The question I had is if this was inevitable, did they really have to sell off the beer distribution business? From appearances, it looks like they sacrificed that cash cow to only buy a little time. Personally I think they were doomed to this arrangement for quite some time now. If this is true, then they were fools and lost much more than they needed to lose.
Maloof Money Part 1
- Thread starter Larry David
- Start date
Livinthedream
All-Star
I wonder if Sacramento saved the Maloofs from losing the Kings in addition to the Palms. Samueli was going to get control of the Kings franchise at some point. Without supporting facts, just a gut feeling, I could see them making the deal with Samueli and it's just a temporary patch but not enough to save their majority ownership of the Palms in the long run. I seriously question their ability as businessmen. Even the "smart" one, George. Selling off their share to resolve the debt was the only way this was going to work. Otherwise it was like borrowing on one credit card to make the payment on another.
Larry David
Starter
You got it, The handwriting was on the wall but they: (1) attempted to save their biggest investment; (2) by selling the beer (which was both a cash cow and had just been expanded). Of course at the time, they said it had nothing to do with the Palms.
In the end, they didn't save control over the Palms and no longer have the beer.
Which is why that last post is great. The Anaheim loan would have over leveraged the Kings, and they would have ended up with just their Wellsfargo nest egg (still very big) and no businesses.
kennadog
Dog On It!
They lost a great deal of value on the Palms from their original investment, just like eveybody else has. The question is, how much was their original investment. I mean actual equity out-of-pocket. I don't think any of us knows. I don't know what the loan-to-value was on the Palms. But I'd guess at least 80% of the value at the time funds were borrowed. The truth is, equity on paper isn't realized until you sell. Just like a whole lot of people, the Maloofs found themselves upside down. Value went down while debt remained close to the same. They aren't likely to have paid off much principal.
So they may have lost all of the personal cash they invested, but it's likely the debt they unloaded overshadows that by a ton. That improves anybody's financial position. They would have lost all ownership interest in a foreclosure, so they've salvaged something out of this. Considering the situation they were in, it's a pretty nice outcome for them.
So they may have lost all of the personal cash they invested, but it's likely the debt they unloaded overshadows that by a ton. That improves anybody's financial position. They would have lost all ownership interest in a foreclosure, so they've salvaged something out of this. Considering the situation they were in, it's a pretty nice outcome for them.
Larry David
Starter
Kenna you make some great points.
The Bee story almost makes it sound like this was "good news." They were upside down on paper, and they just too a big loss and they cannot earn most of it back. I was just trying to explain that concept.
If the bank doesn't forclose on my loan, but they took away the house, and I now live in the detached garage which I own free and clear and I manage the house for the new people that live there ... that can also be a "good outcome" ... but not such a good day at the same time.
As to the numbers, they sold the Fiesta for $170 million in 2000, and opened the Palms in 2001. Logically, we are talking that ball park. They might have pocketed some, but the 600 million dollar loan was there because they Maloof / first investors hadn't borrowed to the hilt to start.
The Bee story almost makes it sound like this was "good news." They were upside down on paper, and they just too a big loss and they cannot earn most of it back. I was just trying to explain that concept.
If the bank doesn't forclose on my loan, but they took away the house, and I now live in the detached garage which I own free and clear and I manage the house for the new people that live there ... that can also be a "good outcome" ... but not such a good day at the same time.
As to the numbers, they sold the Fiesta for $170 million in 2000, and opened the Palms in 2001. Logically, we are talking that ball park. They might have pocketed some, but the 600 million dollar loan was there because they Maloof / first investors hadn't borrowed to the hilt to start.
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I do agree with this, but if they invested 100% of the proceeds from the BevCo sale back into the Palms and still got this result then I think they may have been a bit foolish. This had been rumored for a few months and it finally gets settled in the wake of them being forced to stay for at least one more year in Sacramento, I do wonder if there was anything in the Anaheim deal that could have resulted in a different outcome.
kennadog
Dog On It!
Don't get me wrong, I agree with the idea that they shouldn't have sold the beer distributorship to salvage the Palms. IOf course, its likely the only asset they had that was worth more than they owed. They probably ended up losing a lot on the Palms.
And I shouldn't have implied they lost [all] debt on the Palms out of this deal. There was a financial "re-structuring," which can take many forms. So, there is still debt on the property, but supposedly it would be re-structured in a way to make the property financially feasible enough, that cash flow covers debt and any other lender requirements. It may also have included an influx of cash from some of the owners.
Personally I think the Maloofs are relatively fortunate to still own 40% instead of 0%. And they still get to operate the Palms, which I think is very important to the Maloofs. It still gives them a lot of visibility in Las Vegas and only some less cachet as owners (not majority owners anymore).
Personally, I wondered how the Anaheim deal would have helped much. There were going to be a lot of costs involved in moving the franchise. Unless, there was more to the deal that what we saw, I thought it was not a very good deal. Of course, it may say something about Sacramento that, that deal was still more appealing than staying in Sacramento. And it still may be next March 1st.
AleksandarN
Starter
I think the 40 % that they own still might be worth more than what they paid for the whole casino back in 2001 when they bought. I do not think lost much other than controlling interest in the casino. Money wise they might be better off then they were 2 months ago.
kennadog
Dog On It!
I sincerely doubt it. Las Vegas may have been the hardest hit area in the country in real estate values. The Central Valley of California is another one. My home has lost around 45-50% of its value here in Yuba City.
They borrowed to build the casino and then borrowed more to build the new tower/condos. Most commercial lenders want you to put in at least 20% equity and most developers aren't going to put in more of their own cash than required by the lender. Casinos could certainly have its own underwriting peculiarities, though.
Of course, loan payments increase owner's equity, but loan payments pay mostly interest for quite a while before principal starts being reduced in any significant amount. The Maloofs share of ownership went down, because somebody had the money to buy the promissory notes from the former lenders. Ultimately, the Maloofs had to give up a percentage of ownership to get the debt re-structuring done.
Ugh. I'm really tired. I think I'm not making much sense anymore. It's really hard to judge a deal without all the details. The Maloofs may gain equity over time. Maybe even enough to re-coup their losses, if they own for a long period of time. But right now, they bought high and sold low, essentially. Selling or giving up even parital ownership cements your losses.
John Galt
Starter
Sounds like a Jim Crandell source
Hoovtrain
All-Star
I had heard something similar to this.
PM bro?
nebs
Starter
So is this good news or bad news for us? Now they have a bunch of money they didn't have right? And no stupid Palms to worry about.
Section 101
All-Star
Uh, they own 2% of the Palms. They just lost a bunch of money. It's pretty clear their intentions were to move the team to Anaheim and sell to Samueli.
whozit
Starter
I would take it as good news but I don't think it now means they suddenly have a bunch of money that they didn't have. Even with them taking a beating with the palms, they can now step down from the gallows. Their books should now be in order and the debt they had hanging over their head removed and they can now look to recover to some degree rather than lose everything.
Hopefully this means basketball decisions can be made from the basketball side of the ledger rather than possibly being negatively influenced by what was happening on the casino side.
I don't believe the part about intending to sell to Samueli. If they were hot to sell the team, they'd just pawn it off on Burkle now that the NBA shot down their Anaheim thing. I think they still want the team. They want it more in Anaheim (can't always have everything!), but they still want it.
Section 101
All-Star
The move was hoping to increase the value of the team.
SacTownKid
Hall of Famer
Part of it I'm sure. They also figured there would be a much greater revenue stream as well which might not be totally true outside of them getting huge initial loans which would have only covered the move most likely. The truth is they would have probably had to pay out of pocket to some extent to move so they have to have $$$ from somewhere.
TheWileyVet
Starter
Do the Maloofs have any other large business assets besides the Kings at this point?
If I remember correctly a large group of NBA teams have lost money every year over the past few years. Even with a new CBA they aren't guaranteed to rake in the cash. All these promises to spend on free agents and they still owe on loans to the City and the NBA. How are they going to pay for things?
It seems like are fighting a losing battle and just don't want to admit it. They need to sell.
If I remember correctly a large group of NBA teams have lost money every year over the past few years. Even with a new CBA they aren't guaranteed to rake in the cash. All these promises to spend on free agents and they still owe on loans to the City and the NBA. How are they going to pay for things?
It seems like are fighting a losing battle and just don't want to admit it. They need to sell.
SacTownKid
Hall of Famer
Ouch, that has to hurt!
Livinthedream
All-Star
Wonder what our friend Ron Burkle has been up to lately. Might be time to revisit that offer to buy the Kings.
