By Bill Shea
Crain’s Detroit Business
Published: January 22, 2013
The Sacramento Kings will be sold in a deal whose eventual cost is expected to approach $600 million after the team relocates next season to Seattle and is reconstituted there as the SuperSonics.
The Sacramento Kings for $600 million? Really? That much for a team whose on-court history pales in comparison with the legacy of the Detroit Pistons? The same Pistons who sold for $325 million in June 2011?
You have to adjust your thinking to put the two deals into comparative context. What the Kings’ buyers are getting isn’t the value of the deal for a Sacramento NBA team, but that of one in Seattle — a much hotter market.
“You’re not buying the team. You’re buying a new team in Seattle, with all the demographics and corporate base, which is much stronger in Seattle than Sacramento,” said Michael Rapkoch, president of Addison, Texas-based Sports Value Consulting LLC.
“The price reflects how valuable a franchise it is in Seattle. It would be significantly less to keep the team in Sacramento.”
The purchase agreement price was reported by ESPN.com at $525 million, or $200 million more than private equity baron Tom Gores paid for the Pistons in 2011. The new Kings/SuperSonics owners reportedly also will pay $30 million to $50 million to the NBA as a relocation fee, once the deal is approved.
For his money, Gores got the Pistons, the modern Palace of Auburn Hills, DTE Energy Theatre, the contract with Oakland University to manage Meadow Brook Music Festival, and the Palace Sports & Entertainment Inc. umbrella management and marketing company.
The initial asking price was $500 million in 2010.
Forbes.com estimated last year the Kings are worth $300 million and the Pistons are valued at $332 million.
Buying the Kings are hedge fund manager and Seattle native Chris Hansen, who founded the $2.7 billion San Francisco-based Valiant Capital Management LP hedge fund in 2008, and Steve Ballmer, CEO of Microsoft Corp., whose corporate offices are 16 miles east of Seattle in Redmond. It’s believed there are other minority investors in the deal.
They’re buying the 53 percent majority stake in the Kings held by the Maloof family and a 12 percent stake owned by Bob Hernreich.
Also driving the price: There was only one NBA team for sale and available for relocation, Rapkoch said.
“There’s one team available, and what does that do to the price?” he said. In other words, the Maloofs got to set the market price.
Hansen and his consortium intend to move the team after this season. It’s unclear if the Maloofs will retain the Kings’ arena, which they own.
Hansen already has worked out a deal with local governments to build a $490 million, 18,500-seat multi-use arena in Seattle that would include up to $200 million in public funding.
Former Pistons and Palace Sports owner Bill Davidson, whose death in 2009 led to the team’s sale, built the Palace in 1988 for $90 million out of his own pocket. He spent an additional $112.5 million in subsequent renovations, and Gores pumped $13 million into it prior to this season.
Also in 1988, the Kings’ home, 17,317-seat Sleep Train Arena, opened for just $40 million as ARCO Arena. It was called Power Balance Pavilion before taking its current name in 2011.
It’s the smallest arena in the NBA. When the Kings relocate, the plan is to play for two seasons at 17,072-seat KeyArena, the former home of the original Sonics which opened in 1962, until the new facility is built.
There’s much talk that the National Hockey League could relocate the league-owned Phoenix Coyotes to the new arena, something that’s address (no team is named) is in Hansen’s memorandum of understanding with Seattle and King County.
An NHL team would be a rent-paying tenant for the new SuperSonics’ owners, making the deal even more lucrative and driving their willingness to pay a premium for the Kings.
“The dual team concept will enhance the sponsorships, the naming rights, the luxury suites. They will control the arena,” Rapkoch said.
He noted the presence of so many large corporate headquarters, the strong real estate values and other factors that make the move enticing.
“Seattle is a fantastic market,” he said.
The Seattle market is home to 4.2 million people, according to the 2010 Census. That makes it the 12th-largest U.S. metro area (officially the known as a “combined statistical area” by the U.S. Office of Management and Budget).
Detroit comes in as the 11th-largest metro area, with 5.2 million people (it includes Warren and Flint with Detroit).
The Sacramento metro area is 2.4 million, which is 18th largest in the country.
One factor that didn’t fuel an even larger sale price for the Kings: Winning.
The Pistons’ were attractive to Gores for several reasons, not the least of which was their strong attendance history and their legacy of winning — something devoid from the Sacramento/Seattle deal.
“(Gores) bought the fantastic legacy. You buy that legacy in hopes to revive it,” Rapkoch said.
Had the Kings had that legacy, they’d not likely be for sale. And if they were, it’s possible the price could have been millions more.
The Kings — they started at the NBL’s Rochester Royals in 1945, switched to the NBA in 1948, played in Cincinnati and Kansas City before relocating to Sacramento in 1985 — won their sole NBA title in 1951. They’ve managed division titles in just three seasons (1979, 2002, 2003).
After an eight-season playoff run from 1998-99 to 2005-06, the Kings have struggled and not made the postseason. In 65 seasons, they’re 2362-2721 (.465). Since moving to northern California, they 956-1303 (.423).
The SuperSonics played in Seattle from 1967 (winning their lone NBA title in 1979) until being moved to Oklahoma City, where they play today as the Thunder. In 41 seasons, the original SuperSonics were 1,745-1,585 (.524).
By contrast, the Pistons — they began in Fort Wayne in 1941 until moving to Detroit in 1957 — have won three NBA titles (the last in 2004), nine division crowns and five Eastern Conference championships.
In 65 seasons, they’re just slightly better than the Kings at 2497-2583 (.492). In Michigan (Detroit, Pontiac and Auburn Hills), they’re 2,184-2,277 (.490).
The Pistons’ recent lack of winning also help deflate their sale price. Fans don’t come out to see a losing team in Auburn Hills.
The Pistons are dead last in the league at per-game average capacity of the arena filled at 63.2 percent. Sacramento is 28th at 76 percent.
The Kings are last in the 30-team NBA with a per-game attendance average of 13,153. Detroit is two spots better at 13,949 per game. Both numbers are for 22 home games this season.
The Pistons also sold for much less that two other teams recently:
• Washington Wizards owner Ted Leonsis bought the 56 percent of the team and the Verizon Center he did not already own for an enterprise value of $551 million, according to Mike Ozanian at Forbes.com.
• The Golden State Warriors sold for $450 million in July 2011, which is the most paid for an NBA team in a deal that didn’t include an arena, Ozanian wrote.