NOTE: This article was originally published in 2002. I thank Mike for taking the time to find it...VF21
Below is an article from the Sacramento Bee on the Maloofs opening their books. I did a search for it using Sac State's library services. I apologize for this being so long but I felt it was necessary to paste the entire article and anything related to it. Thanks. - Mike
The Maloofs are losing money now on the kings, but they're investing for ... the long haul
Family forecasts a royal success in capital
The Sacramento Bee
April 14, 2002
Author: Gilbert Chan
Bee Staff Writer
Estimated printed pages: 13
Joe and Gavin Maloof are explaining how the Kings have not made a profit since 1998, how expenses keep rising and how it all adds up to good business.
"You invest, invest, invest," Joe Maloof is shouting. "We're in it for the long haul."
The brothers are sitting in the owners' box at Arco Arena, rock music blaring overhead, watching fans pour into the arena as their Kings, one of the most popular teams in the National Basketball Association, warm up before a game.
Taking it all in, Gavin Maloof says, "This is priceless to us."
Certainly, it's been expensive since the Maloofs became majority owners of the Kings in July 1999. After earning a $1.8 million profit in fiscal 1998, the Kings organization has lost money three straight years, for a total of $15.5 million, according to financial statements the Maloofs released to The Bee.
The biggest loss came in fiscal 1999, when the organization lost $9.1 million, largely because the NBA and its players could not agree on a labor contract to start the season on time. As a result, the Kings lost 16 home games and the revenue they would have produced. When the Maloofs took control of the Kings, they immediately increased the franchise's revenue and still lost $1 million in fiscal 2000.
Last year, Maloof Sports and Entertainment - the corporate parent of the Kings, Arco Arena and the Monarchs of the Women's NBA - posted a $5.4 million loss on revenues of $100.6 million. Among the expenses was $5.7 million for interest and principal payments - mainly toward the team's $73 million, 30-year loan from the city of Sacramento. The loan was obtained in 1997 by the team's previous ownership, headed by Los Angeles developer Jim Thomas, to restructure the franchise's debt.
By far, though, basketball operations account for the largest share of expenses for Maloof Sports. Last year, basketball-related costs were 67 percent of the organization's expenses, or $70.9 million - more than half of that Kings players salaries. Kings salaries have climbed to $55.1 million this season, more than double the amount players were paid four years ago, when the team was losing on the court but making a profit.
The Kings are now winners - clinching the franchise's first-ever Pacific Division title Friday night with a victory over the Los Angeles Clippers - and costing the Maloofs millions of dollars. While Maloof Sports has nearly doubled the revenue the Kings organization generates from what it did four years ago, the Maloofs are subsidizing the Kings' winning with profits from their other businesses - a Las Vegas casino and beer distributorships in New Mexico.
To the brothers this all makes good business sense, and to understand why, they say you have to look beyond the bottom line at Arco, to the branding image the Maloofs are cultivating, to how the Kings are helping the other Maloof businesses, to the can't-miss investment the family sees in the Sacramento region.
"We're in the best market. There's a lot of upside being here," Gavin Maloof says. "It's one of the fastest-growing (regions) in America. There are opportunities here."
Indeed, Maloof Sports has become arguably the highest-profile business in the Sacramento region, where the economic growth has been outpacing the state and national averages the last two years and is projected to continue to do so for the next several years. The Maloofs see their losses today as investments that will reap huge profits in the future. They're building loyal customers and establishing business partners willing to hand the family millions of dollars to be part of the winning brand known as the Kings, and laying the foundation to tap into the region's growth.
Without public prompting from the Kings, the city of Sacramento is studying the possibility of helping the Maloofs build a new arena downtown. Sacramento has become the nation's 19th-largest TV market, and the Maloofs are waiting to cash in when their local cable and TV deals expire after the 2002-03 season. The Kings have one of the worst local TV and cable deals among the NBA's 29 teams, media experts and team officials say.
The local cable TV rights fee paid to the Kings by Fox Sports Net is less than $1 million, says John Thomas, president of Maloof Sports. The Maloofs inherited a local TV contract set up in 1993, when the team was awful and its ratings just as bad. Under the deal, the Maloofs buy air time from Channel 31 (KMAX) to show Kings games, pay for the production of the broadcasts and sell their own advertising. TV air time and production costs are about $50,000 a game, Thomas says.
By comparison, most NBA teams receive a broadcast rights fee paid by a local TV station, allowing teams to show more games locally and gain far more revenue than the Kings get, says Bernie Mullin, the NBA's senior vice president of marketing and team business operations.
Hadrain Shaw, a sports analyst with Kagan World Media in Carmel, said local TV and cable broadcast revenues average about $10 million per NBA team. Maloof Sports makes less than $5 million from its deal with Fox Sports and the ads its sells during Kings games on KMAX. (The Kings do receive $24.9 million - a quarter of the organization's income - from the NBA for its share of the national TV rights fee.)
Thomas has been looking into ways to boost the Kings' local cable and TV revenue, including teaming up with local cable operator AT&T Broadband or creating a Sacramento regional sports network. Thomas points to Portland Trail Blazers owner Paul Allen's launch last year of a regional sports network, which charges Portland-area cable companies about 50 cents for each household that tunes in to watch a Trail Blazers basketball game. "It's one that we're intrigued with because we have multiple teams and an arena in a sports-hungry market," Thomas said.
But the Holy Grail doesn't rest with more local TV and cable money alone. The ultimate goal, Thomas says, is growing the entire business, including the number of Maloof Sports business partners and the fan base for the Monarchs and other events at Arco. (Maloof Sports does not keep a separate budget for the WNBA team, but Thomas says the Monarchs' expenses exceed the revenue they produce.)
While growing the entire business has proved challenging at times, the Maloofs say they remain very optimistic about the business opportunities they see in the region. Recent economic data and projections on the Sacramento, El Dorado, Placer, Sutter, Yolo and Yuba counties region would seem to support their enthusiasm.