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Future of NBA arena subsidies, market comparisons to decide Kings’ fate

Mar 4, 2013, 11:37 PM EDT

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As Sacramento Mayor Kevin Johnson has been advertising for the past month, we did indeed get confirmation of the identity of his ‘whales’ at his State of the City address on Thursday.

Reiterating parts of his four-part plan that included bringing together a local ownership group, finding big equity investors (whales), putting together a downtown arena deal, and demonstrating the value of the Sacramento marketplace – Johnson would announce that 24 Hour Fitness founder Mark Mastrov and billionaire Ron Burkle would put in a bid to keep the Kings in Sacramento.

“With all due respect to Seattle, I do hope they get a team someday, but let me be perfectly crystal clear, it is not going to be this team,” said Johnson.

Johnson also announced that former Kings great Mitch Richmond would join the local ownership group and that the city’s proposal would include an option to return WNBA basketball to Sacramento.

Sources close to the situation told PBT that the framework of the offer delivered to the NBA on Friday was very close to Seattle’s $341 million offer for a controlling 65 percent interest in the club. NBA spokesman Tim Frank confirmed delivery of the offer on Friday, the day of the deadline.

Over the next month Sacramento will continue to iron out the details on a public subsidy and arena deal locally with the Sacramento City Council, which will ultimately vote on a term sheet to be delivered to the Board of Governors in time for their April 18-19 meeting.

Sources tell PBT that the Sacramento offer will be conveyed by the group to the NBA’s joint committees in charge of reviewing the situation on or around April 1. It is expected that Seattle’s group will also meet with that committee around that time, though no meeting has been publicly acknowledged.

According to sources, the two issues that will drive the conversation is the league’s strategy for securing arena subsidies in the future, and the impact each market will have on team revenues and the league’s financial model as a whole. Also under consideration are timelines to deliver an arena, ownership groups, and the precedent the league could set by blocking an owner from selling to a group of their choosing.

The league blocked a sale of the Minnesota Timberwolves to a group headed by boxing promoter Bob Arum in 1994, but a well-placed source told PBT that the league views this transaction as “unprecedented,” citing that never before has the league relocated from a city that has supported its team both at the gate and with public subsidy dollars.

The Maloof ownership group reportedly has “little to no leverage” in NBA’s decision-making process. They also reportedly owe the NBA in excess of $100 million on a line of credit they’ve used throughout their ownership. If called in, the family’s financial woes could give the league an opening to use the ‘Best Interests of the League’ clause, similar to the way Major League Baseball removed Dodgers owner Frank McCourt.

Sources do not expect the Maloof family to push back on the league’s decision to back either Sacramento or Seattle, citing the prohibitive costs of an antitrust lawsuit, and the potential for the family to lose a chance to cash out in Sacramento or Seattle.

The issue of market comparisons between Sacramento and Seattle is cloudy, but sources expect Sacramento to be competitive in that area because it has one major sports team in their No. 20 TV market, while Seattle could have six major sports teams in its No. 12 TV market. We will cover this in a bit more detail later in the next few weeks.

While details about Sacramento’s ownership group are a bit hazy at this time, it has been expected that Mastrov would be the front man. The more private Burkle reportedly would focus on the development of the Downtown Plaza location. Sources indicate the duo will share in the ownership of a potential deal, though it’s unclear what those percentages will be. Both owners have been vetted by the NBA, and Mastrov finished second in the Golden State Warriors bid that recently went to the Joe Lacob group.

While Seattle’s Chris Hansen-Steve Ballmer group has enormous wealth, another well-placed source speaking to PBT under condition of anonymity said the league is happy with both ownership groups and not to expect a deal to hinge on any comparison between them.

If a showdown comes to the owners’ deciding vote, some sources hinted at a scenario in which the league tells the Hansen group that they’re going to choose Sacramento – allowing the Hansen group to bow out gracefully and avoid a divisive ownership vote.

Should the league favor Sacramento, sources say the work the city has done to fight for its team and the narrative it will give the league to sell to future cities in arena negotiations will have played a critical role in the NBA’s decision-making process.

Seattle’s deal contains a greater percentage of private funds due to local initiative-91 requiring public funds to return a guaranteed profit, which is a trend the league wants to avoid.  On the other hand, Sacramento’s deal fits the public-private model the league is selling to cities, with a larger public subsidy going toward a new state-of-the-art building in a downtown revitalization effort.

We will cover that issue in greater detail in the coming weeks.

In order to keep their team, Sacramento will need eight votes out of 29 other owners to block the transfer of ownership to Seattle’s Hansen/Ballmer group.

  1. doublezero74 - Mar 5, 2013 at 1:23 AM

    Nice article. Well done. Lots of moving parts in this thing

  2. dans761 - Mar 5, 2013 at 1:24 AM

    Fool me once shame on you. Fool me twice shame on me. If NBA screws Seattle yet again after doing everything it was told to do to get a team the NBA can go screw itself.

    • sptsjunkie - Mar 5, 2013 at 1:06 PM

      How exactly did Seattle do everything right? I feel for you guys and hope you get a team eventually either through expansion or getting a team from a city that isn’t very passionate about the NBA (no local owners, won’t build a stadium, etc.). But you guys refused to build a stadium (state legislature shot it down) before the Sonics left. And there’s nothing you have “done right” this time. The NBA didn’t tell you to make a bid on a franchise with cruddy owners whose city had owners lined up and has already agreed once with the NBA on a public-private arena model.

      Sorry, but this isn’t the NBA somehow hurting Seattle, thought you seem very willing to hurt Sacramento. Reflect poorly on the character of Seattle fans.

      • sidenote151963 - Mar 5, 2013 at 10:35 PM

        Ummmm…. Seattle did spend $100Mil just ten years earlier to upgrade the arena when they started asking for more. That was followed by a new building for the Ms and then the Seahawks. Can’t say we failed to support the team. That bull doesn’t hold water. The building was done for the Sonics and they were screaming for more because the nba’s financial world was screwed up. Then Clay comes in and says to build him a $500Mil building and wouldn’t even offer to contribute a dime to the cause. He said he would contribute something, but would not ever put a number out for consideration….

        Don’t blame the city of Seattle and don’t claim to know what happened better than those who live here. Truth be told, we did the right thing in telling the NBA to get bent.

        And besides, the comment about doing everything right refers to the here and now.

      • flexnfx - Mar 5, 2013 at 10:42 PM

        Are you from the Northwest? My guess is no because there’s ALOT more to this story. I recommend watching SonicsGate, Requim for a Team. The Sonics were well loved and supported for over 40 years. We however out maneuvered by by a combination of Howard Schultz, David Stern and Clay Bennett. The arena proposal Bennett floated here was one the worst deals that no city would pay so he could move them to OKC. So much of this is documented and is spelled out better than I could explain in the SonicsGate documentary.

        supersonicsconspiracy.blogspot.com/

  3. jessethegreat - Mar 5, 2013 at 1:53 AM

    Im having a Hard time believing that no more than 8 owners would agree the team should stay in Sacramento if it leaves more of a model that allows more public money into the stadium projects in the future.

    It sucks that the system takes tax dollars to build these stadiums/arenas, but one can’t really blame the owners/ownership groups for going that way.

    If there was a system where one could get a local liquor sales tax to pay for a good portion of a new home, many would take advantage.

  4. BigBeachBall - Mar 5, 2013 at 1:56 AM

    A retired pro basketball player turned Mayor who loses the city’s basketball franchise during his term in office…. i’d watch that movie… oh wait it’s happening in reall life right now in Sacramento….

  5. gabyguti15 - Mar 5, 2013 at 2:45 AM

    The kings are staying in sac!!! Best fans in the nba. Plus Seattle has other sports teams. All we have is the kings.

    • zerole00 - Mar 5, 2013 at 10:42 AM

      The Seahawks have a lot of upswing with Wilson as their QB so I’d be tentative in competing with the NFL if I were the NBA.

  6. bademus - Mar 5, 2013 at 3:26 AM

    Suggesting that Seattle would be less attractive because it has $200 million in public financing is ridiculous. Seattle has worked hard to get this deal done and has come up with the financing. Even if Sacramento could put $250 million it’s still a public subsidy that will need to be paid back. So that’s not a reasonable suggestion. It’s also possible that Sacramento, a city that is not doing well financially, could find itself spending more than they can afford and setting a poor example to other cities down the road. For all the fantastic loyal Kings fans, and they do have them, one has to consider they are dead last in the league in attendance. The Kings have been subsidized by wealthier teams under the revenue sharing agreement for some time now and under the new revenue sharing terms the amount paid to the Kings will go up substantially.

    Seattle is not shooting from the hip here. The ownership group and the city has consulted with the NBA over quite a few months leading up to this. The Seattle principals have been preparing for this for over a year, maybe two. Just because our mayor isn’t taking every opportunity to work the press doesn’t mean there isn’t a deep desire here too. Sacramento has been talking about a new arena for 5 or 6 years now and the deal reached a year ago (which had the NBA kicking in several million) is no longer on the table – so all that would need to be reworked.

    This article fails to consider the importance of corporate sponsorship and how important that is to the league and other owners. While it’s notable that Mayor Johnson has gotten local companies to promise $50 million over 5 years there aren’t any Fourtune 500 companies in Sacramento. The Seattle area has 8 fortune 500 companies, 9 if you want to count Boeing (they moved their headquarters but most operations here remained). Corporate sponsorship with long term viability is very important to the owners, it stands to bring in a lot of money and Seattle is well poised for that.

    It’s going to take more than a few passionate speeches from KJ to stop this deal, and Seattle fans’ heart is on the line now too – for a second time.

    • harper2 - Mar 5, 2013 at 11:17 AM

      and Sacramento fan’s hearts aren’t??

      • flexnfx - Mar 5, 2013 at 10:48 PM

        Seattle feels for Sac. I’d much rather see expansion. However, Stern made it clear to Seattle the only way to acquire a team was to buy an existing team for sale. Stern is the Reason this whole mess is unfolding. Had he allowed. Clay Bennett to buy New Orleans who had a small fan base and not steered him to our city and helped him steal the Sonics, Seattle would’ve be sniffing around SacTown.

        supersonicsconspiracy.blogspot.com/

    • sptsjunkie - Mar 5, 2013 at 1:11 PM

      “Suggesting that Seattle would be less attractive because it has $200 million in public financing is ridiculous. Seattle has worked hard to get this deal done and has come up with the financing. Even if Sacramento could put $250 million it’s still a public subsidy that will need to be paid back.”

      Sorry, but you are grasping at straws here. The Seattle money is essentially a loan to the Hansen-Ballmer group. The Sacramento financing is going to be made up by the city with revenue from parking and other use taxes. This is the model the NBA wants to show other cities over the next few years when several other teams will need new arenas. Having the next city point to Seattle and how their group privately financed the arena, while the previous city spent millions of taxpayer and agreed to a deal with the NBA before losing the team after following the NBA’s instructions would be bad for negotiations.

      I am not guaranteeing the final outcome will go one way or another. There’s a lot of factors and a lot of gray area (and personally I am still hoping expansion is the answer). However, the arena subsidy issue definitely works in Sacramento’s favor.

      • Kurt Helin - Mar 5, 2013 at 8:00 PM

        Not as much as both Aaron the writer and some in Sacramento think. The Kings are not the first team to say this could damage future public subsidies for arenas, it never happens. It’s a supply and demand thing.

        And if the parking and other tax revenues don’t pay off those Sacramento financing bonds, as happens in many cities who use similar mechanisms to fund development projects (not just arenas)…. There are a lot of things in play here.

        Expansion is dead, btw.

  7. fanz928 - Mar 5, 2013 at 5:19 AM

    The kings suck time for fresh start in seattle

    • gmsalpha - Mar 5, 2013 at 8:48 AM

      And why do the Kings suck? Because of the Maloof clan! With them out of the way, the Kings can and should become relevant again.

  8. chicagokillinois2013 - Mar 5, 2013 at 6:39 AM

    Kings going from one miserable town to another I feel bad for the fans in Sacramento if this team gets moved to Seattle which is one of the most miserable sports town in America no matter how much the people who live there try to deny it

  9. allidoiswin55 - Mar 5, 2013 at 9:19 AM

    —Bademus.. Well said!!

    I find it somewhat strange that the people on Sacramento keep talking up their potential suitors or owners and fail to realize the seattle group has billions on billions of dollars not just a billionaire. Something like 30+billion! Microsoft money not gym money!

    The market between these teams is not even close. Saying a team that only has 1 professional team is more loyal is ridiculous. To me having a year round sports city far out weights a single team city. Look at the greatest home field advantage in all if sports right now seattle has 2 of them between the Sounders and Seahawks.

    As passionate as seattle fans are they will be stoked to bring back a team and will show up in huge numbers. If for nothing else but pure hatred that our team was stolen under worse circumstances than this deal and that our team is considered one of the 2 best in the nba with 2 all stars and an future hall of famer!

    Now add the wealth of the community in Seattle compared to Sacramento and it’s easy to see how a team will do well here.

    I see the objectively of this article but still find it hard to believe other owners don’t want to fatten their own pocket and possibly strap their own hands behind their backs by not agreeing. It’s not just the principal ITS BUSINESS!

    ALSO I wonder how much proceeds the nba would receive immediately from the SALE? And how long term the rebranding of merchandise and jerseys sales and shoes and apparel the league will receive?

    Correct me if I’m wrong but they receive some of that money and that only cushions the pot for the league and the brand. Resurrecting a new team would have a huge economic impact on the landscape of the NBA more so than keeping a team that’s not winning and had the worst attendance and sales.

    Also the market and growth of the market in these cities isn’t even as close as 12 to 21.. That’s just current cities with professional sports. Seattle is a much much much more bigger market and has multiple large cities within like 30 mins, closest cities to Sacramento like SF and Oak are as far away as Portland is from Seattle. Seattle also has its surroundings states and some of Canada that support their teams because of proximity.

    Benefits outweigh the negatives, unfortunately this sale means stealing another team which sucked to go through. At least their trying but I don’t see them succeeding. Too little too late same as we did.

    • harper2 - Mar 5, 2013 at 11:46 PM

      Seattle fans need to stop talking about ‘billions and billions of dollars’. Am I missing something? Because last time I checked billions of dollars doesn’t automatically get you everything you want in the world. If having the most money was all that mattered when trying to buy a sports team, then yes Seattle would win.

      But it’s not, sorry.

  10. harper2 - Mar 5, 2013 at 10:03 AM

    Wow, Seattle fans can keep saying whatever they want to try and make themselves feel better, but this is obviously starting to lean in Sacramento’s direction. Seattle may still be in the lead, but to think where we were the day the Seattle deal was announced about a month ago to now is remarkable. Don’t count Sac out yet!

  11. emeraldcityfan - Mar 5, 2013 at 11:09 AM

    This article has confirmation bias written all over it. Even someone from OKC could have been more objective.
    Look when Schultz sold the Supes to Bennett, only 2 owners in the entire NBA voted against it. Portland, and Dallas. Even though they were moving from the 13 biggest market to a 40 something media market; they went along with it. Why? Because owners don’t like to be told who they sell to.
    If you want to read a more unprejudiced take on this story, check out David Aldridge’s piece.

    http://www.nba.com/2013/news/features/david_aldridge/03/04/morning-tip-kings-relocation-nbpa-future-jrue-holiday-contract-tyson-chandler-qa/index.html?ls=iref:nbahpt3c

    • zerole00 - Mar 5, 2013 at 5:34 PM

      Despite their market size, wasn’t Seattle’s fan attendance abyssmal?

      • emeraldcityfan - Mar 5, 2013 at 7:26 PM

        Not at all. They Supersonics played in the original Seattle Center Coliseum from 67-78 and that place was only 14k capacity. Then they thought it to be a great idea to play in the Kingdome from 78-85 and that place was 40K capacity for basketball. Then back to the Coliseum from 85-94. Even when we built Keyarena in 95, and the capacity was increased to 17K; we have always been around league average.
        I don’t want to get into a pissing match with Sactown fans. They are one of the best fan bases in the NBA, support their team like crazy, and don’t deserve this situation at all. I just really miss NBA basketball around here, and hope the league can find a way to do the right thing.

  12. bademus - Mar 5, 2013 at 11:12 AM

    The NBA owners group do not tend towards divisiveness or opposition to one another. If you think that, after binding agreement with a very strong and desirable owners group and a $30 million deposit they would expect Hansen/Ballmer to bow out gracefully you are not being realistic. It is ridiculous to suggest they will force the Maloofs to not sell to Hansen/Ballmer, forcibly take the team from them and then sell it themselves as well – they don’t treat their owners that way and their desire to have the Maloofs out of their group is soon to be fulfilled. That’s not to say this is a done deal, they can vote this sale down and go back to square 1, but the scenarios you present are just not realistic.

    • sptsjunkie - Mar 5, 2013 at 1:17 PM

      I don’t think they will forcibly take the team from the Maloofs. But they already have told them what to do blocking the move to Anaheim. They certainly didn’t treat Shinn with kid gloves a few years back.

      The Maloofs will be made whole regardless of which offer they accept. And they have already said they are fine taking either. They want the money. The NBA will consider a multitude of factors when making this decision. It should be an interesting few months.

  13. Kansachusetts - Mar 5, 2013 at 1:16 PM

    No city should EVER give a public subsidy to any NBA, NFL or MLB team.

  14. liddogg33 - Mar 5, 2013 at 9:14 PM

    you are all just pawns in this little game. If you think Steve Ballmer (net worth 17 BILLION DOLLARS) is going to put all this time and effort in to something just to let a pathetic Kevin Johnson come in at the last minute with a makeshift deal involving burkle and mastrov.. NO MATTER what this idiot reporter writes he cannot change the fact that the Hansen Ballmer duo have a SIGNED PURCHASE AND SALE agreement in hand.. Not to mention the NBA owners want a man of Ballmers stature and financial background in their little group. What i find hillarious is how the team of Hansen and Ballmer came out and told the people of seattle to expect these types of articles and propaganda to come out as it got closer to the decision.. This arena deal in Seattle has taken almost two years to complete and now Kevin Johnson thinks he can provide a “competitive” offer in a matter of months??? Ha ha ha… Your not fooling me KJ nor are you MR ARON BRUSKI!!!! Your an idiot trying to stew up sludge!!! Truth be told is the kings were moving to Seattle the minute Chris Hansen bought the team from the Maloofs.. PERIOD!!! END OF STORY!!!!! Nothing this insignificant writer says can stop the train from leaving the station Sacremento!!! Learn to live with it!!!!

  15. allidoiswin55 - Mar 6, 2013 at 8:40 AM

    US Seattle fans keep mentioning billions of dollars because your mayor is ” playing up” how his partners ability to keep the team because of their wealth.

    However public funding in a bankrupt state doesn’t make sense. The city can’t really afford a new arena and their ” big players ” are really the small players in this situation.

    Seattle fans could care less about who has more money but we’ll point out quickly that our ownership group has far more if someone from Sacramento tries to say that their moguls will save the team because of finances.

    This deal is done. Always have to wait until the fat lady sings but this notion of it not being all but done is absurd.

    Like the previous writer, the seattle group even spoke on how writers would try to manipulate a competitive edge to the city of Sac with the ” sources ” saying they wouldn’t agree to the sell. I’m hopes to make them think twice about it, but we all know and expect them gone.

    There’s too much money for the NBA to not move and although this seems really shady, Sterns biggest blemish is the Seattle to OKC deal. He wants to right that and it’s stupid to think this will but that deal he made with his personal friends wasn’t even close to lawful it was a total sham that even as fishy as this might be wouldn’t ever come close to as shady.

    Also before the nba and okc group didn’t ever really propose a viable arena solution before and drove ticket sales down to manipulate the #s. He was picking areas totally out of the blue who everyone knew would never work and buildings that would never get approved.

    SEATTLE had a legitimate court case which our past mayor didn’t even realize put him in the position of power and he gave it up for literally pennies on the promised dollar from the NBA and OKC group.

  16. seaallday206 - Mar 6, 2013 at 10:47 PM

    Bruski, your credibility as a reporter is dropping towards the ranks of The Seattle Times Op-Ed section and all of Fox News.

    To suggest that Chris Hansen and Steve Ballmer will just give up on a business transaction that has a signed purchase agreement, a $30 million down payment, a $60 million in land acquisition and two years of planning is offensive. A “hint” from an unnamed source is not the type of support I would like backing up my claims.

    I have a hard time believing the NBA is going to turn down the highest offer for a franchise from the what-would-be the richest ownership group in the league. Sacramento is framing their proposal to pull at the hearts of the owners. They are a one team town with great fans; no body is questioning that. Seattle saw how much fan support meant when they they had their team taken away.

    The owners will make a decision based on what is best for the league over all in terms of money. Why not replace a team that is maxed out on the leagues line of credit and bring back a team to a larger media market with over 40 years of history to an ownership group to will likely be paying into the luxury tax. Washington has eight Fortune 500 companies and serves as a solid gateway to the Asian market (think Ichiro) that the NBA would like to continue to grow in.

    There is one thing I would like to point out regarding the $30 million non-refundable payment. When that payment from the Hansen group to the Maloof group was made, that established a business relationship that has elements that are beneficial for both parties involved. If another group is to interfere with that deal, Hansen/Ballmer can bring up “Tortious interference” in court. I’m not going to act like I know it so go to wiki (http://en.wikipedia.org/wiki/Tortious_interference). The NBA wants to avoid court and Hansen has a solid case if another group is to come in and try to break up the existing deal.

    Moral of the story is that the fans don’t really matter. The Kings, Sonics, Cha. Hornets and Van. Grizzlies are all victims of crappy owners. Owners so crappy that they run a team out of town. Its sad but its now becoming more transparent in the world of professional sports. From a fans point of view, neither Sacramento or Seattle should find themselves having to fight for the existence of the home team. But it is out of the fans hands at this point and it all comes down to money. With that said, I believe Seattle is in a better position to acquire a team given their progress on an arena, ownership group and the political process required to get deals like this done.

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