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.

NBA owners wanted tampering crackdown, reportedly now concerned about privacy, effectiveness

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As we wrote when the details came out about owners pushing a crackdown on tampering around the NBA and increased fines, it’s one thing to talk tough and something else entirely to enforce those rules. The devil is always in the details.

This week NBA owners are descending upon New York for the annual preseason Board of Governors meetings, and they are wrestling with those devils, reports Adrian Wojnarowski and Zach Lowe of ESPN. Specifically, should the league be able to monitor a team’s communications with other teams and agents?

In conversations with numerous league officials, team owners, general managers and agents, there’s some uncertainty about the means the NBA might use to investigate alleged rules violations. Atop those concerns for team officials are what league sources insist was Commissioner Adam Silver toughest decision in bringing new rules to a vote: An annual, random auditing of five teams’ communications with rival front offices and player agents…

Pre-June 30 discussions between teams and agents would migrate away from text messages and emails if the league gets the right to audit five teams per year at random. That one clause will likely engender a lot of discussion today and Friday, league sources say. Teams are curious: what would an audit entail? How much access would the league get to the cell phones of GMs and governors? What happens if they go looking for tampering and find other information of interest — intel on players and coaches, financial plans, one off-color joke?…

“I don’t think he should have any right to get into my phone,” one GM told ESPN. “I wish my owner would vote no, but I doubt he will. You’ll only make yourself a target for investigation if you do.”

What the proposed new rules do is increase fines and say Silver has the right to take away draft picks if a team is caught tampering (a power he already has, but one teams fear more than fines), and add the audits. Those audits mean teams would have to keep texts and emails with agents for at least a year. Silver also wants teams to do a little self-policing — of themselves, to act more like partners in one big business. The goal is to build an NBA culture without much tampering. Good luck with that.

Silver is too politically savvy to bring this proposal forward if he didn’t have the votes lined up, something Wojnarowski and Lowe note. It’s going to get approved, something primarily driven by small and medium market teams who see themselves as just trying to level the playing field. (Even though plenty of them tamper, too.)

However, just like now, only teams to slow on figuring out how to cover their tracks will get caught.

There are plenty of means of communication with an agent, for example, that are not texts/emails and can easily disappear from existence (WhatsApp, for example, but teams may not even use that). There also is always simply using a human intermediary to deliver a message or ask a question, something that could not easily be traced. It’s not that difficult to cover your tracks electronically, either.

The other question out there: What will be the unintended consequences of this move? Any major policy decision — in basketball, in politics, in life — has consequences nobody saw coming at the time, this move will too. And small market owners will likely complain about that, too.

Team USA keeps top spot in FIBA men’s world rankings, Spain No. 2

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USA Basketball has kept its No. 1 spot in the FIBA world men’s rankings, even after a disappointing seventh-place showing in the World Cup that ended earlier this week.

It’s now nine-years-and-counting in the top spot for the U.S., which has held the No. 1 ranking since winning the 2010 world championship. World Cup champion Spain stayed No. 2, Australia leaped eight spots to No. 3, World Cup finalist Argentina rose one spot to No. 4 and World Cup bronze-medalist France fell two slots to No. 5.

FIBA’s rankings take results from the most recent eight years into account – which means the U.S. is still reaping point benefits from the 2012 and 2016 Olympic gold medals and the 2014 World Cup title.

“In this day and age, basketball in other countries is not a secret,” U.S. coach Gregg Popovich said after the Americans completed their run in the World Cup. “So it’s not like there’s an epiphany or a revelation to be made. There are wonderful teams and wonderful coaches all over the world. You go compete and the best teams win.”

It’s now expected that the U.S. will retain the No. 1 ranking going into the 2020 Tokyo Olympics. Several top NBA players, including Stephen Curry, Draymond Green and Damian Lillard have said in recent days that they intend to play for the U.S. in Tokyo, where the Americans will try to win a fourth consecutive gold medal.

Most top U.S. players declined to be part of the World Cup team.

“I’m expecting them to be so strong next year,” Spain coach Sergio Scariolo said.

OLYMPIC UPDATE

The new rankings confirmed that European champion Slovenia, which didn’t earn a spot in the World Cup field after many of its top players couldn’t take part in qualifying since those games conflicted with the NBA and Euroleague schedules, will still have a chance to compete in the Olympics – as will seven other teams that found out they’re headed to playoffs next year.

Angola, Senegal, Mexico, Uruguay, China, Korea and Croatia also still have Olympic hopes. Those last eight playoff spots awarded Thursday went to the top two teams from Africa, Europe, Asia-Oceania and the Americas regions who hadn’t either already clinched Olympic berths or spots in the last-chance playoffs.

Japan is automatically qualified for the 12-team Olympic tournament as the host country. The U.S., Argentina, Nigeria, Spain, France, Iran and Australia clinched Olympic spots at the World Cup by finishing as the best teams in their respective FIBA regions – the Americas, Africa, Europe, Asia and Oceania.

That leaves four unclaimed Olympic berths, and 24 teams to compete for them in playoffs next year. There will be four six-team tournaments held from June 23-28, 2020 – winner-take-all, all in this case meaning an Olympic berth. Bidding for sites is expected to begin shortly, FIBA said.

The other 16 playoff spots were awarded based on World Cup placing. They went to Serbia, Lithuania, Greece, Russia, Brazil, Italy, Puerto Rico, Turkey, the Dominican Republic, Venezuela, Germany, Canada, the Czech Republic, Poland, New Zealand and Tunisia.

MOVING UP

Belize was the top mover in the new rankings, climbing 50 spots to No. 118. Kosovo rose 21 spots to No. 69, Togo went up 21 spots to No. 136, Tunisia climbed 18 spots to No. 33 and Ivory Coast went up 16 spots to No. 48.

STILL SWEEPING

FIBA has four sets of rankings – for men, women, boys and girls. The U.S. holds the No. 1 spot in all four of those rankings, though the race is tightest among the men.

The U.S. men hold a lead of 54.9 points over Spain in those rankings, while the rankings margins held by the U.S. women (310 points over No. 2 Spain), boys (291 points over No. 2 Canada) and girls (155 points over No. 2 Spain) are far more comfortable.

Report: NBA won’t allow Rockets to use Nene’s contract as $10M trade chip

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Update: Shams Charania of The Athletic:

This is a huge blow to Houston. The Rockets are now stuck with an over-the-hill center they can’t trade for value and can’t play much without triggering bonuses that’ll make him way overpaid.

If they had known how this would turn out, they would’ve signed Nene to a one-year minimum contract at most. At least that’d be partially subsidized by the league. Because this is is a two-year deal, Houston is on the hook for the full base salary.

 

 

The Rockets got a valuable trade chip with Nene’s contract.

At least if the deal goes through.

Bobby Marks of ESPN:

Although Nene signed with the Houston Rockets on Sept. 6, the NBA has yet to officially approve the deal. The 10-day delay is a result of the NBA discussing internally whether it should disapprove details in the contract, according to multiple sources.

Nene’s contract includes a low base salary with a massive amount of likely incentives. Houston could count Nene’s full $10 million salary (base plus likely incentives) in a trade. The acquiring team would then owe Nene his base salary plus only the bonuses he actually triggers.

It’s a workaround to the typical salary-matching rules.

The bonuses are tied to individual games played and team games won. Because Nene played 42 games for the 53-win Rockets last season, the bonuses are qualified as likely. Last year’s performance is the default way to determine whether incentives are likely or unlikely.

You can read more about the contract’s structure here.

The NBA’s apprehension is interesting. The Collective Bargaining Agreement specifies a procedure for challenging incentive classification when the league or union believes the prior season is not a fair predictor. Essentially, that side makes a case to an arbiter that the default assumption is “very likely” to be wrong.

However, in a funny quirk here, that challenge system lays out only how the NBA can challenge to turn unlikely incentives into likely incentives and how the union can challenge to turn likely incentives into unlikely incentives. There’s nothing about the NBA turning likely incentives into unlikely incentives, which the league is apparently considering here (and would make Nene’s contract invalid, as there’s a limit on unlikely incentives).

The CBA also prohibits circumventing the spirit of the rules. The league could rule Houston did that here. However, that’s a tough case considering not only does Nene’s contract meet all stated technicalities, there’s a section specifically on challenging these types of details. It just doesn’t apply.

The Heat opened the door for likely/unlikely-incentive shenanigans a couple years ago. We didn’t hear then about the NBA challenging those contracts, and that’s where the official challenge system would’ve applied.

It seems unfair to punish the Rockets’ creativity now.

Doc Rivers: I told Steve Ballmer, if Kawhi Leonard signed with Lakers, Clippers moving to Seattle

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We know what happened: The Clippers traded for Paul George, signed Kawhi Leonard and became championship favorite.

But at one point, Clippers coach Doc Rivers thought the George trade with the Thunder would fall through and Leonard could sign with the Lakers.

Rivers, via Arash Markazi of the Los Angeles Times:

“The day of the trade at 12 noon the deal was off,” Rivers said. “I was at home in Malibu and Lawrence called me and told me, ‘It looks like he’s either going to Toronto or the Lakers.’ The Lakers part just threw me over. I told him that can’t happen. … I remember I kept telling him, ‘We cannot allow that to happen!’

“I actually told Steve jokingly that if that happens, we’re moving the team to Seattle. It was a joke, but I was actually serious about it. I really believed that.”

Kawhi Leonard cost us the SuperSonics returning!

I don’t know how serious Rivers really was. Leonard joining LeBron James and Anthony Davis on their cross-arena rival would’ve been disastrous for the Clippers.

I’m convinced Ballmer will keep the franchise in Los Angeles. Ballmer’s ties to Seattle through Microsoft are well-established, and he previously tried to buy the Kings to move them to Seattle. But I can’t see him moving the Clippers from such a prime market, especially after going so far to get a new arena built in L.A. At every turn, he has maintained he’ll keep the team in Los Angeles.

Then again, Ballmer also phrased that guarantee as, “I will die owning the L.A. Clippers.” Now, he’s open to changing the nickname. Hmmm…

To be clearer than Rivers: That’s a joke I’m not actually serious about don’t really believe.