SBD/March 25, 2013/Facilities

Sacramento Officials Reach Deal For New $448M NBA Kings Arena In Downtown

September of '16 could be an opening date for the arena at Downtown Plaza
Sacramento officials on Saturday announced that they have “reached a deal” for a $447.7M arena at the Downtown Plaza that would house the NBA Kings, according to a front-page piece by Bizjak, Lillis & Kasler of the SACRAMENTO BEE. The agreement calls for a private development team of  Penguins co-Owner Ron Burkle, 24 Hour Fitness co-Founder Mark Mastrov and Warriors Vice Chair Vivek Ranadivé to contribute $190M "to building the arena." The city would “own the arena; the private group would operate it and be responsible for its ongoing upkeep.” The city would be “guaranteed a minimum of $1 million in arena revenues annually, with bump-ups if arena revenues hit certain levels.” The deal, which sets a “September 2016 date for opening the new arena, also involves a 5 percent surcharge on tickets for two years at Sleep Train Arena, and continuing for the 35-year term of the lease at the new arena.” City officials said that they “also agreed to give the developers the 3,700 city-owned parking spots beneath Downtown Plaza.” The private partnership group “would shoulder the burden for getting the arena built and handling potential cost overruns." The news of the deal broke just after 3:00pm PT when Sacramento Mayor Kevin Johnson in a series of tweets noted that the deal “avoids new taxes, protects the city on an existing $70 million loan to the Kings and involves ‘no net impact on the general fund.’” City Manager John Shirey said that he will ask the city council “to approve the term sheet” tomorrow. But the “rushed nature of the new deal ... has caused concerns.” Council member Steve Hansen, who represents the downtown area, said, "I don't think there is sufficient time for the council and public to review this and vote on it Tuesday. I don't think that is practical" (SACRAMENTO BEE, 3/24).

DEAL DETAILS: Bizjak, Lillis & Kasler in a front-page piece write “only a handful of U.S. cities have done what Sacramento is contemplating” with the city's financing plan for an arena at Downtown Plaza, and the few have had “decidedly mixed results.” But Sacramento officials insist that they have “minimized the city's financial risk -- while laying the groundwork for a downtown renaissance that would spread well beyond the footprint of the proposed new arena.” The city said that it can raise $212M by "setting up a nonprofit corporation to borrow against future revenue generated by its downtown garages.” That would represent “the bulk of the city's $258 million contribution” to the new arena. City Treasurer Russ Fehr and other city officials said that they are “confident the garages, meters and parking tickets would generate more than enough cash -- roughly $32 million a year in gross revenue -- to make the debt payments.” About $20M in annual hotel tax revenue “would be used as a backstop to increase lenders' comfort levels.” Repaying the debt in many ways “would depend on people coming to Kings games and other events at the arena.” Assistant City Manager John Dangberg said that the financing model “assumes annual attendance of about 1.4 million a year.” City officials admitted that the number is “in line with what" the team used to draw when the Kings "were successful.” Fehr said that the “only significant financial risk would come in the early years, because the city is still paying about $4.7 million a year to repay debts on some of its garages.” Fehr said that to minimize the risk, the bonds “would be interest-only, with no principal payments, until much of that existing debt comes off the books in 2022” (SACRAMENTO BEE, 3/25). The BEE provided a link to the term sheet on the agreement (SACBEE.com, 3/23).

A CROWNING ACHIEVEMENT? USA TODAY’s Sam Amick noted between the “proposed purchase of the team, the investment in the downtown plaza arena and related real estate development around the site, Ranadivé, Mastrov and Burkle will be investing nearly a billion dollars.” NBA Commissioner David Stern recently said that Sacramento's first bid, which "previously did not include Ranadivé, fell well short of being competitive enough to be considered by the league's Board of Governors.” A source “would not disclose the size of the updated offer, but indicated that the addition of Ranadivé to the group was a sign that their pursuit should be taken even more seriously than before and that the offer would likely meet Stern's perceived expectations” (USATODAY.com, 3/23). CBSSPORTS.com’s Royce Young wrote the announcement “means that the biggest hurdle appears to have been jumped for Sacramento,” as the entire motive for selling or moving the team “has been because of the city's inability to reach a new arena deal” (CBSSPORTS.com, 3/23).

IN THE NICK OF TIME: A SACRAMENTO BEE editorial stated what “absolutely cannot happen” is for city council members to “be forced into a vote on a proposed pact without enough time for them and the public to study it closely.” That would “make a mockery of the transparent and deliberative process that is necessary for a decision of this magnitude.” Council members should get “several days at the very least to scrutinize the terms and to hear from their constituents.” The council “could schedule a special meeting” later this week to get more time, or could “vote at its already scheduled meeting on April 2.” While that may be “cutting it close, it would still be before the April 3 meeting of key NBA owners” (SACRAMENTO BEE, 3/23).
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