SBJ/April 15-21, 2013/Franchises

Scouting the bidders for Sacramento Kings

The NBA is closing in on selecting one of two groups that are bidding for the Sacramento Kings. On Thursday and Friday, the league’s owners will meet in New York for further discussion on the matter, and while a vote on the future of the franchise isn’t likely then, a decision on the Kings’ fate should come soon after.

One bid is led by hedge fund manager Chris Hansen, who wants to move the team to Seattle. The bidding group in Sacramento is led by Golden State Warriors Vice Chairman Vivek Ranadivé and 24 Hour Fitness co-founder Mark Mastrov.

What follows is a scouting report that looks at the issues facing each bid — and facing the league, as owners make their decision.

The Strengths: What’s in their favor?

Games may be sparsely attended now, but Sacramento was once known as a model franchise.
NBAE / GETTY IMAGES
Sacramento:
The Sacramento group has the franchise already in its town, and its pitch to the NBA’s combined finance and relocation committee earlier this month featured significant local political support, fronted by Mayor (and former NBA player) Kevin Johnson. It wasn’t that long ago when the Kings were considered a model NBA franchise, and the league does not enter lightly into relocation matters.

Seattle: The Seattle group already has a signed agreement with the Maloof family, who owns the Kings, to buy 65 percent of the club for $341 million. It has a binding arena deal, as well. Additionally, the group is seen as having deeper pockets than the Sacramento group. Led by Hansen and Microsoft CEO Steve Ballmer, the group has additional backing from the prominent Nordstrom family. Insiders characterize the Seattle group’s offer as being a more buttoned-up bid compared to what the Sacramento group has put forth.

The Weaknesses: What could trip up a deal?

Sacramento: The proposed ownership group came together somewhat hastily, and while the group did impress that finance-relocation committee at the committee’s April 3 meeting, there have been changes to the lineup since then.

Pittsburgh Penguins co-owner and grocery store magnate Ron Burkle bowed out of the group last week; Ranadivé is said to be increasing his stake; and both local developer Mark Friedman and members of the Jacobs family, founders of the telecommunications company Qualcomm, have now joined in. The group also last week was set to announce Chris Kelly, a former top Facebook executive, as a new investor.

Burkle’s departure is said to be a non-issue, but the late-hour shuffle shows that the financing structure for the Sacramento group’s effort was still in flux. As of Wednesday, the league had yet to officially receive a specific financing plan from the Sacramento group, though that plan was expected by Friday, a deadline imposed by the Maloof family so as to consider the offer.

Seattle: The group has been far more stable in its composition, but its financial plan is more highly leveraged than the Sacramento bid. The league wants to address this in greater detail (SportsBusiness Journal, April 8-14 issue).

The Media Element: Local TV deals

Sacramento: If the Kings stay in Sacramento, the team’s media situation will not change — unless Comcast SportsNet California decides to try to reopen its deal. CSN California holds the Kings’ rights in a multiyear deal, but it has an opt out provision after the 2013-14 season, according to a source familiar with the deal.

Seattle: Things get more interesting if the Kings move to Seattle. Any move would make the team’s local media rights contract in Sacramento null and void, setting up the club as essentially a free agent. Root Sports operates the only regional sports network in Seattle. It carries MLB Mariners games and would certainly look to add the rights of a newly relocated NBA franchise.

There’s another possibility, too. If the Kings move to Seattle, Comcast, the dominant cable operator in the city, could try to secure the Kings’ rights, then try to lure the rights to the Mariners, who have an opt-out clause from their Root Sports deal after the 2015 season. Comcast conceivably could place both teams’ rights on its CSN Northwest RSN that it operates out of Portland, where it would telecast Blazers games to the Portland market and the NBA and MLB games to the Seattle market.

Home Within A Home: Arena issues

KeyArena, former home to the Sonics, needs upgrades to function as an NBA arena, even if only temporarily.
GETTY IMAGES
Sacramento:
Don’t look for much investment in the Kings’ current Sleep Train Arena given that a new facility would be built in the next few years with a sale to the local group. The arena’s naming-rights deal runs through next season.

Seattle: If relocated to Seattle, the team would play in KeyArena, which needs improvements. The antiquated venue, having opened in 1962 albeit renovated in the mid-1990s, lacks modern amenities such a plush suites and clubs. Hansen and the city are negotiating on renovation costs that include provisions for a new scoreboard and spruced-up premium seating. The team hopes to be in a new arena by 2016.

Doing Work: Local marketing needs

Sacramento: The Kings have put any business activities related to a 2013-14 season in Sacramento on hold but are ready to renew season tickets the minute a decision is made in their favor. At least half of the team’s sponsorship business is up for renewal, though, and those deals can take months to close.

Seattle: Hansen’s group is poised to begin selling season tickets at KeyArena and would rush to sell as many sponsorships as possible before the start of next season. On this, and the possible need for a quick turnaround, there is precedent. In 2008, NBA owners approved the relocation of the then-Sonics to Oklahoma City on April 18, clearing the way for the team to begin branding itself in its new home for the start of the following season.

Let’s Share: The impact on NBA revenue sharing

Seattle: Seattle is a bigger market than Sacramento in terms of population, TV households and Fortune 500 companies based there (see chart). Relocating the franchise to Seattle could stand to make the club a contributor to the NBA’s revenue-sharing system, given the potential money expected to flow into the team from that marketplace, especially upon the planned opening of a new arena for the club. That means more money to be shared across the league. What isn’t known, at least publicly, is the relocation fee the Seattle group would likely have to pay, but when the then-Sonics moved to Oklahoma City in 2008, the team paid a $30 million fee.

Sacramento:
The low-revenue Kings currently are one of the league’s biggest recipients of revenue sharing. A new arena in Sacramento would be expected to bolster the team’s finances and at least likely lead to less shared revenue than the projected $18 million the team is slated to receive next year.

The Intangibles: What else to watch?

While a vote isn’t expected at this week’s board of governors meeting, don’t expect too much of a delay in that ownership vote. The league wants the Kings issue resolved so that whichever bidder lands the team can begin its marketing efforts. The NBA also would prefer a quick resolution so as not to have Sacramento headlines aside the story lines that’ll generate NBA buzz with the start of the playoffs this weekend.

Expect owners to approve whatever recommendation the league’s finance and relocation committee makes; they’ll get that recommendation when they meet this week. An ownership transfer requires a three-fourths vote in favor among the 30 owners (so, 23 votes), while a relocation approval requires a majority (16 votes).

Staff writer John Ourand contributed to this report.

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