Aldridge: Three Most Important Factors in Kings Decision

USA TODAY Sports

In his latest piece for NBA.com, David Aldridge has a rundown of what he believes the three most important factors will be in the decision on whether or not to let the Sacramento Kings be sold to the Hansen-Ballmer group.

More likely than not, the fate of the Sacramento Kings will be decided this week. As we head towards the conclusion of this endless saga, questions yet remain for both sides.

David Aldridge, who has been covering this story for a while now, lists what he believes the three most important are factors in his latest piece: Arena Deals, $30 million Non-Refundable Deposit, and Revenue Sharing. Let's go ahead and take a closer look at each one of these.

ARENA DEALS

  • Seattle's Arena Deal is set to be primarily privately financed, with a contribution of $125 million from the city (which is upped to $200 million if Hansen can also secure an NHL team). Sacramento's deal features a large public subsidy equaling about $258 million, with the investment group responsible for the rest. Both cities are aiming to protect their general fund, although in Seattle's case, Chris Hansen has vowed to personally cover any gap while Sacramento is dependent on various revenue sources hitting their projections.
  • Seattle has purchased the majority of the land for the arena in the SODO district. Sacramento still needs to purchase a few parcels from independent owners, with a cost estimated to be about $26 million. However, as the Seattle Times points out in a recent editorial, the SODO site is not set in stone and any environmental review will have to consider alternate sites.
  • Both sides face a lengthy environmental review process and both sides have begun that process. Seattle hopes to be done by November while Sacramento aims for a year or so from now.
  • After the environmental review process is complete, both sides could see litigation. California's law AB 900 provides a 175 day limit for potential litigation, although part of that law was recently struck down by an Alameda judge. Seattle has no laws in place to prevent litigation from dragging on.
  • Rumors indicate that Chris Hansen told the NBA Board of Governors that Seattle's arena would be completed by 2015. This is in stark contrast to the words of King County Supervisor Dow Constantine and Mayor Mike McGinn, who speculated that the arena would be done in either 2016 or 2017. Sacramento is aiming for a 2016 opening.
  • Aldridge also points out the 2005 Sacramento study on the potential costs of building an arena in the Downtown Plaza. While I won't get into the fact that that is an outdated study, I will mention that should there be any cost overruns, the term sheet that the Sacramento City Council passed says that any overruns will be covered by the investment group, not the city.
  • One anonymous executive told David Aldridge that he believes the Seattle group is more well-put together than Sacramento's:

    Another team's executive, however, favors the sale to Hansen and the move to Seattle, citing the binding deal the Maloofs made with the Hansen group.

    "He has a deal that is not contingent on anything," the executive said. "But there's no basis to turn one down other than you want to move it to Seattle and we don't want you to."

    The executive also said the economic and demographic dynamics are "more progressed" in Seattle.

    "The work they've done already kind of speaks to the level of commitment of the group," the executive said. "If that group says they're going to do something, you can kind of rest assured that they will. If the question is what will be the best place to be for the next 25 years, it favors Seattle.

    "They've got a site that's assembled and they're ready to go. They've been working on it for a year and a half. And now [in Sacramento] you've got an ownership group cobbled together, and they don't really know each other."

THE DEPOSIT / BID

  • Chris Hansen and the Maloofs struck a deal to buy 65% of the Kings for a franchise valuation of $525 million back in January. Part of that deal involved a $30 million non-refundable deposit.
  • Sacramento's initial counter-offer for the team was way off, featuring a "substantial variance" per David Stern.
  • After April 3rd's Board of Governors meeting, despite the Sacramento group not publicly stating that they have matched Seattle's offer, David Stern said that the bid was no longer an issue. Numerous sources have indicated that the group did indicate to the Board of Governors that they would match, including covering Hansen's $30 million deposit.
  • From Aldridge's piece, a couple of anonymous owners indicated a willingness to support Sacramento should they match:

    "I think if they came up with the certainty of a deposit, for me, as an owner, that would be a compelling bid," said the owner, who obviously has to remain anonymous. "They're plenty capable. If they put a deposit, that makes it more compelling."

    A second owner echoed that sentiment, saying that the two bids were essentially equal. He said this before the disclosure of the increased valuation of the Seattle offer was made public.

  • In seeming response to these reports, the Hansen-Ballmer group "voluntarily" raised their bid to a valuation of $550 million, or in real money terms, $16.25 million more to the Maloofs. The response from the Sacramento side has been to ignore this increase, with Chris Kelly calling it "not a lot of money in the big picture". Sources told the Sac Bee that Sacramento views this as a desperation move by Seattle, although it's still unknown whether the NBA will allow the increase (as Stern has said he doesn't expect a bidding war) or if the Sacramento group will match the increase if they are asked to.

REVENUE SHARING

  • Of the three owners Aldridge spoke to, all agreed that the matter of revenue sharing would be an important factor as Seattle would likely be a revenue payer while Sacramento would most likely remain a revenue recipient. The pro-Seattle executive put it this way: "The bigger markets will be moved by which city has the best likelihood of being successful, and a lower likelihood of having to be supported," the exec said.
  • Seattle's group reportedly told the NBA Board of Governors that they would be creating a Regional Sports Network that would pay $40 million a year, more than double what Sacramento's television deal currently is.
  • However, Sacramento has been a largely unsuccessful team under the stewardship of the Maloofs in previous years. Based on the research done here by Fireplug, Sacramento earned more revenue than the Seattle Supersonics every year from 2002 to 2008 (when numbers were available). It's possible that a revamped franchise without the specter of relocation around can reach those lucrative heights once more.

A compelling case can be made for either side. But to me, Aldridge misses another, bigger issue: Is there a truly compelling reason for the NBA to move from Sacramento? Has Sacramento failed to support its team? That's what relocation is usually about. Let's look at Article VII from the NBA Constitution, also given to us by Aldridge in a previous piece.

For its part, the relocation committee must, as detailed in Article VII, make its decision on specific criteria. This includes:

  • What is the support of the team in the existing location?
  • What is the ability of the existing location to continue to support the team?
  • What is the demographic breakdown of the existing location -- the population, age, income, market size for cable or other television?
  • Conversely, what are the same conditions like in the city to which the owners want to move?
  • What would be the effect of relocation on the overall ability to market the league? How would it affect the league's television partners, if at all?
  • Would there be a particular disadvantage to travel and/or scheduling by allowing the move? (Interestingly, Article VII also allows for this possibility: are there any other owners who might want to move their teams to that market? This allows for the possibility that there could be an owner willing to spend even more to move there, allowing the league to max out the financial possibilities of a given market.)

Under Article VII, I don't see how the NBA can make a case that Sacramento has not met the criteria of support and ability to support, given the herculean efforts of both the fans and the city's politicians to keep the team here. Moving would also kill this market, likely for good, while denying Seattle now is merely delaying the inevitable, as they will get a team one day, either by expansion or another sale and relocation.

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