Elation now - big Sacramento arena votes next

02/28/2012 12:00 AM

10/08/2014 10:35 AM

Sacramento and its sole major league sports team, the Kings, have agreed on the pieces of a $387 million arena financing puzzle that would keep the franchise in town another 30 years.

Now, can they put those pieces together?

After 2 1/2 days of negotiations in the Waldorf Astoria hotel outside Orlando, Fla., site of the NBA All-Star game, Sacramento Mayor Kevin Johnson, NBA Commissioner David Stern and three Maloof brothers emerged Monday to announce a handshake deal that even some of them had doubted could be done.

"It's game over!" said a jubilant Johnson, who hugged Stern. "Sacramento deserves to win, and this is our chance to win. I'm so emotional, I can't even articulate it."

Kings co-owner George Maloof, who pushed hardest for the team to move to Anaheim last year, said the deal would make the Kings healthier financially, even in small-market Sacramento.

"I think it is a fair deal," he said. "We gave a lot. Everybody had to give. Sometimes you have to take chances, and we think this is worth taking."

Under the agreement, the city would shoulder more than half the cost of a new arena and would own the facility, with the Kings as tenants. The Maloofs say they would put in $75 million upfront and provide the city with another $75 million in arena-related revenue over 30 years.

On Monday morning, Anschutz Entertainment Group, a worldwide operator of sports and music venues, agreed to put in another $10 million to bridge a financing gap, said a source who is familiar with the negotiations but not authorized to speak publicly. AEG would pay $60 million for the right to operate the arena, up from its previous offer of $50 million.

A beaming Stern, who at times acted as mediator in the weekend talks, urged the Maloofs to hurry back to Sacramento to begin sending out ticket renewal packages for next season.

The deal, while still tentative, represents the closest the city has gotten in a decade of attempts to replace outdated Power Balance Pavilion. The new arena would be built in the downtown railyard.

In an added splash of drama, the handshake came at nearly the last minute, with an NBA deadline looming Thursday. It was similar to last spring, when the team was poised to flee to Anaheim, and Johnson persuaded Stern to give Sacramento one last shot.

The good cheer may be brief. The agreement is not formal. More negotiations lie ahead, and officials say dozens of details must be worked out soon if they are to meet an accelerated construction schedule to open an arena for the 2015-16 NBA season.

The work starts now. As Johnson briefs members of his City Council arena committee, the county Board of Supervisors is expected to vote today on a proposal to let the city use three county parking garages on arena nights. That would generate an estimated several million dollars a year toward the project.

Next up, the city on Thursday will disclose details of the deal in a "term sheet." That sets up a critical City Council vote next Tuesday on the basics of the deal. Johnson recently won a preliminary vote by a 5-4 margin. But the mayor is confident he'll have more support next week.

Council members say they will have plenty of questions. Already, the broad outlines of the deal suggest the city, the Kings and others would face some level of risk.

"For me, the most important thing is that we have to keep our general fund whole," said Councilman Steve Cohn, a potential swing vote.

Parking plan evolving

The city, as arena owner, would provide the lion's share of the project costs, somewhere between $200 million and $250 million, said the source. Most of the city's share would come from a still-evolving plan to wring millions in upfront cash from the city's parking operations.

The city has spent months studying a plan to privatize those assets by leasing them to an investor. A source familiar with the issue said the city also is looking at a different model that would involving borrowing against future parking and hotel-tax revenue, although a private parking operator might still be brought in.

The hotel tax money would be dedicated to the Community Center Theater.

The new model could make more economic sense for the city than leasing the parking to an operator, the source said. But it creates risk if revenues fall short of expectations.

The city's share of the arena deal also would include cash from sales of city land, including 100 acres next to the Kings' current home, Power Balance Pavilion.

The Kings' share is shrouded in uncertainty, too. The Maloofs said they would obtain financing to produce $75 million upfront. Some of that money would come from the eventual sale of the old arena site.

The team also agreed to provide the city with about $75 million in game-night revenues. Much of that would come from ticket surcharges.

The Maloofs would continue to make payments on their existing $67 million loan from the city. The city would have to refinance the loan in 2015, when the old building goes dark, by issuing new bonds, said City Treasurer Russ Fehr. The new loan would let the Kings spread payments out longer, a source said.

Fehr said the new bond offering could be somewhat risky for the city because, unlike the old debt, the new loan wouldn't be secured by an arena and its surrounding real estate.

The Maloofs' financial commitment to the arena project surprised some observers in light of their recent woes. They lost controlling interest in their Las Vegas casino. Besides their debt to the city, they owe millions under an NBA line of credit.

"They can't put any more debt on this team," said a source familiar with the Maloofs' finances. The source insisted on anonymity because he's not authorized to speak for the family.

But when asked how the family would get $75 million, George Maloof said, "We can finance that."

The NBA may also assist in the deal, but the details aren't clear.

"(The owners) have authorized me to be as supportive as we could possibly be in this process so we could cement the future of the NBA in Sacramento," Stern said.

Ticket surcharges key

AEG, the arena operator, is expected to control a big share of the building's profits. A source said the city would share in the dollars if arena profits exceed a certain threshhold.

A representative of the ICON/Taylor development team, picked by the city to build the arena, said his group is talking with its contractor about assuming all cost overruns. The representative, Sacramento developer David Taylor, wouldn't go into detail.

Typically, the company that assumes overruns also keeps any money saved if the project comes in under budget.

The city also may contribute funds from new cell phone tower leases and electronic billboards at or near the arena. The deal doesn't include an increase in the hotel tax.

Arena ticket surcharges are expected to be a key element. The city would collect a 3 percent to 5 percent surcharge on every ticket for every event, said the source who briefed The Bee on the deal points. The portion of that money that comes from tickets sold on basketball nights would be considered a contribution from the Kings.

All surcharge revenue would go directly into the city's general fund to help make up the $9 million in annual proceeds from the city's parking operations that would be lost. The rest of the $9 million "backfill" would come from other sources, including parking revenue during arena events. On NBA game nights, the Kings would get a share.

Sources said the Kings would make money on game nights from increased concessions, new luxury boxes, other premium seating, and a variety of improved advertising opportunities.

Council members said they were hopeful but promised to scrutinize the deal.

"The thing that makes me the most confident is that I got a call from the mayor saying that it looks good and city manager saying he thinks it looks good," said councilwoman Angelique Ashby, who represents North Natomas.

Ashby said her 'yes' vote depends on a commitment by the city to reuse the Natomas arena site. Natomas must "get an economic engine in the deal, too," she said.

Even Sacramento's rivals offered applause. "I offer my best wishes," said Anaheim Mayor Tom Tait, whose city nearly lured the Kings away last spring.

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