BY Art Thiel 07:41PM 05/13/2013

Thiel: No reason for NBA to say no to either city

Sacramento has done much to deserve the Kings, and Chris Hansen potentially will do much to inflate NBA values. Will the NBA miss the chance to exploit both?

A little creativity and patience by the NBA can make things work in Seattle and Sacramento. / 360 Architects

No action was taken Monday after the NBA relocation/finance committees met by teleconference, nor did the league comment about the meeting regarding the future of the Kings, according to several media outlets. So it’s hard to say whether the shock has worn off from the weekend blitz by Chris Hansen, or owners were dancing, or despairing. And we may not know after Wednesday.

It would be no surprise to learn the Board of Governors will postpone a final decision once more on whether keep the Kings in Sacramento or move them to Seattle after what one national writer described as Hansen’s attempt at a “hostile takeover.”

But any delay seems unlikely to be about the breathtaking money that Hansen and partner Steve Ballmer are heaving toward the Maloofs and the NBA, and whether it will help coax the Kings to Seattle. It likely won’t.

The only question would seem to be what to do with Seattle.

The NBA’s commissioner-presumptive, Adam Silver, is already on record with his soaring embrace of staying put by citing values such as  “community,” “continuity” and “brand building,” instead of the crass pursuit of money in the newly enlightened NBA. This heretofore under-appreciated epiphany, suffused with altruism, magnanimity and a generosity of spirit, must have started July 3, 2008, the day after the Sonics were granted permission to decamp to Oklahoma City.

So if Silver and the outgoing commissioner, David Stern, are in agreement that Sacramento deserves to keep the team despite whatever Seattle has to offer, and despite whatever the future holds for the Sacramento arena project, then, for the uncreative, that’s pretty much it. The Maloofs will be obliged to take the offer from the group led by Vivek Ranadive at $341 million, and tell Hansen/Ballmer that their $406 million is no good in the California capital.

Such a decision has two additional sinister benefits for the NBA. It keeps the Seattle market empty for use in extorting other municipalities who get sideways with NBA teams over lease issues (see Los Angeles and the NFL), and it also discourages private developers from taking on so much of the financing burden, as Hansen has done with his proposed arena in Seattle.

The NBA and all sports leagues have always craved direct public subsidy, such as Sacramento provided with its $258 million in future parking revenues for an arena proposed for downtown — and as Seattle, King County and the state of Washington have supplied to the NFL, MLB and NBA (remember the $100 million $73.4 million in bonds for KeyArena in 1995 that Stern always forgets about?).

The $200 million public portion for Hansen’s deal in SoDo is a lease-purchase that is scheduled to be repaid from arena revenues, not public taxes new tax assessments, and Hansen has personally guaranteed to cover annual revenue shortfalls for the first five years.

Such private risk-taking is not how it’s done in the NBA. But that’s how it had to be done in Seattle to get around anticipated significant public opposition to subsidy. The favorable terms allowed a majority of city and county council members to vote for a memorandum of understanding that sent forth Hansen in pursuit of the only available free-agent (no lease) team, the Kings. So in a way, Hansen’s bid is being done in by his own generous hand.

But the negative this week to a yes/no outcome is to leave millions on the table for each team. How dumb is that?

Remarkable a feat as it was to get Seattle’s project so far so fast, including purchase of all the land, Hansen’s first task pales compared to the epic national fight for the Kings led by Mayor Kevin Johnson and shepherded by Stern.

In hindsight, the deck was stacked in favor of the Kings, based on the NBA actions in 2010 to save its franchise in Katrina-ravaged New Orleans. Rather than see the flailing Hornets go bankrupt or sold out of town by its contemptible owner, George Shinn (worse than the Maloofs), the NBA purchased the team from him for $310 million and held it for two years until selling to Tom Benson, owner of the NFL Saints, for $338 million.

Creation of a “ward of the state” generated heaps of hoops controversy. But in the end, the NBA is still in New Orleans, shakily, and owned by a local good guy. Its chances of survival were enhanced by new collective bargaining agreement that Stern bet wisely he could obtain after another lockout he knew was coming in 2011. In Stern’s own forecast last year, he said the new CBA, with its reduced player compensation and increased revenue sharing, will allow nearly every team to break even in two to three years.

If that’s true, and Hansen has to believe it is, the pool of candidate teams available to move shrinks dramatically. Hansen is well aware of that too, which is why he threw down another $75 million Friday on the purchase price. Yes, it was a move of desperation, but not necessarily of foolishness. He figures that over 30 years, he’ll make it up in $20 craft  beers to many thousands of Seattle Amazon employees all making $100,000-plus.

The one dubious move Hansen offered was the one Saturday. In the likely event of denial of relocation, he and the Maloofs devised a “backup plan” in which Hansen becomes, for $115 million, a 20 percent partner of the Maloofs, who would operate the team in Sacramento for another year. The time and money would, in theory, provide financial help and resolution for the arena project.

Um, no. There may be a legal strategy in there, but to me, it’s too Clay Bennett-ish. Hansen may be a prince of a guy, but because he partnered with the Maloofs, every franchise move he makes becomes toxic to Kings fans. Since the NBA established with Bennett and Seattle from 2006-08 its willingness to stand by while a conscience-free ownership strips the team in preparation for relocation, a game ticket would scarcely be sold.

As I wrote May 1, better to sell to Hansen directly on a one-year term, primarily for getting rid of the Maloofs. Hansen will need the promise of a team — Kings or expansion — but the year buys time to make sure both cities’ arena plans clear obstacles, as well as learning more about the chances of a new TV deal after 2015-16 that will produce revenues that justify expansion. The NBA will begin TV negotiations, according to Sports Business Journal, this summer.

Over the weekend, the NBA just learned all of its franchises were worth more than anyone believed. They learned how eager Hansen is to join the club. To not find a solution that exploits that passion would display an appalling lack of foresight for a league that previously has displayed a sophisticated eye for extortion.

The solution doesn’t have to cost Sacramento its Kings. And it doesn’t require a reinvention of the wheel:

The league, which has already owned and operated another team for two years, offers to buy out the Maloofs at the local, Ranadive price of $341 million, and forgives the $70 million-plus loan the franchise owes the league. It’s close enough to the original Hansen offer to tell the Maloofs to beat it.

Then the NBA appoints an administrator to oversee the team, as it did in New Orleans,  and a contingency sale to Hansen. In less than a year, the arena situations will be known. If Sacramento sees arena success, Hansen must sell to Ranadive and buy an expansion team, both for predetermined prices that cover the estimated loss of revenues because of a 31st partner. If Sacramento fails, the team is relocated for a predetermined fee.

Is it awkward? Yes. But I think most people would take awkward over ludicrous. Given what has been learned over the weekend about the value of NBA franchises, any solution that fails to accommodate both groups, which include some of the smartest, richest people astride the planet, would be the acme of foolishness.


YourThoughts

  • Tom G.

    Meh.

    I don’t know, Art.

    I see where you’re going here, but I think this scenario is a bit convoluted.

    To me, if you want to keep the Kings in Sacramento, you need to get rid of the Maloofs. Because you don’t want them hanging around Sacramento as lame duck owners next year while a shaky arena plan and ownership group in California crumbles before everyone’s eyes.

    And to me, the best way for the NBA to get the Maloofs out of Sacramento ASAP is to take away their BEST and MOST LUCRATIVE relocation opportunity by giving Seattle an expansion team (no questions asked) for 2015 or 2016.

    Because AT THAT POINT, all that’d be left for the Maloofs to take would be a $525 million counteroffer from Vivek and friends in Sacramento.

    • art thiel

      Getting the Maloofs out is what the column advocated. But the NBA so far isn’t ready to expand on Hansen’s timetable — this fall. Another year makes more sense. But Hansen thinks that his deal may lose momentum (If McGinn is not reelected) if it doesn’t happen now. I understand that, but right now the NBA’s option is to say no flat out — unless his offer are too good to refuse.

      • Tom G.

        Well, UNFORTUNATELY, I can’t think of a whole lot that would convince the NBA to vote for Seattle now.

        Unless, of course, a dark cloud of litigation is hanging over the NBA here. and expansion turns out to be the settlement.

  • Jim_Harbaugh

    I would love to see both cities win! But in all honesty I only see one winner at this point, and in my opinion I don’t see Seattle coming out on top in this situation. NBA/Stern has made it clear that he will do anything to keep the Kings in Sacramento, and Seattle is going to end up being left out of getting a expansion team anytime soon.

  • Leon Russell

    So many mistakes in your column, and so little time. No, actually, I have quite a bit of time.

    “This heretofore under-appreciated epiphany, suffused with altruism, magnanimity and a generosity of spirit, must have started July 3, 2008, the day after the Sonics were granted permission to decamp to Oklahoma City.”

    As I explained to you before, the difference between Seattle and Sacramento is night and day: Seattle had NO deal in place for a new arena; Sacramento DOES HAVE a deal in place for a new arena. How you can look at those two different situations and not see any difference is astonishing. Do you honestly believe that there would be any question at all that the Kings would be moving to Seattle this year if Sacramento had no deal for a new arena in place? If Sacramento had no deal for a new arena, the Kings would be moving to Seattle right after Wednesday’s meeting.

    Your sarcastic comment about “altruism, magnanimity and a generosity of spirit” is just foolish. It was all about the new arena in Sacramento and lack of same in Seattle.

    • Mike S.

      Please tell us with your infinite wisdom what the Seattle arena deal is missing. We’re all waiting to hear how much more you know than Hansen and city/county officials. Are you part of the bidding team?

      • Leon Russell

        Art wrote about 2008, genius. I was commenting about Seattle in 2008, when the Sonics left. Not about the current arena deal, which obviously is in place now, but was not when the Sonics left.

    • Jared S.

      But Seattle did have two years left on the lease of an arena that had been rebuilt just 13 years earlier to Stern’s apparent satisfaction. It doesn’t seem to have been too much to ask that the league respect those last two years and give the city that time to come up with an arena solution (i.e., maybe revive the Ballmer plan), especially given the e-mail evidence that had come out confirming Bennett’s lies and bad faith. Instead the league aided Bennett in breaking the lease (perhaps because they didn’t want to take the chance that an arena deal would indeed be reached in those last two years).

    • Tim

      I don’t think we’re going to get the Kings, but it’ll be fun to watch your big ‘arena’ deal in Sacramento held together with public subsidies currently undergoing a legal challenge by the astute citizenry there come unraveled.

      Of course we didn’t have an arena “deal” after 100 mil put into Key Arena. Why do you not get that Clay Bennett never intended for an arena to be built in Seattle once he bought the team and it’s clear that Stern wasn’t losing any sleep over it notwithstanding the posturing in Olympia. You should change the snarky, condescending tone of your posts–Art Thiel is way the hell above you in all aspects of the craft. You’re probably jealous.

      • Leon Russell

        Actually, no, I’m not jealous of Art Thiel, although I do enjoy his columns.

        It makes no difference why Seattle had no arena deal back in 2008. The NBA said Seattle needed a new arena, and Seattle refused to build one, which was the correct decision by Seattle.

        But, unlike Seattle in 2008, Sacramento now has agreed to a deal for a new arena.
        And that is why the NBA is trying to keep the Kings in Sacramento now, and why the NBA allowed the Sonics to leave Seattle in 2008.

        • Trygvesture

          Not too good at the nuances, eh? You know, how things generally are not either/or, black/white– even in retrospect.
          “As I explained to you before…”
          Misplaced pedantry, don’tcha think? You might ease up on the snarkiness– it sorta lowers the curve and makes this read like the zombie commenters over at Baker’s blog.

  • Leon Russell

    “The NBA and all sports leagues have always craved direct public subsidy, such as Sacramento provided with its $258 million in future parking revenues for an arena proposed for downtown — and as Seattle, King County and the state of Washington have supplied to the NFL, MLB and NBA (remember the $100 million for KeyArena in 1995 that Stern always forgets about?).”
    The $73.4 million (not $100 million) in bonds which the city sold for KeyArena construction was all to be paid off from luxury suite and club seat revenues and naming rights revenue from KeyArena. There was not supposed to be any tax subsidy whatsoever for KeyArena, and that is how it worked until the NBA lockout and new baseball and football stadiums cut into KeyArena suite and club seat revenues.
    So, you are completely wrong about that.

  • http://www.facebook.com/scott.crosser Scott Crosser

    Guarantee a team to Sacramento if they can build a stadium in the meantime move the Kings to Seattle

  • Leon Russell

    “The $200 million public portion for Hansen’s deal in SoDo is a lease-purchase that is scheduled to be repaid from arena revenues, not public taxes,”
    Wrong again. Most of that $200 million public portion WILL come from “public taxes.” The only arena revenue the city will get is $1 million per year in rent from Hansen. All the rest will be paid off with public taxes: sales tax; property tax; admission tax; and B&O tax.

    • art thiel

      There will be no new tax assessments for the arena, but some taxes will be forgiven (property), and most taxes collected for arena-related activity will go to debt retirement.

      I will change the phrase. Thanks.

  • Trygvesture

    ok– this Epic Absurdist Odyssey has crossed over to the realm of the Dead Parrot sketch. Or Rocky Horror. Or Strawberry Fields Forever. Or Dali in Paisley. The Electric Cool Aid Acid Test and the Merry Pranksters were safe-and-sane compared to what’s going on down this rabbit hole. I can’t believe it. Must go ask Alice/When she’s ten feet tall: Who’s Wiley E Coyote and who’s the Roadrunner?
    Art, it’s hard to imagine that Lincoln and whatzizzname used to be the uncontested upside down nonsensical clowns of pro sports, weaving a storyline headed to the bottomless pit. That’s Saturday morning fare; this is late night TV on community access cable.

  • Leon Russell

    “Such private risk-taking is not how it’s done in the NBA.”
    Staples Center is privately owned.
    The Pepsi Center is privately owned.
    Air Canada Center is privately owned
    MCI Center is privately owned
    Wachovia Center is privately owned
    TD BankNorth Garden is privately owned
    The Rose Garden is privately owned
    Madison Square Garden is privately owned
    United Center is privately owned
    Delta Center is privately owned

    • art thiel

      By large corporations, often in partnership with municipalities. Hansen will be putting some of his personal wealth on the line. It’s not unlimited personal liability, but his willingness to do so was a big factor in the city council’s successful renegotiation in September that improved for taxpayers the original MOU put forward by McGinn.

      • Leon Russell

        “Large corporations” like ArenaCo?

        You don’t think Paul Allen put some of his personal wealth on the line in the Rose Garden?

        Barclays Center, the newest NBA arena, is also privately owned.

  • Jared S.

    I think that loan you referenced is to the city of Sacramento, not the NBA. And it’s owed by the franchise (it was taken out by the previous owner), not the Maloofs, so I’m not sure it being forgiven (by whoever it’s owed to) would do anything to compensate the Maloofs for being forced to take the lesser offer.

    • art thiel

      The city and NBA both are owed. And I said “franchise” because it was indeed by the previous owner.

      • Jared S.

        Okay, but I’m not sure if the Maloofs are responsible for those loans if they sell the team, so would forgiving the franchise for those loans make up for them taking less money?

        • jafabian

          The Maloofs would most likely take the offer that allows them to at least pay off any Kings related debt they’re responsible for, much like when you buy a house or car from someone that has a loan attached to it.

  • Leon Russell

    “Over the weekend, the NBA just learned all of its franchises were worth more than anyone believed”
    This is really ridiculous, and a mistake that many people are making. Hansen’s absurd offer to the Maloofs doesn’t change the value of any other NBA teams. Every NBA team is worth only what someone is willing to pay for it. Do you honestly believe that there are 30 other Steve Ballmers in the world, with that kind of money and that sort of desire to own an NBA team? If there are, why isn’t at least one of them trying to buy the Kings? It seems that Ranadive did not increase his offer for the Kings, just because Ballmer did.
    So, if Ballmer gets a team, you think that the next NBA owner who wants to sell will get $625 million for it? The owner could always ask for $625 million. But, how is he going to get it, if nobody feels like paying that much for a team? There has to be someone willing to pay $625 million for a team, and right now, it looks like Ballmer is the only person willing to do that.
    Every sale is a unique situation. The sale of the Kings to Ballmer wouldn’t make any other NBA team more valuable. Probably makes them less valuable, because you would no longer have Ballmer desperate for a team, so he couldn’t bid up the price on any other team if he succeeds in buying the Kings.

    • Matt712

      Leon, That’s not a bad point as you make it today from the perspective of, I’m guessing, a reasonably intelligent, financially competent average joe (albeit with perhaps too much time on his hands). But before you dismiss the valuation as “ridiculous,” consider the valuation history of the NBA (and pro sports in general). The inflation is staggering. Also consider that, with all due respect to the wealth and resources of the rest of the owners or would-be owners, Chris Hanson made his fortune crunching these kinds of numbers. That’s his thing. That’s what he does. Some people write software, some own gyms… Chris Hanson figures out how valuable things are going to be. I’d really love to see those back pages (pro forma) on the business plan.

      • Leon Russell

        Chris Hansen’s hedge fund lost a lot of money in the first quarter this year, while the overall stock market gained quite a bit. Hansen might not be as smart as you give him credit for.

        You could compare pro sports teams a little to real estate. Some office towers in the past few years sold for a lot less than the cost to build.

        And there have been many stories about expensive mansions selling for far less than the asking price, after being on the market for years.

        NBA teams are far scarcer, for sure. But, you still need someone willing to pay what you are asking. If there is no “greater fool”, then you won’t get want you ask for your team. You can’t force someone to pay you what you are asking for.

        • Matt712

          Yeah, last qtr. was tough (-8%, bullish on Apple, Inc.) However, Hanson’s fund is up 13% since its 2008 inception, but let’s not get lost in minutia. Your comparison of pro sports to real estate is a stretch, but we can go there – and more to the point made in the column. Let’s say you find out you’re neighbor down the street has just been offered twice the amount for his house that you thought it was worth (and his house isn’t even as nice as yours). Even if you thought the offer was “absurd,” would you shrug it off, or would re-assess the value of your own home? For better or worse, Hanson’s offer changes the landscape. What’s absurd is to assume otherwise.

          • Leon Russell

            What you are missing is that Steve Ballmer is basically a oner — there isn’t anyone else like him with that much money and that desperate to own an NBA team.

            Hansen’s offer does not change the landscape at all, unless he does not get the Kings and continues to bid $600 million-plus for any other team that might become available.

            Who do you believe would offer $600 million for an NBA team in a mid-size market? Bill Gates and Warren Buffett have shown no interest in owning NBA teams. Ranadive is not offering anything close to $600 million.

            If your neighbor sold his house for 50% more than any other house in your neighborhood sold for, because some really rich person really wanted that house, you could ask for the same amount your neighbor got, but what makes you think there would be another really rich person who really wanted your house? And if there wasn’t some other really rich person who really wanted your house, then who is going to pay 50% more for your house than other houses in your neighborhood sold for?
            My real estate analogy was for extremely expensive mansions. Like in the $20 million-plus range. Some people who paid way too much for a mansion before the Great Recession wound up selling them later for a lot less than they paid for them.

  • jafabian

    I’ve been wondering if the buying party wasn’t Hansen/Balmer/Nordstrom but instead Charles and David Koch and if they wanted to relocate the Kings to the Tampa-St. Pete area (which is roughly the same market size as Seattle) or maybe Baltimore or St. Louis would there still be such scrutiny by the NBA in this issue?

    Despite everything that’s happened its still IMO a 50-50 scenario. How much clout does Sterno have with him leaving? Owners have been very silent in all this. Does Paul Allen’s stance help to sway any owners? Are owners willing to say no to money that would come to them if Hansen’s bid is approved? Are they willing to say no to increasing the value of their own franchise?

    Lost in this is the fact that at one point the Maloof’s were solid owners. They ran a model franchise and did what was necessary to keep the franchise going up until five years ago. Now they have money problems over that period of time. This only confirms Allen’s assertion that the NBA has a broken economic model. With that in mind can the NBA afford to say no? Can Hansen afford to wait 2-3 years for expansion? I wish we could hear from him exactly what Sterno and he talked about when Hansen contacted him on bringing a team to Seattle.

  • PokeyPuffy

    Its not all about money, the Hansen/Balmer strategy did not include enough brownnosing. I think they are perceived as a threat to both Stern and the other owners.

  • Matt712

    The more this spectacle has evolved, the more appealing expansion looks as the most elegant (least boorish) solution. I understand the risk in having to wait, but why couldn’t a binding agreement/promise from the NBA be regarded as “securing” a team enough to break ground on the arena? …oh, there’s that word again – “binding.”

    • jafabian

      Hansen has had his proposal in place for months now, and in escrow. The Sacramento bid only for a few weeks. And the NBA had to put it together. You’d think that would work in Hansen’s favor but it doesn’t look like it. I’m wondering if Hansen can get the NHL involved in this somehow? Get some NHL owners to weigh in with their NBA counterparts?

  • Matt

    The NBA may very well not approve relocation, but approve the sale. Rejecting the sale they’re on much shakier legal ground. There might be a 3-step process here for Hansen and company. 1. We want the Kings. 2. That fails. Okay, we want to have enough leverage (both in putting up $$$ and in the threat of legal action) that Seattle gets an iron clad promise of expansion for Fall 2014. 3. Both of those fail – Lawsuit time (with the aim of getting the NBA to settle on #2 above).

    Personally, I don’t mind Mr. Thiel’s scenario. Seattle gets a team in the end and the league can see if Sacramento can get its ducks in a row for a new arena.

  • notaboomer

    precedent: sacramento/seattle kings play 15 home games in key arena and 26 in sleeptrain arena. remember the kc/omaha kings? ride on the sleeptrain oooohhh ahhhh ooooh ahhh oooh ahh jump upon the sleeptrain.

  • JimRattZac

    Art, you are the best.

    I read you for years and was not aware of where you went until now.

    I hope your thoughts get sent to each NBA team owner. Or HBN could use it with their presentation tomorrow.

    I am a Sonics fan since 1967. I still remember that roster and each since.

    I hope we get a promise of an expansion team but how can we trust the NBA to actually come through.

    Keep up the excellent work Art. Thanks.

  • giorgio547

    If people haven’t figured out that it is all about the money by now then they never will. Great column!!!

  • Halfrack

    The NBA has needed a bylaw that requires a local ownership offering prior to a relocation request. Had Bennett been required to offer up the Sonics for sale prior to relocating, I don’t think he would have purchased the team to begin with. This would also prevent the current situation with the Kings.

    The true value of a team is its connection to fans, and having experienced what connection between a community and a team can be, relocation should be a last resort option.

  • cw

    Not the best idea. Why would they league to that when they could just deny the move and the sale and then the Maloofs would be forced to sell to the Sac group. Much simpler. And why would Ball/Hans want to own for a year and then most likely have to sell. The sacramento arena will get built in some form or another. They had another deal last year that the Maloofs torpedoofed. The league is not going to support the Sac group without being really confident that an arena will be built.

    If Ball/Hans are really smart they would pull back and do some emergency ass kissing to rebuild whatever chance they still have of getting a team. The crazy (stupid and amaturish) offers seems like Ballmer to me. I wouldn’t be surprised if somewhere down the road Ballmer and hanson part ways.

    On the other hand, the league is not Stern and anything could still happen. But I would bet a modest amount on no to relocation, no to both sales, and the Maloofs selling to the Sac group after some negotiations.