Sign in / Join

Sacremento principal and interest

Greg at The Sports Law Blog notes that in 1997, the city of Sacremento loaned the NBA's Kings - aka the Maloof brothers - "$70 million to help [them] overcome financial difficulties and remain in the city. In addition, the city made a second loan to the team, to assist it in paying back the first loan. ... Due to this odd structure, the team has only made a dent in the amount owed, having paid back only $1.5 million of the principal." As reported in the Sacramento Bee, local taxpayer advocates are grumbing about this. Greg ruminates thus: "I can only imagine Prof. Sauer's reaction as he reads this."

Well, as a card-carrying member of Keith Olbermann's Constitutional Amendment Against Corporate Welfare Supporters Club, I've come completely unhinged! Heh, not exactly. As the article in the Sacremento Bee makes clear, the Maloofs have fulfilled their obligations under the contract. If and when Sacremento subsidizes a new arena and forgives the debt owed on the old one, I'll join the call to arms. But collecting interest payments on a $70m loan is small potatoes in the world of sports subsidies, and probably worth it to the citizens of Sacremento.* But it's worth it to the Maloofs too, as it allows them to employ their limited capital more profitably, as they morph from successful Albuquerque beer distributors into the grand poohbahs of The Palms Casino. Hmmmm, could there be plans in the works for a basketball arena at The Palms?

* My chief problem with the structure of US pro sports is that strict entry control by the league allows teams to make credible relocation threats. These threats spawn subsidies which are likely to be excessive. But given the threat of relocation, subsidies are the expected political outcome, and the Sacremento case does not seem very costly.

**Note also that private finance of stadiums is commonplace in England - Arsenal's recent 400 million pound project being an example - where leagues lack entry control and relocation threats are rare. While England's soccer clubs are less vauable to their owners as a result, they are more valuable to their communities. And that's where the bottom line should be.