By Robert Fong -- Special to The Bee
Published 12:01 am PDT Sunday, August 20, 2006
Robert Fong is vice mayor of Sacramento. Reach him at rkfong@cityofsacramento.org.
http://www.sacbee.com/content/opinion/story/14300905p-15165608c.html
Two years ago, the Chamber of Commerce concluded Arco Arena would end its useful life in four to six years. Now, after spending the past year working on how to build an entertainment and sports facility, I'd like to share what I've learned.
Dozens of cities, big and small, have invested in entertainment and sports facilities. Some made good decisions. San Jose, Indianapolis and Washington, D.C., built arenas in areas that needed revitalization. Those cities proved that in the right location, an arena was a public investment in something more important than entertainment inside an arena; it's also an investment in what happens outside the arena: new businesses; new housing; new tax revenues -- estimated to be more than $500 million, enough to offset our public investment.
That led me to Decision No. 1: To make it worth a public investment, the arena had to move from Natomas to the railyard. I'm a fan of the Kings, and my wife and I have both been involved in the arts all of our lives (she was a professional ballerina) -- we attend lots of the big shows at Arco. I recognize Arco is conveniently located. But as a public official, I believe a public investment that revitalizes a blighted area is worth more than one that simply keeps the Kings in town.
I also looked at cities that made mistakes. Oakland gave the Raiders a $500,000 lease and agreed to share in the operating risks. That agreement led to public operating subsidies of $8 million in 1997, $14 million in 1998, $38 million in 1999 -- and it was still $19 million in 2005. In 1996, San Diego took on $60 million in bond debt to renovate Qualcomm Stadium. Then it leased the stadium to the Chargers and agreed in the lease to guarantee that 60,000 tickets were sold for each game. From 1997 to 2003, the city paid the Chargers $36.4 million for unsold tickets.
Most Sacramentans still think that we actually supported a losing team in the years before the Maloofs turned them into winners. In discussing this with the Kings, I learned that the team had to give away 3,000 to 5,000 tickets for home games. Imagine if the city had agreed to buy them.
Last year, our neighbors in Stockton built an arena. They lost $400,000 on their first concert and haven't been able to make any payments on their loans.
This led me to Decision No. 2: The building should be owned by the public (so we could control location, construction costs and design, and lock the Kings in to a long-term lease) but operated by the Maloofs -- with no operating liability for the public.
People think that running an arena is a guaranteed moneymaker. It's not. Paul Allen (co-founder of Microsoft) lost millions running the arena in Portland over the past 10 years. This is a high-risk business, even for skilled operators such as the Maloofs. They are recognized as among the very best in the business -- J.D. Powers rates them No. 1 in customer service, and in their first such survey, ESPN ranked the Kings' ownership and fan devotion No. 3 in all of sports.
The Maloofs lose money in some years and make a profit in others. When I hear people say that it's not right that the Maloofs get to keep 100 percent of the money from an arena, I shake my head. They don't. It's like any other business -- there is risk every year and there are a lot of expenses -- with no guarantee of any profit.
Who thinks we'd be better off if the government were operating a new arena with 250 full-time employees and 2,000 part-time employees?
So now we are at Decision No. 3. That's up to you -- the voters. How is Sacramento going to vote?
Here's how I see the deal: The public builds and owns the arena. We build where it will do the most good and we control the costs. We pay for it in seven years. We assume no operating liability.
The Maloofs give us a lump sum of $70.4 million to pay off the loan the city made to the previous owners of the Kings. They pay us another $20 million upfront and sign a 30-year lease with escalating rents up to $121 million. They assume all operating costs and liabilities. After seven of the 15 years that it will be in effect, the remainder of the quarter-cent sales tax gets spent on arts, parks, police, firefighters and roads -- all decided by local communities. I'm voting Yes on Measures Q and R because revitalizing the railyard will yield new property taxes that will make the investment smart, and because I'd rather live in a city that had big-time entertainers coming to town than live in a place where they don't.
Published 12:01 am PDT Sunday, August 20, 2006
Robert Fong is vice mayor of Sacramento. Reach him at rkfong@cityofsacramento.org.
http://www.sacbee.com/content/opinion/story/14300905p-15165608c.html
Two years ago, the Chamber of Commerce concluded Arco Arena would end its useful life in four to six years. Now, after spending the past year working on how to build an entertainment and sports facility, I'd like to share what I've learned.
Dozens of cities, big and small, have invested in entertainment and sports facilities. Some made good decisions. San Jose, Indianapolis and Washington, D.C., built arenas in areas that needed revitalization. Those cities proved that in the right location, an arena was a public investment in something more important than entertainment inside an arena; it's also an investment in what happens outside the arena: new businesses; new housing; new tax revenues -- estimated to be more than $500 million, enough to offset our public investment.
That led me to Decision No. 1: To make it worth a public investment, the arena had to move from Natomas to the railyard. I'm a fan of the Kings, and my wife and I have both been involved in the arts all of our lives (she was a professional ballerina) -- we attend lots of the big shows at Arco. I recognize Arco is conveniently located. But as a public official, I believe a public investment that revitalizes a blighted area is worth more than one that simply keeps the Kings in town.
I also looked at cities that made mistakes. Oakland gave the Raiders a $500,000 lease and agreed to share in the operating risks. That agreement led to public operating subsidies of $8 million in 1997, $14 million in 1998, $38 million in 1999 -- and it was still $19 million in 2005. In 1996, San Diego took on $60 million in bond debt to renovate Qualcomm Stadium. Then it leased the stadium to the Chargers and agreed in the lease to guarantee that 60,000 tickets were sold for each game. From 1997 to 2003, the city paid the Chargers $36.4 million for unsold tickets.
Most Sacramentans still think that we actually supported a losing team in the years before the Maloofs turned them into winners. In discussing this with the Kings, I learned that the team had to give away 3,000 to 5,000 tickets for home games. Imagine if the city had agreed to buy them.
Last year, our neighbors in Stockton built an arena. They lost $400,000 on their first concert and haven't been able to make any payments on their loans.
This led me to Decision No. 2: The building should be owned by the public (so we could control location, construction costs and design, and lock the Kings in to a long-term lease) but operated by the Maloofs -- with no operating liability for the public.
People think that running an arena is a guaranteed moneymaker. It's not. Paul Allen (co-founder of Microsoft) lost millions running the arena in Portland over the past 10 years. This is a high-risk business, even for skilled operators such as the Maloofs. They are recognized as among the very best in the business -- J.D. Powers rates them No. 1 in customer service, and in their first such survey, ESPN ranked the Kings' ownership and fan devotion No. 3 in all of sports.
The Maloofs lose money in some years and make a profit in others. When I hear people say that it's not right that the Maloofs get to keep 100 percent of the money from an arena, I shake my head. They don't. It's like any other business -- there is risk every year and there are a lot of expenses -- with no guarantee of any profit.
Who thinks we'd be better off if the government were operating a new arena with 250 full-time employees and 2,000 part-time employees?
So now we are at Decision No. 3. That's up to you -- the voters. How is Sacramento going to vote?
Here's how I see the deal: The public builds and owns the arena. We build where it will do the most good and we control the costs. We pay for it in seven years. We assume no operating liability.
The Maloofs give us a lump sum of $70.4 million to pay off the loan the city made to the previous owners of the Kings. They pay us another $20 million upfront and sign a 30-year lease with escalating rents up to $121 million. They assume all operating costs and liabilities. After seven of the 15 years that it will be in effect, the remainder of the quarter-cent sales tax gets spent on arts, parks, police, firefighters and roads -- all decided by local communities. I'm voting Yes on Measures Q and R because revitalizing the railyard will yield new property taxes that will make the investment smart, and because I'd rather live in a city that had big-time entertainers coming to town than live in a place where they don't.
