Financial breakdown of Santa Clara deal
by urnext on Jun 4, 2009 3:12 PM PDT
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PrintI've been reading lots of different things about the proposed stadium deal, so I decided to take the time to read through the Term Sheet myself. Just to let everyone know, I grew up in Santa Clara, although I live in Utah now, and I graduated from BYU with a Bachelors in Economics, so I do have some background on the subject. My initial thought was, this is a good deal for Santa Clara. After reading the Term Sheet, I now feel it's a great deal.
I want to start by addressing everyone who thinks sports stadiums should be 100% privately financed. It's estimated that the stadium will cost around 937 million. Of that, 823 million will be privately financed. That's 88% from private sources. Any overages will also come from private sources. Only 114 million will come from public money. Maybe some people still think that's too much. What most people fail to realize, however, is that it's very common for Citys to offer incentives to big bussineses to get them to build in their City. They do this because it helps their economy. So think of Santa Clara's and the Hotel's contribution to the Stadium as an investment. Here's how the deal breaks down and some of my thoughts on it:
Public Funds
35 million from a new hotel tax with the 8 hotels in the area and any new hotels that build there in the future. They call it the Mello-Roos comunity facilities district, or CFD for short. The interesting thing is 15 million is estimated to come from a Bond and the remain 20 million will come from the 49ers themselves. The CFD will then pay back the Bond and 49ers over the course of 40 years from the tax revenue.
40 million will come from the City's Redevelopment Project Fund, also reffered to as the "Agency" (Most have this figure at 42 million. My best guess is that the extra 2 million come from various financial fees). The Agency is actually seperate from the City and is technically governed by the state. The area that the Stadium is being built was already being redeveloped by the Agency. So the stadium fits in neatly with the work they were already doing in the area. As it stands, they currently have 7 million on hand, around 21 million more will come from a new Bond, and the remaining 12 million is advanced, again, by the 49ers themselves. As the Agency continues to collect taxes, they will pay off the Bond and the 49ers untill 2016. If the 49ers aren't completely paid back by 2016, they just lose the money.
20 million comes from the cost of moving an electric substation. The City is moving it so they can give the land to Great America, to make up for the parking they're losing.
17 million comes from the cost of turning this land into a parking garage for Great America. City enterprise funds will cover the cost of the combined 37 million.
Private Funds
493 million will be paid by the 49ers and the NFL's stadium fund. Any overages are the responsibility of the 49ers.
330 million will be paid by Bonds issued by the Stadium Authority. This is where most opponents are having a problem. First, what is a Bond? If Santa Clara wanted to build a bridge, but didn't have money, they could issue a Bond. Each Bond will cost $X and would have a maturity date ie, 1 year, 5 years, ect up to 30 years. Usually projects financed by Bonds will have several different maturity dates to give the borrower more flexibility in repaying. Once the Bond matures, the borrower pays back the Bond plus interest. But not just Governments issues Bonds, bussineses do as well. All Bonds receive a rating. The highest rated Bonds are AAA, while the lowest are C, or "Junk Bonds". The higher the rating, the lower the risk, and as a result, the lower the interest paid. In the case of the stadium the Bonds will be rated BB and pay 8.5%. In this case the Bonds will be paid back through money received by stadium naming rights, stadium builders licenses "SBL's" which is money paid by people so they can have the option of buy season tickets, ticket surcharges, and vender payments. But what happens if the Stadium Authority doesn't raise the full 330 million to pay back the Bonds over the corse of the 40 year lease? The City has to pay right? No! It's states very clearly in the Term Sheet:
2.1 The Stadium Authority will be a separate and distinct legal entity, and neither the City nor the Agency will be liable for the debts or obligations of the Stadium Authority.
It then says later:
2.4 No City funds, investments, contracts or property interests, including cash balances of and revenue streams to the City's general and enterprise funds, will be used for the construction or operation of the Stadium.
In other words, the City's only obligation will be to move a power plant, build a parking garage, and continue the Redevelopment Project that was already going to happen anyways, through 2016.
What's in it for Santa Clara?
So, what does Santa Clara get for their contributions? They're guaranteed a little over 35 million just in lease payments, plus performance based rent. Their's several other revenue streams from Parking, to a possible 2nd team playing at the Stadium. The City also receives 50% of the net profit from all non-NFL events. The City also benefits because people will come and spend money in hotels, restuarants, stores, and the Stadium itself. All of that generates more tax revenue and helps the economy. And if, after 40 years, the 49ers move again, they'ld have to cover the costs to destroy the stadium, and the City would still own the land. To me, it just seems like a very low risk, high reward investment for Santa Clara.
This is a FanPost and does not necessarily reflect the views of Niners Nation's writers or editors. It does reflect the views of this particular fan though, which is as important as the views of Niners Nation's writers or editors.
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Good stuff
Thanks for posting this. I haven’t had a chance to read the term over in detail, so this is definitely a good source of info. Rec’d it for sure.
One argument people make about the economic impact is that in reality it’s just money being moved around as opposed to “creating new revenue.” In moving the stadium to Santa Clara though, it would seem to me like any movement of revenue would be coming from outside of Santa Clara. This info would of course depend on how many folks attending games are from Santa Clara, versus elsewhere in the Bay Area and beyond. However, I think it helps in the economic impact argument.
I would go
And I’m from LA
I guess I count as outside money?
by SportsChicken on Jun 4, 2009 4:26 PM PDT up reply actions
outside money
In regards to Santa Clara you’d be outside money. Some economists might argue it’s just displacing your LA entertainment dollars to Santa Clara and that since nothing is in a vacuum there’s no new revenue being created. However, for the purposes of just Santa Clara, it’s basically new revenue.
by David Fucillo on Jun 4, 2009 4:48 PM PDT up reply actions
I strongly disagree
With economists that would pose such a point.
For someone to say something like that they would have to have no knowledge of money or economics.
Money is created through the banking system…I don’t care to elaborate on that because it’s too boring to explain.
by SportsChicken on Jun 4, 2009 9:59 PM PDT up reply actions
Thanks
If you do try to read it, brush up on your laywer talk. They really do try to fill in every single loophole. I’ld have to agree with you about the revenue. Just the fact Santa Clara’s so much smaller than SF would mean more people would be coming from outside. Their’s also the fact that 937 million dollars is being spent to build the stadium. How many contractors and workers are going to help in the construction? Not all, but some for sure will be from Santa Clara.
Can you imagine
The money this stadium can generate? Summer concerts, Monster truck and motocross events. Who knows what else. Sounds like a good deal for everyone involved. To bad Newson couldn’t think ahead. Instead, he bad-mouth the Niners by telling the residents of Santa Clara, not to vote for the Stadium. Desperate move on his part and it will not work. I cann’t blame the Niners for moving. Lets get this settled, it been to long. Wayyyyy…. to long !!!
Great post, but BB bonds are junk bonds.
What this deal is telling us is that the 49er’s ownership has no access to credit and wants to use Santa Clara’s tax-free muni bond capability to finance their stadium. That’s what creating the separate Stadium Agency is all about – access to relatively cheap credit.
Look it up – BB bonds are borderline junk bonds, and for them to have to pay 8.5% in this economic environment indicates a lack of confidence in the project by the financial community. The fact that it had to be structured in this manner should give people pause. The Yorks and the NFL put up about $500mil and had to figure out how to raise the rest. What’s wrong with this picture?
What’s wrong with this picture is that NFL teams appear to be poor credit risks, because this is not the way normal real estate deals get done. The real problem here is the feudal nature of the NFL ownership system, where individual owners are required to be the financial backers of their teams. Unfortunately, most owners cannot come up with either the cash or the credit to build $1bil stadiums, and so they are forced into using these kinds of deals where they use the credit facilities of the cities where they play. If teams were allowed to sell stock and have a normal management structure, they could very well self-finance these stadiums instead of strongarming cities. Something to think about, no?
But I’m still against this stadium deal because it’s in Santa Clara, which is extremely inconvenient for fans in the North Bay and Sacramento areas – Candlestick was bad enough. This would be about a 120mi drive from Santa Rosa across the GG bridge and through the City to I280, which is a pretty gruesome drive. And it would be worse for people coming from Sacramento. Imho, the stadium needs to be somewhere around Richmond, which seems to have the best all-around freeway and bridge access and the land is cheap(er). A lot of fans just won’t want to make that trip.
I actually made a mistake
The Agency and the CFD are borrowing money from the 49ers, to give to the 49ers, and than paying them back with interest from the tax money they receive. The interest they have to pay on the borrowed money will be the lower of the going rate on a corporate rated BB Bond or 8.5%. All Bonds are rated between AAA on down to C. A “C” rated Bond is actually a Junk Bond while a BB would be medium risk and is not that unusual for a corporate issued Bond. You still have B, CCC, CC, and C rated that are all considered higher risk. The Bonds that will be issued don’t have a rating, as of yet. A lot still has to be done before it gets to that point. Besides, the City isn’t issuing the 330 million worth of Bonds. That will be done by the Stadium Authority, which is technically a seperate entity then the City. And it’s up to the investors to decide for themselves if they want to take the risk or not. Either way, Santa Clara and it’s taxpayers aren’t responsible if the Bonds default.
As for the location, what’s bad for some is good for others. It might be further for people who live North of the Bay Area, but it’s better for people who live South. It would be closer to Fresno for example.
And I think the creation of the Stadium Authority has more to do with limiting the City’s liability than it does with accessing cheap credit. Obviously it helps the 49ers get the deal done, but they’re also giving up several revenue streams to do it. The 49ers lose all revenue from naming fees, seat liscenses, and vendor payments. Everything over the 330 million to pay back the Bond becomes revenue for the Stadium Authority, with a large percentage than becoming revenue for the City.
Does it make economic sense for Santa Clara
One last thing, and I apologize for rambling. You do make some good points. Lots of people have questioned the way NFL teams run their business or the fairness of a system that helps big business but lets the small guy struggle. Many oppose it because it will create trafic, or as in your case, it’s too far away. Their are lots of arguments that can be made. But what I wanted to focus on was, “Does it make good economic sense for Santa Clara?”. Bases on what I read in the Term Sheet, I believe it does.
Color me Skeptical
My understanding is that there have been a number of studies by economists over the years covering the economic impact on local governments and local economys on stadium deals and ALL of them find that it ends up being a bad deal for the locals. This is pretty remarkable given that economist rarely agree on anything. Those studies might have been based on less favorable terms than the Santa Clara deal, but that track record is pretty damning.
Also, if the city isn’t on the hook if the Stadium Authority isn’t able to repay the bonds then who is? I gaurantee you that the bond holders aren’t going to throw up their hands and say “well, I guess we got screwed.” Their going to sue everyone in sight, including the city, every city agency/entity involved in the transaction, the team, the middlemen that sell the bonds, and the credit rating agencies. It might be the case that the city is able to escape liability, but that is far from gauranteed.
FAIL
No links to these “studies”.
No link to “track records”
No explanation as to how local governments get screwed by stadium deals.
Don’t seem to understand that investors carry ALL of the risk and can’t sue anyone if they don’t make any money off the bonds.
No credibility
by SportsChicken on Jun 5, 2009 7:15 PM PDT up reply actions
Sigh
How many articles on this stuff do you want? How about 10:
http://www.baseballprospectus.com/article.php?articleid=975
http://www.brookings.edu/articles/1997/summer_taxes_noll.aspx
http://antidismal.blogspot.com/2009/04/closer-look-at-stadium-subsidies.html
http://www.rpts.tamu.edu/Faculty/Crompton/Crompton/Articles/3.6.pdf
http://www3.interscience.wiley.com/journal/119367077/abstract?CRETRY=1&SRETRY=0
http://www.springerlink.com/content/nu33040825l020h7/
http://www.cato.org/pubs/regulation/regv23n2/coates.pdf
http://books.google.com/books?hl=en&lr=&id=K-OuDxhiXkoC&oi=fnd&pg=PA1&dq=stadium+economic+impact&ots=Z9uBH4kha9&sig=aKLQvNMsdNgahWsBEm324liQ9mY#PPA1,M1
http://findarticles.com/p/articles/mi_qa5334/is_3_6/ai_n29414972/
http://news.illinois.edu/NEWS/04/1117stadiums.html
And that’s just what I could find in 10 minutes. How about this, find me an after-the-fact study showing a positive impact on the local economy from a publically financed stadium?
I will readily admit that I’m not an economist. That said, my understanding is that teams pay consulting firms to generate reports showing that new stadium “X” will create “Y” new jobs and “Z” economic activity. The city then allocates funds based on these projections (e.g. “The stadium will bring in X hotel guests, so if we add a tax to the hotels we can pay for 10% of the stadium!”). However, as projections designed to encourage the city to use public money to pay for a private enterprise its not surprising that the projections fall short in real life. The city ends up not getting a return on its investment – i.e. the city puts in a bunch of money, but the promised economic boon never comes.
Finally, re: investors carrying “ALL” of the risk. I’m an attorney and deal regularly with disgruntled investors in a variety of securities, including bonds. As of now, there are no details on the capitalization and, perhaps more importantly, the marketing of these bonds. There’s lots of ways that things can be done to create liability for complex securities (particularly in California) and it looks like this is going to be a fairly complex series of financial transactions. When bond holders lose hundreds of millions of dollars they’re rarely eager to just walk away. As I stated in my earlier post, it is indeed possible that the city might escape liability by hiding behind the corporate shell of the proposed “Stadium Authority” but, like life, few things in the law are gauranteed. Certainly the city can TRY to shield itself from liability. But writing it in a nonbinding term sheet doesn’t make it so.
Finally, while I appreciate skepticism, “no credibility” is a bit much when you’re pointing out the absence of citations, rather than actual contrary evidence.
The links are redundant
So I whent through all the links and found out most of them are the same story just told in a different news source. For example, the economic study done by Humphries is mentioned in 4 or 5 of those links. And one thing that is repeated over and over is that publically finance stadiums are a bad investment for the cities involved. I would agree with that. But that’s not what the Santa Clara deal is. Santa Clara is currently using redevelopement money to build up the the “Bayshore North” area. This is the area the stadium would be built. They’re already spending money in the area. If the studium deal doesn’t go through, they will still spend money in the area, just on something different. That’s where 40 million of the deal comes from. The rest of the cities contribution is to move an electric substation and build a parking complex (37 million). That’s a minimul investment that should yield a much higher return.
Of course they're redundant
That was the point – i.e. that lots of different people have looked at this issue and come to the same conclusion.
Just my 2 cents
How about this, find me an after-the-fact study showing a positive impact on the local economy from a publically financed stadium?
http://www.arlingtontx.gov/finance/pdf/asfda/impacts.pdf
Crabtree is clutch
All investments carry risk
You’re right that some city’s have found themselves in very difficult situations because of the stadiums they helped build. Indianapolis would be an example. So would St Louis. The difference is that those city’s paid 100% of the cost to build the stadium. Santa Clara is only paying 8%. That’s a huge difference. You were right when you said those city’s had “less favorable terms than the Santa Clara deal”.
As for the 330 million dollar Bond issued by the Stadium Authority, naming rights usually total anywhere from 10-20 million a year. Assuming they only get 10 million a year for naming rights, that’s still 400 million over the course of the 40 year lease. And that doesn’t take into consideration the seat licensing, vendor payments, or ticket surcharge. Yes, it is possible the Stadium Authority won’t recoup the entire 330 million, although I believe they will, but the Bond holders know this when they buy the Bond. The Bond will receive a rating based on how risky of an investment it is. Anyone who buys the Bond will then know how risky it is, what interest they’ll get paid, and that they may get nothing at all if the Bond defaults. It’s no different than buying Stocks. If you buy Stocks in a company, and the value goes down, can you sue the company? I suppose you could, but you’ld look pretty stupid.
naming rights
Back in 2006, the biggest naming rights deal ever was Citigroup’s deal for the Mets stadium: $400M → $20M per year for 20 years.
In the exhibit detailing stadium financing (at the Santa Clara city stadium page), they point to $330M coming from a variety of sources combined: Naming Rights, Ticket Surcharge Financing, Stadium Builders Licenses, Corporate Founding Partners, Concessionaire Equity, Pouring Rights
Another team that’s having issues covering their bond as I recall is the Bengals due to higher operating costs.
by David Fucillo on Jun 6, 2009 12:05 AM PDT up reply actions
"If you buy Stocks in a company, and the value goes down, can you sue the company?"
Yes. There were over 200 such lawsuits filed in 2008 alone. http://www.dandodiary.com/2009/01/articles/securities-litigation/cornerstone-releases-2008-securities-litigation-report/
There’s an entire industry built around bringing lawsuits against companys whose stock drops. And there will be plenty of attorneys eager to go after a deep pocket like the niners and the city of santa clara should anything go wrong with the bonds.
That's not what your link says
Your link says, “Federal securities class action activity in 2008 was dominated by a wave of litigation against firms in the financial service sectory. A total of 210…”. In other words, there were 210 lawsuits against financial companies, not against companies who’s stock dropped. 98 of those lawsuits were over the subprime liquidity crisis. Did you think I wouldn’t check the link or did you just not understand what the report was saying? Besides, people sue over everything.
However, you are right to question if people will come after the City if the Stadium Authority defaults on the Bonds. I wondered the same thing myself. But ultimately, this deal has very little risk for the City. The Cities that are having problems with their current deals paid for most of the financing, are responsible for the upkeep, charge almost no rent, and have stupid clauses that allow the team to get out of the lease early. In the Santa Clara deal, the City is only covering 8% of the financing, the 49ers have ot pay for all the extra police and other cost associated with the stadium, and will be paying just over 35 million in rent.
You need to read a little deeper
If you look at page 5 of the actual report there’s this tidbit:
“Figure 4 shows that high filing activity tends to occur in periods of high stock market volatility as
measured by the Chicago Board Options Exchange Volatility Index (VIX).4 This pattern, however,
does not hold for the fourth quarter of 2008 in which there was a sharp increase in volatility
without a resulting spike in the number of filings. Average stock market volatility in the fourth
quarter was the highest since the inception of the VIX in 1990 and 74 percent higher than in the
next most volatile quarter. The number of fourth quarter filings, however, was about the same as in
the third quarter of 2008 and lower than in the three quarters prior to that.
This departure from the observed historical relationship between filing activity and stock market
volatility raises a question about how this period might differ from others. One possibility is that
the high market-wide volatility made it difficult for plaintiff law firms to isolate company-specific
stock price changes that were allegedly the result of fraudulent activity. In a period in which the
overall market can decline by as much as 5 percent in a single day of trading, it may be more
difficult for a plaintiff law firm to make the case that even a large drop in a company’s stock price
is attributable to fraud rather than to market factors. If so, the market’s volatility may have deterred
some filings. Professor Joseph A. Grundfest of the Stanford Law School suggests a hypothesis that
attributes the decline in total filings to the filing activity within the financial sector (see
commentary on page 9).”
Additionally, while I hate to keep banging this drum, I do this for a living. When a security doesn’t pan out, people look it over with a fine tooth comb to see if anything was done improperly. Often a suit is brought against the issuer, alleging that it misrepresented some key piece of information (whether that happened or not). While companies do fight these lawsuits, at the end of the day they often settle (i.e. pay up) rather than face the prospect of 12 random people off the street deciding a $100 million case.
I’m not saying that’s gauranteed to happen here. And there are certainly things that the City can do to reduce its exposure. But that exposure cannot be reduced to zero. Even if the City were to get an indemnity from the Niners (which isn’t in the term sheet), the risk would not be zero (the Niners could always declare bankruptcy). Why take that risk AND shell out a hundred million dollars if, as shown in the numerous studies above, there is NO benefit to the local economy?
I only saw one study
I only saw the one study by Humphries quoted by several different news sources (that’s what I said was redundent), that said the average household income was, on average, $40 less anually than before the stadium was built. So while that’s statistically significant, it’s basically a wash. And I haven’t actually read the study. I only read what Humphries had to say about his study. There might be outside factors that have nothing to do with the Stadium leading to that almost insignificant drop. Maybe he did the study durring an economic downturn. What I’ve been arguing is what the City gets for their investment. In this deal they’ld get a ground lease, performance based rent, and all the excess revenue from everything except NFL ticket sales and NFL advertising. Keep in mind, all these cities that are in trouble made very bad deals where they had to pay for almost everything. In the Santa Clara deal 88% is privately financed. It’s like trying to compare someones 30% interest title loan to my 5% bank loan. You have to look at each deal individually. Yes, they are taking a certain amount of risk. But it’s very small compared to the potential reward. If you’re 100% risk averse, that’s fine. Oppose the deal. But I see no problem agree to a low risk, high reward deal.
As for the Stock comment, I was saying someone would look stupid if they tried to sue IBM, for example, because the Stock underperformed. What you were refrencing was fraud. It’s not even close to being the same thing. Not to mention it looks like it has to do with Stock options. Buying a Stock option isn’t the same thing as buying a Stock. They’re a lot more risky. So unless the Stadium Authority did something fraudulant I’m not sure how someone could have a valid lawsuit against them. People know the risk when they buy Bonds. The risk is calculated into the interest payment. Besides, you’re assuming the Bond will default. I think the chance of it defaulting are very low.
Its more than one study
I take your point that the city is putting in a much lower percentage of the construction funds than some other cities (although I note that the Jets/Giants and Yankees all paid for their own stadiums). I also take your point that four of the articles I linked to referenced the Humphrey’s study. However, I have three rebutals. First, that’s what I could find in 10 minutes using the internet rather than a university library (which is a step farther than I’m willing to go for purposes of a Niners forum). Second, its not just one study. There’s the Humphrey’s study, there’s the book edited by Noll and Zimbalist (but contributed to by 15 other academics), there’s the article written by Noll and Zimalist themselves, there’s the article by John Compton, there’s the research by Baade and Dye, and there’s the article by Depken. Third, you don’t seem to be disputing the conslusion reached by these various researchers – that a new stadium does not beneift the local economy. That’s significant because if the local economy doesn’t benefit from the stadium, it only makes sense for the city to put money in if it gets a real return on its investment.
You also state that this is a low risk, high reward deal. However, whatever the percentage invested, $114 million, by a city with only 100,000 people, cannot be construed as low risk (at least in my mind). I also don’t see the big reward to the city. Here’s what the city is supposed to get:
1. Income from the ground lease (as opposed to the stadium lease), the “City and Youth Program Fee” (capped at $250k and paid by the Stadium Authority, not the team), and 50% of net income from non-NFL events. Exhibit 9 of the term sheet projects these income sources as having a net present value of $28.9 million. Given that these projections were generated to sell the stadium, its likely they’re a bit optimistic (to say the least). Even accepting that projection, the public is still well short of its $114 million investment ($40 mil from the RDA, $35 from the CFD, $20 by the public utilities company, and $17 million for the parking lot).
2. The city is also supposed to get any excess revenues from the Stadium Authority. However, its far from gauranteed that the Stadium Authority is going to have any excess revenues. In exchange for issuing $330 million in bonds, the Stadium Authority gets:
- $5M/year from the Niners
- Reimbursement of Annual Net Operating Expenses by the Niners
- Revenue from naming rights deals
- Revenue from “Stadium Builders Licenses”
- NFL Ticket Surcharge (price determined by construction debt servicing obligations and terminates upon repayment of such debt, so while it won’t generate any profit to the city, it can help pay down the construction debt)
- Ticket Surcharge on non-NFL events
- Upfront vendor payments
- Parking Revenue
- Concessions Revenue
The team estimates (in exhibit 11) that the Stadium will generate $5 mil/year in non-NFL event net revenue (which includes parking, concessions, and ticket surcharges at such events). Again, these numbers look inflated (especially the part about getting 200,000 people per year to come to “Festivals/Antique Shows”), but lets accept them for the time being. So that means that the Stadium Authority is taking home $5mil/year in rent, $2.5 mil/year in non-NFL event revenue (remember, the city takes half of this), plus whatever it can get from naming rights, NFL Ticket surcharges, Stadium Builders Licenses, upfront vendor payments, and parking/concessions at NFL games. Over 40 years that’s $300 million, not including naming rights, NFL Ticket surcharges,, Stadium Builders Licenses, and parking/concessions at the NFL games.
Initially that sounds pretty good, but its not that great when you consider how much money 8.5% interest is on $330 million. Even using simple interest, that’s $28.5 million/year in interest alone. How is the Stadium Authority supposed to pay back the bond principal AND that much interest when the primary revenue sources are only generating $7.5M/year? If they get the same naming rights deal as the Mets ($20M/year), then ok, maybe. But that’s the biggest naming rights deal ever. The Monster Park deal in 2004 was $6M over 4 years ($1.5/year) (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/09/29/MNGE590O691.DTL). I have no idea how to project concessions and parking revenue, but these are some really big numbers and that revenue would only be coming from 10 games/year.
I’m not saying that the Stadium Authority is definitely going to default. What I’m saying is that to pay back a $330 million bond paying 8.5% interest over 40 years is going to require the Stadium Authority to generate A LOT of revenue. One would hope that its able to do it. But counting on the Stadium Authority to be able to do so AND make a profit that it can pass on to the City of Santa Clara strikes me as a bit of a reach. And if the Stadium Authority doesn’t pass on profits to the City, then the public is taking a loss on this deal.
Finally, re: securities litigation. I actually don’t think we’re that far apart here. I agree that you can’t sue IBM JUST because the stock drops. My point, however, is that if IBM’s stock drops significantly litigation will surely follow. The allegation will be that IBM made a misstatement, which inflated the stock. When the truth came out, the stock dropped. Now, it may be the case that IBM thought it was doing everything right and never intended to commit any fraud. However, if they made a mistake in describing some complex business relationship, then a lawyer can point to that and say “Look! Fraud!” IBM will argue that they just made a mistake, that there was no intent to defraud anyone, and maybe they’re convincing and they win. But its also possible that 12 people off the street think that IBM was acting shady and decide to make them pay. The error I think you’re making is that the truth wins out. That certainly does happen, hopefully most of the time. But with complex securities, involving strict legal disclosures, its easy to make a mistake. And if a mistake is made, its not too hard to make it look like fraud. And if you can make it look like fraud, you can sue and you can win. So, if the city and stadium authority do everything perfectly, then yes, it will be hard to sue them for defaulting on the bonds. But that requires a lot of faith in a local municipality to perform at a high level.
Santa Clara's contribution is 79 million
First off, you’ve overinflated Santa Clara’s contribution. The 114 million of public money includes the 35 million from the Mello-Roos CFD (hotel tax). Santa Clara’s contribution will be 79 million. As you know, 20 million is the cost to move the electic substation and 17 million is for the parking lot. The other 42 million is from the Redevelopment Agency. This agency works on building up run down areas of town. One of those area they’re working on right now is the “Bayshore North Project”. This is where the stadium will be built. In other words, the 42 million will be spent in the area to build it up, either on the stadium or some other project. No matter how you look at it, a new stadium will improve the area. New hotels, restuarants, and shops will all follow to take advantage of the out of town people coming to the stadium. So the only new cost to the city will be the 37 million. The city will receive just over 35 million just in the ground lease. Not ot mention the 250K anually from the Senior/Youth program (10 million total), performanced-based rent (50% revenue from nonNFL events), and any excess revenues from the stadium authority. That doesn’t even take into consideration that the Radiers could share the stadium in the future, thus increasing the revenues and rent. That’s why I think it’s low risk, high reward.
As for the economic impact, everything I’ve read says it’s a mixed bag. Every city is unique, and has different experiences. But, on average, the net gain/loss seems to be negligible. However, I do beleive Santa Clara will benefit. Mainly because most of the people coming to the game will be from outside. Any time people who aren’t from your city come in and spend money, that’s a good thing. If nothing else, it will increase the tax revenue received by the city.
Finally, and I’m planing on writting more on this later, their’s the public good or civic pride argument. Believe it or not, a lot of people will vote for the stadium for no other reason then the fact they’re fans of the team and they want them to play in Santa Clara. It’s one of the reason’s a lot of people from San Fransisco are upset about the move. It’s not quantifiable but their is value in this.
Obviously we have different opinions on how much risk or potential reward Santa Clara has in this deal. A healthy debate is a good thing. I’m sure one of the reasons Santa Clara wouldn’t agree to the earlier proposals from the 49ers is because they knew it would be scrutinized by the public. Hopefully everyone will look over the facts of the deal and come to their own conclusions on if it will be good for their City or not.
economists
Also, Roger Noll has indicated this is one of the better deals any city has ever received. Now that’s not saying it’s a good deal. Given how negative he is about stadium deals in general, it could simply mean, “it could be worse.” But still, it’s a credible statement by a credible source.
by David Fucillo on Jun 8, 2009 4:55 PM PDT up reply actions
Agreed
My understanding is that he’s a real expert on this issue. The only qoute I saw from him was a one liner that, even if the revenue projections are overstated, “You’re still going to end up with a better deal than just about any other city has received.” Given Noll’s previous writings that are heavily critical of stadium deals, I’m not exactly sure if this is a thumbs up or not. That said, it has to be viewed as reassuring.
I'll make a small effort.
To try to convince you that the stadium deal can be good for Santa Clara (if executed correctly)
I don’t know if you have any knowledge of Macro-economics, but that’s what my ideas revolve around….
(keep in mind that I am really over simplifying this)
Santa Clara invests $79 million = increase in investment of $79 million
$79 million increase in I (investment) + estimated C (consumption) = a new Y/C curve
A new (higher) Y/C curve leads to an increase in Yd (disposable income) and Real output
That leads to an increase (depending on the marginal propensity to consume) in C.
Increases in C and I lead to an increase in GDP.
an increase in GDP is good.
Ok, this is really oversimplifying it, but this process is the foundation of our economy.
This is why we invest…..you could argue that the city could invest in other projects and come up with the same results (in the short run)….
If you want to refute my statements, go ahead…I’m not going to try to argue with you because frankly, you’re just one person and I’m not going to waste my time by coming up with a long, complicated, economic analysis of this stadium deal just to try to prove you wrong.
You have your opinion and there is nothing anyone on here can do to change it….so arguing with you on this topic is pointless.
by SportsChicken on Jun 8, 2009 9:08 PM PDT up reply actions
Depends how you look at it
Discouting the $42 million because it was earmarked for development of the area ignores the fact that that money could be used to build a hospital, a business center, a research facility, a park or something else to benefit the community. It also ignores the fact that that money could be used to improve existing facilities in Santa Clara (I understand that the libraries and swim centers in the city need funding). And when other development needs by the city come up, that $42 million will not be available, meaning that the city will have to decide to either forgo development needs or raise taxes. If you ignore these costs, then it certainly makes the numbers look better, but doing so doesn’t make sound economic sense.
Regarding the $35 million from the Hotel tax being or not being part of the “city’s share,” it depends how you look at it. One one level, the people that pay the tax (except for the ocassional cheating husband that needs a place to stay for the night) are going to be from outside the city. On this point of view, its money raised from the public, but from the public outside of Santa Clara. On the other hand, the city is imposing a local tax and then handing that money over to the niners. That sounds like city money to me. The city could certainly use such a tax to pay for some other development.
That said, even accepting the $79 million number, the money from the ground lease, youth program and performanced-based rent is still well below a positive return. As noted above, the Niners are only projecting an NPV of $28.9 million from those sources (i.e. $35 million over 40 years is worth a lot less than $35 million in today’s dollars). Again, the profitability of this deal will depend greatly on the ability of the Stadium Authority to generate profit in the face of its huge ($330M) debt obligations.
Also, while its possible that “New hotels, restuarants, and shops will all follow to take advantage of the out of town people coming to the stadium,” its not gauranteed. (Check out the Oakland Colliseum, for example.). And even if such businesses do open, the research shows that it would not generating new money. Its just shifting money from one part of town to another. That same research shows that the point you make about people coming in from out of town and “increas[ing] the tax revenue received by the city,” is incorrect. The net effect of stadiums in a variety of cities is to slightly decrease economic activity (and, by extension, tax receipts). While it possible that this stadium is the one that breaks the mold, I don’t see why one should have more than middling confidence that the possibility will come to fruitiion. And even if it did, the impact would be fairly small. The Niner’s projections are that tax receipts will increase by between $650k and $1M per year (with an NPV of $20M over the life of the deal). Even if they’re right about those projections (and there’s plenty of research showing that they’re probably wrong) that’s not a lot of return on an investment of $79M (or $114M, depending how you look at it).
Now the Raiders sharing the stadium would definitely help. It cuts the public investment (by $28 million) and increases the revenues from the lease, parking, concessions, etc. But that’s not part of the deal right now. And even if it did happen, the NPV for two teams is only projected to be $35.8 million. So this would be an investment of $51M (or $86M, depending how you look at it) to get a return of $35.8M (plus whatever profits come out of the Stadium Authority). So the deal is still in the red with two teams.
Only if they make 0$ proffit from the stadium authority
It’s in the red only if Santa Clara makes $0 proffit from the stadium authority and performance based rent. That’s a big if, and that doesn’t take into consideration the value some citizens place on having the 49ers play in their home town. That’s not a quantifiable sum and it’s being completely ignored. That’s one of the inneficiencies of the market. But the voters will include that value when they vote. It reminds me of a joke I heard when I was in school. It goes, “Economists have accurately predicted 14 of the last 2 recessions.”.
As for the earmarkded money, it’s to be used for ecomonic revitalization only. In other words, it can’t be used for a hospital, park, research facility, library, or swiming pool. It will be used only in ways that the City council believes will stimulate economic activity. And a new sports stadium deffinetly qualifys. If you think the economy in that area can be stimulated in a better way, I’ld love to hear what you think it would be.
In regards to the hotel tax, it will only be implemented if the 8 hotels in the area vote to form the Mello-Roos CFD. Then that money will only be used for the new stadium. If the stadium deal gets defeated by the voters, the new tax will never be put in place. So to argue it could be used for something else is a moot point.
Finally, in regards to the decreased economic activity argument, the main study I read by Humphries said the average household income went down by $40 a year. Let me repeat that number again. $40 per household per year. After you get rid of taxes you’re talking about a decrease of $2 a month. You’ll have to forgive me if I’m not impressed by that number. Besides, their could have been factors outside of the stadium that caused the average household income to drop by a whopping $2 a month. In addition, this study is for all cities. It doesn’t take into consideration the differance between large and small cities, or if the cities were only replacing an old decrepit stadium. Any number of factors could have caused that insignificant drop. Santa Clara is a smaller town. Most of the people visiting the stadium will be from out of town. I don’t see how you can ignore that fact.
As I said before, we obviously disagree. However, I would like to ask you if you think any financial contribution by Santa Clara would be acceptable? What if they only helped with 50 million, or 40, or even 10? Would you still oppose the deal?
The Stadium Authority needs to do pretty well for the city to break even. Assuming the Niner’s projections of the city’s ground lease, performance based rent and youth program is correct, the city is currently only getting 28.9 million with one team (and 35.8 million with two). Note that the performance based rent to the city is already included in that projection. Even if we start with 79 million as the cost to the city, that means that its in the red (with one team) unless the Stadium Authority can generate profits equal to an NPV of $50 million (with two teams the Stadium Authority needs to generate profits equal to an NPV of about $15 million). Over the 40 year life of the bond, the Stadium Authority will have to pay about $800 million in interest (in addition to the $330 million principal). There’s also this tidbit, which I just noticed on page 15 of the Agenda Report by the assistant city manager: "The City’s fiscal/economic consultant, KMA, analyzed the possibility of excess revenue resulting from SA operations given the projected revenues and expenditures associated with stadium operations and concluded that it would be highly unlikely for excess revenues to materialize thereby significantly discounting the ability for a “waterfall” revenue distribution to occur." (http://santaclaraca.gov/pdf/collateral/49ers-20090601-Team-Sheet-Agenda-Report.pdf). In other words, the city doesn’t think its getting ANY money from the Stadium Authority. Does that change your point of view on this deal at all?
I agree that some citizens might value having the team located in their home town. But the City of Santa Clara only has about 100,000 people (according to the 2000 census). If the City loses, for example, $50 million, that’s like taxing every man, woman and child in the city $500 and then handing that money over to the Yorks just so the team (which probably will still be called the "San Francisco" 49ers) is in town. That seems like a lot to me. Maybe its worth it for others.
Regarding the redevelopment agency, where did you get the part about it being for "economic revitalization only." I’m not trying to be rude or snide, its just that when I jumped on the city of Santa Clara website (http://santaclaraca.gov/city_manager/redev_agency.html) I saw that the RDA is involved in all kinds of projects. For example, they fund a housing project that includes "affordable housing programs and services, including below-market new homes, first-time home buyer loans, residences for seniors and the disabled, transitional housing for homeless families, shelters for homeless women and their children and for homeless teens, assisted living and dementia care homes for seniors, and rehabilitation loans for existing properties." The Agenda Report (http://santaclaraca.gov/pdf/collateral/49ers-20090601-Team-Sheet-Agenda-Report.pdf) also references other projects as "the Convention Center, the Youth Soccer Park or David’s Restaurant and Banquet Facility." I admit that some of this is related to economic development (particularly the convention center and first time home buyer loans), but if a Soccer Park or an assisted living home count, so could a hospital, park, research facility, library, or swimming pool. There’s an argument to be made that any kind of development is economically related.
Regarding your question as to what the money could be better spent on, a hospital or high tech research facility would work. Both would bring relatively high paying, stable and full-time jobs to the city (as opposed to the part-time minimum wage jobs at the stadium and temporary jobs from the construction). The doctors/nurses/researchers that worked at such a facility would be want to live close to work and thereby increase both the Santa Clara tax base and the number of people in the community spending money every day. The hospital would have the added benefit of being a resource to the community. And both would likely cost much less than the proposed stadium. That’s just one idea. I’m sure there are other, better ideas.
Regarding the CDF tax, I take your point that it is a bit moot given that the tax is proposed as being for the stadium. That said, the city can’t just keep taxing its hotels every time it wants to build something in the area without affecting their business. By using the option of a hotel tax now, it makes it harder to justify (economically and politically) a similar hotel tax later for some other project. That was my point (although I admit is a bit esoteric).
Regarding the decrease in economic activity – my point was not that the stadium would devastate the local economy. My point was that its unwise to count on the stadium to stimulate the local economy and thereby generate increased consumption taxes to offset the city’s investment.
Regarding your point that Santa Clara is a smaller city that is building a completely new stadium – intuitively that makes sense. But before investing all these public funds, I would want more than intuition. I would want research demonstrating that that matters and will lead to a quantifiable and significant return to the city. Maybe such research exists, but I’m not aware of any and don’t see any referenced as a justification for the stadium by the city or the niners.
Finally, to answer your question as to whether I think any financial contribution by Santa Clara would be acceptable – Yes, I think a relatively modest contribution would be fine. I would not complain about a $10 million investment (or even $25M) with a projected return of $28.9 million (NPV) – especially if the Niners put up some collateral for the Stadium Authority to provide a buffer against default. There’s still some risk, but at least in that instance you’re projecting a profit and taking affirmative steps to reduce the city’s exposure. I also wouldn’t oppose a larger investment if the city were to get a bigger return. For example, if the city got naming rights revenue straight up (with the portion of the Stadium Authority bond issuance that was going to be backed by naming rights revenue instead paid for by the Niners) that would justify an increased investment. But right now the numbers indicate a loss.
Worst case scenario is Santa Clara breaks just above even.
First of off, I tried all your links and none of them worked. I’m not saying they don’t exist, only I couldn’t read them and make an informed comment on them. Second, the City can’t create the new hotel tax for the CFD. Only the hotels can vote if they want to create it. And yes, I’ve wondered what would happen if the hotels voted against it. I guess the 49ers just wouldn’t get that part of the public funding.
I know the redevelopment agency is working on a lot of different projects. Here’s a link that will help explain why I came to the conclusions I did: www.ci.pasadena.ca.us/planninganddevelopment/development/general.asp#establishment.
Here’s another link to show some benefits you’re not taking into consideration: www.findarticles.com/p/articles/mi_qn4176/is_20080112/ai_n21200990/
Look, we obviously disagree. You’re just assuming the stadium authority won’t make any mony. But like I said before, that’s a big if. And even if they don’t make money, I think the city breaks above even when you take everything into consideration such as the ground lease, youth/senior program, performance based rent, and the value of the civic pride/public good. Believe me, I’ve studied this deal extensively. You’ld have as much luck convincing me my religious beliefs were wrong as you would that this is a bad deal for Santa Clara. If you want to reply, go ahead. But I’ll only respond if you say something that I think is a complete misrepresentation.
Ok, I lied. Just one more thing. You’ve said, adjusted for inflaton, Santa Clara will make around 30 million. The schools will also benefit (I put the link above) from extra state money. It might be money taken from someplace else, but it’s still new money helping the Santa Clara school district. The estimates have been between 20-140 million. Santa Clara estimated 20 million (they adjusted for inflation) so we’ll use that number. That’s now 50 million. Then their’s the performance based rent, half the net profit from non-NFL events. The HP Pavilion in SJ has 34 more events scheduled for the rest of the year. I’m not sure how many they’ve had already. So, let’s say the new stadium schedules only 10. If Santa Clara’s cut is only 200K for each, that’s still another 2 million a year. I believe those are very conservative estimates. So, adjusting for inflation, that more than covers the remaining 29 million, plus a little extra. When you consider the value to the civic pride, this is a good deal for the city.
Again, the $28.9 million projected payments to the city includes the projected performance based rent
Exhibit 9 to the term sheet lays this all out. The total ground lease payments total just under $41 million over the 40 year term, which is worth $8.5 million in today’s dollars. The total collected over the 40 years from the .35 cent senior and youth program fee is $9.1 million – worth $2.6 million in today’s dollars. Combined that’s only $11.1 million.
The rest of the money comes from projections about the about of money collected on Non-NFL events. Over the 40 years, they’re projecting that the city will collect $155 million from the performance based rent, which is worth $17.9 million in today’s dollars. Adding all of that together is how they get to the $28.9 million. So you can’t add more performance based rent on top of that $28.9 million when the majority of the $28.9 million is coming from performance based rent.
Also, as noted above, the $20 million for the schools is not money from the state. Its money from property taxes that the redevelopment agency will be forced to release under SB 211 and is not really new money for the schools.
The City Itself Doesn't Think that the Stadium Authority Will Make any Money
First, sorry about the links. The parantheses in my sentence about the links somehow became part of the links. Here’s a second try at the links:
http://santaclaraca.gov/pdf/collateral/49ers-20090601-Team-Sheet-Agenda-Report.pdf
http://santaclaraca.gov/city_manager/redev_agency.html
Its not just my opinion that the Stadium Authority won’t make any money. As noted on page 15 of the Agenda report (under the bolded heading “Excess Revenue”) that is also the opinion of the city’s economic consultant. So its not a “big if” or just an assumption that the stadium won’t make any money. Rather, its the projection of the very people that are trying to push this deal through. If there was any likelihood that the Stadium Authority would make money, they’d say so as a way to generate support for the deal.
Pasadena’s description of its Redevelopment Agency does not support the assertion that the money can only be used for “economic revitalization only.” Here’s a quote from the website you linked to: “Redevelopment’s main mission is to improve the quality of life in project areas by providing business incentives, and improving infrastructure such as streets, curbs and gutters, and sidewalks. As a resident in the project area, you may benefit with increased property values, expanded employment opportunities, better community services, affordable housing, elimination of poor health and safety conditions, more recreation and leisure opportunities, and improved traffic circulation patterns.” That’s pretty broad and supports my point that this money could be used for a lot of other things besides a stadium.
The School District benefit is illusory. In the absence of a redevelopment agency, the lions share of property taxes would go directly to the schools. However, a redevelopment agency sucks up a lot of those property taxes. This is damaging to local school districts and other local agencies. Accordingly, the state passed SB211, which forces redevelopment agencies to relinquish some of those diverted funds to the local entities that would have received them – most notably the schools – when there are amendments to the redevelopment plan. This is what’s called a SB211 amendment. However, the redevelopment agency could pass a SB211 amendment today without a stadium, thereby releasing those same funds. The stadium isn’t creating the benefit here and certainly isn’t generating new money for the schools.
Additionally, a redevelopment agency is only authorized to divert property taxes when it is paying down debt. The Santa Clara redevelopment agency is currently on schedule to finish paying off its debt in 2020 – after which the redevelopment agency will no longer be diverting funds and the school district will again start receiving all the property taxes that it should otherwise receive. However, if the redevelopment agency takes on the debt its planning to in the stadium deal, they won’t be able to make that target and will continue to divert tax monies from the schools and other local programs. In the long run, the stadium in bad for the schools. In the short run, yes a stadium will force the redevelopment agency to release some pent up funds – but that can be done without a stadium.
I don’t have anything close to religious conviction in my opposition to the stadium. I just don’t see how this, on a net basis, benefits the City of Santa Clara from a bottom line point of view. If the people of Santa Clara want this stadium notwithstanding the fact that its a money loser because of the civic pride angle, then fine. But they shouldn’t vote for it because its going to be profitable, because it clearly will not be.
Great story
It certainly takes care of all the false rumors flying around all the sites. A lot of people don’t know what really is the deal. I was one of them, although I’m in favor of the Niners going, it’s due to the complex deal S.F. and the Niners are going thru. This story should be printed on S. F. Gate front sport page and the residents of Santa Clara need to know the facts as well. I want the Niners to stay but if it doesn’t, at least stay in the Area.
Thanks
I think a lot of people would oppose this deal even if Santa Clara only contibuted 1 million. I think they just oppose the idea of public funds used on stadiums, no matter how much it will benefit the City.
I think
People oppose it because of the simple fact that it’s outside of SF….
by SportsChicken on Jun 10, 2009 12:41 PM PDT up reply actions
On the vote
No Niner fan in SC will mind having them in their home town.
SC residents who vote against it will do so not because of the financial argument, even though they will use that as their reason. Those who vote against it just don’t car too much for football, or that brand of entertainment and human activity altogether (they suck).
If we don’t get this Stadium now we will be stuck for 2 hours in the parking lot at candlestick after watching a game in an outdated venue for 10 to 20 more years. MISSING THE 3rd QUARTER FOR GARLIC FRIES and good beer us unacceptable!!!
I propose a grassroots PR campaign similar to OBAMA’s to make sure this thing goes through if the numbers aren’t favorable early.
Agreed
I’ve posted on other sites, asking just how much the H.P. complex would cost for the GREEN Stadium,10 thousand Condos, Business offices and improvement to roads, security and etc. I thought it was a fair question to ask. No one could come up with an answer but they didn’t care for my questions. How would it be paid? Where would the money come from? Can the City Manager can tell you the Estimated Projected Cost before overruns? I would like to know.
by LASVEGASNINER on Jun 10, 2009 4:51 PM PDT up reply actions
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