Future of NBA arena subsidies, market comparisons to decide Kings’ fate

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As Sacramento Mayor Kevin Johnson has been advertising for the past month, we did indeed get confirmation of the identity of his ‘whales’ at his State of the City address on Thursday.

Reiterating parts of his four-part plan that included bringing together a local ownership group, finding big equity investors (whales), putting together a downtown arena deal, and demonstrating the value of the Sacramento marketplace – Johnson would announce that 24 Hour Fitness founder Mark Mastrov and billionaire Ron Burkle would put in a bid to keep the Kings in Sacramento.

“With all due respect to Seattle, I do hope they get a team someday, but let me be perfectly crystal clear, it is not going to be this team,” said Johnson.

Johnson also announced that former Kings great Mitch Richmond would join the local ownership group and that the city’s proposal would include an option to return WNBA basketball to Sacramento.

Sources close to the situation told PBT that the framework of the offer delivered to the NBA on Friday was very close to Seattle’s $341 million offer for a controlling 65 percent interest in the club. NBA spokesman Tim Frank confirmed delivery of the offer on Friday, the day of the deadline.

Over the next month Sacramento will continue to iron out the details on a public subsidy and arena deal locally with the Sacramento City Council, which will ultimately vote on a term sheet to be delivered to the Board of Governors in time for their April 18-19 meeting.

Sources tell PBT that the Sacramento offer will be conveyed by the group to the NBA’s joint committees in charge of reviewing the situation on or around April 1. It is expected that Seattle’s group will also meet with that committee around that time, though no meeting has been publicly acknowledged.

According to sources, the two issues that will drive the conversation is the league’s strategy for securing arena subsidies in the future, and the impact each market will have on team revenues and the league’s financial model as a whole. Also under consideration are timelines to deliver an arena, ownership groups, and the precedent the league could set by blocking an owner from selling to a group of their choosing.

The league blocked a sale of the Minnesota Timberwolves to a group headed by boxing promoter Bob Arum in 1994, but a well-placed source told PBT that the league views this transaction as “unprecedented,” citing that never before has the league relocated from a city that has supported its team both at the gate and with public subsidy dollars.

The Maloof ownership group reportedly has “little to no leverage” in NBA’s decision-making process. They also reportedly owe the NBA in excess of $100 million on a line of credit they’ve used throughout their ownership. If called in, the family’s financial woes could give the league an opening to use the ‘Best Interests of the League’ clause, similar to the way Major League Baseball removed Dodgers owner Frank McCourt.

Sources do not expect the Maloof family to push back on the league’s decision to back either Sacramento or Seattle, citing the prohibitive costs of an antitrust lawsuit, and the potential for the family to lose a chance to cash out in Sacramento or Seattle.

The issue of market comparisons between Sacramento and Seattle is cloudy, but sources expect Sacramento to be competitive in that area because it has one major sports team in their No. 20 TV market, while Seattle could have six major sports teams in its No. 12 TV market. We will cover this in a bit more detail later in the next few weeks.

While details about Sacramento’s ownership group are a bit hazy at this time, it has been expected that Mastrov would be the front man. The more private Burkle reportedly would focus on the development of the Downtown Plaza location. Sources indicate the duo will share in the ownership of a potential deal, though it’s unclear what those percentages will be. Both owners have been vetted by the NBA, and Mastrov finished second in the Golden State Warriors bid that recently went to the Joe Lacob group.

While Seattle’s Chris Hansen-Steve Ballmer group has enormous wealth, another well-placed source speaking to PBT under condition of anonymity said the league is happy with both ownership groups and not to expect a deal to hinge on any comparison between them.

If a showdown comes to the owners’ deciding vote, some sources hinted at a scenario in which the league tells the Hansen group that they’re going to choose Sacramento – allowing the Hansen group to bow out gracefully and avoid a divisive ownership vote.

Should the league favor Sacramento, sources say the work the city has done to fight for its team and the narrative it will give the league to sell to future cities in arena negotiations will have played a critical role in the NBA’s decision-making process.

Seattle’s deal contains a greater percentage of private funds due to local initiative-91 requiring public funds to return a guaranteed profit, which is a trend the league wants to avoid.  On the other hand, Sacramento’s deal fits the public-private model the league is selling to cities, with a larger public subsidy going toward a new state-of-the-art building in a downtown revitalization effort.

We will cover that issue in greater detail in the coming weeks.

In order to keep their team, Sacramento will need eight votes out of 29 other owners to block the transfer of ownership to Seattle’s Hansen/Ballmer group.

Damian Lillard opposes idea of later NBA season start running into summer

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At the MIT Sloan Sports Analytics Conference a few weeks back (although it feels like a lifetime ago), Atlanta  CEO Steve Koonin suggested the NBA should permanently shift its schedule to a mid-December start with the Finals running into August. The idea was to stop going head-to-head with the NFL and college football at the start of the season. Then the pushed back playoffs forced by the coronavirus have made that discussion more relevant. NBA Commissioner Adam Silver has said everything is on the table.

Damian Lillard is not a fan of the idea.

He likes the schedule just the way it is, something he said during a video conference with the media on Tuesday, hat tip to Dwight Jaynes of NBC Sports Portland.

“I just don’t see it. I mean, the season starts when it starts now, then February all-star weekend, getting toward the end of the season in April and then getting into the playoffs. You get that early June Finals and then you get to go off into your summer…

“You get to enjoy real-time summer,” Lillard said. “Our break is into the summer and then you get to come back as summer is leaving. I think that’s been perfect…

“It’s been perfect for us,” Lillard said. “So, for that to change and for things to be pushed back, I’m definitely not a fan of that and I don’t see many guys being a fan of that.”

Lillard is not alone in thinking this way, but Silver is more open to change than most sports commissioners. That said, changes that break with long-standing traditions are hard to make a reality.

There would be a lot of questions around a schedule change. Would the ratings still be as high for a Finals series in the heart of the summer? The NBA season no longer would sync with the NCAA or international leagues’ schedules, leading to questions about the draft and timing for players who want to test the waters. There would need to be reworked television contracts, both regionally and nationally. It could make scheduling a challenge at arenas used to having more concerts and other events in the summer.

Plus, all of this would need to be negotiated with the players union — and Lillard speaks for a lot of players on this issue.

If the NBA could somehow convince players that starting later meant more money in their pocket, those union negotiations would take on a different tone. But would the move increase revenue? That’s not an easy sell.

With this NBA season likely running late, the start of next season could be pushed back, and this theory could get a little bit of a test. Or, the next season could be shortened a little to get the league back on its regular schedule.

Which would make Lillard happy.

Report: NBA deprioritizing playing regular-season games for local TV

Steve Kerr and LeBron James before NBA game
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The NBA is financially incentivized to play more regular-season games to satisfy local-TV contracts.

How does that square with resuming play – currently suspended due to the coronavirus pandemic – with a play-in tournament and playoffs?

It doesn’t.

Marc Berman of the New York Post:

According to one source, getting some teams to a magical number of 70 regular-season games had been a goal, but in the last week has taken on less of a priority.

This stoppage is going to cost the NBA a lot of money. There’s no way around that. Not every source of revenue can be preserved. It’s about finding the optimal setup.

Importantly, canceling games could allow the NBA to reduce player salaries through force majeure. Of course, the union would consider that action when negotiating how to proceed.

LeBron James advocated for playing some regular-season games before the playoffs so everyone could get back into shape. But Steve Kerr called it very unlikely the Warriors would play another regular-season game. Perhaps, playoff-bound teams like the Lakers will play tune-up regular-season games while Golden State – the only team officially eliminated from the playoff race before the hiatus – doesn’t. It’d be a little odd to have such different formats, though. (Then again, these are odd times).

Considering this report, we ought to give more credence to the idea that Kerr knows something about the NBA’s plan and that the regular season is finished.

Lakers update that all players ‘currently symptom-free of COVID-19’

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Nearly two weeks ago, the Lakers announced that two of their players tested positive for the coronavirus. “Both players are currently asymptomatic, in quarantine and under the care of the team’s physician… All players and members of the Lakers staff are being asked to continue to observe self-quarantine,” the Lakers said at that time.

On Tuesday, the team provided an update saying nobody on the team is showing any symptoms after a couple of weeks of quarantine.

“All Lakers players are currently symptom-free of COVID-19. The team will continue to follow the health and safety guidelines set by government officials, the Lakers and the NBA,” the statement said.

The Lakers’ players who tested positive were never publicly identified (in fitting with HIPAA regulations).

A total of 10 NBA players — plus five members of staff associated with teams — have tested positive for the virus that has upended life in the United States. None reportedly have had to be hospitalized. Players such as Marcus Smart and others have recovered and free from the virus.

The NBA remains suspended, with the league hoping to jump-start the playoffs in June, possibly with all the teams in one location.

Report: NBA won’t hold draft until after season

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The NBA draft is scheduled for June 25. Most expect that date to change as the coronavirus pandemic causes postponements around the world.

Apparently, the draft will come after the NBA season – whether the season is completed in a modified format or just cancelled.

Adrian Wojnarowski of ESPN:

I think everybody in the league feels it’s almost impossible to have a draft if you still have a season that’s ongoing.

You can’t have a draft while teams are still playing. You can’t have some teams able to do trades because their season’s done and then some teams unable to do trades because they’re still playing.

It doesn’t strike me as difficult to hold the draft before the season ends. Teams wouldn’t be allowed to trade current players. The restriction would apply across the board, just like the interrupted pre-draft process. That’s not ideal, but compromises must be made amid this chaos.

Importantly, holding the draft sooner could appeal to both sides of the Collective Bargaining Agreement.

It’d be an opportunity to hold a revenue-producing TV event. Obviously, drafted players wouldn’t attend a mass gathering. But with sports fans starved for content, people would watch the selections. A handshake with NBA commissioner Adam Silver is only a small part of the festivities.

The National Basketball Players Association should also push for an earlier draft. Prospects want information sooner so they can prepare for their next step – whether that’s the NBA, returning to college or playing overseas. That said, the union has bigger priorities than potential future members.

So, it’s easy to see why postponing the draft has gained momentum, even if that’s not a no-brainer solution.