Editorial: So the Maloofs are basically saying that the Term Sheet agreed upon in Orlando was bad for the Maloofs, the NBA, and the City of Sacramento.
They then edited the Term Sheet to something which they would then sign off on.
In theory, if their concern was with the Maloofs, the NBA, and the City of Sacramento, then this new Term Sheet should be expected to make things better for all parties.
I wanted to look at what they say they want and then examine their Term Sheet which they would agree to in order to get the deal done.
I think it's very important to understand the objections that the Maloofs are making. They basically said that they never agreed to all the terms in the Orlando Term sheet, and that they sent their terms to the City by way of the NBA, and that their terms were never incorporated into the Term Sheet.
The Maloofs basically said that they couldn't work with the City, if the City never got back to them regarding their concerns.
Here is what I think happened: I believe that the Maloof's brought up most of these points to the NBA. The NBA and City through their negotiations on this deal found these terms to not be good for the over-all deal. So they dropped those terms and proceeded to move on to other issues.
I'm assuming this to be the case because when I read the red-lined term sheet the Maloofs wanted to have approved I see a comment from the City Negotiator saying "Issue has been raised and discussed with NBA (and Kings) on numerous occasions.
So with that assumpion in place I want to break down the changes to the Orlando Term Sheet into two different sections.
Section 1: Terms Maloofs are insisting upon even though all parties negotiated and found the Maloof terms unacceptable.
Section 2: New terms the Maloofs are raising on the Revised Term Sheet.
After we look at both sections I want to examine what the Maloofs say they want, i.e. a deal which will be economically feasible for the Maloofs, the NBA, and the City of Sacramento, and see if what they say matches the changes that they would be willing to agree to in order to make this deal happen.
Section 1: Terms Dropped in Negotiations but now Insisted upon by the Maloofs
1. No collateral on new bonds to pay off 1997 Lease Revenue Bonds
2. Kings not paying any Pre-development costs
3. Kings not paying any Cost Overruns
4. Kings being able to relocate prior to end of agreement (30 year agreement)
5. Kings not locked into a 30 year agreement (Probably want 10-15 year deal)
6. Kings not paying game day operating expenses in connection with Kings Events
7. AEG paying for access to premium Seating Parking. (This is so AEG can charge later?)
8. Kings not paying for Municipal Services (Police/Traffic Control, Fire Prevention, ect.)
Section 1: New Terms added
1. Kings having final say on design, development, & construction issues which effect the Kings
2. Kings being able to use ESC for Practices and other Team Events free of charge
3. Kings get sign-off on all terms for arena signage and naming rights
4. Kings not paying City taxes or assessments of general applicability while using ESC
5. New owners would not be subject to abide by agreed-upon term sheet
6. Kings would get MSE suite. Suite could be used for all ESC events, not just Kings events
7. Benchmarks - Kings wanted timelines for getting things completed. If timeline not met they wanted to "terminate the definitive agreements and its obligations thereunder without any liability to any party"
Comparing Term Sheet Changes to Maloof's Insistance that they are trying to help the City and the NBA
There are other items and changes, but these are all the big ones.
When I examine the terms which had already been negotiated I see the following:
Terms 1.3, 1.6, 1.8 basically make the Kings more money while making either the City or AEG have to cover those costs. So these help the Kings but hurt either the City or AEG.
Terms 1.1, 1.2, 1.4, 1.5 all reduce the risk of the Kings and give them flexibility to leave the area while creating more risk for the City.
These items help the Kings but hurt the City.
Term 1.7 has to do with AEG and premium parking. I'm not clear on this item though the City Negotiator says that Premium Parking will not be constructed with-out it, so I'm guessing that it adds to Security for the City and helps AEG somehow. Maybe if they pay for access, they can then charge the public for access. Perhaps someone can clarify this point for me.
Terms 2.1 & 2.3 basically give more control to the Maloofs as far how things will be designed, constructed, and implemented. It appears to me that term 2.3 is negotiable, but it would be difficult to work Term 2.1 because it would be impossible to clearly deliniate what was a matter 'Effecting the Kings' versus a matter which was non-King related.
Terms 2.2 & 2.4 basically is a cost savings to the Maloofs. They want to use the ESC for Practices and other Team Events free of charge and they don't want to have to pay City taxes for revenue obtained while using the ESC.
Obviously AEG would be the one to lose out if the Maloofs didn't have to pay for ESC use and the City would lose out if operators of the ESC did not have to pay City taxes for revenue from the ESC use.
Term 2.6 is a perk that the Maloofs are requesting. They want a 'MSE exclusive suite' including premium parking that they can use for any event at the ESC at any time. I'm sure that this one is negotiable, but the City Negotiator said that they'd have to negotiate this with AEG. Which makes sense, as this item would directly cut into AEG's revenue.
Terms 2.5 & 2.7 are scary additions and in my mind Term 2.5 is probably the worst of all the terms. Term 2.5 basically says that if the Maloofs sell the team, the new owner is not obiligated to the Term Sheet. Why in the world would you put that in there unless you not only had plans on selling, but had discussions with potential buyers, and you gave assurances that they would not have to be 'stuck in Sacramento'.
Term 2.7 is also scary, because it basically says that if certain items are not completed by an agreed-upon date, the Kings can just walk away from the whole project, with-out consequences. So the things could get half-way built, and then they could walk away if somehow things came up which prevented a timeline to be met.
After examining the Term Sheet the Maloofs said they would be willing to sign off on, and then comparing that to their statement that this deal would be bad for the Maloofs, the NBA, and the City of Sacramento, I have to say that their intent does not match up with their statement.
Almost every single provision they want changed or included reduces their costs and their financial risk, adds to their control over the project, and gives them the flexibility to leave the area, sell the team, or stop participating in the project.
At the same time their changes and inclusions greatly increases the financial risk to the City of Sacramento, while reducing the revenue for both AEG and the City of Sacramento.
It's clear that the Maloofs might say they want one thing, but in reality they are looking for a deal which has little-to-know risk on their part while guaranteeing flexibility and revenue at the cost of the City of Sacramento and it's partners.
I'm not certain if any other conclusion can be had, but I'd be curious if someone is seeing this differently. Also, if someone familiar with the Premium Parking and AEG's obligation could clarify that point, I'd appreciate it.
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