Kings arena deal crumbles as Maloofs back away from plan

04/14/2012 12:00 AM

04/19/2012 12:44 PM

NEW YORK – Sacramento's arena deal is dead. And the Kings' reign in the city is once again clouded by uncertainty.

The family that owns Sacramento's lone major league sports franchise Friday pulled out of a plan to finance a $391 million sports and entertainment complex in the downtown railyard. Then, reversing a decade of public statements, the family suggested instead that city officials could help them renovate Power Balance Pavilion in North Natomas.

During a hastily called news conference in a law office overlooking New York's Rockefeller Plaza, a prominent economist and attorneys hired by the Maloof family took turns tearing apart the city's plan. They argued that it would place Sacramento on the edge of fiscal disaster and could be equally damaging for the Kings.

Later in the day, Mayor Kevin Johnson met privately with the Maloof brothers for more than two hours. But unlike last year – when Johnson was able to persuade the Maloofs and the NBA to support one more attempt at building a new arena – the mayor left that meeting burdened with a dark conclusion.

"I wish I had better news," the mayor said. "(The Maloofs) are now saying they don't want to do the deal, which essentially means they don't want to be in Sacramento."

Speaking at a somber news conference of his own, NBA Commissioner David Stern said he was "extremely disappointed both for the Maloofs and the city of Sacramento."

"I think that there's nothing further to be done," he said.

As for the team's future in the city it has called home since 1985?

"I know we've scheduled them into Power Balance Pavilion for next year," Stern said. "It just wouldn't pay for me to talk about anything beyond that."

Now, Johnson returns home to Sacramento without a contingency. He quickly dismissed an idea floated by Kings co-owner George Maloof that the team and the city explore renovating Power Balance Pavilion, one of the smallest arenas in the NBA and a facility long derided by the league as inadequate.

"If it was up to me, there is no way that we as a city would invest in that building," the mayor said. "If they want to renovate (it) on their own using private dollars, that's their prerogative."

The City Council had endorsed a plan to leverage downtown parking spaces and garages to generate as much as $255 million toward a new arena in the downtown railyard. Stern praised that commitment, on par with what other cities have provided for arenas.

"We asked the city of Sacramento to step up, and the city stepped up in an extraordinary way," Stern said in his press conference, which followed the NBA's spring board of governors meeting.

In what was clearly nothing more than a handshake deal, the Maloof family agreed in February to contribute $73 million toward the arena. Stern revealed Friday that $67 million of that would have come in the form of an NBA loan.

Stern also said Friday that the NBA had committed to contributing $7 million of its own, a fact not previously made public. The remaining funding – about $59 million – was to come from AEG, the company tapped to operate the arena.

George Maloof, the family's point man on arena negotiations, said he has concluded that renovating the current arena makes more economic sense.

"Why put the pressure on the citizens of Sacramento when we can all figure this out and maybe just do it at Power Balance Pavilion?" Maloof asked.

Asked if that plan were feasible, Maloof replied, "You can redo anything. Trust me, I'm a developer."

But that stance contradicts a statement the family made in March 2011, when a former Kings executive and the architect who designed the former Arco Arena pitched a remodel of the facility to the Maloofs. The family said they had listened to that proposal, but determined "a renovation of the existing structure is not an adequate solution."

Neither the Maloof family nor their public relations consultants would expand Friday upon the idea of revamping Power Balance.

Trouble from the start

The sudden collapse of the deal ended an odyssey that began a year ago, when the Kings played their season finale before an emotional sellout crowd. The team was poised to move to Anaheim, and many fans thought it was the last time they would see the team play in Sacramento. That night, the mayor flew to New York, where he would persuade the NBA's owners to give his city a final shot at solving its years-long arena puzzle.

After months of wrangling, the negotiations hit a crossroads in February during the NBA All-Star weekend in Orlando, Fla. After three tense days, Johnson, the Maloofs and Stern emerged from a hotel conference room with the framework of a deal. Gavin Maloof choked up with emotion and wept as he addressed reporters.

The City Council would later vote to move forward with that plan at a raucous, celebratory meeting.

But in the end, there was much the Kings did not like about the financing plan.

For one thing, the lease agreement offered by AEG was based on unrealistic attendance projections, said Maloof attorney Barry McNeil.

"They took the best two years we had ever had," he said. "They took when we were a championship contender, and they took years at the height of the bull market and based their projections on that."

Christopher Thornberg, an economist hired by the Maloofs to dissect the plan, on Friday called the projections "highly overblown" and said actual revenues could have come in between $5 million and $15 million below forecasts.

What's more, Thornberg said, city officials had presented a "wildly overblown estimate of the kind of revenue value this arena will bring to the city."

"This project would really put the city right on the edge of potential fiscal disaster," Thornberg said. "There's a massive amount of risk for the Kings, the city and ultimately the NBA."

City officials on Friday rejected Thornberg's statements.

"Chris Thornberg has never talked to me or our finance director or anyone in the city government about our finances," City Manager John Shirey said. "We feel very confident with the project that was on the table and we were prepared to move forward with that, and we can still deliver on that project if there is a change of heart tomorrow."

A representative for AEG did not return a phone call seeking comment.

Concerns about debt

As the arena plan dissolved Friday, the Maloofs accused city officials of charging ahead while ignoring their concerns.

But in his news conference, Stern said the team's concerns were heard. He suggested that the Maloofs became uncomfortable about the deal because they were worried about taking on more debt.

"They decided this wasn't a transaction they wanted to go forward with, and this was their right," Stern said. "If they had done it a little simpler, a little earlier, a little more directly, it would have saved a lot of angst and trouble."

The Maloofs' concerns with the plan became publicly known only in recent weeks.

The team owners said they first received a term sheet with the proposed provisions of the deal on Feb. 19, one week before the Maloofs, the NBA and city officials met in Orlando to negotiate.

In an email to NBA officials, George Maloof wrote the family was "having a hard time with this document" and that they "find it insulting."

Other issues would materialize as a March 1 deadline to develop a financing plan approached.

Among those were a reluctance by the Maloofs to provide collateral for a refinanced loan that would replace the outstanding debt of about $65 million the family still owes the city.

The Maloofs also insisted that the city cover the project's pre-development costs. They wanted more authority over arena designs and had issues with the length of the 30-year lease the Kings would have signed in the new facility.

'We've been good boys'

George Maloof said those concerns and others were presented to city officials and the NBA in February. On March 6, the City Council voted to move forward with a term sheet that the Maloofs contend they did not agree upon – and, in fact, still included provisions they found unacceptable.

Shirey, however, said the city felt it "had addressed every issue" it had been made aware of by the NBA.

Mayor Johnson said Friday that he was "baffled, to say the least, at how we ended up here."

"The Maloofs explicitly stated and agreed that the deal was a fair deal," he said.

The death of the arena plan inevitably led to wishful talk in Sacramento of an ownership change of the Kings, a notion the Maloofs have repeatedly rejected. Billionaire Ron Burkle remains interested in purchasing the franchise, and local business leaders have urged that the Maloofs step aside.

Johnson said he could not say with certainty that the Maloofs "are the best owners for Sacramento."

"Sacramento deserves a partner who will honor their commitment, Sacramento deserves a partner who wants to work in good faith, and I think that Sacramento deserves better than we've got to this point."

George Maloof said the team remains committed to staying in Sacramento. "Our intentions are not to blow this thing up," he said. "We've been good boys."

The mayor was reluctant to believe him.

"I think I've learned today they can change their mind," he said.

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