March 1, 2013

Mayor reveals 'very strong' bid to keep Kings in Sacramento

For more than a year, Southern California grocery tycoon Ron Burkle and his business associates have pursued a plan to build a new arena in Downtown Plaza to cement the Kings' future in Sacramento.

For more than a year, Southern California grocery tycoon Ron Burkle and his business associates have pursued a plan to build a new arena in Downtown Plaza to cement the Kings' future in Sacramento.

On Thursday, that interest finally burst into the open. Standing on a stage at the Memorial Auditorium in front of 3,000 cheering Sacramentans gathered for his State of the City address, Mayor Kevin Johnson announced that Burkle and 24 Hour Fitness founder Mark Mastrov were teaming up on a bid to buy the Kings and construct an arena at the site of downtown's lagging open-air mall.

The bid for the team, which will be filed with the National Basketball Association today, will serve as Sacramento's counteroffer should the NBA board of governors next month reject the Kings' deal to move the franchise to Seattle.

While the amount of the Burkle and Mastrov bid was not revealed Thursday, the mayor said it would be "very strong and competitive." Seattle hedge-fund manager Chris Hansen and Microsoft executive Steve Ballmer have a binding agreement with the Maloof family to buy the Kings in a deal that values the franchise at $525 million, or about $341 million for the 65 percent they control.

A source familiar with the Mastrov offer said it's expected that the NBA will look over the proposal and forward it to the Maloofs, who have the right to "entertain" other offers as backups in case the NBA rejects the Seattle bid. Beyond that, the process isn't quite clear.

"It's not like there's a manual for how to do this," the source said. "This is somewhat unprecedented in the history of the league."

Johnson said Burkle would be the driving force behind the arena plan, while Mastrov would lead the charge on the bid for the Kings. Sources said both men would contribute financially to both the arena and the team acquisition.

"Sacramento has proven time and time again to be a great NBA market," Mastrov said in a prepared statement released after the speech. The Bay Area financier made an unsuccessful bid of $420 million to buy the Golden State Warriors in 2010 and longs to be an NBA owner.

Johnson said that, this time, he's certain Mastrov will prevail, keeping the Kings in Sacramento.

"With all due respect to Seattle – and I absolutely wish the best to them and I do hope they get a team someday – let me be perfectly clear, I said let me be perfectly, crystal clear: It is not going to be this team," Johnson said.

He added that Sacramento corporations have pledged $50 million in sponsorships for the first five seasons the Kings play in a new arena.

His speech drew wild cheers in an event that took on the atmosphere of a Kings game, with Johnson removing his jacket to reveal his matching purple pinstriped shirt and tie.

While Burkle and Mastrov's interest was widely reported weeks ago, the mayor had some surprises: Mastrov intends to revive the WNBA's Monarchs, which folded in 2009, and ex-King Mitch Richmond has committed $1 million toward the purchase of the team.

Richmond is among more than 20 local investors who will bid on the 7 percent share of the Kings being auctioned in bankruptcy court.

The mayor made no mention in his speech of Kings limited partner John Kehriotis, who seeks to buy the team and build an arena near the current Sleep Train Arena in Natomas. Unlike Burkle and Mastrov, he is not seeking a city subsidy. Asked afterward about Kehriotis, the mayor said his plan "would be a dream," but that "a lot of times, these Hail Marys don't work out."

Burkle and Mastrov's interest was still evolving behind the scenes hours before Johnson's address.

According to a source close to the deal, Burkle spoke Thursday with NBA Commissioner David Stern, who encouraged him to remain committed to the process. Last month, Burkle advocated for a Downtown Plaza arena in a meeting with Stern in New York.

Burkle's interest in Downtown Plaza dates to 2011, when one of his business associates – developer and lobbyist Darius Anderson – began advocating for the site as an arena location to Burkle and others. Anderson would become a key investor in JMA Ventures' acquisition of the Downtown Plaza last year, solidifying Burkle's connection to the location.

The mayor said Burkle would partner with JMA on an arena plan. A source close to the deal said the project's potential role in revitalizing downtown is "a big reason why Ron (Burkle) has been interested in this."

When JMA purchased the mall, it quickly commissioned architectural engineering firm AECOM to study the site's feasibility to house an arena. The firm sees potential in the mall site because of its access to public transit and city streets.

The source said initial studies showed that an arena could be constructed at the mall for roughly $400 million – less than what city officials had estimated last year it would take to build an arena in the downtown railyard.

City Manager John Shirey said that city officials have not yet launched formal negotiations with Burkle and Mastrov over a financing term sheet for an arena, but that those talks are expected to begin soon. Shirey received the City Council's approval on Tuesday to start negotiations and said it was his goal to finalize a financing term sheet and present it to the council for its approval by its April 2 meeting.

The foundation of any arena deal is likely to be money from the city's downtown parking operations, most likely funneled through a financing authority controlled by the city. That plan could account for as much as $255 million, the same amount offered to the Maloofs last spring for a new arena at the railyard – a project the Maloofs ultimately abandoned.

City officials have also said the public contribution to the proposal could include land sales, surcharges placed on tickets for events at the arena and assessments paid by property owners near the arena.

Asked if Burkle was confident he could fill the gap between what the city can commit to an arena and the final price tag, a source said "that is not going to be an issue." The source said Burkle has limited partners in the deal, a group that could include celebrities and former professional athletes.

Anderson and Burkle have long been attracted to the Downtown Plaza area because of the potential for ancillary development at the site.

The team has contacted a company that operates aquariums about potentially opening a facility adjacent to the arena and has also explored developing housing, office space and retail at the site.

"Everything is on the table right now," a source said. "There is a lot of empty space there."

Johnson said the Downtown Plaza site is "an opportunity to do other development."

"Ron Burkle has a vision," he said. He added it's possible the project could include "a mini-L.A. Live, or what we'd call Sacramento Live," referring to the lively entertainment complex adjacent to the Staples Center in Los Angeles.

Neither Mastrov nor Burkle took the stage at Thursday night's event. After it ended, Burkle released a statement saying he is "excited about the economic possibilities for the arena and for downtown Sacramento as a whole."

"We have an opportunity to transform downtown into a vibrant hub of economic and cultural activity that will create jobs and generate a positive economic impact for years to come," he continued.

One source said Burkle was considering recruiting both arena operator AEG and concert promoter LiveNation to bring entertainment acts to the arena. AEG and LiveNation are competitors in the concert-promotion business but have worked together – notably in Pittsburgh, where Burkle controls the arena.

Burkle hired AEG in August to manage Consol Energy Center, home to his Pittsburgh Penguins hockey team. AEG officials said they would have no problem working with LiveNation, which already brings a slew of concerts to the Pittsburgh arena.

AEG put itself up for sale last year, and a group that includes Burkle is reportedly one of the finalists in the bidding.

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