What is biggest risk in Arena deal?

This week will see Mayor Johnson’s financing plan for the downtown arena, which Johnson calls “the city’s greatest economic opportunity since the building of the Transcontinental Railroad.”

At least in the Bee report, the Maloofs seem cautiously optimistic and willing to play ball, though they do want to see a solid plan:

Maloof said he is holding the city to the March 1 deadline. “They’ve got to deliver. Everything has to be in place, ironclad. No risk. No ifs.”

No risks? Sure, sure, sounds like a plan. For example you wouldn’t want to take on a risk that your major tenant can’t make rent payments, right?

Maloof has said the Kings only want to be tenants, not operators, of the new arena, and warned the team doesn’t have much money for rent payments.

Not sure how Maloof expects the City to handle the risk of Maloof not being able to make rent.

I would personally hate to lose an NBA franchise–and though I have been critical of the Maloofs in the past, I guess it is pretty standard to be completely beholden to the team even when their commitment is in question. It is just business, after all.

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Author: CoolDMZ

"X-ray vision to see in between / Where's my kimono and my time machine?"

4 thoughts on “What is biggest risk in Arena deal?”

  1. God, let the Maloofs go! People in Sacramento and the surrounding areas will find other ways to spend their money on things to do at night. In fact they’ve been doing it for the past 3 fucking years.

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  2. To the Maloofs: Don’t let the door hit you in the rear-end on your way out! We in Sacramento go through this drama every couple of years; the Maloofs demand that the public (in the form of taxpayers or fine payers or parking-spot payers) subsidize a new arena for their team (“cuz Arco ain’t fancy enough like all the other team’s have!”) and the public repeatedly says “Sorry, but No”. And the Maloofs come back again (like cockroaches) again saying “Sacramento better do it or else…”. Now we got a deadline or else…. Please Maloofs, give us the “or else” already.

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  3. There is a bigger risk than the Maloofs or losing the Kings. Building an arena will depend on getting an enormous construction loan, since most of the identified “funding sources” are pots of money that won’t become available until after the arena is built (like revenue from ticket sales and naming rights.) But to build an arena you need money now–thus, a construction loan, via the sale of bonds. These bonds will have to be backed by the city of Sacramento.

    Now, if the arena costs $400 million to build, and the bonds pay 4% interest (very low), the annual payment comes to $24 million a year. But the arena planners (not the city, this is not an official city function) have identified a total of about $390 million in potential arena revenue, in a whole hodgepodge of ideas. If they make every cent of the possible sources of revenue, that $390 million over 30 years adds up to $13 million a year. Which leaves an $11 million gap EACH YEAR between the arena payment and the maximum amount of expected funds to pay for arena construction, for 30 years. That $11 million would have to come from the city’s general fund. And if any of the mass of funding sources recommended by the report turns out to be impractical, or falls short of expectations, again, the city’s general fund has to fill in the difference.

    Now, you may wonder why anyone would borrow more money than they could reasonably expect to pay for a mortgage. You might also wonder who would be so unscrupulous as to lend someone money under those conditions. But both cases should sound pretty familiar for anyone who lived through the recent financial collapse and mortgage crisis. Finance companies made huge mortgages to people clearly unable to pay, and packaged these mortgages and sold them as high-grade investments to folks like retirement funds. By taking out insurance policies that would pay in the event that those bad mortgages turned out bad, companies like Goldman Sachs profited when those mortgages went belly-up.

    By the way, there is a major banking organization involved with this arena project, helpfully volunteering their time at the Mayor’s request: Goldman Sachs!

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