June 01, 2009

Could 49ers deal blow up on Santa Clara?

Late Friday night, the city of Santa Clara released its term sheet with the San Francisco 49ers for a new $937 million stadium, a 38-page tome with more moving parts than a Dubai skyscraper. Without going into too much detail about leases and sub-leases (and with a bit of help from the San Jose Mercury News analysis) here's the big picture:

• The city will put in $42 million directly, with another $20 million estimate for moving an electrical substation. The city will also give Great America $17 million worth of parking spaces to compensate it for the stadium being built on one of its parking lots.
• If local hotels vote to approve it, a new hotel tax will supply $35 million.
• A newly created public stadium authority will sell $330 million worth of construction bonds, to be repaid by the sale of naming rights, personal seat licenses (here called "Stadium Builders Licenses"), and a ticket surcharge. The authority will also pay for operating costs on the stadium, but will be reimbursed by the team via annual rent payments.
• The 49ers and the NFL will be on the hook for the remaining $493 million, plus any and all cost overruns.

On the face of it, this sounds great: As 49ers CFO Larry MacNeil put it, "The city's contribution at $79 million is fixed. Ours is not." But there's a big if: While the term sheet guarantees that the team pays for cost overruns, it doesn't say anything about revenue shortfalls. What happens, in particular, if when the stadium authority goes to sell naming rights, PSLs, and so on, it ends up with too little money to pay off those $330 million in bonds? That wouldn't have been a concern a year ago, when stadium names were expected to fetch upwards of $20 million a year, but the naming-rights market has slumped since then — witness both the Dallas Cowboys and New York Jets and Giants stadiums going as yet un-corporate-monikered for lack of a deep-pocketed buyer — and the local history of stadium authorities selling PSLs isn't exactly a glorious one. All of which means there should be at least some concern that the authority could end up short of cash and headed for the Indianapolis scenario, with a choice between raising city subsidies or having the stadium go bankrupt.

There are other questions that don't appear to be answered by the term sheet as well: Will there be additional public infrastructure costs? Will the team get any tax breaks? What penalties will the team be subject to if it tries to break its lease early and move, to avoid the kind of mid-lease shakedowns we've seen in other cities?

Further confusing things is a report from the Santa Clara school district that projects $141 million in new revenues for local schools if the stadium is built — something that came as a bit of a surprise to city officials, who had calculated the school tax benefit would total only $20 million. "I will tell you that this thing is hideously complex," school board VP Andrew Ratermann told the Merc News. Good thing there's plenty of time to look it over before the city council vote — oh wait...