Exclusive: Inside the high-stakes deal that got Sacramento a Major League Soccer team

Sacramento Mayor Darrell Steinberg is often called an unshakable optimist. But in the dying days of July he was growing worried. Sacramento’s five-year quest to land a Major League Soccer franchise had hit a snag, and at just the wrong moment.

Billionaire investor Ron Burkle and partner Matt Alvarez had been close to signing a deal with MLS to bring a team to the capital city. The weeks, however, were dragging on and the negotiations had slowed to a crawl. Burkle and MLS Commissioner Don Garber hadn’t spoken in days.

A St. Louis group had just leapfrogged Sacramento and was about to be announced as the 28th city to join the league. That left two more slots before MLS would halt expansion. The back channel word was that Charlotte had just wowed the league with its bid, and soccer officials were visiting Las Vegas and talking with Phoenix.

“It was clear the league would move on without us,” Steinberg said. “They would pass us by if we didn’t close the deal.”

Steinberg had an idea. He picked up the phone.

Two months later, Garber and Burkle stood side by side on stage in Sacramento, blanketed in cheers and soccer chants from exuberant fans as the pair held up a Republic FC banner, celebrating Sacramento’s entry into MLS as the 29th team.

Sacramento had gotten in the door in the nick of time.

How the city got there is a story of perseverance across a half-decade of make-or-break moments. In the process, it required alpha personalities to search for – and ultimately find – common ground. And it’s a story of a mid-sized city that impressed high-powered business titans in New York and Los Angeles enough to take a billion-dollar risk.

But before any of that happened, Steinberg had a problem to solve. A $200 million problem.

Burkle unhappy with MLS fee increase

Burkle, a supermarket magnate and business investor from Beverly Hills, along with business partner Alvarez, a Hollywood movie producer, had been looking for a creative venture. Burkle, co-owner of the Pittsburgh Penguins of the National Hockey League, had once considered buying the Sacramento Kings. He ultimately backed out, but he says he came away with a view of Sacramento as an up-and-coming place to do business.

“I like communities where there is hard work and loyal people and a lot of community spirit,” Burkle said in a 20-minute, private interview with The Sacramento Bee Monday before he took the stage with Garber for the expansion announcement. “It seems to me a place that doesn’t get as much credit as it should and is a big opportunity.”

He and Alvarez first met with Garber in early 2018 to talk about what it would take to bring a team to Sacramento. At the time, MLS was charging a $100 million fee to enter the league. Talks progressed. As they did, MLS bumped the fee to $150 million for Nashville and Cincinnati, the 26th and 27th cities to enter the league.

In April of this year, Garber delivered good and bad news for the Burkle group and Sacramento.

The commissioner stepped out of a league team owners’ meeting in a ballroom at the plush Beverly Hills Hilton Hotel to announce the league was ready to negotiate deals to bring teams to Sacramento and St. Louis.

By the way, Garber added: The franchise fee for new teams, which had been $75 million just a few years ago, was now $200 million.

That upset Burkle and partner Alvarez. “We were not excited about it,” Alvarez told The Bee this week. “Our reaction was not a great one.”

Burkle and Alvarez agreed to pay the fee but, according to sources close to the deal, talks stalled over how much of a down payment was needed and what the installment schedule would be. They had to go over their pro forma, adding $50 million more in entry fees than they anticipated. At the same time, stadium construction costs were starting to leak up from an initial $250 million, eventually approaching $300 million.

Mayor Steinberg negotiates a deal

Steinberg, a seasoned political negotiator who had mediated other moments in the soccer process, saw Sacramento’s momentum slipping away. On vacation with his wife in Vancouver, he asked her permission to do some work. He called Burkle, and Burkle and Alvarez flew up. The trio met at the Vancouver executive airport and Steinberg made an offer.

Months earlier, the City Council had agreed to reimburse Burkle $27 million after Burkle built roads, sewers and other infrastructure in the railyard near his planned stadium site. It was the key part of an overall $33 million incentive package the city was offering.

Steinberg said he would ask the City Council instead to advance that $27 million as an upfront loan to help Burkle finance infrastructure near the now estimated $300 million stadium. Burkle would pay the loan back to the city with interest.

He can repay out of his pocket or use rising property tax increment that will occur when he develops the land near the stadium. That gives him an incentive to develop the rest of the acreage faster, the mayor said.

Steinberg said he will bring that loan plan to the City Council in November for their consideration.

While the incentive represents a small slice of the half-billion-plus dollars Burkle’s group will spend to launch Major League Soccer here, Steinberg said it showed Burkle that the city was willing to take on the role of partner in the complex deal. If Burkle and Alvarez had any reservations, the Vancouver moment succeeded in strengthening their desire to make a deal work.

“(Burkle) said to me, ‘We are going to see this through,’“ Steinberg said. “It was kind of a bonding moment.”

Alvarez concurred. “That (Vancouver) meeting cemented it for us.”

The mayor then called Garber, encouraging him to meet with Burkle. Burkle flew to New York on Aug. 8, and the two men worked out a payment plan, overcoming the last significant hurdle.

“This is happening because everyone hung in there,” Steinberg said. “Choosing not to walk away can be as important as anything else.”

Sacramento soccer dream born over beer

The idea of Sacramento as a soccer city was born quietly nearly a decade ago, but didn’t stay quiet long.

Joe Wagoner, a former front office employee of the River Cats Triple-A baseball team, pulled the soccer idea out of the air over backyard Pabst Blue Ribbon beers with a buddy. He had seen how the World Cup that year united races and nationalities into cheering crowds. He approached River Cats executive Warren Smith with a business plan for a soccer team and a business plan for a sandwich shop.

“Warren told me the sandwich shop idea was awesome, but the soccer idea wouldn’t work,” Wagoner said.

But Smith changed his mind. Republic FC was born in 2014, playing in the lower-level United Soccer League. The team’s immediate on-field success and large, passionate fan base attracted Kevin Nagle, the El Dorado Hills businessman who was also an investor in the Kings who with Smith set his eye on the big league: MLS.

MLS Deputy Commissioner Mark Abbott visited that fall, liked what he saw and Sacramento found itself almost immediately in the running for a franchise. By 2016, Garber told The Bee it was a matter of “when, not if” Sacramento would get a team.

But Smith and Nagle quarreled over the value of the Republic name, causing MLS to back off. Steinberg stepped in and mediated. Publicly, the mayor said he respected their right to have a business squabble. But, he said at the time, “there is a higher priority here, and that priority is a responsibility to the city.”

Meanwhile, the MLS landscape was changing. Competition among cities increased. The league repeatedly increased its entry fee. And Sacramento’s fortunes slipped. Nagle looked for more investors to strengthen Sacramento’s bid.

The group lured former Hewlett Packard CEO Meg Whitman and San Francisco 49ers executive Jed York before a 2017 league meeting in New York where Sacramento would present its bid. But neither Whitman nor York ultimately signed on.

Nagle and Steinberg went to New York that December anyway to make their pitch. Behind closed doors, the league decisively turned them down.

The deal was dead

Steinberg at the time said the meeting had gone well – he told reporters it “couldn’t have gone better” – and that the league had offered good feedback.

But he knew otherwise. Speaking to The Bee this week, Garber remembers the moment from the league’s perspective: “(The Republic bid) ultimately died,” he said. “Their expansion plan was not complete. So they were out.”

But Garber said there was a path back in. “(Nagle) needed a financial partner that would not just be appropriate to get the deal done, but would then have the financial capacity to be able to own this team for a generation.”

The mayor and commissioner offer different takes on what they said to each other on the way out the door in New York. But they agree they both thought Sacramento could resuscitate its chances, if it moved quickly.

Steinberg says: “Garber made it clear to me that I was going to have to lead here.”

Garber said he saw a mayor already taking the lead, more than any other MLS city mayor had before: “The mayor said, ‘Hang tough. I am going to help put this back together.’“ Garber said he initially resisted Steinberg’s efforts to step in, and he even warned Steinberg of political peril, saying, “Darrell, I’m not sure you want to do that.”

Ultimately, Garber ended up relying on the mayor as a vital facilitator.

“Your mayor, I just think is a fascinating guy,” Garber said this week during his visit to Sacramento. “He could be running a sports league. He could be running a start-up. He has this incredible desire to push through obstacles to get to the finish line in an incredibly tenacious way.”

Ben Gumpert, the equally tenacious president of Republic FC, spent months on the phone talking to potential investors. If they sounded solid, he’d invite them here, show them around and introduce them to Steinberg.

Burkle did not need an introduction. His Penguins had just won the Stanley Cup. His reputation was so solid that, a few years earlier, when former Mayor Kevin Johnson told then NBA Commissioner David Stern that Burkle might want to buy the Sacramento Kings, Johnson said there was a moment of silence on the line before an impressed Stern replied: “You got Burkle?”

Steinberg promised Burkle and Alvarez the city would do what it could to support his efforts, but he said it could not offer anything like the huge investment the city had just made in Golden 1 Center.

Alvarez and Burkle sat down with Larry Kelley, owner of the railyard, early this year and worked out a deal: They would buy 14 acres there to build the stadium, plus another 17 adjacent acres to essentially create a money-making stadium district, like the Downtown Commons district that surrounds Golden 1 Center 10 blocks south of the soccer stadium site.

That deal in hand, Burkle told MLS’ Garber he and Alvarez were in.

MLS owners uncertain on Sacramento team

But some MLS board members were still not sold on Sacramento. Garber acknowledged this week in an interview with The Bee that some wanted to wait until a larger city was ready to make a bid.

“There is a limited number of available teams in MLS,” Garber said. “There are still a number of really large cities where we don’t have teams. There were questions as to whether we should wait for some of those other larger cities, or is there enough energy and excitement and opportunity in Sacramento.”

Garber told the other league owners that Sacramento had put in years of work and had checked all the boxes.

The city had a strong soccer fan base. Sacramento is a growing market. The Burkle/Alvarez group, which will include Nagle and other local business people, was strong. Burkle had a stadium plan in hand. Sacramento’s mayor was an active partner. And the city had recently proved its mettle by out-dueling Anaheim and Seattle to keep the Kings and build a new arena that is among the NBA’s crown jewels.

In the end, city size isn’t a determining factor, Garber said. “Ultimately, we decided that Sacramento was where we wanted to be. We want to be in cities that are on the rise and have their best days ahead.”

Now the real work begins

For his part, Burkle said he has come to terms with the $200 million fee. When a Bee reporter asked about it this week, Burkle, smiling, fired a question back: “So, with the commissioner sitting next to me, and the camera rolling, you’re gonna ask if I was happy? Thrilled?”

“Look,” he said, “it’s a free market world, and when the price went up to 200 (million dollars), the price went up to 200. We all worked together and we came to a place where we thought we could make the 200 work.”

He said he got a bit of advice from another major league sports team owner. “When the price went up, one of the influential owners and someone who is a friend of mine grabbed me and said, ‘You know, in the next 10 years, (soccer) is going to become the number two sport in America (behind the National Football league).‘

“We feel that way,” he said. “We feel it is the right time and the right place to be.”

Burkle rarely speaks in public. Monday, he was the only person on stage during the hour-long MLS announcement ceremony downtown who did not give a speech. Off stage, he pointed out that he and Alvarez shouldn’t get too much credit; they are reaping the benefits of years of hard work by others. “Somebody told me a long time ago that when you drink the water, don’t forget who dug the well,” he said.

Later that day, after the announcement, Garber sat in the Kimpton Sawyer Hotel lobby. He said a new challenge begins. “I told the mayor, ‘Great day, man, but the work is just beginning. This city did it around the (Golden 1) arena. We are going to count on them being creative and supportive of the team in the years leading up to the launch and beyond.”

Gumpert, who worked on the MLS effort on a daily basis for the last three years, celebrated over champagne Monday night with the Republic FC staff at Tiger, a K Street restaurant, then got to work early Tuesday and stayed late, continuing what he calls an “ultra-marathon.”

“I had no idea it was going to take this long,” he said. “But it did and I wouldn’t trade it for anything. It was difficult and humbling. But we are stronger for it. And we will be a massively successful organization because of that journey.”

This story was originally published October 25, 2019 at 5:00 AM.