SBJ/April 8-14, 2013/Franchises

NBA eyes financing plans of Kings suitors

With the NBA considering two competing bids for the Sacramento Kings, league scrutiny is falling on the financing differences between the investor groups, one of which wants to keep the team in its current home, the other wishing to relocate the franchise to Seattle.

The Sacramento group, which includes Pittsburgh Penguins owner Ron Burkle, software tycoon and Golden State Warriors co-chair Vivek Ranadivé, and 24 Hour Fitness founder Mark Mastrov, plans very little debt on either a planned new $445 million arena or the purchase of the team, transactions that together would total nearly $1 billion.

“We will equitize it,” said Mastrov after he presented his group’s bid to the NBA in New York last week. He noted that his own business, 24 Hour Fitness, has little debt. “We don’t like debt in my business, and the same will go for the Kings,” he said.

The Seattle group, meanwhile, is taking a different financing strategy. Led by hedge fund manager Chris Hansen and Microsoft CEO
Vivek Ranadivé (top left, with Sacramento Mayor Kevin Johnson and state Sen. Darrell Steinberg) is leading one bid for the Kings while Chris Hansen (above) is leading the other effort.
Photos: NBAE / GETTY IMAGES (2)
Steve Ballmer, the group already has a deal to buy 65 percent of the Kings, and it also has an agreement with Seattle public officials to build a new $525 million arena.

That facility would get $125 million of public funds, but of the remaining $400 million in private funds, the Hansen group plans to carry $250 million to $300 million of debt and has begun reaching out to banks for that financing, according to sources familiar with the offer. The Hansen group also plans to use the full amount of debt possible on an NBA franchise and its holding company under league rules. That amount is $175 million. That would mean there could be nearly half a billion dollars of debt on the enterprise.

Sacramento has not decided how much debt to put on the team specifically, apart from the arena, Mastrov said.

With 65 percent of the Kings up for sale, and the franchise valued at $525 million, the purchaser of that stake would need $341 million. That means that if the Seattle group were to use $175 million of debt, it would need $166 million of equity. That amount would be in addition to the $100 million to $150 million in equity needed for the arena, one of the sources said, but some of that would come from a naming-rights deal and potentially upfront money from a concessionaire deal. The Seattle group additionally has already spent $80 million on land for an arena, and that amount is encompassed in the $100 million to $150 million equity range, so there is little of their own money the Seattle group going forward plans to put in for the arena.

In remarks to reporters after the two groups made presentations to the 12-member NBA relocation and finance committee last week, NBA Commissioner David Stern said there was more work to be done. Notably, he said for the first time that a decision on the Kings’ future might not come at the league’s board of governors meetings later this month, as has been expected. Those meetings are set for April 18-19 in New York.

Of the areas that Stern said required more feedback, he targeted specifics on the capital structure of the bids.

While the Sacramento bid may appear to be less heavily leveraged than the Seattle group’s offer, there are other powerful factors tipping the NBA Seattle’s way. First, the Seattle group would be responsible for the $77 million of debt remaining on the existing arena in Sacramento. Also, Seattle has its purchase agreement with the Maloof family, owners of the Kings, already in place, along with a deal with the city for the arena, while Sacramento has only a nonbinding letter of intent for a new arena. Sacramento’s deal came together quickly, with much of the proposed financing falling into place in the past two months. A group called the Coalition for Responsible Arena Development has already filed a notice of intent to sue the city in Sacramento Superior Court, charging that the city’s nonbinding arena deal violates the state’s Constitution and environmental law.

Sacramento is also at square one in the laborious environmental review process for its venue, whereas Seattle is much further along.

Game Plan is advising the Sacramento bidders. Tipping Point Sports is advising Hansen.

As each group made its pitch in New York last week, representatives in both Sacramento and Seattle stood ready to begin selling tickets for the Kings in whatever their home might be, whenever that future is known.

In Seattle, a source said plans call for the new owners to price tickets at KeyArena with only minimal increases from when the then-Sonics last played in Seattle, during the 2007-08 season, before moving to Oklahoma City. Additional details were not available.

KeyArena would serve as home for the team for two seasons until a new arena is built.

Hansen’s group has retained Legends Sales & Marketing to help market the team in Seattle should the group win NBA approval to buy and relocate the franchise.

According to Hansen and information made available through his group’s SonicsArena.com site, the group has collected 44,000 requests for full-season tickets and 268 requests for suites. It also has 983 businesses interested in sponsorships. Those requests, however, were made with no pricing attached. Sources said that should the NBA approve the Kings’ sale to Hansen and relocation to Seattle, the group would immediately announce ticket prices and begin collecting deposits from the list of potential buyers.

Legends officials declined to comment.

In Sacramento, the uncertainty around the franchise has put business efforts toward next season at a virtual standstill. The team in February had been set to adopt a renewal plan for season-ticket holders that would have refunded any deposits if the team were to leave town, but team officials later scuttled that effort. Team officials have created an online renewal campaign for season-ticket holders that would be activated immediately if NBA owners reject the Seattle group’s bid to buy the team.

The Kings have about 5,700 season-ticket holders. Plans call for flat pricing for those renewing for next season. Current season-ticket buyers would have 30 days to renew their season tickets at those prices before being subject to any possible price increases.

The renewal strategy is similar to what the Kings did in 2011, when the franchise was considering a move to Anaheim before ultimately remaining in Sacramento.

Jeff David, senior vice president of sales and marketing for the Kings, declined to comment on any matters related to the possible sale and relocation of the franchise.

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