Anschutz Entertainment Group had plenty of reasons to pass on investing $58.75 million in Sacramento's proposed downtown arena.
The region's economy? Still challenged. The anchor tenant, the Sacramento Kings, have been league doormats with a sometimes toxic relationship with the city. AEG's owner, Philip Anschutz, initially thought it was a bad idea.
But AEG committed to the arena anyway, reasoning that Sacramento is a long-neglected market that has nowhere to go but up.
"We think we timed the economy perfect," Chief Executive Tim Leiweke told The Bee during a visit to the city Tuesday. "You never go to an economy when it's at its peak. You go to an economy when it's at or near the bottom."
Leiweke came to Sacramento to meet with city officials, the Maloofs, who own the Kings, and the ICON/Taylor group, which is developing the $391 million arena. While all sides have agreed to a non-binding "term sheet," Tuesday marked a key moment in negotiations that will play out over the next several months to forge a more definitive series of documents.
"Today is the first time all of the partners are in the room together," Mayor Kevin Johnson said at a City Hall news conference.
In return for its investment, AEG, a worldwide arena and concert-tour operator, would run the Sacramento building, book all the non-Kings events and collect most of the profits. The city would also get a share, which it estimates at about $1 million a year.
Leiweke, breaking months of silence by AEG on the topic, said the Sacramento project would be his company's first new arena since the recession started. The $58.75 million is the most AEG has ever invested in a U.S. arena or stadium, with the exception of Staples Center in Los Angeles in 1999.
"It's telling that we have this much faith in the marketplace," he said. "We're willing to bet on this community." He said AEG ignored at least 40 other arena proposals in other cities.
Leiweke is one of sports' top power brokers. During an interview with The Bee, his cellphone went off; it was NBA Commissioner David Stern. Leiweke had his chief operating officer, Dan Beckerman, take the call.
Stern is the source of much of AEG's faith in Sacramento. AEG operates seven NBA arenas. Asked whether the Maloofs can deliver on their pledge to pitch in $73.25 million, Leiweke said: "I believe in David Stern."
He later said he doesn't believe the NBA is giving the Maloofs any financial assistance. The family, which took big hits during the recession, has said it can finance its share.
Leiweke said he became convinced Sacramento deserved to keep its team. He recalled visiting Power Balance Pavilion for games between the Kings and the L.A. Lakers who are one-third owned by AEG and being dazzled by the passion of Kings fans.
He said he met with the Maloof brothers earlier Tuesday and told them the Kings' performance will be vital to the arena's profitability. "We're betting on the three of you," he told them. "We need a good team."
Johnson said he first approached Leiweke about an arena two years ago, during a meeting arranged by then-Gov. Arnold Schwarzenegger. Leiweke gave the mayor whom he calls KJ, his old basketball nickname a tour of the L.A. Live entertainment district developed by AEG around Staples Center.
Last spring, after the Maloofs said they would give Sacramento a last shot at building a new arena, Johnson called Leiweke again. Two days later, Leiweke verbally committed AEG to the project.
He said his boss, Anschutz, was skeptical. So were AEG's lenders, as well as people he talked to in the facilities and sports industries.
The biggest hurdle may have come Feb. 27, the day the deal was announced.
To that point, Leiweke said AEG had committed only $50 million and wouldn't go any higher. But that day, he got calls from Johnson and Stern saying a funding gap of $17.5 million existed. "This is a gap that's not going away," Stern told him.
AEG agreed to go halfway, putting another $8.75 million in. (The Kings put in the rest.) In return, Leiweke said AEG is talking with the other parties to find other sources of money to compensate AEG for its additional contribution.
"We'll get through this issue," he said. "It may take us a week, it may take us a month, it may take us a year. We have enough confidence in this deal." He said the issue isn't a deal-breaker, and AEG's commitment to a total of $58.75 million remains ironclad.
Leiweke said the new arena would generate far more revenue than the Maloofs have been able to make as owners of Power Balance Pavilion. A big source would be "naming rights," advertising and other revenue streams that he said would be critical to the project.
The big difference, he said, is that AEG doesn't think of Sacramento as a market of 2 million people. Rather, because it's the state capital, "you have companies that are going to want to be part of the community," he said. "Companies that value the state of California should value the city of Sacramento."
He told The Bee that AEG has already talked to a half dozen companies about the building's naming rights, which could go for as much as $6 million a year. That revenue would be split between AEG and the Kings and would represent a greater payday than the team's current deal with Power Balance.
Leiweke said AEG was motivated in part by loyalty to its home state. The company has a good relationship with elected officials such as Senate President Pro Tem Darrell Steinberg, D-Sacramento, who carried key legislation for the company last year.
There were strategic reasons as well. The new arena would give AEG's concert division another top-notch venue on the West Coast to book. He said the arena could host 100 non-Kings events a year.