Financial Worst Case Scenerio

[Fireplug]

As you can see from the other thread, I've been worried about the city being so jacked up financially if the Kings leave that I have been obsessing over it a bit. I was worried that the previous agreement, if defaulted on, would leave the city is such a bad place that we would never get a new arena, even with the help of #herewebuild and others who i fully support.

So I got to thinking what the worst case scenario might be based on what i think I learned from the agreement docs.

Back ground, first.

The remaining owed on the bonds is around $67 million. It only becomes $77 million if it has to be paid off early by Kings. If somehow Kings just are able to walk away from it, there is nothing that says that the City must pay it off early. As long as payments are made on schedule, the city has till 2027 to pay it off.

Here is the property tax info on the property:

Parcel Number: 225-0070-060-0000
Effective Date of Ownership: 4/6/1992
Bill Number: 10398274
Bill Type: Secured Annual
Assessment Year: 2010-2011
Issued Date: 9/29/2010
Original Bill Amount: $881,208.78

And here is the assessor's info:

Finally, If the Kings default, and for some reason the courts decide that the only thing the city gets is the collateral specifically listed in the agreements, then the city gets $25 million value of the team. Plus we still own the arena.



OK


So here we go. The city owes $67 million. The city has $25 million ownership in the team. One could argue that the city could turn right around and sell that to Samueli or another NBA wannabe owner for a premium... maybe even for $5 mil or $10 mil than it was worth right off. For sake of argument though, we will say they sell it for the straight $25 million cash.

So now the bond debt becomes $42 million over the next 16 years.

That is $2.63 million a year. Now, there are property taxes of $881 thousand a year, but most of that would be the city just paying itself (along with some county assessment levys.)

So lets just say that the worst case financially would mean that the city would get to rent out the arena to concerts, Disney on Ice and the lot, and they would only have to take in roughly $3 million a year in net profit to satisfy the bond repayments.

Does anyone know what the arena takes in for things not Kings related?

 

[Glenn]

If it wasn't for people obsessing about their favorite topics, this would be a dull forum. Now, as a person who does not have a vested interest in this topic, there is a part of me that wants the city to get screwed. Doesn't hurt me.

 

[Fireplug]

City needs to bring in $3,000,000 a year.

To put that in terms of seats...

If, say, the city can average only $5 net profit average per seat sold (and remember some seats will sell for $10 and some concerts for $200 per, and there is parking money too.)

Then $3,000,000 / $5 = 600,000 required seats sold per year.

If the arena is able to have, say, 100 events a year (that is only 27% of its dates filled.)

Then 600,000 / 100 = 6000 seats average sold per event.

This seems doable at face value.

 

[JB_kings]

If they continue to operate Arco Arena, then they have no chance at building their facility downtown. I don't think they want to do that because of liability insurance and loss of tax revenue. If they lease to an arena management company, then they get some income to pay off the bond debt until the building falls down. Plus don't forget all the deferred maintenance on the facility will take a toll on anyone who leases it. And again of course, no new facility. If the city ends up with Arco on their hands, I'm half tempted to wish them to sell it off immediately and hope the new owners tear it down. I doubt they would get near the assesed value.

I'm still scratching my head over this ownership share. Is it really worth something? Whose shares will they come from? Are they just printing up new shares and calling the team worth more because of the zip code change? Then as an existing minority owner I'm pissed because my share of the team is dilluted by this gift. I wonder if the minority owners signed off on this and were aware of the gift? If so, can they sue the Maloofs for this gift?

 

[beb0p]

City needs to bring in $3,000,000 a year.

To put that in terms of seats...

If, say, the city can average only $5 net profit average per seat sold (and remember some seats will sell for $10 and some concerts for $200 per, and there is parking money too.)

Then $3,000,000 / $5 = 600,000 required seats sold per year.

If the arena is able to have, say, 100 events a year (that is only 27% of its dates filled.)

Then 600,000 / 100 = 6000 seats average sold per event.

This seems doable at face value.

Yes but the city also has to maintain the arena, hire staff, etc. You have to factor in the cost.

Plus, I doubt the arena can last til 2027. At some point in the near future, that building will no longer be safe to house spectators.

 

[Glenn]

The managing partners are the Maloofs. A managing partner does not have to have a majortiy of the ownership or even the most ownership.

 

[Section 101]

If they continue to operate Arco Arena, then they have no chance at building their facility downtown. I don't think they want to do that because of liability insurance and loss of tax revenue. If they lease to an arena management company, then they get some income to pay off the bond debt until the building falls down. Plus don't forget all the deferred maintenance on the facility will take a toll on anyone who leases it. And again of course, no new facility. If the city ends up with Arco on their hands, I'm half tempted to wish them to sell it off immediately and hope the new owners tear it down. I doubt they would get near the assesed value.

I'm still scratching my head over this ownership share. Is it really worth something? Whose shares will they come from? Are they just printing up new shares and calling the team worth more because of the zip code change? Then as an existing minority owner I'm pissed because my share of the team is dilluted by this gift. I wonder if the minority owners signed off on this and were aware of the gift? If so, can they sue the Maloofs for this gift?

The Maloofs are currently trying to get the assesed value lowered to $30.5 mil from the $56.

 

[Fireplug]

Yes but the city also has to maintain the arena, hire staff, etc. You have to factor in the cost.

Plus, I doubt the arena can last til 2027. At some point in the near future, that building will no longer be safe to house spectators.

That was why I only figured $5 profit per seat which is probably a low figure.

And I agree with you and JB that the city would have someone else run it and it probably wouldn't last till 2027. This was all speculation anyway because I am pretty sure the city's legal position is better than this thread assumes.

 

[JB_kings]

The managing partners are the Maloofs. A managing partner does not have to have a majortiy of the ownership or even the most ownership.

I understand that part. But what I was saying is that the city is going to receive 25 million in ownership of the team. Whose going to give up that share of the team? The Maloofs I suspect. I can't believe any of the minority partners are giving up part of their share for free. Is the team instantly worth 25-50 million more just by moving to Anaheim?