Three months ago, Louisville was pretty much out of luck, with the Sacramento Kings headed west.
Now, the stars may be aligning for an opportunity that could develop very quickly for Louisville later this year … if at all.
After almost two years of negotiations, news broke three months ago that a deep-pocketed investment group in Seattle had finally agreed to a $341 million deal to buy a 65-percent stake in the Sacramento Kings from the cash-strapped Maloof family, thereby valuing the team at $525 million.
Soon after the sale agreement was confirmed, the relocation of the franchise to Seattle was deemed imminent.
Today, things are much more uncertain.
Sacramento Mayor Kevin Johnson, a former NBA star in Houston and Phoenix, has done some Herculean work to put together a deal that may ultimately keep the Kings in the city they’ve called home since 1985.
NBA owners are scheduled to listen to the Seattle and Sacramento bids today and make a decision later in the month.
This ride has had more twists and turns than the old Chang roller coaster at Kentucky Kingdom and no one is quite yet sure where it will all end up. Mayor Johnson feels his city’s chances of keeping its team are “90 percent.”
Based on history, yet another unexpected turn or two may suddenly pop up, which could present a different opportunity for Louisville.
From attorney J. Bruce Miller, who has led the Bring the NBA to Louisville effort:
Seattle and Sacramento will make presentations to the League’s transfer committee in New York City (today) and the decision is expected to be made at the April 18-19th Board of Governors’ Meeting in New York. I am as informed about this set of events as any non-NBA ownership group in this country. In that regard, I believe that if Mayor Kevin Johnson can salvage the Kings for Sacramento (and I think he has a very good possibility of accomplishing that) and if the Seattle ownership group remains as interested as they are — at present — that Seattle will obtain an expansion franchise. Whether it’s for the 2013-14 or 2014-15 season is another decision to be made later – probably at the mid-summer meeting of the NBA or the October meeting.
Johnson has assembled a consortium of four billionaires who, led by health club magnate Mark Mastrov and grocery store kingpin Ron Burkle, are trying to outmaneuver the Seattle group, acquire the Kings franchise and keep it in Sacramento. The group is also willing to contribute a couple hundred million dollars towards construction of a new arena for the team.
NBA Commissioner David Stern, while impressed with Johnson’s efforts, indicated in March that work still remains to be done in Sacramento in order to prevent relocation.
Wherever the Kings wind up, it won’t be Louisville.
Though, as I’ll explain, all this could lead to an NBA expansion that very well might include Louisville. More on that below.
A potential Kings relocation to Louisville was entirely dependent on the Maloofs maintaining ownership of the franchise and moving it here. When they finally realized they no longer had the financial resources to keep the team, they sold.
Seattle — and now Sacramento — had/have ownership syndicates with the financial resources to purchase a team in place; Louisville does not.
In January, we explained that there were four basic avenues for Louisville to land an NBA franchise:
• Convince an unhappy current owner to move his team to Louisville,
• Recruit a wealthy local investor/syndicate willing to buy and move a team to Louisville,
• Recruit a wealthy non-Louisvillian, perhaps foreign, investor/syndicate to buy and move a team to Louisville,
• Recruit either wealthy local or non-local investor/syndicate to secure an expansion franchise for Louisville.
Though the Kings won’t be playing in Louisville, there are some important takeaways from the latest news.
First, there is a dwindling pot of potential teams that might consider relocation.
Based on the working assumption that the Kings will soon be playing in a new arena in either Sacramento or Seattle, 15 of 30 NBA teams will be playing in arenas that have opened since 1999. Thirteen other teams play in arenas constructed since 1988. Of those, very few need to be replaced entirely, though a few could certainly use some upgrades.
Only the Golden State Warriors (Oracle Arena/1966) and the New York Knicks (Madison Square Garden/1968) are exceptions to these newer arenas, but Madison Square Garden is in the midst of a billion-dollar renovation and the Oakland-based Warriors are rumored to be San Francisco-bound after being sold.
Two teams that are often rumored to be relocation targets are the Milwaukee Bucks and Minnesota Timberwolves.
Neither play in state-of-the-art arenas with Milwaukee’s BMO Harris Bradley Center and Target Center in Minneapolis opening in 1988 and 1990, respectively. While both arenas area serviceable, both lack revenue streams that newer arenas produce.
The Bucks seem to be the most likely team to be in search of a new home.
Recently retired U.S. Senator Herb Kohl could be looking to sell. Though he originally purchased the Bucks in 1985 to ensure they stayed in Milwaukee, the 78-year old Kohl may now be less interested in public appeasement and more interested in estate planning.
Considering the $19 million purchase price, the current valuation of $312 million and the recent sale prices of NBA franchises, cashing out to the tune of a 2000-percent capital gain could well be very enticing.
While the Bucks’ valuation is the lowest in the league, it was still a sixteen-percent increase over its 2012 valuation despite losing $500,000 last year.
The Bucks signed a lease extension with the BMO Harris Bradley Center in 2011 that takes them through the 2016-17 season so are not necessarily looking to move in the immediate future, buying the city time to come up with a retention plan. Though there are preliminary discussions under way about replacing the BMO Harris Bradley Center, Wisconsin politicians and taxpayers have not been overly sympathetic to building a new arena.
Rumors of Minneapolis’ ultimate demise as an NBA city are perpetual, but seem far more based on conjecture than reality. Yes, the Timberwolves play in the relatively modest Target Center while the MLB’s Minnesota Twins’ sparkling new Target Field opened in 2010 and the NFL’s Minnesota Vikings are slated to move into a brand new stadium in 2016.
However, these stadiums were funded only after long, acrimonious legislative fights. It remains to be seen whether the Minnesota legislature would be willing to fund yet another new sports facility. More importantly, owner Glen Taylor seems content in Minneapolis.
Depending on what happens with the Canadian dollar, the Toronto Raptors could eventually decide to go the way of the former Vancouver Grizzlies and make their way to the U.S. Right now they are riding a strong Canadian dollar so appear established for the near future.
Other teams rumored to potentially be searching for new homes include the Atlanta Hawks, Charlotte Bobcats, Memphis Grizzlies and New Orleans Hornets.
The Hawks and Grizzlies are both producing on the court, which in turn is driving more fan support. Coupled with the fact that relocating either team would require upwards of a $100 million arena lease buyout, neither team is likely going anywhere.
Despite their poor won-loss records, both the Bobcats’ and Hornets’ ownership seem entrenched in their respective cities so don’t expect either team to move.
Realistically, not a lot of teams will be looking for new homes in the next five years.
This should not come as a surprise considering there have been only nine relocations by seven franchises since the 1976 NBA-ABA merger.
The second thing we’ve learned is that the values of NBA franchises are skyrocketing.
The purchase price of the Sacramento Kings was a 75-percent premium over the 2011 valuation of the franchise and the highest sale price in NBA history — for a team that last appeared in the playoffs seven seasons ago.
The Kings’ ransom broke the NBA record of $450 million, commanded by the Golden State Warriors’ sale in 2010. That sale represented a premium of 43 percent over the franchise’s 2009 valuation — for a team that had sniffed the postseason only once in the previous 17 seasons.
Coincidentally, the two franchises that strongly considered Louisville in 2001 were both sold during the summer of 2012.
Michael Heisley sold the Memphis Grizzlies for $350 million, a 30-percent premium over its 2011 valuation and a nice 13-year return of 119 percent over his 1999 purchase price of $160 million.
Tom Benson’s purchase of the New Orleans Hornets for $338 million cost him nineteen-percent more than the franchise’s valuation, despite coming on the heels of a season that saw the team lose more than twice as many games as it won.
Overall, the average NBA franchise valuation increased seventeen-percent year-on-year from 2011 to 2012, driven significantly by the premium prices generated by these franchise sales. The average value of an NBA franchise now, according to Forbes magazine, stands at $509 million. Small market teams in cities similarly sized to Louisville are on average worth $466 million.
The lesson learned?
If an ownership group intent on buying an existing franchise and moving it to Louisville would probably be looking at a minimum sale price in the neighborhood of $400 million to $500 million, plus any arena lease buyout.
Even if the Bucks eventually go up for sale, their current valuation means very little. The notion of buying a team and moving it to a new city with a sweetheart arena lease is becoming more expensive and less plausible.
Throw in record NBA attendance last season and a staggering 86 percent season ticket renewal rate this year, these valuations will continue to rise as long as the supply of teams remains finite.
In fact, the bidding for franchise ownership has become so fierce that the entire concept of shopping a team to a city with a better arena deal is becoming obsolete. To wit, both the Seattle and Sacramento ownership groups are proposing contributing hundreds of millions of their own money to construct new arenas as part of their purchase offers.
Of the four options outlined above, the first, second and third are becoming much more challenging, which bring us to the fourth option.
The NBA last expanded in 2004 when the Charlotte Bobcats were established to replace the departed Hornets, who left for New Orleans in 2002.
The only recent talk of NBA expansion since then was NBA Commissioner David Stern’s vision for a five-team European-based division, which would have made the NBA the world’s first multi-national, transcontinental sports league.
While his vision always faced obstacles ranging from viable arenas to travel schedules, the Eurozone crisis has effectively put the kibosh on any idea of European expansion for the foreseeable future.
In a press conference last Thursday, Commissioner-in-waiting Adam Silver also mentioned the possibility of NBA expansion into China, but this faces even more logistical hurdles than European expansion.
Prior to the new collective bargaining agreement between the NBA and the National Basketball Players Association last season, contraction was a more common issue of debate than expansion. Now that the new CBA has been signed and in witness of the recent sales prices of franchises, it is apparent that the idea of contraction was never serious and was a negotiation chip used by the owners seeking concessions from the players.
Then on October 25 of last year during a press conference to announce his 2014 retirement, Stern was asked about expansion, “What I would say is I wouldn’t preclude it. We have a relocation committee that is going to have on its list of authorities to focus on, consider and report to the board on whether expansion is recommended or not.”
He went on to mention Louisville as a potential candidate city.
At February’s NBA All-Star Game, Stern was again asked about expansion and replied that he didn’t think expansion was an option but qualified that by saying, “I keep a little green book with a list of all the cities interested in NBA teams and could respond pretty quickly. There’s all kinds of stuff going on in Pittsburgh, Columbus, Louisville, Virginia Beach, Las Vegas, Vancouver, Mexico City, Kansas City.”
The key word in this quote is “quickly.”
While not closing the door, he does not see the owners’ desire to expand the league as imminent. Perhaps three to five years down the road at the earliest.
From the owners’ point of view, bringing additional teams into the league via expansion could bring upwards of $500 million or more in expansion fees from each new team (the Charlotte Bobcats paid $300 million to enter the league in 2004 and the Toronto Raptors and Vancouver Grizzlies paid $125 million to join the league in 1995). It would also expand the league into areas where it is currently underserved and grow the fan base. It would also produce additional content to distribute through its rapidly expanding digital and international channels.
On the flip side, it would also divide the NBA revenue sharing pie by however many new franchises joined the fold. With the explosion of television revenues, many owners will be reluctant to give up any of this cash.
However, all of this could suddenly change if the Kings end up staying in Sacramento. If that were to occur, Seattle would be left with a big-name, deep-pocketed potential ownership group willing to help finance a brand new downtown arena, but without a team to put in it.
Mt. St. Helens-sized rumblings are already coming out of Seattle suggesting that a failure of this bid to acquire the Kings and relocate them to Seattle will transform into a push to acquire an expansion franchise.
Stern has made no secret of his regrets in terms of Seattle’s loss of the Sonics and would like to see the NBA return to the Emerald City. In a delicious irony, the current chair of the NBA relocation committee is Oklahoma City Thunder owner Clay Bennett, who is vilified in Seattle for relocating the then-SuperSonics to his own hometown.
If the NBA were to grant Seattle an expansion franchise, that would give the league 31 teams, a less than ideal number. Since the 1976 NBA-ABA merger, the NBA has expanded six times adding a total of eight new teams. Four of these expansion added teams in pairs. In many ways, expanding from 30 teams to 32 makes more sense than expanding by one.
If that were the case, Louisville could be in play for a potential 32nd franchise. The near misses with the Hornets and Grizzlies make Louisville very prominent on the NBA radar. The city’s past as an ABA city also helps the cause as six of the previous eight cities granted expansion franchises had previously been home to professional basketball; only Orlando and Vancouver had not.
Expansion is by no means a sure thing, but neither is relocation. At the end of 2011, it was all but assured that the Kings would be moving to Anaheim. At the end of January this year, it was all but certain that they were on their way to Seattle.
Then again, the Hornets were all but signed, sealed and delivered to Louisville in 2001 and they are now playing in New Orleans.
What we do know is that a dwindling number of NBA franchises are in need of new arenas. Franchises are becoming prohibitively more expensive rendering the concept of buying a team and relocating it to a new city with a better arena deal less likely.
We also know that should the Kings wind up staying in Sacramento, the Seattle group could well push for an expansion franchise and the NBA prefers to expand in pairs. All of this would happen quickly.
Where does that leave Louisville?
It leaves Louisville with a new, state-of-the-art arena in need of another tenant indebted by a tax increment financing district in need of more activity.
Louisville Metro Mayor Greg Fischer has stated that he supports bringing an NBA franchise to Louisville. While his cautious approach has been criticized by some pro-NBA supporters, Fischer sits in a difficult position with other constituents calling his support for a potential team an affront to U of L.
Also, he inherited the unfavorable lease at the KFC Yum! Center from the previous administration and has very little direct influence in terms of changing it.
So, the political leadership onus falls on Mayor Fischer as he continues working towards bringing the University of Louisville on board with potentially sharing the KFC Yum! Center with an NBA team while awaiting a PricewaterhouseCoopers NBA feasibility study commissioned last November by Greater Louisville, Inc.
The report was supposed to be ready for public release within abiyt 90 days.
It’s now one month past that time and the city is still waiting.
“We are working with GLI, which is funding the update of the NBA study,” Chris Poynter, the mayor’s director of communications, told us last Friday via email.
It will be done later this year. Other than that, there is nothing occurring on the NBA front at this time.
He went on to add that the study is expected to be completed “sometime this summer.”
Yum! Brands, the arena naming rights holder, also needs to be re-engaged and sized up as to their interest in becoming involved again.
And most critical to the potential success of this endeavor is J. Bruce Miller’s whale hunt for a majority investor, which our own Rick Redding wrote about in early February. Without a majority owner, Louisville’s chances of landing a franchise are a non-starter.
As Fischer and U of L representative accurately point out, there is no reason for U of L to currently renegotiate their lease at the KFC Yum! Center if there is no potential co-tenant with whom to negotiate.
So Miller’s hunt continues:
If I can locate our own ‘whale’ then I will establish meetings with the Louisville Mayor and our Governor. It’s my hope that if I can be successful in locating a majority investor that (U of L President) Dr. (Jim) Ramsey will be amenable to a reasonable re-negotiation of the Yum Center lease — along the lines of President Kennedy’s memorable phrasing at his inauguration, ‘Ask not what Louisville can do for you, but what you can do for Louisville.’ Dr. Ramsey is a reasonable man and I believe he will step forward — responsibly for our city.
It’s been 14 years since the old-Louisville Board of Alderman contracted Miller to find an NBA franchise willing to relocate to the city. We’ve learned in that time that things are never as they appear publicly and change more quickly than the momentum in a basketball game.
Depending on what the NBA owners decide today with regards to the Sacramento-Seattle issue and if Miller’s hunting expedition bags a whale, Mayor Fischer should continue to prepare because if an opportunity arises, things will need to happen quickly.