Latest letter from City to League and Team requesting written assurances
- Thread starter Fireplug
- Start date
Arena Skeptic
Bench
Well, mess me. The City DOES own the arena.
That's astonishing news. We didn't loan them money at all. We gave them a 30 year deal on a building we were 100% confident, even at the time, would not last 30 years.
Upset? You bet.
That's astonishing news. We didn't loan them money at all. We gave them a 30 year deal on a building we were 100% confident, even at the time, would not last 30 years.
Upset? You bet.
Siranthony
Starter
It looks vert straight forward. The Kings are bound to stay here for 30 years or intil the loan is paid. Where is the additional money going to come from? It looks like the Kings are at least 50 million short, maybe more. It depends on the relocation fee which should be substantial.
Siranthony
Starter
What is it your trying to say? What are you upset about? That the city did a loan/lease agreement for 30 years or that the owners of the Kings took the money?
On the surface this is a good move because it would appear that the team must pay the city before it pays its relocation fees. Which would mean the Maloofs would need to secure some kind of bridge loan at a minimum. But come on, Mr. Moneybags and future owner of the Sacramento Kings franchise if this goes down, will front them some more money. With the Kings as collateral, of course.
Siranthony
Starter
With the condition the arena is in I doubt it's worth whats owed.
Yeah, I don't see the problem here. The city bought ARCO from the Kings, loaned out investors' money via a bond issue, and legally bound the Kings to stay in town until they paid off the debt. It doesn't matter that the building might not last 30 years, the Kings were required to pay off the debt before leaving.
I don't really see how they can get around paying off the debt, at least not without a huge, high-profile lawsuit that they will lose, and furthermore they can't simply continue making payments from Anaheim. They are bound to the city until the debt is paid.
This means that they'll have to come up with the $77M owed to the city, plus the NBA relocation fee, which has been $30M for each of the last three moves but will certainly be higher because the Kings are A) moving into a large market and B) moving into an occupied market. The Lakers explicitly lose 10% off of their (reportedly $3B) TV deal if another team moves into the market, and they will be out for blood as far as territorial rights fees go. Imagine the relocation fee is $50M, before compensatory payments to the Lakers. Sure, the Lakers might accept a 30-year payout (rather than lump sum) but they'll ask for all 10%, and if they get even half of that, it's $5M per year for 30 years. So the Kings would have to come up with, I'm estimating, $127M up front just to move. They can cover $50M of that with the Anaheim bonds (the other $25M is earmarked for a new practice facility). That leaves still $77M they'll need to raise, presumably via another loan from who knows where. If they pay that over 30 years, and the Anaheim bonds over 30 years, that would be approximately $8-9M per year with interest. Throw in $5M to the Lakers and they're in the hole $14M/year for 30 years before anything else...maybe it's doable if they don't have a lease payment at the Honda Center but it looks hard, and they have to come up with the $77M somewhere.
As the costs to move go up, the probability of them actually being able to do it goes down.
Siranthony
Starter
A very nice assessment of the situation. It does apear very costly.
I can see why the city really had no motivation to bend over backwards on a new arena. The Kings are bound to be here. I don't know why the Kings needed the $70 mil. But if they didn't enter into that agreement they could have moved at that time (correct me if I'm wrong). The City lent them 70 mil. I'm sure that loan was at the Kings request (again it's a logical assumtion). Then the Kings basically demand a new arena. I think the city wants to have a new arena. We just have to find a way to fund it without upsetting the non basketball loving natives. It needs to be sold to them or the funding has to come from something that won't upset them.
Gary
All-Star
That + the here we build thing should at least show them that the city is trying their best (through loopholes) and the fans are trying their best as well (through paying for the arena our damn selves) to keep this damn team. I don't care if the Maloofs sell or whatever but Sacramento deserves to keep this team. The Here we build thing is getting big. Been reading about this on other sites and it seems it could go viral in no time.
Has anyone written letters to former Kings players about trying to get them to donate to the arena? I am sure Webber, Divac, Christie, Bibby, and a few others might be interested in this. Peja has money to burn too it seems
Has anyone written letters to former Kings players about trying to get them to donate to the arena? I am sure Webber, Divac, Christie, Bibby, and a few others might be interested in this. Peja has money to burn too it seems
Trueblood
Bench
I'm confused. The loan was originally $73 million but the amount owed after 12 years of supposedly making payments on time is $77 million? I know that interest on the original $73 million probably makes the total come out to around $90 million but wouldn't you think that after 12 years of making "timely" payments, including a bulk payment of more than $10 million according to the Maloofs, that they would be farther along in what they owe?
Jim Les
G-League
From where I sit, with my very limited knowledge of the legal obligations, it appears that the city is doing well to defend itself by enforcing the lease agreements, and by both getting Joe on record and now demanding a written statement about any financial assurances.
A quick question: What did the Maloofs spend the loan money on (of the amount that they inherited)? It wasn't spent on renovations. So where did it go? Player salaries? Marketing? The palms? Not to get ahead of myself, but things could get VERY interesting if the owners are forced to open their books.
As far as getting non-kings fans to agree to a new arena, I think the key would be to sell it to them as an "urban and public infrastructure project" with a key forcus on development on areas beyond the walls of the new arena. This would require some intensive urban planning, and if you can convince people that the investment is on urban renewal (with the arena only being one facet of the project), it might stand a chance.
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The loan wasnt taken out by the maloofs, it was taken out by jim thomas and tied to the franchise. They inherited it when they bought it.
Siranthony
Starter
It would seem logical. I would like to know also. I do know that 30 year loans pay mostly interest for the first half of the loan. On a 30 year fixed mortgage at 5% interst, you will pay just under double the original amount loaned. On 10,000,000 you would pay just ovr 19,000,000 over the life of the loan.
Siranthony
Starter
True. They had to know what they were buying though. So it's the same as if they signed the loan themselves.
Thomas refinanced the debt on the arena. When the city turned it's back on Gregg Lukenbill, his partnership had to finance building both Arco I & II the old fashioned way. Very high interest rates that were killing the team to afford. See this is why it doesn't pay to build one of these things privately in all but a few rare cases.
Siranthony
Starter
In an interview one of the coowners of the Kings said they worked ten years on moving the team. But they had no Arena or funding when the Kings got here. Why? It seems like a very bad buisiness plan. So they were forced to go to high interest rates that killed them despite selling out the arena for years. Thomas buys the team and gets a better loan. Then he sells the team to the Maloofs. What was the buisiness plan through all this? All these years I (and everyone in this town) wondered why the Kings were so bad for so long. Now we know why.
kennadog
Dog On It!
Exactly. Folks its like refinancing your home mortage to get a better intrest rate, without actually taking oput any more than needed to apy off the existing debt. There was no money to spend on anything. As it turned out, even with that loan, the team was going bankrupt and had to be sold. Enter the Maloofs to buy out former owners, until they secrured majority interest. We actually dodged the relocation bullet back then. Only Mayor Serna could get the owners that loan. (Actually it was two loans as I remember reading. One loan and and a second o help pay the heavy intitial interest payments on the first loan. Something like that.
At the time, it was known Arco II was really going to need to be replaced. It was barely adequate for the NBA when it was built. Lukebill and pals just couldn't get any help from the city to help build an arena after Arco I, which was only a temporary building. The owners just couldn't afford to build a decent permanent arena in the first place. I don't think they thought they would get no help for a new arena from the city, once they got the team here.
macadocious
Starter
Trueblood, there is a prepayment penalty of approximately $13MM. They owe around $64MM right now.
kennadog
Dog On It!
I knew when the initial owners were going bankrupt and were forced to refinance and then sell, that we had owners that were tapped out. There was never any mystery about that.
kennadog
Dog On It!
That's a function of the bond sale. You guarantee the investors a certain return on their investment over 30 years. To pay off early, you have to pay the investors a discounted value for that future investment return they won't be getting.
Siranthony
Starter
I keep hearing this blame the city sentiment. Maybe it's true. But what happened? What kind of buisiness takes these kinds of risks and expects to have a reasonable chance to succeed? Why not keep the team in KC until the funding is secured? Just tell them you are commited to staying. They will buy that. Where is the commitment from the city in writing? Let me see that and I will gladly blame them for wrongdoing here.
kennadog
Dog On It!
Well just about every pro sports team in America. Besides, Government entities from federal on down provide billions subsidies in subsidies to private business every day. Multiples of billions.
This is not a new concept, nor is it only sports teams. Besides, Sacramento had been crying out for a pro sports teams for years. Lukinbill went out on a limb and got the city its one and only real pro team. He was a huge sports fan. He dreamed big and he paid as much of his own money and with help from some partners, made that dream come true. All businesses are a risk. Countless businesses fail every day. But if no one dreams and takes the risks, nothing ever happens. That's what has always been more typical in Sacramento. Few big dreamers, few risk takers. Success is never guaranteed. But never trying does guarantee no success.
Jim Les
G-League
I think this is a systemic issue with the NBA in general. I'd like to see some major restructuring of the NBA. I think small markets could survive more often if there was more revenue sharing in the league. As it stands, it seems that each small market has to fend for itself, which leads them to rely on their host city's. And in defense of the league owners, how can they possibly turn a profit in small markets? It just seems like the league would have more longterm viability if they shared the pot instead of alienating half of their fanbase when teams pick up and leave for greener pastures.
Glenn
Hall of Famer
Yes. There is a $9 mil prepayment penalty on the bond. The bond was a 30 year bond. I don't understand bonds except apparently the investor gets cheated out of a full benefit if the bond is paid off early.The $10 mil or whatever Maloof claimed as such a heroic move on their part as being paid ahead of time was a separate loan to the Kings. I suspect it was very high interest. It was not on the bond. So as to the bond itself, it was paid down to $68 mil. Add the prepayment penalty and you get to $77 mil.
I don't undrstand bonds as an investent except they tend to work best when the economy is bad and stocks are tanking. They are not strictly like a loan nor are they like a certificate of deposit - I think.
There can be a huge risk if the bonds are not backed by something safe. For some reason the bonds taken out to finance the arena in Orlando are almost worthless to the investor at this moment. That can change.Too much info, huh
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Glenn
Hall of Famer
I wrote it somewhere else but I think it is in the interest of large markets to keep small market teams afloat. In other words, revenue sharing doesn't hurt anyone. That may not sound right but here's the reat of the story.
The reason a large market team would want to prop up a small market is because of the huge national TV contracts. If small markets are knocked out of business, fewer and fewer towns will have a team. Many teams will be huddled around large markets.
For instance, now I will watch the Lakers and Celtics in an NBA Finals game because I have feelings about both teams, especially one of them. If Sacto doesn't have a team, the feelings about the teams diminishes and less people from Sacto will watch this NBA Finals. Expand the concept to a situation where 10 cities have all 30 teams. The people in the 10 media areas would be highly invested in that NBA Finals. The rest of the country would yawn. National TV audiences would be less and therefore, national networks would be far less likely to hand out obscene contracts to the NBA; money which is shared with each team.
Contracting (shutting down a team completely) is worse. In this case, even some fans from the large markets might lose interest because one or more large markets would have less fans (theoretically)
There is a lot of money in TV. This is the theory that drives Stern and the NBA to keep trying to open up small markets. It is more than just a new team will pay money to everyone else and be a patsy for awhile, it means more fans. In the end, the league has to have fans.
Apply what I have written to how you feel about the Kings leaving and how it might change your viewing habits.
Arena Skeptic
Bench
Well, sorry for the long delay in my response, but the danger comes from other sources:
1) We moved into a subordinate position on the loan;
2) In the original contract, it is specified that the City maintains the arena;
3) In the event of a condemnation, the lease is off -- the "prior owner" makes no more payments.
Put those three together, and it's very easy to see how we could end up managing our own property -- because we did buy it -- with no tenant -- because the prior tenant has no more money to pay subordinate lenders.
We are in such deep trouble here, it's hard to conceive of it. This will cost us a tax hike, but at least we get to occupy our property.
That 1997 transaction -- it wasn't a loan -- is the gift that keeps on giving.
A loan would have been:
1) We borrow $75M by selling bonds, then "give" that money to the owners, with a payback schedule;
2) We have SUBSTANTIAL penalties if they leave early;
3) We never move into a subordinate position.
As it is, I gotta tell you... This deal is surprisingly bad for us.
If the Maloofs leave and tell us that they have fulfilled the terms of their contract, you can wait for the other shoe to drop.
What bothers me is that the NBA itself had us moved into a subordinate position. Just, wow. They were in on this too?
Hasn't hit the fan yet, but it's in flight.
"The Kings covenanted not to relocate to another city until the bonds were paid off in full."
I don't see how they can slither out of that one. I know you can, but you have a special knack to convince yourself that the beyond-worst-case scenario is not only possible but inevitable.
