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?


Paul said...

Yes, this is some great plan by the 49ers to finance this stadium:

* PSLs, which as we see in New Jersey and in Oakland before that are a very risky proposition,
* Stadium sponsorship - the 49ers don't have one. The Cowboys stadium open in a few weeks and they don't even have one. Corporations are buying this stuff anymore.

Also, Great America apparently is ready to sue over this, according to the newspaper today.

This plan is like taking a frozen pizza that says heat for 10 minutes, heating it for only 5 minutes, then taking it out, throwing it on the table and declaring, "Dinner is served!"

The 49ers have the Yorks' 27-year-old son running this show. I'm sure he was selected after a rigorous, nationwide search for the best candidate to run a billion-dollar project.

The best option for a new stadium is to get the A's into San Jose, tear down the baseball half of the coliseum and redo it for football, and put both the Raiders and 49ers in it. Probably cost 1/3 of this Santa Clara folly.

hamachi said...

did the raiders fund Mt. Davis the same way? via counting on sales of PSLs to make it over the hump?

are there any details on that model to compare what could happen to SC and the 49ers?

great work as always though.

Marine Layer said...

According to Sports Jobs & Taxes, OFMA was aiming to sell $99 million in PSL's initially. They only sold $58 million worth. That combined with cost overruns led to the Mt. Davis disaster. The PSL ownership policy was also ridiculous. Licenses lasted 10 years and IIRC rights lapsed if season tickets weren't purchased for a year.

Paul said...

In the unlikely event Santa Clara voters do approve the subsidy, this project still stands an excellent chance of collapsing under its own weight. Financing plans are questionable for this project, with the effort banking on PSLs that may not be sold, a stadium sponsor that may not come forward. And no resoluton to the Great America dispute.

Remember when SF voters approved $100 million in bonds for the stadium-mall at Candlestick? Look how far that got.

bbison said...

One correction: Only the Giants required 100% PSLs. The Jets left the Upper deck PSL-free:

What you're suggesting is similar to what the Bears did. Half the stadium is PSLs--most sideline and all club seats:

For comparison's sake, here are the prices they asked in 2001 for a 2003 opening date:

Zone A: $4,400 ($3,740)
Zone B $2,700 ($2,295)
Zone C $1,300 ($1,105)
Zone D $900 ($765)
Zone E: $4,500 ($3,825)
Zone F $3,700 ($3,145)
Zone G $3,900 ($3.315)
Zone H $2,800 ($2,380)
Club 1 $10,000 ($8,500)
Club 2 $5,300 ($4,505)
Club 3 $2,900 ($2,465)

The PSLs in my section (Zone F) have since changed hands at times for 3-4 times the initial price, while Club seats (with the higher per-game ticket price) were the last to sell--much like the Giants, Jets and Cowboys Club PSLs were available to anyone who wanted them. Those often re-sell for face value or less.

We really need to see both the PSL price and the initial ticket cost per game before you can project true demand. Plenty of people said they would have paid the the Cowboys the $16-$32K for lower-end Club PSLs, but not when combined with $350/game tickets.

Paul said...

...PSLs + High ticket prices + Ticket tax(?) + expensive parking + expensive concessions = Stay home and watch the game on TV. The Bay Area is losing, not gaining, wealth, lately. A 49er ticket under these circumstances could be a tough sell. And there's no Joe Montana taking snaps from center anymore.

Also, what's the traffic going to be like pouring onto Great America Parkway from Routes 237, 880 and 101? Sounds pretty messy.

Dan said...

Part of the reason the Niners don't have one right now is that Candlestick sucks. The other more important reason is that Candlestick cannot be renamed again my city law.

Paul said...

...if you're referring to the naming rights sponsor, I'm not talking about Candlestick. I'm talking about the Santa Clara stadium. No sponsor for that - and we can be sure they've been shopping for one. But just like in Dallas and, apparently, New Jersey, corporations are no longer putting up the big $$ for these stadium naming rights deals. The Cowboys stadium opens in a few weeks and there is no corporate name for the stadium.

What happens when the 49ers also fail to get a naming rights sponsor or have to take much less money than they expected? Who pays the difference? Tne NFL? The DeBartolo-Yorks? Santa Clara? Drop the project, maybe?

Lots of finger-crossing on the finances for this deal. Never mind the still-simmering Great America feud, too.

Anonymous said...

Hey Paul---the glass isn't always half empty----5 years until opening day---doubt we will be in the horrible recession we are today--life is full of cycles---after the dot com bubble life went on and we eventually prospered again---and corporations bought naming rights---and guess what--they will do it again---

man--just reading your constant negative blurbs makes me appreciate that life/the economy isn't as horrible as you make it out to be--

Andy Symbolist said...

This is a very good rough-draft analysis of a vague and inconsistent set of proponents' wish-list numbers.

If anything, you were charitable. Do all things fall into place on any of these projects? I strongly doubt it. Your optimistic analysis could have been more realistically based on a 90% success rate in selling PSL's, and the mid-range one could have been about 70% to 75%.

It's not just the Cowboys -- Seahawks Stadium opened without a sponsor, and I think that might happen here as well.

Value engineering is a tool to dampen rising project costs, not to offset shortfalls in project revenues. Your analysis doesn't deal with the danger (likelihood?) of cost overruns. These are almost inevitable, and will make hash out of the claims that this project will return money to the city schools.

Your detailed, line-by-line analysis is one way to try to assess this plan. Another way is to look at the simplified big picture -- Can a dozen or so yearly NFL games, plus a few special events, be enough to support a billion-dollar (or more) project where the anchor tenant is a terrible team (six straight losing seasons, with a 25-55 record over the last five)? The conclusion is pretty inescapable, isn't it?

Anonymous said...

So Andy and Paul--sorry but not about to join your pity party--- as you accuse others of making overally optimistic projections you make overly pessimistic projections.

I might join you in your concern if you can show me that the city will be responsible for cost overuns on construction (I don't believe they are--so why should I worry about it)---and how would this impact the revenues going to schools--once again weaving disparate peices together to try and fabricate a risk.

And no--your conclusion isn't pretty inescapable---lets try and optimistic scenario to balance your scenario where the world is ending--the a new stadium will re-invigorate this storied franchise returning it to its glory days where super bowl wins were common---and the city of Santa Clara benefits financially from having two NFL teams play in their city and hosting numerous superbowl's as well as the world cup soccer match---in addition to using the venue for large convention center meetings, concerts and community events.

Based upon the facts we know today this scenario is as likely as your gloom and doom scenario---

And btw--to think that Cedar Fair has the city's best intersts at heart is a joke--have you been to Great America lately? The place is on life support and they are looking for the city/'49ers to keep them from going under---city realizes this which is why they have little interest in the CF shenigans.

Paul said...

re: reinvigorate this storied franchise

It's not the job of Santa Clara voters to "reinvigorate" the 49ers franchise. The stadium will sit there empty 355 days a year. (Who will book concerts at a place that is way too large for them and has noisy jet planes flying right overhead?)

Have the Raiders signed onto the new stadium? I'm not aware that that they have.

Taxpayers in Oakland, Cincinnati and Indianapolis are finding out the hard way that football stadiums are not the promised golden gift they're supposed to be, as people in those places struggle to pay for them.

As far as reinvigorating franchises, there's evidence that the opposite might be true. When playing in the old Orange Bowl, the Miami Dolphins went to 5 Super Bowls and won 2 of them. Since moving into Dolphins Stadium (or whatever the place is called this morning)in 1987, they have been to zero Super Bowls. The Vikings, when playing in the old stadium in Bloomington, went to 5 Super Bowls. Since moving into the Metrodome in 1982, they have been to zero.

Anonymous said...

So Paul--any examples of how new stadiums or ballparks have renewed teams or have they all declined after building?

You cite 3 teams who put together bad stadium deals--how about how the other NFL teams who have built new stadiums--are they all also as horrible? No--Roger Noll--the ultimate stadium critic has already said that the deal negotiated by SC is much better than the negative ones you cite.

I would have no problem with your comments if you presented all the facts rather than just those that serve to support your opposition to the stadium---also, I am amazed that you can predict the future and have already figured out that the Raiders will not sign on, that there will not be a naming rights sponsor, and that PSL's will not work--sounds like the end is near---you should probably curl up in the corner to prepare

Jeffrey said...

I have no scratch in the game here. I don't live in the South Bay and I haven't followed the 49ers for quite some time (about 5 years or so).

That said:


Seattle found a naming rights sponsor. I don't know if that is the best example to use to paint the picture that naming rights are a thing of the past. It actually could be seen as a point of support for those who say.. "eventually, there will be a naming rights sponsor." As far as In know, Qwest signed on in 1998 as a sponsor which was before the stadium opened in 2002, but I don't feel like looking it up right now.

If your point was that they didn't make what they thought hey would for a naming rights, Qwest signed on for $75 million over 15 years... I am not sure what the original projections were.

Paul said...

See Glenn Dickey's Examiner column today. He also is realistic about the financing plan. Apparently, the plan assumes financing from the NFL's now-unfunded stadium financing program.

Anonymous said...

If Glenn Dickey is your primary source of support, that should tell you something about the strength of your argument right there.

Anonymous said...

Paul-- ahh--you see into the future you really think that Roger Goodell and the NFL would allow the '49ers to go public with a plan that committs NFL dollars with the intent to back out of that plan? Reading Glen Dickey is fiction at best---and poor fiction at that---

Anonymous said...

Who's Glenn Dickey?

Anonymous said...

That's not news Paul. It's long been known that the previous stadium funding program is done. It's also well known that the league is expected to put together a new one. You think maybe the Niners have some inside information about that, being a league member and all? That's one funding source I wouldn't worry about too much. PSLs on the other hand...

You're also way premature in your hysteria over a naming deal. The city council just approved the working agreement for crying out loud. No one is going to get into serious negotiations about naming rights this early in the game. It's just silly.

hamachi said...

a link to the column:

and yeah. the PSL's and the lack of NFL funds seem to be big hurdles.

I'm not a niners fan but I hope everything works out without any hidden gotcha's.

Andy Symbolist said...

Seattle found a naming rights sponsor. I don't know if that is the best example to use to paint the picture that naming rights are a thing of the past. It actually could be seen as a point of support for those who say.. "eventually, there will be a naming rights sponsor." As far as In know, Qwest signed on in 1998 as a sponsor which was before the stadium opened in 2002, but I don't feel like looking it up right now.

No, this is off by six years. Qwest signed on in 2004, two years after the stadium opened. For those two years there was no sponsor, and no naming rights income.
I was not saying or implying that naming tights are a thing of the past, only saying that they are not a sure thing. If the SC stadium goes without naming rights income for two years, that puts a $14 million hole in their balance sheet. Or if they have to accept less than $7 million a year, that can be even worse, since it gets multiplied by 40 years. Who will have to make up that money -- will the 49ers guarantee that they will do so.?

And that's only one of many uncertain elements of the proposal. Just remember that it's a very optimistic document and many of its components are goals and guesses rather than economic facts. Some critical sums are actually unknown and unstated ("to be determined"). If the team puts up a bond that guarantees every financial element of the plan, then fine, but that won't happen. Santa Clarans will be on the hook for every omission, miscalculation, false asumption and incorrect estimate in this document.

Anonymous said...

Andy--please provide factual evidence for your claim "Santa Clarans will be on the hook for every omission, miscalculation, false asumption and incorrect estimate in this document."

Otherwise you should not be making such a bold statement---you claim that the document is misleading and yet you are trying to mislead and influence others into making their decision. Stick with the facts and we will all be way ahead--

Anonymous said...


I dont think the burden of proof falls upon folks like Andy who are making statements about Santa Clara residents bearing the cost of overruns and/or underfincing.

All you need to do is take a look at the clusterf*ck up in Oakland which was also supposedly risk free to the taxpayers of Alameda County.

No, the burden of proof is for the proponents of this project to show exactly how this project will work, with all the scenerios, from best to worst case presented.

Anonymous said...

The burden of proof is on all parties to be honest in their assessment--for you to try and compare this to the Oakland deal is a joke---Roger Noll has already said it is a much better deal than what occured in Oakland---

State facts and stay away from your doomsday scenarios and everyone will be better off--emotional arguments usually end up to haunt those that make them once they are proven to be factless--

bbison said...

Here's a east coast take on SBL:

Anonymous said...

It doesnt matter who puts their stamp of approval on it, from Roger Noll to Roger Rabbit; It needs to pencil out to the nth degree in order to get voter approval.

To compare this to the Oakland Raider Return is entirely appropriate in that much like you, the proponents were saying it was a no lose proposition.
The only guy I heard speak out against it was the KGO host who jumped off the GG Bridge.

It's not a joke to compare the two - people are going to be skeptical and rightly so.

I want the Raiders and Niners to get shiny new digs here in the Bay Area, but you need understand that voters are hypersensitive, especially in light of budget crises in virtually every city in and county in the state, as well as the state itself. Getting voter approval will not be an easy task.

And, Geez, you seem to think that the whole Cedar Fair/Great America thing will just go away; In light of what just happened with the Fremont deal falling apart because of Costco and Lowe's parking lot concerns, you cant just poo poo the valid lease that Cedar Fair ALREADY HAS, particularly when they are urging caution in this matter...(red lights flashing anyone???)

Jeffrey said...

Anon 7:12- Actually, the burden of proof is on the 49ers and it should be. They, and their Santa Clara booster have to sell this concept.

It would be foolish to assume the cost over runs will be taken care of buy the team until that questions is specifically addressed in a binding agreement. They aren't yet.

Anonymous said...

Jeffey--that is my point---although it is stated that risk is managed by the '49ers it is not completely clear---BUT---no where does it say that Santa Clara is on the hook for all the risk--its conjecture by anyway who says that---my point again--state the facts rather than use emotional arguments to try and influence positions

Anonymous said...

923, I think you are missing the point; It's not about all of the risk falling upon the taxpayers its about ANY of the risk.

In this politcal climate, the only way to make a project like this fly is if it is virtually risk free, ala pacbell park.

Anonymous said...

9:43--accordingly to early poll results 60% of the people disagree with you and feel that it is a good deal---now I completely understand that over the next 5 months many more details will emerge that can influence these numbers one way or the other---but from my perspective, in an economy like todays, reasonable risks that will only imporve as the ecomony improves, are what it will take to get things moving again---and yes, at this point in time, based upon the facts that I know, this is a resonable risk and a good deal for the city of Santa Clara.

Anonymous said...

Anon 10:36,

Do you live in Santa Clara? Just curious.

Andy Symbolist said...

It's really very simple:
The agreement should spell out exactly what the pubic contribution is, and cap it at that level.
It should make the private proponents -- the team and the NFL -- responsible for all other costs, and have them post an ironclad surety bond for the balance of the project, including a realistic allowance for cost overruns. If their plan is sound, they should have no trouble getting a reputable financial provider to underwite such a bond. IOW, they should put their money where their mouth is.

The burden of proof here is on the proponents -- they are the ones asking for money and land and infrastructure improvements from the public. The history of U.S. stadium projects suggests that the original deal will not be accurate or honored, and the citizenry will be on the hook for rising project costs and shrinking private contributions. We (the public) were bailing out sports organizations well before we started bailing out Wall Street.

Andy Symbolist said...

It's hard to figure out how many anonymice are posting here.
Anonymity is fine, but indistinguishability is not. Why don't y'all use memorable noms-de-plume so that we can can tell you apart, and direct rebuttals more precisely?

And to the anonymous who is certain that none of this will affect SC schools -- the proponents are claimng that the project will generate a surplus that will go to the school system. Funny, but now it doesn't seem to show up in the pro forma.

Paul said...

See what's going on in Phoenix, where bankruptcy laws are being used to try to get out of what was thought to be an airtight lease for the Phoenix Coyotes to stay in Arizona for several decades? More trouble for rich sports owners looking to get taxpayer-funded facilities.

Tony D. said...

Paul 4:38,

Comparing the Coyotes/NHL in Phoenix to the Niners/NFL possibly in Santa Clara are we? You're kidding, right?

Look, I'm a die-hard Raiders fans who has no love for the Niners. That being said, I support their move to Santa Clara.

I think it's also fair to state that hockey in the Valley of the Sun has been an extremely hard sell; in Phoenix it's all about the Suns, Cardinals and D-Backs (I have relatives there that can confirm this). Having the Niners in Santa Clara would not be a hard sell! Thus, a less risky venture than what Glendale pursued with the Coyotes/NHL.

Anonymous said...

Look what's happening with starving children in Africa! My god, think of the children!

I figure that's about as relevant as Paul's latest post.

Paul said...

There are several news articles talking about how the NFL, MLB and NBA are all terrified of the case, concerned about impacts on control of franchises

Here's one:

Anonymous said...

Those are wonderful arguments to never build anything anywhere. Fine. If that's your viewpoint, this is a strange blog to hang around. Personally, I come here to learn about and discuss our specific local proposals.