Marcos Bretón: Time to let people decide the arena issue

[love_them_kings]

It most certainly is, because they're the primary tenant that generate the primary revenues. Without them, who is to say that a new arena can draw any better than arco, sleep train, and other local venues?


You start your post with the hoary "It's not about the kings!", but then you wrap it all up with a lament about how much the area needs to have a local pro sports team.

I'm not going to respond to some of your comments as they've been addressed by other posters. I will make two points about these comments though -

1. A new arena will draw better events than Arco because it would have better facilities. My point was that the Kings are not the only reason for building a new arena. A new arena would bring a lot more to the city than just basketball.

2. I never said it wasn't about the Kings, I said it wasn't ONLY about the Kings. I didn't say we needed a local pro sports team. I think we need (will need) a new arena eventually to have decent events in Sac. Having a pro sports team helps pay for an arena by keeping it occupied. If we end up building an arena down the road without the Kings, I think we will regret not getting it done in time to keep the Kings here for two reasons 1) we will have lost our team for no good reason and 2) we will be sitting with an arena that is empty a lot of the time, again for no good reason. That's not an ideal situation.

Reading over your posts, you seem to be against the arena for no particular reason. You drive to Reno and Tahoe without whining? Congratulations, so do I, but that doesn't mean I wouldn't like to have better local events. Without the Kings in Arco, it'll eventually be unusable. Then we'll have even fewer local events.Oh well, at least we'll have more use for our cowbells.

 

[VF21]

ltk - Sometimes arguing on a message board with certain people is like beating your head against a wall. It does no good and the only way to make it better is just to stop.

 

[Arena Skeptic]

I had to do a little fact-checking just so folks understand the original 1997 deal. In the 1997 deal, the City of Sacramento did, in fact, purchase Arco Arena.

Here's the official document from the City of Sacramento (sorry, it's an imaged, non-searchable document, so you'll have to read the second memo to see it):

http://www.cityofsacramento.org/treasurer/PR1997.pdf

So, no, the Maloofs cannot demolish the arena. I'd say that's a scare tactic Roger Dickinson put out there. Quite simply, he is not correct.

The specific quote: "The bonds are being issued for the purpose of refinancing ARCO Arena for the NBA Sacramento Kings by a lease-financing acquisition of ARCO Arena by the City."

In other words, the City owns the arena and is leasing it to the Maloofs/Kings.

In retrospect, that doesn't seem like it was such a great idea, does it?

By the way, in addition to 30% + cost overruns, the Maloofs must pay off the current loan in order to get a new arena. That's a show-stopper right there. I will not vote for anything that does not include a provision for first paying off the current loan. And since they don't own Arco (see above), they cannot demolish it to pay off the loan.

 

[VF21]

I seriously doubt if Roger Dickinson would have simply put a "scare tactic" out there that could easily be disproven.

I'm not saying you're wrong, per se, but I'm saying there is more to it. Sacramento does not OWN the arena. I'm almost positive - 95 of a scale of 1 to 100 on confidence about it - and when I get a chance, I'll dig further into the whole financing scheme.

Hopefully, JB's memory may be a little better than mine on the particulars.

Off the top of my head, I believe the only way the city would gain ownership is if the Maloofs defaulted on the loan. That's where the comments about razing the arena and selling the land to pay off the loan come in...

 

[Warhawk]

That's my understanding as well.

 

[kennadog]

That's my understanding as well.

Me three. And the Kings are already ahead of schedule to pay off the loan. They have never said they wouldn't pay off the loan. I could see them wanting to role into the new financing scenario with a reamortization, possibly. Or the new financing includes paying off the old loan. Kind of like what happens when you refinance your house.

 

[kupman]

Arena Skeptic and Wert:

I think that I and many other arena proponents have a hope for Sacramento. That hope involves the Kings staying in Sac. and building a state of the art facility to house the kings and other great shows. I hope the arena is downtown so as to provide the people of the region better reasons to go downtown, thereby stimulating growth of other forms of entertainment. I would like to see downtown Sac to become an entertainment center. I hope that all of this is integrated with light rail. These are my hopes. Could Sac survive without all of it?…..including the Kings?…sure. However, I think we would enjoy our city more if we had it.

It is easy to criticize the hopes and plans of others and I invite you to continue to do so. However, criticism is not enough. Please provide your alternative hopes, visions and plans. What would you like Sac to look like in 10 years?

 

[kennadog]

Here's a section from the study that was for the City done regarding a possible dowtown arena, that explains the current arena financing.

In 1986 a prior ownership group of the Sacramento Kings privately financed the development of the current ARCO Arena through bank loans. After ARCO Arena opened in 1988, a large number of other NBA teams moved into arenas that were financed publicly rather than privately; or that housed both NHL and NBA tenants. Playing in a smaller market and supporting the entire debt burden with a single NBA tenant, the Kings’ competitive and financial position began to erode in relation to the rest of the NBA. In addition, the Kings’ private debt carried high interest rates and onerous cash flow provisions.

After ten years in this situation, the Kings approached the City to seek assistance with its ARCO Arena obligations. In April 97, the City and the Kings’ then general partner, Jim Thomas executed a restructuring of the ARCO Arena debt that provided the following benefits to the Kings: 1) Cleaned up the Kings’ (or affiliated company’s) balance sheet; 2) Provided cash flow relief by removing certain burdensome bank provisions; 3) Lowered the cost of capital; 4) Deferred a portion of the required interest payments.

In return, the Kings signed a thirty-year lease and guaranteed that it would remain in the City for at least ten years (barring dramatic negative changes in financial position).

To assist with the financing, the City issued $73.7 million of Lease Revenue Bonds (the “Bonds”) through the Sacramento City Financing Authority (the “Authority”) and loaned the proceeds to the Kings for the purpose of refinancing a portion of the bank debt. The Kings agreed to pay rent equal to the City’s annual debt service obligation. While the Kings are responsible for paying debt service via rent under its Sublease with the City the Bonds are backed by the City’s General Fund. The Kings pay rent from ARCO Arena operations and a ticket surcharge.

The thirty-year bonds were issued in July 1997 on a floating rate basis with a rate of LIBOR plus 25 basis points (0.25%) for the first ten years. After ten years, the Bonds are required to be refinanced. Through the execution of an interest rate swap with Merrill Lynch Capital Services (“MLCS”) that terminates in 2004, interest rates are locked in at 6.845%. Debt service ranges from $4.8 million to $5.5 million during the swap period.

In addition, the Kings are deferring $8.5 million of debt service payments due through 2004 (“Deferred Capital Notes”). This deferral will provide $700,000 to $1,600,000 in annual cash flow relief to the Kings. Net debt service to the Kings, when taking the deferral into account, ranges from $3.2 million to $4.8 million through the swap period.

Exhibit 6-6 shows the financing and lease structure that underpins the Bonds and the Kings’ Sublease. The Kings can terminate the sublease after ten years conditioned upon repayment of the City obligations (Bonds and Deferred Capital Notes). For the first ten years, the Kings can terminate the sublease conditioned upon repayment of all of the City obligations and meeting certain financial tests. City collateral includes a $20 million lien on the franchise and the ARCO Arena deed valued at $50 million.

So the structure is that as collateral, the City currently holds the deed to Arco and has an additional lien on the franchise. $70,000,000 in collateral for repayment of the obligation. Since the City holds the deed, they sub-lease it back to MSE (actually its more complicated than that, but that is the end result). Instead of a mortgage payment, MSE pays rent to the city that the City uses to pay the debt service on the bonds. Rent = annual debt service owed.

If and when all city obligations are repaid by MSE, the City has to release the collateral, same as the lender has to remove the lien from your house, once you've paid off a mortgage (I should be so lucky). In other words, if all debt is repaid by MSE, the City gives them the deed back and realieses their lien on the franchise. MSE owns Arco again and can do whatever they want with it. Since every single consultant hired over recent years has agreed that Arco is reaching the end of its economic life, its unrealistic to think it would ever again be operated for its current purpose.

And no the land itself is not worth the approx $80 million owed. That is not what I meant. I meant the land developed for other purposes would have a much higher value than the land with an aging, obsolete arena with major rehab needs.

http://www.cityofsacramento.org/econdev/msc/pdfs/downtown arena study_part 2.pdf

 

[kennadog]

Also from that report...regarding the percentage of events at Arco that are Kings games versus "other (at the time of the report these were the yearw available:

Kings games:

98-99 - 19% - 28 games (strike shortened)
99-00 - 24% - 44 games
00-01 - 28% - 48 most post-season games.

3-yr average - 24%

Interestingly, the biggest category is “other sporting events (which would include the Monarchs):”

98-99 - 28%
99-00 - 33%
00-01 - 26%

3-yr average - 28%

The other categories included “other events” and “concerts," so total non-Kings events ends up being:

98-99 - 81% - 28
99-00 - 75% - 44
00-01 - 73% - 48

3-yr average - 76%

Obviously, this average could be different now, but I doubt its had a dramatic shift. And of course, the Kings likely produce more revenue per game than many other events. But it is also obvious that people go to a lot of events at Arco that are non-Kings events.

None of that speaks to events that could be lured to Sacramento with a better facility. Just like NCAA and Olympic trial track & field were lured to Sac State by a hugely upgraded stadium at Sac State.


(Some years may not total 100%, because I was too lazy to add decimals.)

 

[ShatteredVision]

I'd like to see a hockey franchise in Sacramento at some point in life.

 

[kennadog]

I'd like to see a hockey franchise in Sacramento at some point in life.

I think that would be fun, too. (Its the Canadian in me. )

 

[VF21]

I'd like to see a hockey franchise in Sacramento at some point in life.

If we had a facility that didn't take three days to switch from dry court to ice and back, that actually might have been more of a consideration. The Maloofs have been interested in the NHL for some time and might seriously weigh the pros and cons of such a deal IF they wouldn't be hampering the current usages of Arco. A three-day turnaround for each hockey event would make scheduling an unbelievable nightmare.

 

[Warhawk]

If we had a facility that didn't take three days to switch from dry court to ice and back, that actually might have been more of a consideration. The Maloofs have been interested in the NHL for some time and might seriously weigh the pros and cons of such a deal IF they wouldn't be hampering the current usages of Arco. A three-day turnaround for each hockey event would make scheduling an unbelievable nightmare.

Hey, VF, don't let facts get in the way.... We don't need a new arena, remember? Nobody wants to pay for it because we'd never be able to bring anything here to fill up the schedule.

 

[VF21]

Oops. Sorry. I forgot...

Maybe we could just figure out a way to freeze Lake Washington in West Sacramento and let them play there?

 

[JB_kings]

So, no, the Maloofs cannot demolish the arena. I'd say that's a scare tactic Roger Dickinson put out there. Quite simply, he is not correct.
...

By the way, in addition to 30% + cost overruns, the Maloofs must pay off the current loan in order to get a new arena. That's a show-stopper right there. I will not vote for anything that does not include a provision for first paying off the current loan. And since they don't own Arco (see above), they cannot demolish it to pay off the loan.

Nobody claimed the Maloofs would demolish the arena. They would sell off land/building and pay off the balance of the debt and lien. With the land being more valuable than the building, it would almost certainly be torn down and developed. If a deal goes through for a downtown arena, the same thing would happen. The land would be sold and the arena torn down.
I can't imagine any logical scenario where the city would want to take over the arena and assume debt payments. Knowing that the building is rapidly reaching the end of it's lifespan and in need of extensive refurbishment (roof replaced, etc.), it would be irresponible for the city to take that on.

As for the repayment of the loan, it has always been part of any discussions. It is usally tied to the sale of the Arco properties owned by the Maloofs and the city if a downtown location is selected. Remember the city also owns quite a few acres adjacent to Arco. That was the ill-fated staduim land that was given over to the city by the late Fred Anderson and Buzz Oates.

 

[VF21]

Doesn't that land actually have part of the baseball field still visible from the air? I think someone posted a picture not too long ago...

I just can't remember where they posted it.

 

[Warhawk]

Doesn't that land actually have part of the baseball field still visible from the air? I think someone posted a picture not too long ago...

I just can't remember where they posted it.

IIRC, they actually had placed some of the concrete foundation for the baseball field back 20 or so years ago, didn't they?

 

[uolj]

http://www.kingsfans.com/forums/showthread.php?t=8830

 

[Warhawk]

And here's a shot from Google:

 

[ShatteredVision]

To acquire a hockey team would probably force the city to build a new arena...

 

[VF21]

To acquire a hockey team would probably force the city to build a new arena...

Precisely. Which is what I was getting at with this comment:

If we had a facility that didn't take three days to switch from dry court to ice and back, that actually might have been more of a consideration. The Maloofs have been interested in the NHL for some time and might seriously weigh the pros and cons of such a deal IF they wouldn't be hampering the current usages of Arco. A three-day turnaround for each hockey event would make scheduling an unbelievable nightmare.

As it is now, they have to be careful about what they schedule and when if it involves ice.

 

[ShatteredVision]

Arco is also probably only 12k for an ice event with the weird alignment of seats.

That'd be like college hockey somewhere on the east coast.

 

[kennadog]

From Phase two consultant study Oct 2003.

An analysis of the NBA markets most comparable to
Sacramento shows that the public sector has provided public
funds and financing in the range of 75-85% of the overall cost
of the arenas.

It would be a miracle if the Maloofs contributed 30%. I'd think 25% would be the max likely and the Maloofs have pretty much stuck to "around 20%", which would be more than in any of these comparable markets. For a private commercial loan, a conventional bank would generally ask for a minimum 20% equity contribution.

As far as I know, the Maloofs have always said they will pay off the original debt. I believe they'd like it rolled into the new financing however.