Friday, September 14, 2012

Why Maloof Family Could Not Be Majority Owner of a Team in Seattle

The revised Memorandum of Understanding (MOU) between Chris Hansen, City of Seattle, and King County, has a restriction on how much debt can be placed against the value of the NBA franchise.

MOU, page 14:
First Right to Distributions.

Further, to satisfy any default in (A) ArenaCo’s obligations under the Arena Use Agreement and (B) the NBA Team’s obligations under the non-relocation agreement required by paragraph 21.d, the City and County will also be entitled to receive the first distributions of any proceeds from any sale of the NBA Team, subject only to repayment of any obligations of the NBA Team related to any debt of the NBA Team to the NBA or other lenders approved by the NBA that are secured by the NBA franchise and other assets of the NBA Team up to the $125 million cap plus the amount of Public Financing used to fund the SODO Transportation Infrastructure Fund in the Second Installment up to an additional $25 million on such debt currently allowed under applicable NBA rules (“NBA Team Secured Debt Obligations”). The total NBA Team Secured Debt Obligations shall not exceed $150 million. ArenaCo Parent shall covenant not to enter into any agreement that would interfere with City's and County's rights to receive distributions of the proceeds of sale of the NBA Team payable to City and County as and when provided for in this MOU, and the NBA Team shall covenant not to enter into any agreement granting any lien, security interest or other encumbrance on the NBA Team's assets in excess of the NBA Team Secured Obligations. The Parties also agree to explore further ways to secure the obligations of ArenaCo, ArenaCo Parent and the NBA Team subject to NBA requirements, rules, regulations and agreements. Notwithstanding the foregoing, however, if the NBA revises its rules to allow NBA teams to borrow in excess of the current limit of $150 million that may be secured by the NBA franchise and other assets of NBA teams, then the NBA Team will be entitled to increase the amount of the NBA Team Secured Debt Obligations; provided, however, that the NBA Team will limit the amount of the NBA Team Secured Debt Obligations that will be senior to the right of the City and County to receive distributions of any proceeds from any sale of the NBA Team to the lesser of: (A) the maximum amount of NBA Team Secured Debt Obligations that is then allowed under NBA rules, or (B) 40% of the then "fair market value" ("FMV") of the NBA Team. The FMV of the NBA Team will be as mutually agreed upon in good faith by the Parties at that time; provided, however that if the Parties are unable to agree upon the FMV of the NBA Team at that time, then the FMV of the NBA Team will be determined by a sports industry recognized appraiser with experience in valuing NBA teams selected by the mutual agreement of the Parties pursuant to a customary valuation process to be specified in the Umbrella Agreement; but provided further, however, that if the NBA Team Secured Debt increase of the NBA Team is being sought in connection with the acquisition of the NBA Team on an arm’s-length basis by an unrelated party, then the FMV will be equal to the actual all-in acquisition price of the NBA
Team.

MEMORANDUM OF UNDERSTANDING SEATTLE SPORTS AND ENTERTAINMENT FACILITY

I just don't see Chris Hansen paying the Maloof family $250 million dollars so he can be a minority owner in his own building, AND be unable to borrow against that equity because the majority franchise owner has the rest of the team in debt.

Not in a million years.

Have a great day,
Mike Baker

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Visit me here:
http://ManyWordsForRain.blogspot.com

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