Randy Pench / rpench@sacbee.com

The deal to build a new arena in the Sacramento railyard, left, briefly appeared in peril Thursday after the Maloofs said they would not pay $3.26 million the city feels they owe for pre-development costs.

NBA keeps arena deal alive after Maloofs balk

Published: Friday, Mar. 30, 2012 - 12:00 am | Page 1A
Last Modified: Friday, Mar. 30, 2012 - 7:31 am

In a wild day of behind the scenes activity, the Sacramento arena deal hit a major snag Thursday, then was rescued late in the day by National Basketball Association Commissioner David Stern.

Hours after the Kings' team owners said they do not believe they should pay a $3.26 million share to help launch arena pre-development work, Stern told The Bee in a statement the league itself will step in to advance the initial payments. A source close to the negotiations but not authorized to speak said those payments total about $200,000.

City officials said they need the funds, coupled with $6.5 million from the city and $3.26 million from AEG, the arena operator, for pre-development work to maintain a tight schedule for arena construction to start next year.

In an email message, Stern acknowledged that the city and Kings had come to an impasse over the fee.

"Following the agreement in principle … the parties have been attempting to reach agreement on funding the pre-development expenses that must be incurred in order for the project to move forward in a timely fashion," Stern said. "Those discussions have stalled, but I have advised Mayor Johnson that the NBA will advance pre-development expenses on behalf of the Kings pending our report to the NBA Board of Governors at its meeting on April 12-13."

NBA officials did not say whether they would make further payments after that Board of Governors meeting.

For now, though, the dramatic intervention by Stern - the second in a month's time - appears to have resolved what could have been a deal-ending stalemate.

During late February negotiations in Orlando, Stern helped pull the deal together by saying the NBA would assure the Maloofs could hold up their end of the bargain.

Thursday's events renewed bitter feelings that had surfaced last year between the city and the team owners when the Maloofs attempted to move the team to Anaheim.

Sacramento Mayor Kevin Johnson issued a terse statement late Thursday, pointedly challenging the Maloofs' willingness to make a deal work in Sacramento.

"The success of the new entertainment and sports complex depends on complete trust and partnership among all parties," he said. "It was with that spirit that we all agreed to a deal in Orlando, including the Maloof family, who looked an entire room in the eye and promised their commitment to Sacramento.

"In light of the Maloofs' promise, we fully expect all parties to live up to their commitments."

The snag over the fees appears to have developed after Kings officials met in Sacramento last week with the city, AEG and other private partners to begin work on what would be the first formal, binding documents on financing an arena.

Earlier in the month, the Kings owners said they had agreed in principle to pay $73.25 million to help build the $400 million arena.

At that time, city officials published a non-binding "term sheet" that was agreed to in principle by all the parties in the negotiation. It states that the Kings' share would go "toward development and construction of the (arena)," and "shall include pre-development expenses."

Letters obtained by The Bee indicate the Kings questioned during or after last week's meeting whether the city could pull the arena construction off on time. City officials sent the Kings a lengthy response Tuesday trying to assure them the project can be kept on track.

In a brief return letter Wednesday, Maloof attorney Scott Zolke said he had sent a letter to the city on March 5 noting unresolved issues, and that the team "informed the city during our meeting (last week) that no agreement regarding the non-binding term sheet had been reached."

A Maloof spokesman in Los Angeles on Thursday amplified that letter, saying the team does not feel that it should share in pre-development expenses because it is only a tenant in the building, which would be owned by the city.

"The team should not be responsible for the pre-development expenses," Eric Rose said. "That has been the position of the Kings from the start."

Team co-owner George Maloof confirmed to The Bee Thursday that pre-development expenses are "one of the issues we are looking at."

Maloof said the team is not trying to drop out of the deal. It just has questions it wants answered as it moves forward.

"The way we look at things, nothing's ever a deal breaker if you have the desire and the intent, which we do," Maloof said. "It's part of the negotiations ... We've always maintained that this is a negotiation."

He refused to discuss any of the other issues that are still on the table.

The turn of events comes just days before city staff had planned to ask the City Council to allocate the first substantial city funds to the project, the city's supposed $6.5 million share of pre-development costs.

The money would be used to finance early work, such as environmental studies and arena design.

The staff report issued Thursday indicated the city was counting on the Kings and arena operator AEG to kick in $3.26 million apiece.

That payment split was discussed at a March 6 City Council meeting with team co-owner Gavin Maloof in the audience. The city's arena consultant John Barrett that night told the council pre-development costs "will be funded 50 percent by the city, 25 percent by the Kings and 25 percent by AEG."

The city's $6.5 million share of the prep-work costs would come from two sources. The bulk of it, $5 million, would come from profits the city made when it sold the Sheraton Grand Hotel several years ago. That money had been set aside to fund further downtown redevelopment. The remaining $1.5 million of the city's share would come from the city parking fund.

A city staff report described the predevelopment funding - $13 million in total from the three entities - as a necessary first step in planning, designing and engineering the $400 million facility.

Officials said they need to move forward quickly in order to build and open the arena on a fall, 2015 time schedule.

The council already has conceptually approved committing $255 million in city assets to the project. Some $200 million or more of that is expected to come from future downtown garage and street parking revenues. The council has not, however, given final approval to a detailed plan on how to leverage its downtown parking to come up with the $200-plus million.

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