A year ago, the Sacramento City Council approved a term sheet to build a new entertainment and sports complex at the Railyards in downtown Sacramento. The vote was 7-2. The Maloofs pulled out of that deal because they are broke and greedy (a terrible combination, really).
The deal was made in late February, approved in March and killed dead in April. In June, the mayor who championed the deal -- it was really the centerpiece of his first term -- won re-election by a massive 35-point margin. So the City Council clearly liked the 2012 deal, and the voting public clearly liked Kevin Johnson's work on the deal.
This deal is better.
The city released a term sheet with the Ron Burkle-Mark Mastrov-Vivek Ranadivé group on Saturday night. The council will vote on it on Tuesday. Here are the ways in which this is a better deal for the city of Sacramento than the 2012 version that received 7-2 Council approval and helped launch the mayor to easy re-election.
* The location! While the Railyards is a major infill site in need of an infusion, K Street and the downtown core have existing infrastructure, existing surrounding commercial buildings that will benefit and should have fewer environmental impacts. No messing with freeway interchanges at Downtown Plaza.
* The investors will pay $6 million in pre-development costs. The Maloofs had never agreed to do that in 2012, apparently. The investors have included their willingness to do that in the term sheet, so we won't have to worry about that hiccup in May or June.
* The investors are making no claim on city parking revenues on game nights. The Maloofs did make such a claim, which basically negated the benefit of using city parking revenue to finance the arena and boost said parking revenue. The investors will only reap benefits from some existing parking under Downtown Plaza that will be preserved. That will 2,700 spots, 1,000 of which will be premium spots. Those spots will all still be city-owned, but the investors will be able to operate them for the length of the arena lease. Speaking of which ...
* The investors have committed to a 35-year lease with two 5-year extension options. The Maloofs were reluctant to commit to 25 years. That extra decade (and maybe two) is a huge win.
* The investors are actually committing to investing in Sacramento's downtown. With the Railyards deal, the city would have relied on the ICON/Taylor group to develop around the arena. In this term sheet, the investors are pledging up to $500 million in investment at the Plaza and nearby city properties. (I note that this is more pledge than guarantee -- there are a lot of "up to X square feet" references in this section. But given what Burkle did in Pittsburgh and the financial wherewithal and interest in investing here, it's better than the prospects were in the Railyards.)
* The investors are not quibbling over paying for gameday city expenses like police officers. That was a sticking point in 2012.
* Collateral on the 1997 loan! There are actually a few cool things happening with the 1997 bonds. First, a 5 percent surcharge on Sleep Train Arena events over the next three years will be used to knock down the principal. Forbes estimated last season's basketball gate at $18 million. If you double that to account for non-Kings events and take 5 percent, that $1.8 million per year, or $5.6 million over three years. (For what it's worth, the city is estimating $3.7 million annually in ticket surcharge revenue at the new arena. It's not clear if that includes the $1 per ticket fee in addition to the 5 percent surcharge.) The $5.6 million figure for three years at Sleep Train is a conservative estimate, though: attendance at Kings games may be higher, and the arena is used much more frequently than 80 times a year. So we might see something like $10 million go toward 1997 bond repayment just on ticket surcharges over the next three years. Plus, the term sheet allows for the investors to sell the Natomas property and put those proceeds toward the bond repayment before new bonds are issued. And, as mentioned, there is solid collateral on the new bonds to be issued: a lockbox on new arena revenue. Remember: the Maloofs either wanted that debt retired or there to be no collateral on it as a part of a deal they were putting no cash into.
* One of the key differences between the 2012 deal and 2013 deal: there are no Maloofs in the 2013 deal.
Some members of the City Council have changed. I don't see any strong reason for any member who voted for the 2012 deal to vote against the 2013 deal.