THE SACRAMENTO KINGS AND THE RAIL YARD ARENA - CHRISTOPHER F THORNBERG, PHD FOUNDING PARTNER BEACON ECONOMICS

The Sacramento Kings and the
      Rail Yard Arena

    Christopher F Thornberg, PhD
           Founding Partner
          Beacon Economics

Background and Bio
Christopher Thornberg is founding partner of Beacon Economics, LLC and an expert in the study of
regional economies, real estate dynamics, labor markets and business forecasting.

yDr. Thornberg has established a reputation as one of California’s leading economic forecasters. He is
currently chief economic advisor to the California State Controller's Office and serves as Chair of
California State Controller John Chiang’s Council of Economic Advisors – the body that advises the state’s
chief fiscal officer about emerging economic issues.
yDr. Thornberg also serves on the advisory board of Paulson & Co. Inc., one of Wall Street’s most
successful hedge funds. He has been involved in a number of special studies measuring the effect of
important events on the economy. These include the NAFTA treaty, the California electricity crisis, port
security, California’s water transfer programs, and the terrorist attacks of September 11, 2001.
yPrior to launching Beacon, he was an economist with UCLA’s Anderson Forecast where he regularly
authored economic outlooks for California, Los Angeles, and the East Bay. He also developed a number of
specialized forecasts for various regions and industries. Previously he has taught in the MBA program at
UC San Diego’s Rady School of Business, at Thammasat University in Bangkok, Thailand, and has held a
faculty position in the economics department at Clemson University.
yDr. Thornberg holds a Ph.D in Business Economics from The Anderson School at UCLA, and a B.S. in
Business Administration from the State University of New York at Buffalo.

Beacon Economics

Three Worrying Assumptions

y Ticket Revenues
   {   Assumptions for gate receipts unrealistically high
   {   No accounting for club seats cannibalization of non-premium ticket sales

y Sacramento Fiscal Situation
   {   City’s finances are currently in dire shape
   {   Critical funding needs not being addressed
   {   Unrealistic expectations of the potential financial windfall could turn this
       arena into a white elephant

y Construction Time / Funding
   {   CEQA, infrastructure, historic preservation, permitting, taxpayer revolts
   {   Will the arena be built by the 15-16 season?
   {   How will the almost-certain delays impact the financial viability of the
       proposed arena?

Beacon Economics                           2                           www.BeaconEcon.com

Current Revenue Projections
                                              Current assumptions
                                                {   Almost a tripling of revenues between
                                                    this season and 15-16
                   Current Projections
                                                {   Justifications; recovering economy, new
                                                    arena ‘bump’, 100% club seat sales
                                              Realistic Estimates
                                                {   Use local economic situation,
                                                    (employment, home prices, local
                                                    spending)
                                                {   Account for substitution effect, club
                                                    seats from regular seating
                                                {   85% Club Seat Sales, league average
                                              Results of Analysis
                                                {   Best case scenario, annual revenues
                                                    come in $5 million below projections
                                                {   Worst case, $15 million below
  Regular season revenues only                      projections
  *1999, 2012 Adjusted for shortened season

Beacon Economics
            3

Sacramento Fiscal Issues

y Sacramento Current Budget Problems
  {   City revenues down $60 million from 08-09, current budget shortfall $40 million
  {   Parks cut 75%, FTE employment in Fire and Police down to 1500 from 1900
  {   Unemployment still close to 11%, and job growth still negative
  {   Long term issues with pension benefits
  {   Still facing overall economic uncertainty due to levy issues
y Can the city truly afford this arena plan?
  {   $230 million based on monetization of parking revenues—will those revenues actually
      be raised?
  {   City no longer has redevelopment agency powers, which was going to be used for the
      infrastructure development—how will this be funded?
  {   City’s estimate of fiscal impact of arena, based on study that assumes 3.1 million visitors
      per year up from 1.5 million now.
      Ù   Study seems to use full visitor count, not accounting for 5 mile shift in location
      Ù   Any net impact for new visitors? Only visitors from outside Sacramento help
      Ù   Plenty of academic research that shows these studies highly overestimate the true impact
  {   Slump in real estate restricts potential short run value of secondary development
Beacon Economics                                    6                                  www.BeaconEcon.com

Potential Delays

y Voter Initiative Process
  {   Sacramento Taxpayer Opposed to Pork (S.T.O.P.) initiative
      to prevent any public funding from going to Arena
  {   In 2006 2 measures, Q and R, were on ballot. Q said new
      sales taxes for arena, R for new revenues for any purpose
  {   Q failed with 71% No, R failed with 80% no.

y Rail Yards
  {   Still have to pass CEQA environmental review process
  {   Possible issues with historic artifacts, landmark
      designation, ground contamination
  {   Unlikely to get Governor’s sign off on expedited process;
      against public funding for , no GHG, Silver Leed Certified
  {   No design plans or construction bids—still speculative

Beacon Economics                               7                   www.BeaconEcon.com

Case Studies

         y Stockton
             {     Close to being largest municipal bankruptcy—in part due to public
                   financing of ballpark and arena

         y San Diego Baseball Stadium
             {     Voters passed initiative to restrict public funding to $225 million.
                   City later agreed to $299 million
             {     1998 start, but 2 year delay, opened in 2004 instead of 2002
             {     Massive litigation was over public funding
             {     Overall project $45 million over budget

         y Glendale, AZ
             {     Coyotes moved into Glendale Arena/ Jobing.com Arena owned by
                   the city of Glendale in late 2003.
             {     Team has never made a profit since moving from Winnipeg in 1996
                   and lost $54.8 million in 2008 alone
             {     City currently pays $25 million to keep team in city

Beacon Economics                                   5                               www.BeaconEcon.com

Our Services
¾   Economic, revenue & occupational forecasting
¾   Economic impact analysis                       To view or download this presentation
¾   Regional economic analysis                      please visit: www.BeaconEcon.com
¾   Economic policy analysis
¾   Real estate market analysis                           Chris@BeaconEcon.com
¾   Industry & market analysis                                 310‐571‐3399
¾   EB‐5 economic analysis

                   For additional information visit www.beaconecon.com