers would be responsible for all cost overruns on the new arena.
In return, the Maloofs would sign a 30-year lease that would silence the whispers and screams that the Kings will bolt from Sacramento.
They would pay $4-million-a-year rent, or $120 million, over 30 years. And they would pay $20 million up front to the project. They would pay $10-12 million a year to operate the arena.
There are estimates that the Maloof contribution to the new arena will be between 26 and 30 percent, but that math could prove to be fuzzy.
The Maloofs' commitment is spread over 30 years while the quarter-cent sales tax to fund the new arena -- and an an additional half billion dollars for other county-wide projects -- has a proposed life span of 15 years.
In addition, the Maloofs would keep all the proceeds from the sale of the 85 acres they own in Natomas, site of Arco Arena and the Kings' practice facility.
Once they sell that land and demolish Arco Arena -- and sell the naming rights to a new arena -- their financial risk in a new deal will be lessened.
They are taking a financial risk, but the city and county are taking a bigger one.
Does that sound like a good deal to you?
It would be easy to say no if only considering hard numbers, but there is much more here.
First and foremost, the Maloofs will pay off the Kings' $71 million loan from the city in one lump sum as early as next year -- much faster than the terms of a loan they inherited from a previous Kings owner.
And the city and county secured a major concession from the Maloofs, one that most if not all NBA owners get to keep.
Namely, Sacramento will control the design and construction of the new arena as opposed to the Kings' owners, the last stumbling block to this deal.
The Maloofs wouldn't pay cost overruns, so Sacramento officials said: OK, but we control construction costs.
In other NBA markets, owners pick their own architects and then pass the inflated tabs over to governments.
Then there is the larger issue of downtown redevelopment to consider, of creating a central hub of energy where there is only a crater of wasted property.
We can easily rail at the Maloofs, but we can also remember that no public-works project or redevelopment plan is clean or pristine.
From the Eiffel Tower to Disneyworld to the Brooklyn Bridge, every monument or attraction is rife with human frailty, cunning and greed.
You want Utopia? Or do you want a real-world idea to consider?
How about this one: Are cities about more than just bricks and mortar? Are they also about spirit and a place to feel the pulse of a community?
A revived downtown with an arena as an anchor could answer those questions affirmatively.
But now comes the hard part -- deciding what we want.
Daniel Weintraub: Arena deal exaggerates payments by Kings
By Daniel Weintraub -- Bee Columnist
Published 12:01 am PDT Sunday, July 23, 2006
Sacramento's civic leaders were giddy last week with news they had brokered a deal with the NBA's Sacramento Kings to build a downtown arena that would keep the team in the state capital for another 30 years.
The centerpiece of the deal was described as the Kings' commitment to pay 26 percent to 30 percent of the arena's cost, with the rest of the money coming from a quarter-cent sales tax that the voters will be asked to approve in November.
But for people who are skeptical of using public money for private gain, including sports venues, the folks promoting this deal got off to a bad start, because their description of the Kings' contribution is wildly inflated. The project's promoters either don't understand basic economics, or they are trying to fool the public. Either way, their misrepresentation of the terms should raise questions about the entire arrangement.
The Kings will not be paying anywhere close to 30 percent of the cost of building the arena. They won't be paying even half that much.
Here's the problem: The deal's sponsors are comparing two very different kinds of numbers. One is the upfront cost of building the arena, which will fall entirely on the taxpayers. The other is the Kings' contribution to the project, which will be spread over 30 years.
Anyone who has ever bought a house and didn't pay cash knows that you cannot simply add up a stream of monthly payments over 30 years to equal the cost of the home you are going to buy. You have to figure in the interest.
The reason you pay interest is that the value of a dollar today is worth far more than a dollar 30 years from now, because a dollar in hand today can be invested to produce income over time.
This concept is known as the present value of money, and it applies to the Kings deal even though they are not borrowing any money. Any amount to be paid in the future must be discounted to find its equivalent value today.
But the promoters of the arena have not done that. They have said that the arena will cost a minimum of $470 million, and that the Maloof family, the owners of the Kings, will pay $122 million of that. Then they have added in another $20 million that the Kings will set aside in a fund for maintenance of the arena after the building is open. Thus their math: $142 million from the Kings out of a total cost of $470 million equals 30 percent.
The Kings' contribution, however, is not worth $142 million today, or even $122 million, because it will be paid over 30 years.
In fact, the present value of their $122 million contribution is just $61 million, assuming an interest rate of 5 percent, which is conservative.
And so, at a maximum, the team's share of the construction costs should be described as 13 percent -- or $61 million out of $470 million. But the Kings' share will remain fixed even if the arena costs more. If the project's tab comes in at the upper end of the range of estimates, or $542 million, the Kings' share would be only 11 percent.
The promoters want us to include as part of the Kings' contribution the $20 million the team will set aside in a maintenance fund. That money isn't going toward the construction, and so it shouldn't be counted as part of this calculation. But if you want to count it as part of the Kings' share, it also needs to be added to the total cost of the project.
Looked at that way, the Kings' contribution would be a maximum of 17 percent, and 14 percent if the arena construction costs reached the upper end of the range of estimates.
Bottom line: As a share of the project, the Kings' contribution is about half as large as the promoters of the proposal were saying last week.
That's not a very good way to start a campaign to persuade the voters to raise their taxes and give the money to millionaires in shorts.
What Kings mean to local business
A pro team opens doors nationally, some say, but others see little benefit.
By Jon Ortiz -- Bee Staff Writer
Published 12:01 am PDT Sunday, July 23, 2006
In December, the California Association of Student Financial Aid Administrators came to Sacramento for a convention. Its members spent more than $1 million at local businesses over six days and racked up 2,800 nights of local hotel room rentals.
And it wouldn't have happened without the Sacramento Kings, according to officials from the Sacramento Convention and Visitors Bureau.
They said they won over the association's event planner, IMN Solutions of Washington, D.C., during a skybox meeting at a Kings-Wizards game in 2003.
"When we're marketing to nationally based associations, they're a tough crowd, a spoiled crowd, that is offered everything under the sun," said Steve Hammond, the bureau's president and CEO. "They get hundreds of calls from all over the country. The one thing we know will get us in front of them is a suite at an NBA game."
The story illustrates what several Sacramento-area business owners say is the intangible value of having a successful major league sports franchise in town, and what will be lost if the team leaves for a better arena deal in another city.
Still, no study has ever conclusively shown that professional sports franchises boost the economy of their host cities.
"I view these things as a zero-sum game," said Stephen Pruitt, a professor of finance at the University of Missouri, Kansas City. "There's just no evidence to suggest that these kinds of projects do much for a local economy. You're just moving entertainment dollars around."
What the Kings mean to the region will likely be part of the Sacramento County Board of Supervisors' discussion when it meets Tuesday to consider putting a sales tax measure before voters. If approved, the tax would finance new arena construction at the Union Pacific railyard.
Hammond said that his bureau's estimates show that, from 2004 through 2011, delegates and exhibitors in town as a result of successful courtside recruiting will spend $14 million locally. The student financial aid association has already booked Sacramento for its 2011 convention and will spend an estimated $1.4 million while here.
"And of course, we expect that total will go up as we negotiate more conventions at Kings games," Hammond said.
In their travels, many local business leaders say, they learn that the Kings influence how Sacramento is perceived around the world and how locals think of the region. They also contend that a new sports and entertainment venue in the railyard would spur construction on surrounding land that city leaders have talked about developing for years with little result.
"The Kings are very, very valuable with very tangible benefits in my world," said Bob Dean, executive vice president for real estate brokerage Grubb & Ellis. "Before the Kings were here, I'd be out of town representing (the region). I was often asked, 'Is Sacramento closer to L.A. or San Francisco?' "
With few corporate headquarters to call its own and an economy largely based on government employment and construction, Sacramento needs the Kings to give it a national identity, said Sanjay Varshney, the business school dean at California State University, Sacramento.
"This is a government town, remember, and the business sector hasn't kept pace with the region's population growth," Varshney said. "The Kings have put Sacramento on the national map."
Sacramento and the Kings remind economics professor Bruce Johnson of Jacksonville, Fla., and its sole major league sports team, the Jaguars of the National Football League.
Johnson and a team of researchers in 2002 surveyed Jacksonville residents about what they perceived were the "tangible and intangible benefits" that the city enjoys from being a pro sports town.
"We found that there was overwhelming consensus. People believed that having a team makes Jacksonville a big-league city, gives it a national profile and even improves race relations," said Johnson, a professor at Centre College in Danville, Ky. "These are benefits enjoyed by everyone in the town, not just people who go to games or watch the team on TV."
The survey, summarized in the August issue of the Journal of Sports Economics, included a scenario and a question: The team is bought by out-of-town owners who will move it unless they get a new stadium. How much would you be willing to pay in taxes to keep the club here?
"About $30 million -- total," Johnson said. "That's the value of the Jags to people who live in Jacksonville. They love having a team, but they're not really willing to pay very much for it."
Still, it's a recognition tied to wins and losses. Few out-of-towners talked about Sacramento and the Kings before the team started what has been an eight-year postseason run in the 1998-99 season, Dean said.
"The turning point was making the playoffs, no doubt," he added. "The world takes notice of your city when your team is in the postseason."
So what happens if the team goes on a losing streak and misses the playoffs for a year or two?
"It wouldn't take Sacramento back to where we were before," Dean said. "It wouldn't mean we would fall all the way back to zero."
However, it would probably affect the ability of the Maloof family, owner of the Kings and the Monarchs, to bargain with Sacramento or any other city for favorable arena terms, Varshney said.
"They have leverage right now because they (the Kings) make the playoffs every year," Varshney said. "But that could change with a couple of losing seasons."
Troy Carlson, who owns two Old Sacramento businesses, Stage Nine Entertainment and G. Willikers Toy Emporium, said that the larger question is whether the community is serious about downtown development, particularly the railyard.
"The Kings aren't all that Sacramento is about. The team isn't the be-all and end-all," he said. "But it is a cornerstone to a new arena in the railyard. And a new arena in the railyard would be the cornerstone to getting the rest of the area developed."
The proposal that county officials will consider Tuesday for November's ballot calls for a quarter-cent sales tax increase that would raise about $1.2 billion over the next 15 years.
At least half of the money would go back to the county and cities. The rest would be used to build the arena, estimated to cost between $470 million and $542 million.
Not everyone supports the arena deal, however. People United, a grass-roots group including union activists, environmentalists and affordable-housing advocates, has criticized spending public money on an arena.
And the Sacramento County Taxpayers League argued that putting the quarter-cent tax proposal on the November ballot as a general tax is illegal.
By law, a sales tax increase for general purposes requires only a simple majority of votes for passage. But if the tax is to be used for a specific purpose, it requires a harder-to-achieve two-thirds vote.
Old Sacramento business owner Carlson calls the sales tax "minuscule" and figures that would not have much impact on his retail businesses.
"We have too much to lose if the Kings leave and this venue isn't built, especially if it would get railyard development moving," Carlson said. "It's just been all talk, and it's frustrating to drive by the railyards and see mounds of dirt. We need to get this done."