Jan. 08, 2011--In a possible sign of fresh financial turmoil for the owners of the Kings, the Maloof family is reportedly struggling to hold onto the other key piece of its business empire: the Palms Casino Resort in Las Vegas.

Two private investment firms that hold most of the Palms' debt are negotiating to acquire a controlling interest in the trendy casino, according to a report by Bloomberg news service.

The firms got into position to take control after the Palms violated the terms of its loans, Bloomberg reported.

George Maloof, who runs the Palms, and his brother Joe, who oversees the Kings, declined to comment on the report.

But the family acknowledges that the Palms has struggled in the past two years. George Maloof said last fall that the Palms was restructuring its debt.

"We're getting through it," he said.

On Friday, he said the Palms is "definitely heading in the right direction," but he wouldn't elaborate.

The Palms' reported troubles come at a delicate time for the Maloofs and the city of Sacramento. Mayor Kevin Johnson is reviving discussions on a new sports venue to replace aging Arco Arena, and it's likely that any project would require financial participation by the Maloofs.

The family says the Kings need a new arena to compete in the NBA. While the Maloofs insist they want to keep the team in Sacramento, Joe Maloof said last fall that "any smart businessman has to look at options."

The Kings are contending with another weak year at the box office and will have to find another naming-rights sponsor for the arena when the NBA season ends. Arco is ending its $700,000-a-year sponsorship after 25 years.

Yet the Kings' finances are strong enough to make payments on the $69 million the team owes the city on a 1997 loan.

They have made all their payments on time and "their projected year budgets (show they) have the capacity to make the payments," said City Treasurer Russ Fehr.

But in a weak economy, the family has had to pare back. Layoffs were imposed in 2009 in the Kings' organization and at the Palms. Early last year the Maloofs sold the family's original business, a beer distributorship in New Mexico.

George Maloof said the family wasn't under pressure to sell, but he added that some of the $100 million-plus proceeds were used in the restructuring of the Palms' debt.

The Palms, which opened in 2001, has been a hot spot for celebrities and a cross-marketing tool for the Maloofs. Although the family says the two are separate corporate entities, the Palms is a Kings corporate sponsor. Season ticket holders are sometimes offered deals at the hotel, while high-rollers have been flown to Sacramento for big games.

The Palms was caught in the same downturn that gripped many of Las Vegas' casinos. Its finances are a closely guarded secret, but Station Casinos Inc., a rival operator that owns 6.7 percent of the Palms, says in Securities and Exchange Commission filings that its share has become worthless.

The Maloofs have said Station's estimate is wildly inaccurate.

In late 2007 Station valued its share of the Palms at $25.9 million, making the property worth $386 million.

According to Bloomberg, much of the casino's debt was purchased at a discount last year by two private equity firms, Leonard Green & Partners of Los Angeles and TPG Capital of Fort Worth, Texas. TPG is a major investor in casino conglomerate Caesars Entertainment Corp.

Bloomberg, quoting anonymous sources, said the Palms violated its loan covenants, putting TPG and the Green firm in a position to seek control. The Maloofs could remain as minority partners, Bloomberg said.

A violation could be triggered by any number of things. A borrower could miss a payment or could fail to meet certain profitability thresholds demanded by the lenders.

TPG declined to comment. Officials with Leonard Green couldn't be reached for comment.

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Call The Bee's Dale Kasler, (916) 321-1066.

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