Arena: Sacramento looking for approximately $80-million upfront from Kings/NBA

[JB_kings]

http://www.cowbellkingdom.com/2012/...proximately-80-million-upfront-from-kingsnba/
James Ham from Cowbell Kingdom:

How much will the Sacramento Kings and NBA pay in the effort to construct a new arena in California’s capital city?

Although exact figures are yet to be established, a source has shared with Cowbell Kingdom that the city is looking for roughly $80 million from the league and team.

Not over time, but in advance.

When reached via e-mail for clarification on this figure, NBA spokesman Tim Frank said the league would not comment at this time.

On this week’s Cowbell Kingdom podcast, Think Big Sacramento project manager Jeremiah Jackson shed some light on the commitment the city wants from the NBA and Maloofs.

“We’re talking about an upfront lease payment,” said Jackson on Monday. “So it’d essentially be, they’d pay upfront for the rights to be the tenant for that 30-year period.”

This means that the price tag of paying in advance to be the arena’s anchor tenant would cost the NBA and Maloofs less than $3 million a year.

Where does the $80 million figure come from?


According to CK’s source, the city is looking for approximately $130 million in “private financing.” AEG, the stadium operator involved for much of this process, supplied Kansas City with $53 million upfront to build the Sprint Center. CK’s source confirmed that a similar number is being floated for the rights to run a new downtown arena, leaving roughly $80 million for the Kings and NBA.

In his weekly feature at Cowbell Kingdom, contributor Rob McAllister spoke to “two executive level employees within the Kings organization, who are not allowed to publicly discuss the arena project”. And according to his sources, “there is a strong belief that the league will come up with rest (of the funds) if the numbers are close”

In addition to a 30-year lease with the NBA and Kings and an agreement with a potential stadium operator, an estimated $200 million or more could come from leasing city-owned parking spaces and garages.

“So, the parking deal, AEG’s portion of this, the team and the NBA’s portion of this – we’re looking to line up as much of that money upfront as possible,” Jackson said. ”And really leave the city with no need to have long-term debt.”

Jackson also added that a goal of the project has always been to “protect the taxpayers.”

“Over the next couple of weeks, you’ll see the council move forward with the parking deal and really get us to a point where the NBA feels comfortable and that they eventually decide to stay in Sacramento for the long term as we get this deal finished up.”

Jackson also addressed rumors that surfaced this weekend regarding the possibility of the Kings moving to Seattle.

“We’re not concerned with these other cities,” Jackson said. “I think there’s always going to be rumors until you actually get a deal done.

“But every indication is that the NBA is committed to Sacramento,” Jackson added. “And if there is a deal to get done here, and we get it done, the team will stay and hopefully the Maloofs will remain owners of the team…”

James Ham is co-editor of Cowbell Kingdom. Follow him on Twitter.

 

[JB_kings]

That is an outstanding lease deal for the Kings. The NBA fronts the cash and then the Maloofs make 3 million a year repayments to the NBA. The only lease that might be cheaper is the Clippers lease as team #3 in Staples.

 

[kennadog]

That is an outstanding lease deal for the Kings. The NBA fronts the cash and then the Maloofs make 3 million a year repayments to the NBA. The only lease that might be cheaper is the Clippers lease as team #3 in Staples.

Yes, but there's three pro teams paying to be in Staples. Teams with much wealthier owners than the Kings and the Lakers with a monster TV deal. (I think it's too bad the Raiders and 49ers couldn't come up with a deal to share a new stadium. Win-win for both teams, IMO.)

On the other hand, if you get up front lease money, it's a pretty good deal. It amounts to $3 million in the first year, but each year would technically be cheaper, because the value of a dollar generally goes down over time.

I just ran a calculation based on assuming a modest annual rent increase of 3% per year for 30 years. So they may pay $3 million for the last year, but by then those dollars would be worth only $1,235,960.28 in today's market.

Of course, they may have taken future value into consideration and the annual payment amount is "technically" more than $3 million the first year and goes each year down over time.

Or....they may accept $80 million upfront for the lease, with some small annual amount that can have modest annual increases over time, under certain conditions.

It will be interesting to know the lease terms proposed. The city has some very good third party experts helping with the city with negotiations with the NBA, so I'm pretty sure the city will get a reasonable deal under the circumstances. One still enticing enough to keep the Kings here.

 

[JB_kings]

The good part about upfront money is that they can get most of the construction done with little or no bonds floated. It's like buying house with cash versus finance. Obvious benefits. Here is a list of costs previously released:

100. START-UP EXPENSES $ 2,500,000
200. SALES & MARKETING $ 850,000
300. LAND ACQUISITION & SITE DEVELOPMENT $ 18,150,000
400. DESIGN/PROFESSIONAL SERVICES $ 17,825,959
500. LEGAL & GOVERNMENTAL SERVICES $ 1,100,000
600. PROJECT ADMINISTRATION $ 14,094,973
700. CONSTRUCTION $ 257,836,846
750. SYSTEMS & EQUIPMENT $ 30,200,000
800. PERMITS, TESTING,FEES, TAXES & SPECIAL ASSESSMENTS $ 16,135,980
900. INSURANCE, FINANCING & TRANSACTION COSTS $ 9,500,000
Owner Contingency (Recommend 5%) $ 18,409,688
TOTAL PROJECT BUDGET $ 386,603,445

I think the number is actually up around 406 million now. I think they have some additional land in the railyard to purchase and the onsite premium parking garage. That land acquisition is not included in the numbers here. That number included on item 300 is to reimburse the city for the land it owns in the railyard currently. It has to be paid back because it was purchased with Measure A bonds. No wiggle room there.

 

[Bricklayer]

IF you can get the $80mil upfront, and IF there are non more political games with the parking deal, then it could be very workable. For the Maloofs they only have to shave about $3mil a year off of payroll to make it work, and in fact I would suspect end up paying less per year in rent then they are payign to upkeep Arco.

 

[kennadog]

IF you can get the $80mil upfront, and IF there are non more political games with the parking deal, then it could be very workable. For the Maloofs they only have to shave about $3mil a year off of payroll to make it work, and in fact I would suspect end up paying less per year in rent then they are paying to upkeep Arco.

I would tend to agree with that. Upfront money means less interest to pay, less debt service every year. Borrowing ends up costing way more than what you actually borrowed.

I figure even bare maintenance on the current arena must be quite costly annually and there's no reason to pay for expensive capital improvements, because that would be throwing money away. The Maloofs would only have to run the team. No arena operating costs or upkeep/capital improvement costs. The Anaheim proposed lease showed they only wanted to be a tenant in an arena someone else owned. In some ways the fact that that deal was made public, showed how little the Maloofs would accept. Has to help Sacramento's current negotiations with the Maloofs/NBA.

 

[ArcoKings]

If the Maloofs don't have to pay any money upfront (out of pocket) and just have to pay yearly 'fees' ($3 million) to cover their share of new arena money that would be a super good deal for owners considered to be the 'poorest' per NBA standards.

OK, what happens to the money owed on 'Arco'? Does this money get consolidated into the new arena's lease someway? The Maloofs are still on the hook for this money.

 

[kennadog]

If the Maloofs don't have to pay any money upfront (out of pocket) and just have to pay yearly 'fees' ($3 million) to cover their share of new arena money that would be a super good deal for owners considered to be the 'poorest' per NBA standards.

OK, what happens to the money owed on 'Arco'? Does this money get consolidated into the new arena's lease someway? The Maloofs are still on the hook for this money.

The loan they owe on right now has to be settled as part of the negotiations now ongoing. Could be paid off by the Natomas land the city and arena ownership (separate entity from the team ownership) now own, I suppose.

 

[Larry David]

The loan they owe on right now has to be settled as part of the negotiations now ongoing. Could be paid off by the Natomas land the city and arena ownership (separate entity from the team ownership) now own, I suppose.

The loan - which Cohn voted against - is a big issue. The Maloofs are going to have to pay that back. My guess is the city will end up with the everything in Natomas and more in some transaction that protects the city and pays off the bond properly and timely. No risk the tax payers is a mantra.

And if the Kings are getting a super low prepaid loan rent, my hunch is the league is doing it because of a bad loan that would destory the city's budget if the owners were cut throat. So I think it's going to get paid back.

If this happens, the Kings will be an interesting study. The team will have revenue sharing and a super low rent that's prepaid. At the same time, the Maloofs will have no equity in the team. The have pulled a lot / maxed out the NBA's line of credit. Now the league is going to front them 80 million in rent? No wonder they don't want to sell, they walk away with nothing.

 

[JB_kings]

The loan - which Cohn voted against - is a big issue. The Maloofs are going to have to pay that back. My guess is the city will end up with the everything in Natomas and more in some transaction that protects the city and pays off the bond properly and timely. No risk the tax payers is a mantra.

And if the Kings are getting a super low prepaid loan rent, my hunch is the league is doing it because of a bad loan that would destory the city's budget if the owners were cut throat. So I think it's going to get paid back.

If this happens, the Kings will be an interesting study. The team will have revenue sharing and a super low rent that's prepaid. At the same time, the Maloofs will have no equity in the team. The have pulled a lot / maxed out the NBA's line of credit. Now the league is going to front them 80 million in rent? No wonder they don't want to sell, they walk away with nothing.

Sounds like the perfect team to sell to an interested buyer.

 

[kennadog]

The loan - which Cohn voted against - is a big issue. The Maloofs are going to have to pay that back. My guess is the city will end up with the everything in Natomas and more in some transaction that protects the city and pays off the bond properly and timely. No risk the tax payers is a mantra.

And if the Kings are getting a super low prepaid loan rent, my hunch is the league is doing it because of a bad loan that would destory the city's budget if the owners were cut throat. So I think it's going to get paid back.

If this happens, the Kings will be an interesting study. The team will have revenue sharing and a super low rent that's prepaid. At the same time, the Maloofs will have no equity in the team. The have pulled a lot / maxed out the NBA's line of credit. Now the league is going to front them 80 million in rent? No wonder they don't want to sell, they walk away with nothing.

Yes, the loan must be paid back to the bond holders. With a premium if it's paid back early. I expect the city to get the Natomas land and sell some or all of it to someone else for development. Hopefully they sell the part with the arena on it, so they don't have to bear demolition costs.

And yes, I suspect the Kings have little equity in the team. Even the city's bond has a small percentage of the team as collateral for that loan.

Me....I don't care if the Maloofs and the other owners have no equity in the team anymore. That's the Maloofs own dumb business sense. I actually hope that after the arena deal is done, that the league forces the Maloofs to sell at some point. The sooner the better as far as I am concerned. I figure one of thereasons the league has taken control of the team and arena deal, is becasue the team owes so much to the league. The league is looking to protect their collateral.

 

[CPR]

Has anyobdy seen a list anywhere of some of the rents that other NBA teams pay to the owners of the Arenas in which they play?

It would be interesting to see where this rumored $3M falls as compared to what other teams in new buildings are paying. It sounds like it's probably on the low end. If that's the case, it'd be pretty difficult for the Maloofs to do anything but take the deal if the NBA is willing to put up the money.

Hopefully Anaheim's ongoing interest in the Kings and Seattle's new effort don't cause the NBA to play hardball with Sacramento.