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Volume 21 No. 2
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Stern’s message to Kings: ‘Sell, sell, sell’

Shortly after NBA owners voted to keep the Sacramento Kings in California, NBA Commissioner David Stern relayed a quick message to the team’s marketing chief, Jeff David.

“It said ‘sell, sell, sell,’” said David, who as senior vice president of sales and marketing is leading the reboot of the Kings’ business operations with its sale to a group led by Vivek Ranadivé.

The success of Ranadivé (below) means selling can resume in Sacramento.
All other NBA teams began selling for next season back in February. The Kings, meanwhile, sat idle, awaiting a decision on whether the franchise would be relocated to Seattle. With its California future now secure, team officials are working to make up for that lost time and lost staff, filling positions vacated because of the uncertainty.

Revenue projections for next season are still being set, but lofty goals are all but assured, especially given the amount just spent. The Ranadivé group paid $347 million for a controlling, 65 percent stake in the franchise, an agreement that puts the Kings’ purchase value at an NBA record $535 million. The group also has committed to $191 million in

funding for a projected $449 million arena — for a total of about $538 million to buy into the NBA.

How does that eye-opening price develop for a small-market franchise in need of a new arena? The answer lies in part on the current owners, the Maloof family, developing a purchase agreement with Chris Hansen in Seattle that included the right to negotiate with a backup bid, which became the Ranadivé offer.

“Here we truly had an auction between different cities, and sellers [the Maloofs] that came with different perspectives,” said Adam Klein, an attorney with Katten Muchin Rosenman, which represented the Ranadivé-led group in buying the team. “It is unique and it allowed us to talk to the seller. It was smart of [the Maloofs] to do that.”

Hansen in January signed an agreement with the Maloofs to buy their interest in the team for roughly $350 million. He later upped his offer by $75 million, only to lose out to the competing Ranadivé group.

Joining Ranadivé in the purchasing group are members of the Jacobs family of communications giant Qualcomm; 24 Hour Fitness founder Mark Mastrov; Sacramento real estate developer Mark Friedman; and former Facebook executive Chris Kelly. About 20 other local business leaders have invested in smaller stakes, for a total of about 30 equity partners.

Klein said the purchase is mostly an equity deal though the team could borrow up to the maximum $175 million as allowed by the NBA.

Formal approval by the NBA’s full board of governors is expected by the end of the month.

The Kings aren’t waiting at this point, though. Team officials have started moving quickly to begin selling again — for the coming season and for future years.

Sacramento finished the 2012-13 season ranked last in the league in attendance.

David would not disclose the size of the Kings’ current season-ticket base, but he said he expects a full-season-ticket renewal rate of close to 100 percent for next season and a goal of between 10,000 and 12,000 full-season equivalents sold. The NBA benchmark is for teams to have at least 10,000 full-season equivalents, with about half of the teams this season hitting the mark.

The Kings won’t increase season-ticket prices for ticket holders, but they are expected to increase prices for new buyers, and they also now are requiring a nonrefundable $200 deposit from fans in order to buy season tickets.

“We will renew flat and take a look at demand from our deposit campaign,” David said. “We do want to do a market correction to keep up with NBA [ticket-pricing] averages. There will be lofty revenue goals. I am confident that in time we can do it.”

The team hasn’t increased season-ticket prices in several years because of the franchise uncertainty, putting the team in the noted market-correction position.

The Kings also now are requiring three-year deals from new and renewing sponsors. Key categories the team wants to fill or renew include the banking, automotive and wireless categories. Additionally, of the team’s 30 suites in Sleep Train Arena, only six are signed for next season; 21 are up for renewal, and three are vacant, without past deals.

Also significant from a revenue-generating standpoint is a possible new television deal. CSN California holds the Kings’ rights in a multiyear deal with an option provision in place. It is possible, David said, the deal could be reopened this year.

David said the team is poised to begin the process of hiring new staff, as well. Thirty employees voluntarily left the franchise over the past year due to its uncertain status. The team now aims to hire 60 new employees: 40 as full-time ticket sellers to work both day and night shifts; the remaining 20 for other sales and marketing jobs across the front office.

The total front-office staff is expected to reach around 140 employees.

The NBA has flown in about 12 league staff members, ranging from sales executives to public relations staff, for temporary assistance in Sacramento as the Kings re-engage.

“We are behind other NBA teams,” David said, “but there has been so much interest that demand is very strong.”