Editorial: Promise of arena worth the risks

Published: Sunday, Mar. 4, 2012 - 12:00 am | Page 6E
Last Modified: Sunday, Mar. 4, 2012 - 11:55 am

Sacramento can't stand still amid the tule fog of the current economy. It needs to invest in its future, and it needs to invest in its urban core – jump-starting development in the downtown railyard.

While not perfect, the deal on the table to build a new sports and entertainment arena in the railyard presents an opportunity that is worth the risks. The City Council should approve this framework Tuesday, even as it prepares to exercise due diligence on the next stages.

Critics abound on this deal. Some call it a giveaway for the Maloofs, the Kings owners. Others cite studies suggesting that sports arenas don't help local economies. Others say voters rejected public support for an arena by defeating ballot measures in 2006.

All these claims are misleading. The proposed deal doesn't involve a tax increase; Measures Q and R did. The site chosen in the railyard is primed for development but in need of a stimulus, making it different than other arena sites nationwide.

In addition, the city would own the arena and would contract with a successful outside operator, AEG, to ensure that Sacramento attracts top entertainment that now often bypasses the city. That's a big difference from 2006, as well.

And unlike last time, the Maloofs are financial partners in the deal. This isn't just about the Kings, although clearly, the threat of an NBA team leaving has prompted city leaders to devote themselves to forging a deal that is now taking shape, against all expectations.

So then the real issue becomes: Is the deal fair for the city and its taxpayers?

Under the "term sheet" before the council, the city would put in $255.5 million of the $390.5 million construction cost. Since it would own the arena, the city would be in a position to ensure that it is designed in conjunction with a planned multi-modal transit center for the railyard.

The Kings would pony up $73.25 million and agree to stay in Sacramento for 30 years as the arena's anchor tenant. AEG would fork over $58.75 million for the right to run the arena for 30 years.

The public contribution – about two-thirds – is less than most recent deals for pro sports arenas, but more than some others.

The city would share profits from arena operations – 15 percent of the first $10 million a year, 30 percent of the next $5 million and half of any further profits. That's potentially more lucrative than AEG's deal for the Sprint Center in Kansas City, where the city splits profits but only after they reach 16 percent.

There are still many details to work out, not the least of which is how to leverage the city's downtown parking spaces to generate about $230 million of its contribution.

One approach would be a lease to a private operator, which would tie up a city asset for as long as 50 years but would guarantee an upfront payment. Another would be a public authority that would borrow money against future parking revenues; that would give the city more control over rates, but if revenues fell short, it might have to dip into the general fund to repay the bonds.

Some argue that proceeds from a parking deal could be better spent on other projects. But they forget that an new arena would enhance the value of the city's parking facilities – the linchpin to making this deal work for all involved.

Still, at every step going forward, elected leaders need to steadfastly protect the city's long-term interests. For instance, they should push hard for railyard owner Inland American to donate a 2-acre parcel that could be essential for the project to work. Inland's land will become much more valuable with an arena, so it should be willing to contribute. The city should also negotiate an ironclad guarantee that it won't be on the hook for construction cost overruns.

No matter how much officials try to account for any eventuality, however, there is going to be some risk. Will all the financial projections pan out, including the attendance at arena events needed to generate revenues that all sides are counting on?

But you have to weigh the risks against the near certainty that without a new arena, Sacramento will lose its one major league team and be saddled with a struggling old arena and nothing to jump-start the railyard. None of those options is appealing. The arena deal, by contrast, holds real promise.

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