City hopes Kings’ finances don’t implode
By R.E. Graswich
The big problem with the Kings isn’t their history of failure, their dumb trades, mystifying draft choices, chronic mismanagement, clueless owners or inability to hire and retain people with the brains and talent to compete in the NBA.
The big problem is their potential to drag the city of Sacramento toward bankruptcy.
Can the Kings hurt the city’s fiscal stability? For decades, that’s been a mostly abstract question. Now the threat is real. The city’s vulnerability began 23 years ago, grew slowly and gained speed in 2015. Today, in an economy convulsed by pandemic, warning signs flash red.
In 2015, the city took out loans of $212 million to help the Kings build Golden 1 Center. City Hall relies on rent paid by the Kings, plus parking revenue, to make the loan payments. If the Kings reduce their payments—which is already happening—the city must make up the difference. That means tapping reserves or the general fund. Which potentially means cutting into basic services such as parks and public safety.
“I have a very difficult time accepting the fact that the Kings are just going to stiff us on the amount of money they owe us,” City Councilmember Steve Hansen says. Sacramento can only hope he’s right.
The city became financially entangled with the Kings in 1997. Team owner Jim Thomas, a Los Angeles property developer who bought the Kings as a rich man’s diversion, was soon losing $5 million a year on his hobby.
The Kings frustrated Thomas with habitual failure and their inability to produce bountiful dollars that flow from playoff appearances. His investors, including L.A. development partner Rob Maguire and billionaire homebuilder Eli Broad, quickly lost enthusiasm for covering the losses.
Pushed to his limits, Thomas turned to the city and asked for a $73 million loan. The request wasn’t extortion, but it was close. Thomas would consider moving the Kings if the money wasn’t forthcoming. The City Council agreed to deliver the cash. The loan was secured with the deed to Arco Arena and surrounding acreage.
The Thomas loan worked out fine. The debt was retired when Golden 1 Center was built. But the new arena required a second entanglement—an arrangement far deeper and more expensive. This time, the city became full partners with the Kings and their current owner, Vivek Ranadivé.
Golden 1 Center cost $535 million—about $223 million more than Ranadivé and his partners wanted to spend. The city made up the difference. It sold bonds worth $212 million and tapped parking and development funds. Today, the city owns the arena. Ranadivé runs it. He collects tickets and concession dollars and pays rent to the city, which the city uses to pay debt service on the bonds.
Everything worked fine until the pandemic struck and lawyers checked the fine print. Under their agreement with the city, the Kings don’t have to pay full rent if NBA games are canceled or moved elsewhere. In 2015, what were the chances of that?
When the NBA canceled its remaining games in March, the Kings got a rent break. Between the rent break and lower parking revenues, City Treasurer John Colville says the city is about $6.1 million short of the money it needs to pay bondholders on the arena mortgage. That’s $6.1 million for this year. Next year is anyone’s guess.
Colville advised the City Council to tap reserve funds from two rainy-day pots—one for bonds, one from the general fund. And pray the NBA resumes traditional play soon.
Meantime, the Kings have lost millions of dollars from canceled games and concerts. Staff has been laid off. The Kings still receive a cut of NBA television revenue, which keeps the team afloat, but most NBA owners balance their budgets with playoff income. The Kings haven’t reached the playoffs in 14 years.
No, Sacramento should not count on the Kings for anything.
R.E. Graswich can be reached at firstname.lastname@example.org. Follow us on Facebook, Twitter and Instagram: @insidesacramento.