Maloofs, Not Taxpayers, Benefit From a New Arena

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What exactly is going on in Sacramento? For years various Kings ownership groups have sought public funding to replace the privately funded Arco Arena, which opened in 1988, and build a new arena for the city’s NBA franchise. Now, Sacramento city officials are scrambling to put together a proposal that pleases both the taxpayers and the team’s current owners, the Maloof brothers. However, this time they seem to be teetering dangerously close to violating California state law.

A little background is necessary. In 1996, the Kings owner at the time, Jim Thomas, proposed building both a Major League Baseball stadium and an NBA arena in the city, but by January 1997, the idea fell apart and Thomas began threatening to sell the team because the franchise was losing money. Sacramento city leaders, fearing that Thomas might move the team to Anaheim or some other city, loaned him $82 million to help ease his financial burden. Thomas then sold the franchise to the Maloof brothers in 1998.

In 2001, Sacramento’s mayor, Heather Fargo, put together a task force to study whether Sacramento should green light an arena and entertainment center in the city’s downtown area and, by November 2002, there was some sort of commitment to the plan. But the Maloof brothers pulled out of the proposed venture within a year, partly because they didn’t want to get stuck with a debt service bill. When the issue was revisited in 2004, the Maloofs were unhappy that a city councilman offered a resolution that would cap spending at $175 million for the city and $175 million for the Maloofs.

Apparently a salary cap on NBA players’ payroll is fine for the brothers, but a municipal spending cap for an arena is unacceptable.

Now there is another arena proposal on the table and Sacramento officials appear to have deliberately used language that makes it unclear what voters are being asked to approve. The two-part referendum on the November ballot proposes a quarter of a cent general tax hike for the next 15 years then asks whether voters would like to see the estimated $1.2 billion in proceeds go to building an arena and other community projects.

Why didn’t Sacramento politicians mention that the tax increase in question is in fact a sales tax hike?

The answer seems to be that the arena referendum had to be worded in such a way because it was never going to get the two-thirds approval needed under California law to pass a sales tax increase. Officials need just a simple majority, a 50.1% plurality, to win a general tax hike.

The politics of sports is at its best extremely messy, and politicians generally go to great lengths to keep stadium and arena building proposals off the ballot. Sacramento city officials seem to have reached a new high — or low, depending on one’s viewpoint — in making sure they do right by the Maloof brothers and the NBA. They are determined to build an arena despite the language in Proposition 218, which calls for a two-thirds majority on specific tax increases like arena and stadium projects.

If you look at the details of the proposed lease between Sacramento and the Maloof brothers, it’s clear that the Maloofs will walk away with a windfall, but that’s how the government–sports franchise partnership works and you can’t fault the Maloofs in this deal. Sacramento is so desperate to hold on to its only major league team that it’s willing to give away the store if voters say yes.

The city, through the general tax, would put up at least $470 million for the arena and parking. Sacramento officials think it may cost as much as $542 million for both, and there also will be a cost of between $35 and $51 million to pay off the debt service on the loans that will be taken out for the construction. The city would own the building, but all of the revenue generated for all events held inside the building would go to the Maloof brothers. Not only that: The siblings would keep all the money earned from selling the naming rights to the cityowned arena.

The Maloofs would pay off Thomas’ old loan, which they inherited after they purchased the team. Additionally, they would pay $4 million in annual rent, an amount that could easily come from naming rights.They will also have to kick in $20 million for arena repairs. It’s a sweet deal for the Maloofs and a rotten one for Sacramento, but at least the city’s residents can say yes or no to it.

Voters on both sides of the issue will battle through November 7, with the pro-arena side saying that it’s a quality of life issue — having the Kings around makes Sacramento a better place, and if the arena isn’t built, the Maloofs could move the Kings to either Las Vegas, Kansas City, Oklahoma City, or even Anaheim. On the other side, opponents will ask why the city should spend around $600 million on a high-priced entertainment center that will profit the Kings’ billionaire owners in a city that needs its levees constantly upgraded as well as money for social services and other needs.

Is Sacramento desperate? It appears that city officials are so desperate to keep the Kings in town that they used carefully worded language to get around a state law governing sales tax increases, which requires 66.7% voter approval. The city is basically paying for a building in which the best-case scenario would be that it only gets back $120 million in rent under the 30-year lease. Because of this, the city will not consider any community projects, which could be funded from the general tax, for at least the seven years it will take for arena construction bills to be paid for in full.

The Sacramento deal, if approved, will be no different from what was offered to NBA owners in Indianapolis, Memphis, and Charlotte. All the arena revenues go to line the NBA owners’ pockets.

Sacramento wants to remain in the big leagues, but smaller cities don’t have large corporate bases or lucrative cable TV deals so they have to do other things to keep or attract major league teams. In New Orleans, Louisiana pays Tom Benson an annual fee to keep the Saints in town; in Sacramento, city officials want to build a workplace and then give all the revenues away. That’s how sports really operates and for the Maloof brothers and Sacramento, their Super Bowl, their NBA championship game, their Stanley Cup, their World Series will be played on November 7.

To use an old sports cliché, this time it counts.


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