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Arena Deal

Originally published: 7/21/06

It has taken six years of false starts, recriminations and damaged political careers to come up with a financing plan to build a new arena for the Sacramento Kings. But in the end, the deal hinged on a single, do-or-die round of late-night talks.

Negotiators for the city and county of Sacramento, and for the Kings, announced in a briefing Thursday at The Bee that they had struck a deal to build an 18,000-seat arena with an estimated price tag of between $470 million and $542 million.

Move-in date: 2010.

Most of the money would come from a new quarter-cent sales tax that would have to be approved by a majority of voters in November. About half of the $1.2 billion raised by the new sales tax would be used for an arena; the other half would go back to the county and its cities for local projects.

As late as Wednesday afternoon, participants said they were unsure there would be any deal. Negotiations stretched into the night Wednesday; details were still being worked out Thursday morning.

"It was the most challenging negotiation I've ever been involved in," said former state Assemblyman Darrell Steinberg, who represented the Maloof family, which owns the Kings and the Monarchs. "It would have been easy for either side to give up, but everybody continued that age-old mantra: Never give up."

In the end, he and the other negotiators maintained, the deal they struck was a reasonable one, both for the public and for the Maloofs.

"We were responsible stewards of the public's money, looking for the right deal," said Sacramento City Councilman Rob Fong. "If we wanted to get any old deal ... we could have gotten it 67 days ago."

Joe Maloof, one of the Kings owners, said the financing package is "the right deal for Sacramento."

"I think its an important day for Sacramento, because finally we're going to be able to get a decision by the public," he said.

Under terms unveiled Thursday, the Maloofs would sign a 30-year lease for the Kings and Monarchs to play in the new arena, which would anchor a new sports and entertainment district in the downtown railyard.

The Maloofs would pay off their existing city loan of nearly $71 million in a lump sum. In addition, they would pay $4 million annually in rent for 30 years. The family would make a $20 million payment upfront for a capital repair reserve fund.

Their total contribution -- not including the loan payoff -- would be $142 million over 30 years. That's between 26 percent and 30percent of the facility's cost, negotiators said.

They said the deal is comparable to others reached for new National Basketball Association arenas around the country. The Maloof family is paying more than owners have in Memphis, Indianapolis and Charlotte, N.C., three of the most recently constructed arenas, said Sacramento County Supervisor Roger Dickinson, one of the lead negotiators.

The team owners would operate the arena and receive all revenues from events, parking and concessions. They also would get to keep the lucrative naming rights, likely worth millions.

Arco Arena would be demolished. The Maloofs would sell the 85-acre parcel surrounding it, a gold mine in fast-growing North Natomas that could fetch as much as $650,000 an acre, according to a recent appraisal. They could use that money to help pay off their city loan. The city would sell its adjoining 100 acres and use the proceeds to buy land and build infrastructure in the railyard to serve the project.

The new tax is expected to raise about $1.2 billion over its 15-year life. Up to $615 million could conceivably be used for an arena, but only if it experienced cost overruns. Negotiators said they expect to be able to build one for between $470 million and $542 million, including land acquisition and a parking garage.

The remainder of the sales tax money -- at least $594 million -- would go to Sacramento County and its cities for community projects.

The arena would be owned by a new public joint powers authority, which would control the building's construction and design.

"It was tough, but we're giving up complete control of the design and the construction of the facility," Maloof said.

As difficult as it was to craft an agreement, arena negotiators concede that the next task -- getting voter approval for the sales tax increase -- could prove even more arduous.

First, four of the five members on the Sacramento County Board of Supervisors must agree to place the sales tax increase on the November ballot. By law, the ordinance would require two hearings. Those are set for July 25 and Aug. 2, with a vote expected at the second meeting.

Although Fong expressed uncertainty about achieving this threshold, Dickinson said he's confident the votes will be there.

Opponents are gearing up, however.

"They are talking about half a billion dollars to fund an arena, and the Maloofs would reap the revenues -- that's a massive subsidy," said Dave Tamayo, president of People United for a Better Sacramento, a grass-roots organization opposing the plan.

Tamayo and his group have protested the lack of public input during the top-secret negotiations.

But Steinberg said a business deal is by necessity negotiated in private. Now that the basic terms have been crafted, the public will get to decide.

"Today is the beginning of the public process, not the end," he said.

Previous arena efforts have been led by the city of Sacramento alone. But this time, the county acted as an equal partner, and suburban cities gave input and have been offered millions of dollars in the deal.

But they won't see that money for a while. For about seven years, the joint powers authority will use the sales tax to pay off the arena construction loan, said Paul Hahn, county economic development director.

Only after that will cities get their payday.

"We made that very clear to the cities," Hahn said.

Cities would receive payments based on the increase in sales tax within their borders, negotiators said. That means communities rich in retail stores would get more than those lacking big box stores and auto malls.

Elected officials said they don't know how their constituents will react to the proposal.

Polls show that most Sacramento County residents oppose public funding for an Arco replacement.

Folsom Mayor Andy Morin said he is excited and gratified that an arena deal has been struck, although others in the community might not feel the same way.

"As you can probably guess, there's a lot of hand-wringing and grappling when there's talk about a tax increase," Morin said.

Rancho Cordova Mayor Robert McGarvey said voters in his community will want to see the "nitty gritty" of the ballot measure.

"This is something people are really going to have to think about very carefully, and I am too," he said.

Arena proponents intend to sell the proposal as about much more than just the Kings.

The arena would be a centerpiece in the sports and entertainment district planned for the downtown railyard.

Sacramento Mayor Heather Fargo said a new arena would inject new energy into a dormant portion of downtown. "We're looking at 200 events a year, 2 million people, coming to an arena in the center of our city, within walking distance of our intermodal (transit) station," she said.

Arena Deal

1/4 cent: Proposed increase in sales tax for 15 years

$12 Billion: Estimated revenue generated by proposed sales tax increase

$542 Million: Maximum estimated cost to build new arena

26 Percent: Maloofs’ share of the cost to build an arena at that price

$594 Million: Minimum revenue available to cities and county for other purposes

30 Years: Length of lease by Maloofs for Kings and Monarchs

2010 (September): Estimated opening of new arena, if deal is approved by voters

The Bee's Mary Lynne Vellinga can be reached at (916)321-1094 or mlvellinga@sacbee.com.

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