30 June 2009

Chuck Reed on Chronicle Live

Chuck Reed was interviewed by Greg Papa on Monday night's edition of Chronicle Live. I haven't had a chance to watch the full hour, but I did catch several clips of the interview that were made available on the show's website.

It's no secret that Reed and Lew Wolff have been meeting on a fairly regular basis for some time. Nothing wrong with this, as there has been real business to discuss on the Quakes front. A few extra words on the A's situation sprinkled here and there have made it so that the two are effectively on the same page, with Reed working from one column, Wolff the other.

When Papa asked Reed if there were communications between local pols and the Giants and/or MLB, Reed insisted that any changes in territorial rights were "inside baseball" and had to be done within the realm of MLB. Ever the poker face, Reed has never said anything to indicate that he's either fearful or overconfident about the chances for such a change.

T-rights was also linked to rationale, as Reed noted that the biggest reasons for the A's to move south were financial, with the potential to move the team from a net drag to a net positive for MLB.

So many fans and readers have been wondering what the next steps were and why it has been taking so long to get moving. Stadium building isn't like watching a telenovela. Much of the work is done behind the scenes and most of the product isn't consumed by most people. Honestly, are you going to read the entire environmental impact report when it's released this Thursday? Or even the shorter economic impact report? The release of those two documents will start a small flurry of activity which will culminate with additional proclamations by pols and the MLB panel's report. While we still don't have the date for the report, we have a new key date in the process: August 4. That's when the SJ City Council is expected to act on staff recommendations, notes gathered during the Good Neighbor meetings, and the MLB panel report. It promises to be a pretty active month.

24 June 2009

Rickey speaks out

CoCoTimes columnist Cam Inman had a lengthy interview with Rickey Henderson prior to last night's game and the 1989 team reunion. I found this excerpt interesting:


It's hard. I'm a native. You think about the Bay Area. This is where I grew up. This is where I played. This is where I accomplished stuff. So to me, it's heartbreaking. What I would say is do like the Yankees did, do like the Mets did. You've got a big parking lot. Build it in the parking lot and tear the other one down later. You don't have to go anywhere. Build it like it was. That's what I see. We say they're trying to find a place, that they have to go way out there. We want a product here. You want a new field? Build it. But we still need a product here. Let's have a product here. They go on with 'small market' and fans can't come. I played here. We packed the house all the time. We had fun here. Bring em out if they're promoting it right. The Haas family was the best because of all of them, because they got out into the community. So the community respected us and they'd come out to see us play and he put a product there. Instead of saying, 'we're in this situation.' Let's look to see how we can build it. If it had never happened before, then I can understand. But it has happened before. So I would say parking lot.

Keep the debate clean, everyone. You've been warned.

21 June 2009

San Jose public vote pushed back to 2010

When certain San Jose supporters privately told me several months ago about a possible November ballot measure for an A's ballpark, I was nearly incredulous. It seemed to be a rapid ramp-up period following a potentially hasty vetting process. Thankfully, cooler heads have prevailed as the City of San Jose is pushing back any public vote until March 2010 at the earliest. At this point a spring special election has to be a given, as neither the mayor nor city council members up for reelection in 2010 want any part of a ballpark vote distracting voters in November. There's talk of a special election that might be underwritten by the A's in March. Why not just use the upcoming primary election instead?

The vote will probably share the same buzz space as the 49ers' stadium vote in Santa Clara, though the vote will be restricted only to Santa Clara citizens and San Jose citizens for the A's ballpark vote. Despite this separation, there will be some measure of comparison between the two comparisons. And although Councilman Kevin Moore got a sneaky shot in at San Jose for "giving away land, something that Santa Clara doesn't do" during the marathon session on June 2, the two populaces are sophisticated enough to know that appraisal of both deals comes down to a lot more than placing a dollar value on some property.

Denis C. Theriault's article reveals that both the revised environmental impact report and economic impact report will be released on July 2. (Happy reading on the Fourth of July weekend, everyone!)

While it may seem that I am painting the situation as competitive, clearly there are many of the same supporters for both plans, including prominent county pols and SVLG. Even Wolff/Fisher have stated their support in hopes of working out a deal to make a new 49ers stadium the Quakes' new "large" venue. These numerous forces are in league, even though the two plans aren't exactly joined at the hip.

15 June 2009

Coyotes sale struck down, pro leagues can exhale now

A bankruptcy judge in in Phoenix has struck down the sale of the financially desperate Phoenix Coyotes to Blackberry co-founder and wannabe NHL team owner Jim Balsillie. The reason had little to do with principle, as Judge Redfield T. Baum explained that Balsillie's deadline of June 29 to wrap up the deal was to quick to resolve the myriad issues complicating the future of the Coyotes. (Text of ruling here [PDF].)

Balsillie has tried to acquire and move an NHL team to the Hamilton, Ontario area three times. Initially, he wanted to move the Pittsburgh Penguins in 2006, as there appeared to be no replacement for antiquated Mellon Arena (The Igloo) on the horizon. His bid was rejected, and eventually an investment group fronted by Mario Lemieux bought the team. A new Pittsburgh arena is under construction. Balsillie then moved on to Nashville, where the Predators haven't been setting league attendance records. The league instead preferred Preds ownership to keep the team in town, and an ownership group headed by San Jose financier William "Boots" Del Biaggio was chosen instead. If that name sounds familiar, it's because Del Biaggio recently pled guilty to securities fraud. Apparently, Boots was running a Ponzi scheme to finance his high-rolling lifestyle and to provide capital for his failed purchase of the Preds. After being rebuffed twice, Balsillie turned his attention to the Phoenix franchise, whose team name should be changed to the Phoenix Wile E. Coyotes.

In the last few weeks, a handful of speculative articles have surfaced with the thinking that should the sale be allowed, it would send shockwaves throughout the four major North American pro sports leagues, as there would be precedent to take on various antitrust protections and/or league ownership covenants. Even though the time issue was the major concern, Baum definitely sided with pro sports leagues in his opinion:
"This court can not find that antitrust law, as applicable nonbankruptcy law, permits the sale free and clear of the relocation rights of the NHL," Baum wrote.

He added, “It is not an antitrust violation for professional sports leagues to have terms and conditions on relocations of its members.”
Judge Baum also felt the incredibly bizarre case was unprecedented:
“The legal issues trigger not only bankruptcy law, but antitrust law and commercial law in the context of a professional sports team, as a Chapter 11 debtor, which team has for years incurred, and is continuing to incur, very serious financial losses and problems,” Baum wrote. “No cases have been found that precisely or even closely fit this scenario.”
I'm not going to rehash all of the sordid details of this Coyotes mess, you're better off going to Five for Howling and then read from there.

The four major commissioners can sleep well. It's not that there would be some mass exodus of teams in the coming months, the economy simply isn't ripe for it. Still, the NHL asked the other three leagues to pen a brief on its behalf. But leave it to someone to try to draw the A's situation into it, and this time it's not a Bay Area sports writer - it's LA Times baseball writer Bill Shaikin. Over the weekend, Shaikin mused that a decision one way or the other could spur either the A's or Giants to act. If Balsillie won, the floodgates could be thrown open and the A's could have better footing to fight T-rights. Then again, that same outcome could cause the Giants to sue to protect their territory, a battle which could be waged for several costly years. Either would be done with the thought that the MLB Constitution was somehow weakened by the decision.

For now it's all moot. MLB's antitrust provision remains unthreatened, and territorial rights stay as is. It hasn't stopped the media from revisiting the issue yet again, as Friday's Chronicle Live and a followup by John Shea indicates. The last word comes from Judge Baum, who had two sentences in the 21-page ruling that I felt was even somewhat relatable:
There are a (sic) some reported decisions allowing franchises to be relocated short distances within the area of their existing business without the consent or over the objection of the franchisor; excising such restriction from the contract.
As noted above, antitrust claims are inherently factually driven cases and it is not an antitrust violation for professional sports leagues to have terms and conditions on relocations of member teams.
In other words: status quo.

13 June 2009

Oakland City Council proposes 10% ticket surcharge

Desperate to get out of an $80+ million budget hole, Oakland's City Council is proposing several cost-cutting and revenue-generating proposals which will certainly affect different parts of the populace. This includes eliminating discretionary accounts for the Mayor and City Council, getting contract concessions from OFD, and one major item affecting sports fans: a 10% ticket surcharge on all tickets at the Oakland-Alameda County Coliseum and Oracle Arena.
The surcharge would have to be approved by the Oakland-Alameda County Coliseum Authority, with revenues being split between Alameda County and Oakland, officials said. The city's take would be $9 million a year, according to council members' estimates, though some say that is a sunny projection given that a number of tickets for events taking place in the next year have already been sold.
Debt service on the Coliseum alone is $22 million a year, split between the City and County. While the tax wouldn't cover all of the debt service, it would take a big chunk out of it. Unfortunately, that "sunny projection" matter comes into play. Season tickets and a number of packages have already been sold, so a retroactive tax couldn't be enacted on those purchases. New packages after whatever the enactment date is could be taxed, and gameday tickets would be hit as well. Let's throw this into a quick model:
  • Tax is effective halfway through the season (Game 42), leaving 41 games to get the surcharge
  • According to TMR's Fan Cost Index, the average ticket price is $24.31
  • If there's a 10% surcharge, the resulting average surcharge would be $2.40
  • With the A's averaging 17,000+ per game, put aside 10,000 seats as presold seats, with 7,000 remaining as new or gameday purchases
  • 41 games x 7,000 seats x $2.40 = $688,800 in potential revenue.
  • Next year, assuming attendance patterns hold, $1.67 million for 41 games could be raised (41 games x 17,000 seats x $2.40)
$3 million is what an equitable share would be for the A's considering they are one of three teams at the complex. The combined figures fall over $3.6 million short of projections (assuming the total take is $18 million for both City and County, split among the three teams equally). If the surcharge is going to hurt one team more than the others, it's the Warriors. Their season just ended and they've only started to get season ticket renewals. The Raiders have had the better part of six months to sell its packages. With all three teams struggling between the lines, it's difficult to see any of them being terribly excited about a tax that could further hamper sales efforts.

Now for the painful part. How would a 10% ticket tax affect ticket prices? (Note: two prices are shown, first for regular prices and second for premium games)
  • MVP: $48/$55 becomes $52.80/57.50
  • Field Infield: $35/$40 becomes $38.50/44
  • Lower Box: $30/$35 becomes $33/$38.50
  • Field Level: $26 becomes $28.60
  • Plaza Club: $40/$45 becomes $44/$49.50
  • Plaza Infield: $30/$35 becomes $33/$38.50
  • Plaza Level: $24 becomes $26.40
  • Plaza Outfield: $18 becomes $19.80
  • Bleachers: $13 becomes $14.30
  • Plaza Reserved: $9 becomes $9.90
The City's obviously in a really tough spot fiscally. They don't want to consider such measures since they will no doubt alienate the teams currently playing in Oakland. Honestly, I don't blame them. The Coliseum debt service matter has never been properly addressed by City and County, and for them to properly address it so that it minimizes impact on residents, something needed to be done. The irony is that in enacting a ticket surcharge, they may push away one or more of the three teams that call Oakland home, right as new stadium proposals are being considered.

11 June 2009

SJ Neighborhood Committee meets

The Merc's John Woolfork reports on the first meeting of the 30-person committee put together to go over community issues for the Diridon South ballpark site and surrounding neighborhoods.
The City Council last month enthusiastically approved a set of principles meant to guide any future negotiations with the team, such as a pledge that any stadium be privately built and actually make money for the city in tax revenue.

The committee's 30 members include transit officials, neighborhood leaders, representatives from the group that runs the nearby HP Pavilion and nearby businesses such as Adobe Systems. Also on tap are town-hall meetings in all 10 council districts in September and October.

Reed told the committee he spoke with Wolff earlier in the day and that the team owner was "still optimistic" about San Jose's prospects for working out the territorial issue. Reed said he hopes to have a decision from baseball authorities by the end of the summer to meet the city's deadline for putting a ballpark on the ballot. But he said he wants the city to be prepared if baseball gives the green light by working out concerns and showing support for the project.
While it's clear that the Diridon/Arena area will get a facelift should the ballpark and HSR move in, the fate of the Delmas Park neighborhood to the immediate east is less certain. One of the chief requests I heard from Delmas Park residents in the past was to close down Park Avenue to traffic on gameday. The closure would benefit the residents by discouraging outsiders from parking in the area, while also creating a much wider pedestrian thoroughfare between Downtown proper and the ballpark. Park Avenue is also somewhat blighted, with several properties on the street and on Delmas Avenue boarded up. There's also a lack of uniformity with yard setbacks intermingled with commercial properties that should be addressed. It's a stark contrast from the other side of Hwy 87, where Park Avenue is a truncated boulevard with palm trees in the median. It's a shame that something like a ballpark or HSR would have to be an impetus for a major change, but that's often what happens in redevelopment.

03 June 2009

Sticker Shock - The SBL dilemma

I've been puzzling over the Santa Clara Stadium Authority matter for a couple of weeks now. While I picked up a few tidbits of useful information about the 49ers stadium project, it took a look at an otherwise innocuous Newsday item for the whole thing to click. In the blog post, the NY Giants admit their once impressive, 60,000-name waiting list has been exhausted in the team's PSL sales efforts. That means they've gone through the existing season ticket roll plus the waiting list - probably 130,000 subscribers - and they still haven't sold them all. While the Giants and Jets express confidence that they'll eventually sell out (they have another year to do it), the pickings start to get slim once they get past the diehard types.

$330 million translates into $24.75 million per year for 40 years of annual debt service. However, I don't expect a massive Stadium Authority loan for the entire amount. It makes more sense to use as much upfront money as possible. For the SA, that upfront money will be in the form of PSL's. How much? It's impossible to say at this point, even for the Niners. It stands to reason that a large portion, perhaps half of the $330 million, will be signed over to PSL's, whose revenue comes as the stadium opens. This is virgin territory for the Niners, who haven't subjected their fanbase to any significant premium seating charges yet.

In the wake of the Giants' very elastic demand for PSL's, the Niners have to formulate their Stadium Builders License sales strategy very carefully. I'm sure they have several Ivy League grads pumping out different models right now for the Yorks and Andy Dolich to pore over. It gets more complicated once taken within the context of the Stadium Authority's $330 million funding responsibility. Let's refresh the funding mix again before we get into the details.

* Principal refunded if Raiders move in permanently

Tim Kawakami first broached the subject of PSL's for both the 49ers and Raiders in February. Alas, the issue didn't get much traction for various reasons. Teams usually don't want to talk about PSL's until it's time to start selling them. In the case of the NY teams, info was sent out around this time last year, just over 2 years removed from the planned opening of the still unnamed Meadowlands stadium. With the 49ers planning to start construction sometime in early 2012 and opening in time for the 2014 season, it's possible that they wouldn't start talking SBL's until the summer of 2012. In Santa Clara's case, the mix of variables that will form the Stadium Authority's share make the whole funding picture a bit murky. It'd be great to know what the SA's funding mix will be come next spring's election, but all of the variables make it incredibly difficult to confidently predict how it will go. It's a strange dilemma for sure, as it would be in the stadium proponents' best interest to release as much information to the public as possible, yet the team doesn't want to scare fans three years early with talk of specific SBL pricing.

Since we can't expect specific numbers from the team, let's put up two hypothetical scenarios that could show how it could work. Throughout the team's documentation, they have shown confidence that the different revenue streams could not only take care of the SA's share, they have to potential to provide an operating surplus for the City. Naturally, it makes sense to be skeptical of such claims, though from running the numbers, there are instances where it could happen - at least in terms of paying off whatever debt service is due for the SA share.

For the sake of argument, let's assume that the goal is to get at least half of the $330 million from SBL sales. If successful, the required debt service would drop to $12.4 million per year at 7%. That's a fairly manageable figure. From the table above, here's how the flows would be constructed (annual amounts):
  • $12.4 million in debt service
  • - $7 million for naming rights (40 years)
  • - $2 million for ticket taxes ($2.50 per ticket for all events)
  • - $2 million for soft drink pouring rights
  • - $1 million for beer pouring rights
  • - $1 million for concessions rights
That's $13 million in revenue against the debt service. Not bad, right? Of course, everything has to fall into place. Some company will have to pony up for those naming rights. In fact, even though Cisco already has a deal in place with the A's, I wouldn't put it past them to sign a deal for Santa Clara as well, especially if the Raiders move in (Cisco was recently named to replace GM in the Dow Jones Industrial Average). In addition, the team would have to sell out games and other events pretty consistently, and those other sponsorships are extremely important as well. As I mentioned in a previous post, what if companies don't pony up $7 million? What if they offer only $4 or $5 million (Cisco will pay $4 million/yr for Cisco Field)? Does the SA hold out until they get the deal they want? If they do, who takes care of that revenue source? The term sheet states that "The Stadium Authority will make a good faith effort to issue bonds or enter into other financing arrangements secured by and paid from Naming Rights Revenue." Can't issue bonds if there's no naming rights sponsor, can you?

Back to the SBL's. While the 49ers might have been able to spring the idea on fans during their 80's-90's salad days, today it seems almost preposterous. The team was dangerously close to having games blacked out last season, which when combined with the litany of Raiders blackouts, makes the Bay Area rather ignominious in terms of its football fandom. I doubt that the Niners could take the approach the Giants and Jets took, which was to tack a PSL fee to every single seat in the stadium. Nor could they assign insanely exhorbitant PSL fees like the Cowboys (50 yard line club = $150k per seat!). Instead, I put together a scenario in which the 49ers attach PSL's to about half of the new stadium seats, in only the prime locations (sideline & club for the most part).

This achieves the goal of cutting the $330 million share in half or more. The remainder would translate to $11 million/year in debt service, which is no small discount. Again, this assumes a sellout of available SBL's, which is no small feat. The market may be far less hospitable to the concept, and the SA/49ers Stadium Company should be prepared for the possibility that they won't sell out. If they sell 80% of available SBL's, the incoming revenue looks more like this:

That's over $30 million less than if SBL's were sold out. Required debt service on the remainder would be $13.3 million/year. Suddenly the SA is at risk of running deficits just for this portion, nevermind the regular operating costs of the stadium. And if the market responds by buying only 50% of available SBL's? It's Mt. Davis all over again, and not even the Raiders becoming roomies will help.

If the Niners and the City want to be completely upfront about the deal, at some point they need to provide realistic figures and projections for the $330 million SA share. It may be premature to do it now, but sometime before the end of the year is not unthinkable. There is a decent chance for the deal to work out well for the City if everything falls into place. To be intellectually honest with the citizens of Santa Clara, stadium proponents should explain what happens if everything doesn't fall into place. Caveat emptor, Santa Clara.

Some related questions to pose:
  • Is the SA share sequenced last among the various funding mechanisms?
  • At what point does the SA/49ers Stadium Company decide when to go for stadium bonds for this share?
  • If the SA is completely responsible for this share, what protections will be in place for the City?
  • If the SA share is constrained to actual "Construction Sources" (raised funds), what will be the first corrective steps if those sources fall short?
  • How much can realistically be value engineered away to deal with the shortfall?
  • What precludes the SA from going back to City in the future, as the Yankees did when they needed to get additional money to finish New Yankee Stadium?

Santa Clara Council approves plan 5-2

It's 11 PM, which means the Santa Clara City Council session is cutting into my Daily Show/Colbert Report time. Not cool.

Truth be told, I haven't been watching it for very long. It's been going long thanks to a very extended comments session. There'll be an update when something actually happens.

11:43 PM - All comments in. Mayor Patricia Mahan just called for a brief break. Video feed now has Celine Dion music. Kill me now...

1:30 AM - After more comments by the Council and City Manager, the plan was approved 5-2. In favor were Mayor Mahan and Councilmembers Dominic Caserta, Joe Kornder, Jamie Matthews, and Kevin Moore. The dissenters were Councilmembers Will Kennedy and Jamie McLeod. I didn't hear a word about the Stadium Authority's role from anyone on the Council. Am I missing something here? Even if it had been brought up earlier during the session's public comment period, it's seems remiss not to mention it. Your move, Santa Clara citizens.

02 June 2009

Fireworks start early in Santa Clara

There's no shortage of different perspectives going into tonight's Santa Clara City Council vote. While the vote itself appears to be something of a formality (I don't expect more than 1-2 dissenting votes), all interested parties are positioning themselves for the nearly year long campaign ahead.

Noted Stanford sports economist Roger Noll weighed in with a similar tone to his appraisal of the Fremont plan. Remember that a couple of years ago, Noll proclaimed the Fremont plan more viable than Santa Clara. Now that Fremont has bitten the dust and it's a bit early to know what all the details of the A's-to-San Jose are, the 49ers' plan will avoid the direct comparison. Noll goes on to say that "you're still going to end up with a better deal than just about any other city has received." The public vote that will occur next spring is really a question of whether or not that's good enough for Santa Clara.

Field of Schemes' Neil de Mause also chimes in, properly raising the $330 million question about the stadium authority, which to me is the chief concern. Most of the other issues directly related to the stadium deal have been reasonably well addressed, especially concerns about cost overruns and revenue shortfalls outside the $330 million Authority portion.

I'd love to comment on the letter of support from Santa Clara Unified School District ($141 million in positive impact potential), but I honestly can't make heads or tails of the economic impact projections stemming from use of the RDA passthrough mechanism and state "Basic Aid" payments.

Mark Purdy, by far the biggest supporter of moving teams to the South Bay, has a few choice words for opponents of the stadium plan. He's not afraid to get himself a little dirty here. I wouldn't be surprised if he was waving an American flag while writing the piece.

SF Mayor Gavin Newsom may have misfired with his rather provincial sounding advice for Santa Clara. I have to wonder if his prime motivation is not so much the Niners as it is to keep developer Lennar going at Hunters Point.

A few hours ago, Ohio-based theme park operator Cedar Fair yelled out like an aggrieved ex-boyfriend crashing a wedding. They'd prefer that the Council vote take place after Cedar Fair talks Great America with the City and the 49ers a week from now. I thought the timing was strange when I looked at the Council schedule, and now I think it's pretty clear: the City won't allow Cedar Fair to be more than a detail in the deal.

I'll end this post with a little friendly advice for the anti-stadium crowd: Focus on the costs of the plan, not on what profits the team will make. The clearest, most rational way to go about this is to talk in terms of costs and benefits. There are some anti-corporate, anti-business sentiments creeping up, and making those a main thrust is a good way to turn off the voters. Stick with the facts.