Maloofs show their smarts as owners

The Maloofs, savvy owners that they are, have bided their time, gotten a couple of mayors to dance to their tune, and created a climate in which they could see a huge return on their investment in the Sacramento Kings.

A group led by Seattle hedge manager Chris Hansen is rumored to be on the brink of paying $500 million for the Kings, which would be a record price for an NBA franchise. The Maloofs paid $156 million for the Kings in 1998, according to Forbes magazine.

Just a year ago, the financial magazine had estimated the value of the franchise at $300 million, ranking it 23rd in the 30-team NBA.  

A sale price of $500 million would add up to a hefty profit for the Maloofs, even if the team is $200 million in the red. They would stand tall among their NBA brethren, businessmen whose aim is make a lot of money by using taxpayers’ money to maximize their profits. There are 10 billionaires among the 30 owners, according to InvestingAnswers.   

The Maloofs didn’t embrace Sacramento Mayor Kevin Johnson’s offer to pony up $255 million in public money to build them a new arena in downtown Sacramento. The mayor’s plan would have required the Maloofs to pump in $85 million of their own money.  No sense in doing that when some other mayor, like the one in Virginia Beach, would be desperate enough to offer a new arena at no cost to them.

Now, the Maloofs, with  a lot of buzz going about a near-deal in Seattle, have Johnson on the ropes, and taxpayers ought to be real worried about what he might do to avoid a major political setback.

Buy hey, the Maloofs are the owners of a sports team and that’s how the business is played. Why would anyone expect the Maloofs to sacrifice themselves financially for Sacramento sports fans? Why should they pay big salaries to get top talent when the value of the franchise booms even with a team that has stumbled through six straight losing seasons?

Sacramento Bee columnist Marcos Breton ranted today about the Maloofs in a column headlined “Blame all of this mess on NBA’s worst owners.”

How could they be the league’s worst owners when they could become the biggest winners in the NBA ownership game? Doesn’t he understand what owners do?

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20 Responses to Maloofs show their smarts as owners

  1. Marc Vincent says:

    The Maloofs loves the lifestyle of an NBA owner, and the prestige
    that comes with it .
    As an NBA owner, You can say that the Maloofs are not very good at it.
    The priorities are not about basketball, but about themselves and the high
    life that comes with it.
    As a business man, You have to give it to them, to be able to use the Kings as
    pond, in this high stake, of this so called bidding game, and up the ante from
    325 million, to 525 million, WOW !!!!!!!!!!!!!.

  2. Collin Ong says:

    Not a very complete analysis of the numbers.

    If they paid $156M in 1998, adjusting for inflation since that time would mean they paid $213,642,201.36 in 2012 dollars. Let’s call that $214M for shorthand.

    However, the Maloofs reportedly own 53% of the Kings, with a group of Sacramento minority owners holding the remaining 42%. That means that they paid $214M for 53% of the team.

    If the sales price is $525M as has been reported, I am assuming that is for 100% of the team. So the Maloof’s 53% share of the sale would be $278M. Leaving profit of $64M for the Maloofs.

    The team also owes $77M to the City of Sacramento. If that is apportioned by the ownership percentages, then 53% of that, $40M, would be owed by the Maloofs. Profit down to $24M.

    When the Seattle Sonics moved to Oklahoma, the NBA charged them a $30M relocation fee. The sale is now a loss of $6M.

    They also reported have debts to the NBA in the ballpark of $200M. So the sale is not even enough to cover repayment of that debt.

    So how smart are the Maloofs now?

    • Paul Clegg says:

      Thanks for the numbers, Collin. Still, $64 million wouldn’t be bad as a long-term investment given the financial upheavals since 1999.

      • Collin Ong says:

        I didn’t go into this, but don’t forget about all the operating losses over the years. I don’t think they’ll come out of this with much of a gain, in any. There’s a reason they lost control of their casino and had to sell their cash cow, the beer distributorship, and now the Kings.

        • Paul Clegg says:

          How about this, Collin: The Maloofs and partners buy the Kings for $156 million and sell it for $525 million. That’s a $369 million gain. Subtract $200 million in debt and you still have a $169 million profit for the team of investors. That’s a 108 percent profit. The S&P 500 has gone up 62 percent in the last decade. The Maloofs and their pals would seem to do well if the sale goes through.

    • Jason says:

      The Sacramento arena deal would have saddled the Maloofs with more debt and tie to them to lease payments for decades. The NBA would have lent them their share of their upfront arena costs and they would have had to make lease payments. So does holding onto the Kings make more sense than selling it? And why contribute to paying for a new arena when another city would potentially give them one for free?

  3. Joe Mamma says:

    A “huge return” on their investment? Um, no. Let’s do the math: Suppose the Maloofs do manage to sell the Kings for $500 million. Before you start talking about profit, you need to subtract the $77 million city-financed loan that becomes due and payable as soon as they move the team. Also subtract the NBA relocation fee, which will be at least $35 million. So rather than realizing $500 million, it’s really something more like $388 million, but you do have to account for inflation: $156 million in 1998 equals about $214 million today. And then you have to figure in the debt the Maloofs have incurred running a once-prosperous franchise into the ground in recent years. The Sacramento Bee has reported the team’s debt at $205 million. So what they’re really ending up with is $500 million minus their initial investment ($214 million) minus costs associated with the sale ($112 million) and the debt they accumulated while owning the Kings ($205 million), or in other words a loss of $31 million.

    • Paul Clegg says:

      Joe, I think the payback to the city is included in the $200 million debt, and whether that estimate is accurate is iffy. Given two financial upheavals since 1999, keeping up with inflation and gaining a possible $64 million is pretty good for a family derided as incompetent.

    • Marc Vincent says:

      The 35 million will be paid by the Seattle group , who are moving the team
      out of sacramento, and not the Maloofs .

  4. William Chee says:

    If the Maloofs were smart, they would still own a beer distributorship. They would still own the Palms (still 2%’ers), they would have invested in the Kings, we would have had a new arena playing to packed houses, and getting first class entertainment that now skips the area. The NCAA tournament would still here.

    The fact that their once mighty financial empire is totally in shambles, and they have left a wake of total distrust and destruction with everyone they have come in contact with would seemingly negate your assertion.

    • Paul Clegg says:

      Maybe William, but many investors have suffered losses in the downturn and are now making a comeback. The Maloofs appear to be among them.

  5. Jason says:

    Professional sports in the US is a very big business and the goal of sports leagues and like any business their goals are to maximize profits and to grow the value of their businesses. The LA Dodgers- who haven’t won a World Series since 1988- were recently sold for $2 billion and will earn billions over the next few decades from showing their games on cable TV. The Golden State Warriors, who haven’t won an NBA title since the mid 1970s, were sold for $450 million. The Chicago Cubs who have recently gone over a century without a world championship are probably worth a a billion dollars on their own. Championships are good- but the Florida (now Miami) Marlins have won two World Series in their brief twenty year history (two of those in a six year period- only to unload all stars in fire sales after both titles). The Miami Marlins stadium situation is a textbook example of a community getting screwed by a sports franchise. Sure the Maloofs have had serious struggles with their other businesses but they are on the cusp of selling a franchise for a record $500 million. And the primary job of NBA Commissioner David Stern, who the media says loves Sacramento and wants a franchise here, which maybe true, is to make money for the owners and if the Kings go for $500 million- imagine how much the Lakers, Celtics, and Knicks are worth?

    The Maloofs may have burned bridges with fans and have made some bad business decisions but there’s two things happening- the Bee and other media outlets, always willing to fight for access to the Mayor and the powers that be- will do the Mayor’s bidding so he won’t get the blame if the Kings leave and will support an arena deal that could lead to more ad sales and the second thing, is that the Maloofs are likely to walk away with a nine figure profit from selling the team.

  6. mike says:

    your definition of the word “good” is flawed. your version of this word might closer to savvy or slimy. the maloofs are not “good” owners. a good nba owner respects its city, fans, and product on the floor. a good owner doesn’t lie to multiple cities on a daily basis trying to swing the best deal it can for themselves. regular people would not want to work or do business with a dishonest business partner. sacramento residents have had to listen to their lies for several years now. they do not put the best product on the court. their gm has made several great trades and draft picks over the last decade to prove his basketball sense, however; he has his hands tied together the last several seasons and cannot make any moves that would bring in better players and take on more salary. they have moved players to drop salary and added nothing for it.
    the maloofs want support from the fans, except the fans have had enough of the bs and bad basketball and would rather keep their cash. sac has two of the top 5 sell-out streaks of all time, one for 11 seasons, one for 8. dont discuss disloyalty on the fan side.
    now the reports of the maloofs wanting an operational control of the team, despite wanting to sell it for $500 million is crazy. there is no way hansen would want to let the liars run his new toy into the ground. maloofs are greedy, selfish, poor business owners. remember, they lost the palms, they lost their daddy’s beer business.

  7. Justin says:

    Owners are supposed to win! If your in the NBA lottery 20 out of 27 seasons your clearly doing something wrong for christs sake. Not too mention the fans in Sacramento are the most loyal fans to that team you could ever find. But even they can only handle so much.

  8. Jerry Kimball says:

    Don’ t blame the Maloofs, blame David Stern. He’s the one that sees the growth of the league’s prestige (and his ego) in moving into to ever more expensive publicly funded palaces for billionaire owners. Be glad you can now be a former NBA town like Seattle has been.

    Unfortunately Seattle is now going to help fund a third $500M stadium. Total stupidity but you have to acknowledge that money doesn’t talk, it swears. Be happy, you’re done with the nonsense.

  9. Anonymous says:

    You are honestly totally ignorant of the facts of this situation and to the truth of the business of Professional basketball. Who ARE you?

  10. dick johnston says:

    good owners have winning teams

  11. Joey says:

    Where do you come up with this stuff?!

  12. Captain Dg says:

    Pretty good comments and mostly right. But I think you overstate how much of the hefty profit they’d keep. The team is not the only “jewel” in the Maloof holdings that needs cash. Yes, they will still be spoiled rich kids in the end, but even at this hugely inflated price a lot of the hefty profit will be eaten up by debt.

    • Justin says:

      Dude they need CASH period and lots of it. The only thing of value they have is a ton of Wells Fargo stock. They probably can’t even pay their morgage.

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