I see three big ticket questions coming up. I have no guess what the correct answers are, so I’m just issue spotting.
At this point, one thing is becoming abundantly clear – for the foreseeable future, there isn’t going to be a new NBA arena here or one of the alternative cities – Seattle, San Jose, Anaheim, Kansas City (they already have a newish one), and despite all the talk, you can probably put Vegas on that list as well. Plus, Vegas has the gambling issue, so it’s unclear whether they are even on a list. (I’m not looking to start the – pros/cons debate over these cities. I merely point this out because every time Seattle comes up, somebody will point out, “Well, Settle isn’t getting a new arena.” Which is true, but that’s also the case in San Jose, Anaheim, and SACRAMENTO.) Accordingly, I believe the “no new facility” argument to be a red herring when comparing other cities. Here, they own the facility, but that comes along with all of the maintenance on a facility on the end of its economic life. At some point, it’s like dumping a ton of cash into a clunker car. Plus, the other acts aren’t nearly as profitable as they were pre-2008. On the other hand, the Maloofs will be renters in all of the new facilities. The relocation fee is a factor, but there is also a huge bump in merchandise sales when you move to a new city, better media rights, bigger markets, ect. The loan on the team is a sunk cost. But the city is probably foolish enough to take Arco off their hands for 70 million (suckers). Thus, relocation might be the best way the Maloofs to clear some debt. Lots of moving parts. Many of these can and will be debated, but these factors aren’t going to change a ton as we go forward. At this point, the alternatives are pretty clearly defined. Which leads us to the three issues. This is what matters, and I don’t think any of us “know” the answers here.
1. Among those cities, where can the Kings make the most money?
I’m sure they’ve considered this issue before, but there was always a caveat. With a new arena, Sacramento topped the list. Plus, they would generally prefer to stay. Thus, they’ve held out hope for the best alternative to materialize. But the odds of that happening now seem remote. Accordingly, I think the analysis is about to change, or at least will at some point in the near future. Sacramento will be assessed under the assumption that a new building isn’t coming.
With 10 years of failed plans and nothing viable on the table, the Kings have to seriously consider – assuming a new arena isn’t coming to Sacramento – where the business should be located for both the short term (2-3 years) and mid-term (8-10). Normally, I don’t think a team would look short and near, but with the Maloofs’ cash flow and debt situations, it’s got to be a factor. Just a guess, even with their numerous shortcomings, it seems logical that it would be more profitable – even after relocation costs - to play in San Jose, Seattle, or Anaheim.
2. If you are moving, how does the lockout affect your timing?
So let’s assume for the sake of argument the team concludes that Anaheim is the way to go. We know there is almost certainly going to be a lockout and it is expected to last longer than 1999, when the NBA barely fit in a 50 game season. At this point, there is a real risk all of next season will be lost. If you’ve made up your mind to move, but you’re pretty sure next season isn’t happening … then you might wait.
Option A. Papers filed March 1, 2011. Play six weeks in the hot seat here. See your walk up ticket sales sharply fall off. Announce relocation to City X. Watch the excited new fans become less excited during a lockout.
Option B. Scoop up the last of the dollars in Sacramento through April. Next season might be scuttled in mid-January 2012 as negotiations drag on. File papers in February. And launch in new city – post lockout – with the team in a great position to completely remake the roster and excite town X with a playoff squad.
I know what I would pick. For us, this doesn’t really matter. At best, we get 82-66 homes games instead of 41. Here it’s a matter of when, not if. Something to consider if the team doesn’t file paper on March 1, 2011. That “move” doesn’t necessarily mean this isn’t the last season in Sacramento.
3. Does the $350 million dollar loan payment on the Palms on March 1, 2011 render all of this moot?
Maybe they don’t want to move. Maybe they would rather relocate to Anaheim, but they want to wait until after the lockout. However, it’s all moot if the owners can’t hold onto the team. This is the part of the conversation where people start throwing around arguments like – they’ve said don’t want to sell AND who cares, they might have to. Nobody knows enough to be sure, but March 1, 2011 looms large. This could be the point where unforeseen things happen like the team is sold to Larry Ellison, and he decides whether to risk aliening San Jose with the lockout or potentially playing a lame duck season in Sacramento.
It’s a complete guess, but I think the convergence plan helped solve this issue for the Maloofs. It called for the Maloofs to “donate” the Natomas land, and pay $300 million in rent, and still come out ahead. My hunch has always been that the team was going to: (1) “donate” the Natomas land; (2) have a hold / get access to some financing – either the developers’ or some aspect of the project, which would allow them to get through this rough patch; and (3) get enough of a cut on the backed to get some return on the land. Between their equity in the Kings and the future profits from a finalized convergence plan, the Maloofs should have been able to solve/extend the Palms debt issue. The NBA knows the Kings’ numbers, and they quickly deemed the plan with a huge financing component the plan that needed to happen before the vote happened. This is a guess, but a logical explanation on a couple of fronts.
Thus, it’s very possible the Maloofs plan to fix the Palms also went up in flames on 9/24/10. Even assuming that Taylor/Kamilos can get something up and running again, they will be hard pressed to have it finalized by March 1, 2011 The Maloofs delayed the Palms balloon payment by breaking open the beer piggy bank. Whether the convergence plan is dead or delayed, the opportunity to address the issue without choosing between the Palms and Kings may have passed on Friday.
We just don’t know. But at this point, I’d say these three questions that control if and when they move.
At this point, one thing is becoming abundantly clear – for the foreseeable future, there isn’t going to be a new NBA arena here or one of the alternative cities – Seattle, San Jose, Anaheim, Kansas City (they already have a newish one), and despite all the talk, you can probably put Vegas on that list as well. Plus, Vegas has the gambling issue, so it’s unclear whether they are even on a list. (I’m not looking to start the – pros/cons debate over these cities. I merely point this out because every time Seattle comes up, somebody will point out, “Well, Settle isn’t getting a new arena.” Which is true, but that’s also the case in San Jose, Anaheim, and SACRAMENTO.) Accordingly, I believe the “no new facility” argument to be a red herring when comparing other cities. Here, they own the facility, but that comes along with all of the maintenance on a facility on the end of its economic life. At some point, it’s like dumping a ton of cash into a clunker car. Plus, the other acts aren’t nearly as profitable as they were pre-2008. On the other hand, the Maloofs will be renters in all of the new facilities. The relocation fee is a factor, but there is also a huge bump in merchandise sales when you move to a new city, better media rights, bigger markets, ect. The loan on the team is a sunk cost. But the city is probably foolish enough to take Arco off their hands for 70 million (suckers). Thus, relocation might be the best way the Maloofs to clear some debt. Lots of moving parts. Many of these can and will be debated, but these factors aren’t going to change a ton as we go forward. At this point, the alternatives are pretty clearly defined. Which leads us to the three issues. This is what matters, and I don’t think any of us “know” the answers here.
1. Among those cities, where can the Kings make the most money?
I’m sure they’ve considered this issue before, but there was always a caveat. With a new arena, Sacramento topped the list. Plus, they would generally prefer to stay. Thus, they’ve held out hope for the best alternative to materialize. But the odds of that happening now seem remote. Accordingly, I think the analysis is about to change, or at least will at some point in the near future. Sacramento will be assessed under the assumption that a new building isn’t coming.
With 10 years of failed plans and nothing viable on the table, the Kings have to seriously consider – assuming a new arena isn’t coming to Sacramento – where the business should be located for both the short term (2-3 years) and mid-term (8-10). Normally, I don’t think a team would look short and near, but with the Maloofs’ cash flow and debt situations, it’s got to be a factor. Just a guess, even with their numerous shortcomings, it seems logical that it would be more profitable – even after relocation costs - to play in San Jose, Seattle, or Anaheim.
2. If you are moving, how does the lockout affect your timing?
So let’s assume for the sake of argument the team concludes that Anaheim is the way to go. We know there is almost certainly going to be a lockout and it is expected to last longer than 1999, when the NBA barely fit in a 50 game season. At this point, there is a real risk all of next season will be lost. If you’ve made up your mind to move, but you’re pretty sure next season isn’t happening … then you might wait.
Option A. Papers filed March 1, 2011. Play six weeks in the hot seat here. See your walk up ticket sales sharply fall off. Announce relocation to City X. Watch the excited new fans become less excited during a lockout.
Option B. Scoop up the last of the dollars in Sacramento through April. Next season might be scuttled in mid-January 2012 as negotiations drag on. File papers in February. And launch in new city – post lockout – with the team in a great position to completely remake the roster and excite town X with a playoff squad.
I know what I would pick. For us, this doesn’t really matter. At best, we get 82-66 homes games instead of 41. Here it’s a matter of when, not if. Something to consider if the team doesn’t file paper on March 1, 2011. That “move” doesn’t necessarily mean this isn’t the last season in Sacramento.
3. Does the $350 million dollar loan payment on the Palms on March 1, 2011 render all of this moot?
Maybe they don’t want to move. Maybe they would rather relocate to Anaheim, but they want to wait until after the lockout. However, it’s all moot if the owners can’t hold onto the team. This is the part of the conversation where people start throwing around arguments like – they’ve said don’t want to sell AND who cares, they might have to. Nobody knows enough to be sure, but March 1, 2011 looms large. This could be the point where unforeseen things happen like the team is sold to Larry Ellison, and he decides whether to risk aliening San Jose with the lockout or potentially playing a lame duck season in Sacramento.
It’s a complete guess, but I think the convergence plan helped solve this issue for the Maloofs. It called for the Maloofs to “donate” the Natomas land, and pay $300 million in rent, and still come out ahead. My hunch has always been that the team was going to: (1) “donate” the Natomas land; (2) have a hold / get access to some financing – either the developers’ or some aspect of the project, which would allow them to get through this rough patch; and (3) get enough of a cut on the backed to get some return on the land. Between their equity in the Kings and the future profits from a finalized convergence plan, the Maloofs should have been able to solve/extend the Palms debt issue. The NBA knows the Kings’ numbers, and they quickly deemed the plan with a huge financing component the plan that needed to happen before the vote happened. This is a guess, but a logical explanation on a couple of fronts.
Thus, it’s very possible the Maloofs plan to fix the Palms also went up in flames on 9/24/10. Even assuming that Taylor/Kamilos can get something up and running again, they will be hard pressed to have it finalized by March 1, 2011 The Maloofs delayed the Palms balloon payment by breaking open the beer piggy bank. Whether the convergence plan is dead or delayed, the opportunity to address the issue without choosing between the Palms and Kings may have passed on Friday.
We just don’t know. But at this point, I’d say these three questions that control if and when they move.
