By Katy Grimes

As the behind-the-scene negotiations take place between the NBA, the owners of the Sacramento Kings and prospective buyers, there is really only one thing to remember: everything is economic.

The top Kings player is paid more than $8 million. Wouldn’t he like to save a cool $600,000 a year in income taxes just by moving from Sacramento to Seattle?

Even uber-liberal HBO “Real Time” host Bill Maher recently said he may leave California, due to the state’s high tax rate.

Basketball is big business

Sports franchises are multi-million dollar businesses.

Team owners and accountants spend a great deal of their time scrutinizing the finances. A move from the economically depressed Sacramento to Seattle is a hardly a conundrum.

As the Maloof family has suffered losses in their Las Vegas business ventures, unloading the Sacramento Kings, a generally losing NBA team, probably looked good.

Migrating businesses

The marginal personal-income tax rate for wealthy Californians  is 13.3 percent. Washington state has no state personal income tax. So after deductions and tax write-offs, the California state income tax on an $8 million NBA salary would be something like $600,000.

“According to migration data from the Internal Revenue Service, over the 15-year period from 1995 to 2010, King County, where Seattle is located, has gained $32 million in adjusted gross income from Sacramento County,” Forbes reported in January.

“Other California counties have added significant amounts to King County’s coffers, too,” Forbes reported. “During those same 15 years, Orange County lost $98 million in net AGI to King County. Los Angeles saw a huge hit, with King County gaining $313 million of Los Angelenos’ net AGI.”

As the negotiations continue, Sacramento officials seem only to be getting more shrill. The only way Mayor Kevin Johnson, a former NBA star player, can seem to attract and keep business is to promise millions of dollars in public subsidies.

But Sacramento taxpayers have already voted down a public subsidy.

Public subsidy is how the NBA plays

“The league and its players have enjoyed over $3 billion in public funds for new arenas since 1990 and sources tell PBT on the condition of anonymity that the league is sensitive to what a move out of Sacramento could do to future subsidy collection efforts by the NBA,” NBC’s Pro Basketball talk found.

“Any additional ammunition given to public subsidy opponents could impact the league’s bottom line much more than what owners would proportionately receive in a relocation fee, which some have guessed to be in the $30-$45 million dollar range.  The fee can be anything the league wants, and can be as high as the most recent franchise fee or franchise sale amount according to legal scholars at Loyola Marymount.”

Despite this “new norm” of publicly subsidized arenas, Mayor Johnson is spending money he doesn’t have. Cities like Sacramento just don’t have the money, and it is irresponsible and unrealistic of Johnson and the Sacramento City Council to claim tax revenue generated by a new downtown arena would pay for the subsidy. The numbers don’t pencil out.

“With opposition of public subsidies for sports facilities growing every day, sources say the league wants to avoid a situation in which Sacramento provides a “model offer” only to have their team taken away,” Pro Basketball talk said. “This would send a message to future cities that their long-term investments in the NBA are not safe, even if the city does everything reasonably expected of them.”

We can hope. In the meantime, can any public subsidy really take precedence over the high income taxes pro-ball players must pay to live and play in California?

“The Golden State’s new 13.3 percent income tax on top earners prompted golfer Phil Mickelson to say earlier this month he was considering a move, and according to the accountants who advise millionaire athletes, he was just saying what a lot of jocks were already thinking,” Fox News reported in January.

“They’re going to have an exodus of people,” said John Karaffa, president of ProSport CPA, a Virginia-based firm that represents nearly 300 professional athletes, primarily in basketball and football. “I think they’ll see some [leave California] for sure. They were already a very high tax state and it’s getting to a point where folks have to make a business decision as well as a lifestyle decision.”

By Katy Grimes

Some people want something so badly, they’ll sell their souls to the devil, they’ll ignore facts, reason and important details.  A case in point is Sacramento politicians, and the ongoing arena obsession.

Sacramento’s Mayor Kevin Johnson, tweeted Saturday evening he and city officials have reached a  $447.7 million arena deal at the Downtown Plaza with a public-private partnership.

There’s only one problem — Sacramento can’t afford it.

Billed as “the largest redevelopment project in city history,” the project will have up to 1.5 million square feet of offices, housing, stores and a high-rise hotel.

The deal would require the city to commit “$258 million in value, or 58 percent of the arena cost,” according to the Sacramento Bee. “Of that, $212 million would come from selling bonds backed by future revenues from city downtown parking garages. The city’s contribution is the same as it was in last year’s aborted project to build an arena at the downtown railyard.”

For a guy who is 6’3″, Johnson has a severe case of Napoleon complex, but on behalf of his hometown. And he is willing to commit the taxpayers to even more indebtedness to appease this small city complex.

The Bureau of Labor Statistics reports Sacramento’s unemployment rate is 10.3 percent. But that’s not the whole story. The unemployment rate doesn’t count discouraged workers who have stopped searching for work, workers who are marginally attached to the workforce, and workers who because of economic reasons work only part time. Add that together and  the “real rate of unemployment,” is more like 20 percent, as it is in the rest of the state.

But we’ll have a new arena.

My dream car…

I want a Ferrari 599 GTB, but I don’t exactly have the money right now. However, if I sell my house, and liquidate my retirement account, I could come up with $350,000 cash.

There’s only one more problem — the maintenance on the car is a little expensive. Every service is at least $15,000, and some cost $30,000. I’m not at all sure how I would pay for this, but I’ll worry about that when the time comes.

This is the ultimate in insecurity. This is how Sacramento overcomes its loser, cowtown image and insecurity issues. For the insecure, NBA and NFL teams provide the perfect cover.

The art of the deal

The city also agreed to give the private development group the city’s empty 100-acre plot next to Sleep Train Arena in North Natomas, as well as six other city properties, five of them adjacent to or near the downtown arena site,” the Bee reported.

As proof that no one has shoved any money to the middle of the table yet, the Bee also noted the 18-page preliminary term sheet is non-binding.

But the city may have jumped the shark. “A series of major hurdles lie ahead for the Johnson-led effort, starting this Tuesday. City Manager John Shirey said he will ask the council to approve the term sheet Tuesday night at the city council meeting the Bee reported. “That would allow the city to pitch its plan April 3 to the NBA in New York.”

Seattle still wants the Sacramento Kings, and it’s not over yet.

“Representatives of Seattle also will be in New York that day, detailing their existing agreement – signed last month – to buy the team from the Maloof family and build an arena of their own in Seattle.”

The NBA board of governors will be voting on the Seattle deal April 18. “If it votes no, the Maloofs could entertain the Burkle-Mastrov-Ranadive group’s offer to buy the team.”

There’s no telling what will become of Sleep Train Arena, owned by Maloof Entertainment Group, located in North Natomas, just north of the city. It’s still the perfect location for an arena. There is no congestion issue, parking is plentiful and it is isolated and away from downtown.

Democratic politicians all have one thing in common — they all are always willing and eager to put taxpayers in more debt on ego deals the cities do not need, and cannot afford. If any of them had ever run a business prior to politics, stupid deals like this one would be laughed out of the city.

Read some of my other stories about Sacramento’s ‘stimulus’ arena, Sacramento’s vanity project, Sacramento arena deal still beating a dead horse.

Here is the term sheet on the proposed arena deal.

Note that the city does not even own the land parcels in the deal.

By Katy Grimes

“Sacramento deserves its shot to keep the Kings,” the Sacramento Bee editorial headline said this morning.

“Deserves.” I really don’t like how that word is so carelessly tossed around.

What Sacramento deserves is a city council and Mayor with some fiscal responsibility, vision, restraint and common sense. The ability to prioritize wouldn’t hurt either.

Kings going to Seattle?

On Jan. 21,  the Maloof family, the King’s owners, announced “that an executed purchase and sale agreement has been reached to sell the family’s interest in the National Basketball Association (NBS) Sacramento Kings to a group led by investor Chris Hansen.”

Sacramento Mayor Kevin Johnson immediately reacted and sent out a Tweet announcing that the deal wasn’t done. “Let me be clear. Though agreement btw Maloofs & Seattle is out, deal is NOT done. Sac can still present an offer 2 NBA BOG. #playingtowin,” Johnson tweeted.

A friend of mine also reacted, and asked if our mayor was proposing one more time that Sacramento taxpayers buy the Kings.

He quickly did the math for me and explained that it would cost the city of Sacramento nearly $450 million to buy the Kings outright ($300 million if it bought only the Maloofs’ controlling interest), and about $500 million to  $1 billion to build a downtown arena.

It is insane for Johnson to continue to pursue an arena for Sacramento. Voters have already soundly defeated ballot Measures Q and R, which would have taxed city residents to pay for an arena. The Sacramento Grand Jury called the ballot initiatives, “Betrayal in the Kingdom.”

In reaction to the ballot defeat, Mayor Johnson and his arena supporters drafted an incredibly risky plan to exclude the voters on a new arena scheme. And they nearly got away with it.

Despite the failure of more than a decade of efforts to build a new, publicly funded sports arena in Sacramento, many in the city thought that the project finally breathed its last breath last spring, thanks to Mayor Johnson, City Councilman Rob Fong, and state Sen. Darrell Steinberg, D-Sacramento, who arrogantly tried, but failed once again, to ram the stinky deal through the system.

Today, USA reported, “In a letter intended for California Department of General Services director Fred Klass that was distributed to USA TODAY Sports and a select few other media outlets, California Senate President Pro Tem Darrell Steinberg raises questions and concerns about Microsoft CEO Steve Ballmer’s involvement in the proposed purchase of the Kings while lobbing veiled threats all along the way. Ballmer is part of the Seattle-based group that has reached an agreement with the Maloof family that owns the team to buy a majority interest for approximately $341 million (based on a $525 million total valuation of the franchise).”

This is not good politics.

USA Today printed Steinberg’s letter to Klass, the director of DGS:

“I am troubled that a company and a CEO that has for so long enjoyed a prosperous and beneficial working relationship with the State of California and its taxpayers would blatantly engage in activities which are clearly and measurably detrimental to our State’s job and revenue base – not to mention use profits earned through business with our State to appropriate a California-based asset.”

“As a legislative leader with direct budget authority, I’m obviously concerned about what impact these events might have on state and regional revenue, as well as our recovering economy.”

‘World class city’

Mayor Johnson thinks that Sacramento will never achieve “world class” status without a sports arena.

Sacramento politicians have repeatedly tried to force a publicly financed arena deal down the throats of the taxpaying public, as well as on the privately-held team owners. But every time, they have crashed and burned.

“With overstated revenue projections, grossly overstated projected attendance numbers, and practically giving away city-owned parking garages to sweeten the finances, neither city officials nor local news media ever performed due diligence to expose the bad business deal it would have been for taxpayers,” I wrote last April. “Media was in the bag, along with rabid sports fans–at any cost. It was a typical government involved project, with bad numbers, pie-in-the-sky plans, lots of hype, and no accountability.”

And all the while, from the sidelines, was the Bee cheer leading Sacramento’s future financial demise.

Sacramento is facing a major downgrade of the city’s outstanding debt, is preparing to borrow $2 billion to repair the long-neglected sewer system, is sitting on $1 billion of redevelopment debt, is facing an $469 million liability for unfunded city pensions, and hasn’t set aside a anything to cover its $440 million liability for retiree health care costs.

No means no

The handwriting is on the wall again. Sacramento taxpayers, gird your loins. It sounds like the Mayor may come around looking for more taxes for an arena, or figure out a way to use public money without a vote. Either way you slice it, it’s still a bad financial deal all around.

Arenas don’t bring in more tourist dollars; they just move around existing money. And, arenas usually require heavy subsidies. In Sacramento, taxpayers want nothing to do with subsidizing an arena, which should be an entirely private-sector deal anyway.

After the last arena deal died in April, I cheered, but only on behalf of taxpayers. And my words still ring true: “Government is at its best when there is less of it. The only thing the City of Sacramento can do right at this point, is to stay out of the way of those who have vision. The government’s vision is always about controlling, and not about the private sector thriving. Real world class city leaders will do everything in their power to boost the local economy by allowing the free market to do what it does best.”

For the past couple years we have watched our home town struggle to keep the Sacramento Kings basketball team in Sacramento. We have also observed the proposed attempt to build a new $400 million stadium for the team in downtown Sacramento at the old Southern Pacific railroad yards.

We have also followed all the headlines and rumors about how the Kings are “moving to Anaheim.” The NBA and Mayor Kevin Johnson are “trying to keep the Kings in town.” Senate President Pro Tem Darryl Steinberg, D-Sacramento, introduces legislation to keep the Kings in his home town. And developers Ron Burkle and Darius Anderson “pledge to buy the team and keep it in Sacramento.”

It all has a similar ring to when one of us, Patrick Melarkey, was on the Sacramento County Board of Supervisors in the 1970s and the stadium activity began. Back then it was going to be a privately financed baseball stadium put together by a couple of local boys. It was not for a basketball arena.

“It was 1974 when a call came into my office,” Melarkey remembered. “I was president of the Board of Supervisors and two local lads wanted to build a privately-financed baseball stadium. The taxpaying public wouldn’t have to shell out a nickel for it. The two young men, Gregg Lukenbill and Frank McCormack, were both Catholic boys who had met at Sacred Heart Elementary School and they wanted to meet with me because I had been pushing for a new baseball stadium that would cost $1 million. The idea I had for the stadium design was based on the new minor league baseball stadium in Albuquerque, New Mexico. I had made a trip out there, visited the stadium and began thinking about a stadium like it in Sacramento. I thought the new state fair ground at Cal Expo might be appropriate.”

It was in the early stages of this plan when Lukenbill and McCormack came in to see Melarkey. Lukenbill was in his early twenties, McCormack a bit older. They were both dressed in leisure suits, then the current fashion trend, and were eager to outline their stadium dream plan.

“We want to build a state-of-the-art baseball stadium for Sacramento and it won’t cost the public a nickel,” said Lukenbill, by far the more vocal of the duo. “It’s gonna be all privately financed and we’re putting together a team to raise the money. We’re wondering if you might be able to help.”

Melarkey told them he’d do what he could for them and asked them where they wanted to build such a stadium. They had a few ideas, but nothing set in stone. Melarkey waited to see how it would play out.

Baseball in Play

Over the next few years, throughout the rest of Melarkey’s second and final term as a supervisor, he met and consulted with Lukenbill and McCormack a number of times. The baseball stadium idea was still in play. But Lukenbill was interested in any professional sports franchise that would put Sacramento on the map. Gregg said Sacramento was “a world-class city” and deserved such an urban amenity as a professional sports franchise. How the one attribute has anything to do with the other was a mystery.

During these years Lukenbill and McCormack began building their executive and financing team to get a professional sports team. First they hired Greg “Dutch” Van Dusen, the former general manager of the Sacramento Solons baseball team. The Solons were a Pacific Coast League franchise which had broken all attendance records in 1976 playing their home games at Sacramento City College’s Hughes Stadium. “Dutch” came on board the Lukenbill-McCormack vessel in 1978. Then Lukenbill secured the backing of the wealthy Benevenuti family, developers Joe and his son, Richard. Another addition was Frank Cook, a local realtor. The Benvenutis had a large parcel of land in the North Natomas area of Sacramento. Perhaps they could build a stadium there.

The problem was that North Natomas was a political hot potato. Although it had been master-planned as one site for Sacramento expansion in the early 1960s, by the 1970s the local environmental movement wanted to see it preserved. The local No Growth movement had a significant ally in Mayor Phil Isenberg, who was opposed to the development. No way would there be a traffic-generating stadium out in North Natomas, Isenberg vowed.

Now it looked as if there was no way it would even be a baseball stadium. There weren’t any major-league baseball franchises available at that time. But a basketball team could be found. It was the old Rochester Royals franchise, a team that began in the 1920s and won the 1951 NBA championship before it moved to Cincinnati in 1957. Then it moved to Kansas City in 1972, where it was renamed the Kings. This team was now in play and Lukenbill wanted to buy it.

Melarkey was retired from the board when Lukenbill bought the Kansas City Kings franchise in 1983. Lukenbill first vowed to keep the Kings in Kansas City, but only the foolhardy believed it. Lukenbill now had a franchise that could justify the need for a new stadium, and North Natomas was the chosen site.

Melarkey remembers going out there once with Lukenbill and the Benvenutis, standing on the I-880 freeway overpass about a half mile away from the present home of the Kings. Richard Benvenuti pointed from south to north, then west to east, and said, “All this land below us will all be developed as business and office parks if we can get the rezoning through the city council to allow it.” Melarkey thought Lukenbill and the Benvenutis had a king-sized battle on their hands if they intended to take on Phil Isenberg. “The best thing you can do if you intend to try this is to hire Maurice Read,” the Sacramento Public relations wizard, Melarkey told them. “Read and Isenberg are good friends and if anybody can move this stadium forward, it’s Maurice Read.”

Baseball and Development

Then Melarkey stopped following the stadium action. Lukenbill did achieve his plan to build a new basketball arena in North Natomas after a development plan was reached between the developers and the local environmental community in 1987.

Over the next years, Gregg Lukenbill and the Sacramento Kings had a chaotic tenure in Sacramento. The team moved to a different stadium in 1986. Lukenbill sold his part of the franchise in 1992. Frank McCormack, his original partner, was never paid by Lukenbill for his 3 percent share of the franchise. Dutch Van Dusen and Maurice Read moved on. The Benvenutis still had their share of the franchise and the value of property they owned in North Natomas shot through the roof.

The Kings may be in danger of leaving Sacramento, but they have left a lasting mark with the fortune they made for some of their benefactors, such has the Benvenutis.

One beneficiary was Leonard Padilla, the celebrated black-hat bounty hunter most recently seen during the Casey Anthony murder trial. Upon advice from the Benvenutis, in 1979 Padilla bought a 60-acre parcel in North Natomas for $240,000. He received an offer of more than $12,000,000 for the land in 2005, according to a Feb. 25, 2005 story by Sacramento News & Review reporter Cosmo Garvin. Using the same formula provided in the article on Padilla, between 1980-2005, the value for the 4,000-acre North Natomas property held by the Benvenutis increased from $3 million to $400 million.

Two years ago there was an article in the Sacramento Bee about a proposed land swap that involved building a new arena for the Kings at Cal Expo. It seemed that the wheel had come around to where it began.

But the differences were huge. This was no privately-financed stadium; this was a $400 million monster that the city of Sacramento was supposed to finance for the owners. This new plan was called the Convergence Plan and it called for a huge land swap. Cal Expo would be “given” to local developers. The second part of this trifecta called for moving the fair to the site of the present Kings Arena. The final piece in the deal would be a new publicly financed basketball arena in downtown Sacramento adjacent to the old Southern Pacific railway station.

The deal seemed screwy. It was actually proposed by NBA Commissioner David Stern and backed by Sacramento Mayor Kevin Johnson, a former NBA star with the Cleveland Cavaliers and Phoenix Suns.

The questions that came to mind were these: Why should Cal Expo be opened up to developers such as the Lennar Corporation, which would likely make a fortune, while the state fair left town and took with it the revenue that comes annually to Sacramento? Was the Kings basketball arena site too small to accommodate the state fair? And how about the cost of the new stadium, estimated at $400 million. Would local taxpayers approve such an expenditure given the state of the fragile economy? Not likely, and in fact they voted down a proposed 0.25 percent sales tax in 2006.

The Anaheim Royals?

In the interim, a decade ago the Maloof family acquired the Kings. When the Convergence Plan went kerflooey, the Maloofs began looking for greener pastures. They thought they found them in Anaheim. The Maloofs went to Anaheim to showcase their wares. The City of Anaheim was interested and the talks began. They would rename the Kings the Royals and the franchise would have a new home.

But moving the Kings to Anaheim would cost a lot of money. The Maloof family would have to pay off the $67 million they owe the City of Sacramento, plus a $9 million early repayment fee. And according to Wikipedia, “In June of 2011, the Maloof brothers, Joe and Gavin, Sold majority share of the Palms to a lending company, Leonard Green & Partners LP in Los Angeles and TPG Capital in Texas, allowing them to continue building their stadium.” Professional sports leagues frown on owners being associated even with legalized gambling.

David Taylor, the local developer flavor-of-the-month in Sacramento, was deputized by the Sacramento City Council to study the feasibility of a new arena in the city. Taylor hasn’t yet met with the Maloofs. Taylor also is waiting for market studies the Kings have promised him.

Sacramento Mayor Kevin Johnson said of all the basketball maneuvering, “As a city, we can only control what we can control. If [the Maloofs] decide they don’t want to be in Sacramento, that is a choice they have to make.”

And on it goes, up to the present, with the future of professional basketball in Sacramento uncertain. Will Kevin Johnson and his new allies, billionaire developers Ron Burkle and Darius Anderson, deliver on their promise to keep the Kings in Sacramento? Or will they buy an existing NBA franchise, such as the financially troubled New Orleans Hornets, and bring it here? Maybe they will, but Burkle and Anderson still want a new publicly financed downtown arena if they do that. And while basketball franchises may be the stalking horse, in Sacramento the name of the game is still the same: the insider developers who benefit from voter-approved public projects, whether their names are Benvenuti, Burkle or Angelo Tsakopolous, the local developer of record for the Southern Pacific site.

It was like déjà vu all the way back to the Gregg Lukenbill-Frank McCormack plan for a privately financed baseball stadium. That was the original Field of Dreams, and the only one that still makes sense for Sacramento.