Arco Arena/bonds/Kings/etc

Section 101 · Mar 26, 2011

Giving Arena Skeptic his credit for finding this. It deserves its own thread.

If this is the document that was signed for the bonds then WOW. I skimmed it and it's a lot of information that is very confusing.

From what I gather a Joint Powers Authority purchased the arena by selling the bonds. The JPA leased the arena to the city who makes the payments including taxes etc. The city then subleases to the Kings. The Kings have their lease payments which is basically paying off the bonds.

In the event the Kings move the city gets control of the arena (the bonds still have to be paid by the Kings) to hold events or find a 3rd party to manage it.

Tetsujin · Mar 27, 2011

Section 101 said:

Giving Arena Skeptic his credit for finding this. It deserves its own thread.

If this is the document that was signed for the bonds then WOW. I skimmed it and it's a lot of information that is very confusing.

From what I gather a Joint Powers Authority purchased the arena by selling the bonds. The JPA leased the arena to the city who makes the payments including taxes etc. The city then subleases to the Kings. The Kings have their lease payments which is basically paying off the bonds.

In the event the Kings move the city gets control of the arena (the bonds still have to be paid by the Kings) to hold events or find a 3rd party to manage it.

I think it's all contingent on the Maloofs repaying the loan that they owe to the city though.

Glenn · Mar 27, 2011

Which arena?

Section 101 · Mar 27, 2011

Tetsujin said:

I didnt see that anywhere in the document.

JB_kings · Mar 27, 2011

Long read... but the basics are there. City leases the arena and subleases to the team. I'm not quite clear on what happens if the team relocates outside the city and stops perfroming on the lease. I think the city has the option to put in on the team to pay back the outstanding balance of the bonds. I couldn't find the penalty or percentage of team ownership wording. It's a long document and I just don't have the time to look. I will say that there could be possibly be some interesting litigation on this. I can't imagine the city wanting to take over the payments and own the the thing outright. Given that the Maloofs only got a loan that looks like it covers the NBA relocation costs and maybe physical transition expense, I'm concerned that they have an out and don't plan on paying off the bonds.

BMiller52 · Mar 27, 2011

I have a question though, if they skipped out on the loan and the city gets a 25 million dollar stake in the team, wouldn't that make the Maloofs 49% owners instead or something like that? Right now they own 51% and I'm guessing the team is valued around 300-400 million. Couldn't the city then vote with the other minority owners to veto the move? Basically to move the team they have to pay it back in full right?

Section 101 · Mar 27, 2011

BMiller52 said:

Thats a question for the city lawyers. Can they move the team before the bonds are paid. Since it would too late after they sign the new lease unless there is another way around that.

JB_kings · Mar 27, 2011

BMiller52 said:

I haven't found the documents that mention this stipulation if they relocate outside of Sacramento. Page 22 and 23 don't go into that. I don't know where this is to be honest. I think it came from a news article.

I can speculate on how this doesn't impact the Maloofs ownership. They probably would be given a limited partnership share and not a general or managing partner share. Limited partners are considered limited in the sense that they don't have any team management rights and likely no liability as well. So it's more of an investment in the team with no say so in how it's run.

JB_kings · Mar 27, 2011

I am not a lawyer or even good at reading legal documents. But I've tried to sift through this and translate it into language I can comprehend...

The 1997 bonds were issued by the Authority for the pupose of financing the acquistion of the arena by the City. So the city is acquiring the arena in exchange for the bond money which the Team used for paying off higher interest debt if I recall correctly.

The Team subleases from the City which is the base rental payments is required by the Authority. This is paid from the general fund. The sublease payments from the Team go into the general fund. And the base rental payment is NOT conditioned to the performance of the Team under the sublease. Wow... basically it says sorry if the Team payment is short or defaulted, but the full payment is due!

There are protections for the City's general fund, but this is sort of complex. Basically if the sublease revenue falls short of funds to make the base rental payment, they are allowed to take care of municipal services before being obligated to make the payment.

The Arena Agreements between the City and the Team for the facility sublease is the part that is most important. However I can't seem to find them in this document.

What happens under default of payment? Since the City is on the hook, they will be the ones to default on the base payment! The Authority has the legal right to go after them. They can get a judgement against the city to make payments. They may terminate the lease to the City. They can reclaim the money to pay back the bonds by entering the arena re-leting to another entity. There is some limitations such as the protection on municipal services in the general fund in any judgement.

There is no acceleration of base payment schedule if payments are missed or short. Remember that in the Anaheim bond repayment, it does accelerate if missed or short!

So without those Arena Agreement documents, it's still unclear what exactly the city can do to remedy the event of a relocation from the arena. I do know from looking this document, what the heck was the city doing exposing it's general fund like that? It was the cities choice because Thomas wanted to talk new facility and the city cheaped out and said how else can we help you? Well if this is their help, then what a bunch of idiots! I don't think it will come to the municipal services being affected, but to open up your general fund is not good. It would have been better if they had sat down and hammered out a new arena plan right then and there and not buying a building they knew was already a problem.

Arena Skeptic · Mar 28, 2011

Look on page 190 of the overall document.

Does it say that the City is responsible for maintaining the arena, or have my eyes gone completely haywire?

JB_kings · Mar 28, 2011

Arena Skeptic said:

Yes it does. But without the sublease agreement documents, we have no idea what that really means. It could be shifted back the Team under those agreements.

Arena Skeptic · Mar 28, 2011

Here's the "updated" version of the purchase-leaseback deal:

http://www.cityofsacramento.org/tre...nts/pdf/OS_List_2007 1997 Lease Rev Bonds.pdf

This one's an actual text-based document, not a bunch of scanned images.

Look on page 23, "Risks related...". It specifies that the City can choose to operate the arena in the event that the "previous owner" buggers off, er, fails to meet its obligations (Monty Python mode; sorry). But the document also states that bond-holders, not the general fund, assume the risks. In other words, if the Maloofs move to Anaheim and refuse to pay another dime in rent, and the City exercises its right to occupy and run the arena, and it does so at a loss, it doesn't have to make up the difference to the bond-holders by using general fund money. That's good news for now, but when we try to refinance again in 2017, when these bonds are set to expire, no one will buy the bonds.

What flabbergasts me is that the City would not tell us in 1997 that we were, in fact, buying the arena. It has been City property since 1997, and no one told us. I'm irate.

I hypothesize that in a few months from now, when all this gets more well known, most die-hard Kings fans will dislike their former team even more.

I think what Larry David says is correct. There are now just two alternative: They either move to Anaheim, or the team gets contracted. The Maloofs cannot operate this team without direct assistance from a billionaire, and that's what Samueli is. If the NBA says no to relocation, the Maloofs will abandon the franchise, just as George Shinn did.

Congratulations, here's your shiny new arena.

I really hate the way this is ending.

JB_kings · Mar 28, 2011

Interesting. The wording between the scanned copy is different from the text PDF copy. In places they changed Arena Owner to Prior Arena Owner. I wonder what else is different?

I still would love to see the sublease agreements. Those are what they just hired lawyers to review and see if there are loopholes. Which tells me that they are concerned and feel they need to spend that money to see if they are on shaky ground. And none of the published moves from the Anaheim lease (and common sense) shows that the Maloofs have lined up funds to pay back the Arco "loan".

Maybe wishful thinking on my part, but does this seem like this well planned move to Anaheim showing some fraying at the edges here since the Anaheim lease popped into the public eye? Seems like some random non-Sacramento based figures are questioning this move. Some of them are Laker motivated like Phil Jackson, but others are popping up now.

I'll say it again, pisses me off that the city didn't take the approach to nailing down a public commitment to funding a new arena plan before April. The played the wrong angle and they should have shown that the Maloofs had been the ones to turn their back on the city. I think the going would have been tough to get a move approved with that in play. Now it just might get approved because it looks like they have no choice.

Capt. Factorial · Mar 28, 2011

Arena Skeptic said:

I don't follow. Why is the revelation that the city essentially owns the arena supposed to make me dislike the Kings?

Again, I fail to understand. Here it's your inherent pessimism. Why exactly can't the Maloofs continue to run a franchise that is reportedly profitable as of now? Why can't we expect things to get better for the Maloofs given that both the quality of the economy and the quality of the team, two major stumbling blocks to revenue, are bound to improve? Why would the Maloofs be unable to turn a profit in a new arena in Sacramento, should we build one?

Sorry. They may want to move, and they may well get to. But I just don't buy the idea that they fold if they don't.

Glenn · Mar 28, 2011

Arena Skeptic said:

Contracting would be a huge personal failure to Stern. He has a lot of ego and real live skill invested in the NBA. At the same time, to avoid contraction, the NBA took over the Hornets. Would they take over the Kings? Wow.

Shinn was/is irresponsible. I was in Charlotte and read the local newspapers about him 15 years ago. He had no business in the NBA. If it happens, this will be the second profesional basketball team within years to be contracted in Sacramento. We cannot support pro sports.

Where's the Monarchs, the indoor soccer team (in an area where darn near every kid over 5 plays soccer), etc. I went to the soccer games and it was a hoot. The biggest success is across the river in Yolo county playing the grand old American past time of baseball. This city has no private money and without private money, it will not support a pro team. Is that fact? As close as you can come.

The ultimate mistake was made by Luckenbill but I can't blame him. He didn't know what the NBA would become which is an out of control money eater. Imagine that we are discussing whether one human being is worth $8 mil per year as opposed to $13 mil. It's out of control.

Stern brags about this but in the end, maybe the NBA as a whole should go back to the original 8 teams and let the mega monsters battle it out. Just joking but trying to make a point. Parity is impossisble as all factors cannot be controlled and as Luckenbill found out, cannot be anticipated.

We were all naive as we saw other cities our size and smaller succeed. We didn't take the time and probably saw no necessity to do so, to try to understand why some cities are successful even with a smaller population.

I really don't blame anyone as I don't believe anyone has infinite knowledge.

I won't blame the team and I won't blame the Maloofs. They gave us the only success the Kings have had in their history here. That was just a few years with 20 years of mediocrity and out right failure. This city is what it is and that is and that is what I have been saying forever.

The only way a team can succeed at a high level in Sacramento is if its owners are willing to lose money. The economy has changed and I don't believe there are many owners like that.

Larry David · Mar 28, 2011

Capt. Factorial said:

I doubt they can slink back and be anything more than nominally profitable here. It would seem that things get worse for them with a lot of very angry fans

The team will make a modest profit this year, solely because payroll was cut to the league minimum. That will have to change, or almost nobody would come. Thus, payroll will go up significantly. Second, take a look at the payments on the loan. They go from paying very little now, but will jump up over time. It’s going to get more expensive to run this team.

I don’t see how the profits keep up. Your hypo assumes that the Kings requested relocation and were denied. While a lot of the fans on this board would still attend games, even if the team got better, that would be a bridge to far for a lot of casual fans that go now. Therefore, attendance should remain a huge problem. Even with a much improved record, a lot of people would say, “Yeah, they are better but they don’t want to be here and are probably moving soon - pass.” And the TV deal will expire soon, and since a new contract would be forged with the team down, in the new economy, and with the threat of relocation … I’m guessing it won’t be as good as the deal they made when a lot of the region still had Kings fever.

The Maloofs haven’t made a profit (operating, not appreciation of the franchise) in many of the years they owned the team. The same is true of Thomas’ tenure as owner.
But if you want to assume that the Kings try to leave, get forced back here, and run a profitable franchise … run with it.

Finally, assuming that Sac and Vegas are bound to improve - in a meaningful way - in the next could of years could be a huge stretch.

Fireplug · Mar 29, 2011

Where are these Arena Agreements clearly spelled out. Come on JB, track them down.

It looks to me that the difference between the scanned version and the text version is the scanned one is the original paperwork, and the text version is when the bonds were re-marketed in 2007 with updated covenants (the original due date of the bonds were in July of 2007)

Both documents refer to a series of Arena Agreements, as JB said, but I have yet to find the specific documents.

From the latest version of the bond agreements there is reference to protections if the team bolts, but no specifics. Below is a passage of interest: (please forgive any spelling errors as the original document is password protected and I had to OCR the text to copy it here)

The Kings are owned by the Sacramento Kings Limited Partnership. a Califomia limited
partnership (the "Team Owner"). an affiliate of the Prior Arena Owner. The City acquired the Arena to
assist the Prior Arena Owner and the Team Owner in refinancing certain debt of the Arena and the Team.
In July 1999 Maloof acquired a controlling ownership interest in the Team Owner.
Concurrently with the City's acquisition of the Arena. the City entered into an Arena Facility
Sublease to sub lease the Arena to the Prior Arena Owner to allow for the continued use by the Kings' and
for other events. Under the Arena Facility Sublease. the Prior Arena Owner is obligated to pay Sublease
Rent to the City. a portion o f which was assigned by the City to the Authority to be credited toward Base
Rental Payments payable by the City to the Authority under the Facility Lease.
In addition. the City agreed to defer a portion of the financial obligations of the Prior Arena
Owner to the City during the fi rst seven years of the financing through the delivery of deferred capital
notes (the "Deferred Capital Notes") . The Deferred Capital Notes were purchased by certain proprietary
funds of the City. The Sublease Rent payable by the Prior Arena Owner to the City pursuant to Arena
Facility Sublease provided for the amortization of the Deferred Capital Notes. In April 2005. all of the
Deferred Capital Notes were pa id in full in lieu of being paid over a specific period.
The obligations of the Prior Are na Owner. the Team Owner. the City and the Authority in
connection with these transactions (collectively. the "Arena Transaction") are evidenced in a series of
agreements (collectively. the "Arena Agreements") by and among the Prior Arena Owner. the Team
Owner, the Authority and the City. At the time the Arena Agreements were executed and delivered. the
Team Owner committed to maintain the Kings in Sacramento for 10 years. subject to certain terns and
conditions. While the 10-year period has expired. the Arena Agreements also obligate the Prior Arena
Owner to repay the 1997 Bonds in full upon the termination o f the Arena Facility Sublease by the Prior
Arena Owner upon the occurrence of certain conditions described therein . In addition, the Arena
Agreements grant to the City the option to put the Arena to the Prior Arena Owner and the Team Owner
for purchase at a price equal to the outstanding principal amount of the 1997 Bonds if the Kings are
relocated to any venue other than the City.

Prior to the initial issuance of the 1997 Bonds. the City considered a variety of possible scenarios
in analyzing the potential financial impact of the Arena Transaction on the City, including the possibility
of the Failure of the Prior Arena Owner and the Team Owner to perform their obligations under the Arena
Agreements if the Team Owner were to relocate the Kings from Sacramento and the 1997 Bonds and the
other obligations of the Prior Arena Owner or the Team Owner to the City resulting from the Arena
Transaction were not paid in full at that time. Although not obligated, legally or otherwise, to do so, in
such event the City could choose to operate the Arena either itself or through a private management
group. Additionally, in such event, th e City might choose to refinance the 1997 Bonds with obligations
the interest on which would be exempt from gross income for purposes of federal income taxation.

So there is apparently actual legal docs somewhere that protect our interests specifically which the above alluded to, but where are they?

And we definitely own the arena now... but it appears we can dump it back on the Maloofs, at a cost of full bond payment, if they bolt.

Arco Arena/bonds/Kings/etc

Section 101

All-Star

Tetsujin

The Game Thread Dude

Glenn

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Section 101

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JB_kings

Starter

BMiller52

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Section 101

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JB_kings

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JB_kings

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Arena Skeptic

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JB_kings

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Arena Skeptic

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JB_kings

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Capt. Factorial

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Glenn

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Larry David

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Fireplug

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