Louisville, Seattle, Sacramento and the NBA

HoopsWorld NBA Editor Steve Kyler, a man in the know about the NBA, wrote an interesting piece on July 31 suggesting that the Sacramento Kings are all but done in their current hometown when their arena lease expires at the end of next season, meaning they will need a new home for the 2013-14 season.  This saga has been ongoing for almost two years now and in November 2010 served as the impetus for five young Louisville basketball fans to start a Facebook page called Bring the Sacramento Kings to Louisville, which between it and a sister page called Bring the NBA to Louisville, have almost 10,000 likes.

According to Kyler:

The team and the city of Sacramento have effectively ended talks on a new arena in Sacramento and the tensions and distrust between the two sides makes it improbable that a deal is ever going to be reached.

This seems to be the prevailing opinion among  industry observers.  By last spring, it was assumed the Sacramento Kings would relocate to Anaheim to play in the 18,336-seat, 19-year old Honda Center—and share it with the NHL’s Anaheim Ducks (Imagine that…two teams sharing an arena.).  Now that deal is effectively dead, as well.

From Kyler:

…they (Kings’ ownership) know that moving to Anaheim, as they tried to do in March of 2011, is now so far out of reach that they have few other choices…The appeal of Anaheim was easy. It was Southern California. It was Orange County, one of the wealthiest counties in America. The wrinkle that likely kills the deal is the Los Angeles Lakers’ new multi-billion deal TV deal with Time Warner. If a third NBA team comes into the marketplace, the value of that deal goes down radically to the tune of a couple hundred million over the life of the deal.

It would be cheaper for the Lakers to buy the Kings and dismantle them, rather than allow them to move to Anaheim and that’s overlooking that the Honda Center is a 19-year-old building. The window for Anaheim has closed, unless the Kings want to buy off the Lakers, the Clippers and the NBA and that won’t come cheap.

So what’s next for the Sacramento Kings?  According to the same article, “Seattle seems likely if (they) can deliver a building.”  And where does Seattle stand in regards to an arena?  San Francisco-based fund manager Chris Hansen has proposed building a $490 million arena in the SoDo neighborhood near the Port of Seattle to house both an NBA and NHL team (More arena sharing!).  Hansen’s group would front $290 million with King County issuing $200 million in bonds to fund the rest of construction.  The $200 million in bonds would be repaid using tax revenues generated by the arena.

The Metropolitan King County Council approved this financing plan in a six-to-three vote on July 30.  However, later that same day, the Seattle City Council sent Hansen a letter explaining they cannot accept the financial risk nor the opportunity costs of paying back the arena debt solely using tax dollars generated by the arena (Seattle has a complex local governance structure with both a Metropolitan King County Council and a Seattle City Council, not unlike Louisville before merger).  According to the same letter, the Seattle City Councilmembers “look forward to the return of the SuperSonics” and thanked Hansen for his efforts, but this deal is far from a slam dunk.  The Seattle City Council is taking its fiduciary responsibility seriously and even if they support the return of professional basketball to the city, they will not do so under an arena financing plan they find to be in any way financially risky.  The letter asked Hansen to modify the financial structure of the lease but the two sides have not made any progress, at least not publicly, since the letter was written.

Throw in significant opposition from the Port of Seattle, who fear an arena in this location would be a logistical nightmare, and the deal is not as likely as it might have originally seemed.  To further its cause, the Port of Seattle commissioned a poll released on August 10 that showed that 52% of Seattleites are opposed to public funds being used to build an arena.

While, on the whole, Seattle seems to want the SuperSonics replaced, the general public may be suffering from stadium fatigue given that public funding accounted for almost $700 million to build new homes for the Seattle Mariners (Safeco Field/1999) and the stadium-sharing Seattle Seahawks and Seattle Sounders (CenturyLink Field/2002).  These two stadiums replaced the antiquated Kingdome, which was opened in 1976 and demolished in 2010 with $80 million still owed on its construction bonds.  On the other hand, the University of Washington and its powerhouse football program is having to fund its own $250 million stadium renovation project.  Committing an additional $200 million to stadium infrastructure to lure professional basketball and ice hockey teams to Seattle might not sit well with many folks considering the state’s flagship university’s athletic department is paying its own way–especially when its deep-pocketed guys like Hansen and his ownership group, which also includes the likes Peter and Erik Nordstrom of Nordstom department store and Microsoft’s Steve Ballmer.

So how does this relate to Louisville’s quest for an NBA team?  If Seattle builds an arena, it’s a no-brainer:  Seattle is an awesome pro basketball town and eager to replace their beloved SuperSonics, who fled for Oklahoma City in 2008 after being acquired by OKC fund manager Clay Bennett and a subsequent arena squabble.  But while the renamed Thunder are thriving in Oklahoma City, Seattle still has the same arena issues that it had four years ago.

However, the NBA is eager to return to Seattle and in a nod to their loyal fans’ support of the team, the Commissioner’s Office stipulated that the SuperSonics moniker and the team’s history remain in Seattle for a future team, a la the Cleveland Browns/Baltimore Ravens relocation.  Most teams that relocate take their histories with them.  For example, the Sacramento Kings’ history as the Rochester Royals, the Cincinnati Royals, the Kansas City-Omaha Kings and the Kansas City Kings has followed it on its journey to Sacramento in the team record books.  This alone shows the NBA’s hope to return a team to Seattle.

Getting back to Kyler’s article, if Seattle does not build a new arena, the Sacramento Kings are in a tough spot and without a home beginning in the fall of 2013.  So now where does he think Louisville stands?

All of the other options like Kansas City, Louisville, Las Vegas and St. Louis become viable if the economy swings upwards in a serious way, mainly because the NBA is not going to approve a move to a smaller market with teams struggling to sell products, unless one of those markets offers a monster TV package.

Monster cable TV packages are the new rage in professional sports with Major League Baseball leading the way and the NBA following suit.  Metro Louisville cannot offer a monster TV package, but the Kings are in a bind—they are soon to be homeless and cannot wait for some supposed ideal city to offer a bigger TV package.  This alone makes Louisville very viable.  Oklahoma City did not offer a monster TV package yet reached the NBA Finals this summer; San Antonio, a former ABA city like Louisville, does not offer a monster TV package yet has claimed four NBA titles since 1999.  Precedents do exist.

Louisville is not perfect.  But it is very viable.  Louisville needs to leverage its advantages here:  1) A world-class arena with a broken business model screaming for a co-tenant, and 2) a passionate basketball fan base second to none in the world.  In business, timing is critical and Louisville has an excellent window of opportunity here.

Kansas City and St. Louis also have arenas ready to go, but both are saturated sports markets with five MLB, NFL and NHL franchises between them, plus an MLS franchise.  Louisville is by comparison absent of any tier one professional sports competition.  The casino-owning Maloof family currently owns the Sacramento Kings and it has been speculated they would like to move their team to Sin City.  However, given the absence of an NBA-ready arena, the massive downturn in the local economy there and NBA Commissioner David Stern’s public statements against having a franchise in Las Vegas due to concerns about gambling interference, this is a long long shot at best.

If Mayor Greg Fischer believes that Louisville is a “big league city” and having an NBA team is a “chance for this city to grow”, as he first publicly stated on July 25, he needs to be ready to act immediately.  As a businessman, Fischer showed shrewd business acumen in transforming his small family business into a global success story.  As Mayor, he now has an opportunity to help transform Louisville into a more prominent global brand by putting it in league with the NBA, a brand that stretches to all points of the globe.

Since the NBA-ABA merger in 1976, eight U.S. cities have lost NBA franchises to relocation:  New York (Long Island), Buffalo, New Orleans, San Diego, Kansas City, Charlotte, Seattle and Newark.  Of those cities, New York (Brooklyn), New Orleans and Charlotte have already replaced their departed teams while Kansas City and Seattle still actively hope to replace theirs; Newark will lose the Nets to Brooklyn this fall and will more than likely seek a replacement tenant to share the Prudential Center with the NHL’s New Jersey Devils (More arena sharing!).  Obviously, these cities saw and continue to see great value in having NBA franchises after losing them and made or are making efforts to get a team back.  However, these opportunities do not come up often.  Since 1985, there have been only four relocations.  Louisville failed to seize prized opportunities to land a team in 2001 and again in 2002.

The window is once more open.  For the benefit of the city, let’s hope Mayor Fischer sees and seizes the opportunity this time.  If he does, he’ll be a king.