Published September 7, 2009
One morning in August, Ronald Garratt pulled up beside a parking lot where San Jose policemen on motorcycles were accelerating around traffic cones, and he made a conceptual leap.
“Right there,” he said, gesturing toward the cones, “is the stadium site.”
In California, visualizing a new NFL stadium is all anyone can do. Nobody has built one in the state since the 1960s.
But Garratt, the assistant manager of the city of Santa Clara and the head of its development team, may be close. He has spent nearly three years working with the San Francisco 49ers on a new facility to replace their nearly 50-year-old warhorse on San Francisco’s Candlestick Point. The project — which is in the midst of environmental review and remains subject to a popular vote by Santa Clarans — has been approved by the city council. It also has the blessing of 49ers owners John and Denise DeBartolo York, and their son, Jed, who has led the negotiations.
What they’ve agreed to can be seen as either the last stadium deal of a passing era … or as the first deal of a new one.
In addition to the land, Santa Clara will do what municipalities have been doing for decades and ante up as much as $114 million in public funds toward the project: $40 million in tax increment financing, $2 million in development fees, around $20 million to move an electric substation near the site, $17 million toward a parking garage, and $35 million or so from a hotel tax.
That’s substantially less than the $160 million the team requested from the city — not to mention the sweetheart deals that numerous NFL teams were able to negotiate during better economic times. If you set the current price of a new football stadium at $1 billion, Santa Clara’s entire contribution weighs in at slightly more than 10 percent, giving the 49ers some $900 million to finance on their own (and an onerous debt service that, some observers believe, will never get approved by NFL owners). The San Francisco Giants spent less than half of that nine years ago to build an entire baseball stadium.
But Santa Clara’s $114 million is also $114 million more than anywhere else in California is offering (and the Yorks say they haven’t looked further afield.). “They’re not going to find this in another municipality,” Garratt said. (San Francisco has earmarked $100 million of a developer’s money for a stadium as part of a mixed-use project in Hunters Point, but thus far no developer has contractually committed to the enterprise.)
So the 49ers are moving forward with a deal that includes a $5 million annual payment by the franchise to a stadium commission, no income from naming rights, and the obligation to cover any shortfalls in non-NFL events — a deal, in short, that would have been laughed out of the conference room had it been proposed to Eddie DeBartolo in the mid-1990s when DeBartolo began to explore possibilities for the team he owned at the time.
“It’s not your traditional ‘Here’s your $100 million,’” Jed York said, “but it’s a deal that works. And you can actually see the light at the end of the tunnel.”
Little public support
Entering this NFL season, California’s three franchises — the 49ers, Oakland Raiders and San Diego Chargers — all seek new stadiums. So does the city of Los Angeles, which remains only a viable venue away from one, and perhaps two, NFL teams.
This would be a challenging situation in boom times, which these decidedly aren’t. With the state issuing $2 billion in IOUs and its municipalities attempting to remedy shortfalls with unprecedented firings, layoffs and service cutbacks, public funding for sports venues ranks as low as it ever has on most civic to-do lists, and maybe even lower than that in terms of public perception.
Gov. Arnold Schwarzenegger has met with task forces in several markets, “But it’s very tough to have the state get involved in those things,” he said recently. “Because of our financial situation that we are in, we’re not about to go and say ‘Yes, we’re going to help financially build a stadium.’ It wouldn’t make any sense. People would be outraged.”
Not surprisingly, local politicians are reading the same script.
“With all of the tremendous enthusiasm that people have about sports and sports teams, they realize that we’re in economic trouble,” said Oakland Mayor Ron Dellums, whose city’s revenue fell $51 million in 2008, helping to create an overall budget deficit of $144 million — or more than Santa Clara’s entire proposed contribution to the 49ers. “Getting voters to approve millions and millions of dollars for a stadium at a time when we have all these problems is just unrealistic. It won’t happen.
“We want our teams here, and we want Oakland to benefit from their presence. But do we have money to pay for the stadium? The answer is no, my friend.”
This aversion to public funding, which an executive of one California franchise calls a “political third rail,” hasn’t come overnight. Baseball’s Giants failed to get substantial public funding for a new facility and almost left town before agreeing to build their own ballpark a decade ago. And even support for the sold-out 49ers wanes when brought to a public vote. In 1997, San Franciscans voted on a $100 million contribution toward a mixed-use development and stadium proposed by DeBartolo (a development that was never built because DeBartolo was forced to relinquish control of the team shortly afterward and the Yorks apparently didn’t have the same appetite for risk). The measure passed, but only by some 1,500 votes.
“We had unbelievable cachet at that time because of the five Super Bowl trophies on our shelf and the future hall of famers who were either part of the team or just retired,” said Carmen Policy, who ran the 49ers for DeBartolo and now consults for the city of San Francisco in an effort to get a stadium built there. “We were the toast of the town. And you saw how close it was. So I think the chance of public money today is absolutely out of the question.”
During a presentation at a recent NFL meeting, Raiders CEO Amy Trask cautioned league owners not to underestimate the difficulties inherent in doing a deal in California, difficulties that help to explain why all three of the current NFL stadiums are at least four decades old. New taxes enacted by the state or a municipality require a two-thirds vote, not a mere majority. Environmental reviews are onerous and expensive. Voters, through ballot initiatives, occasionally decide not to fund schools, let alone stadiums.
But it also may be that California, as it often does, is showing the rest of the country its future. This economic downturn is national, not regional, and cities and states haven’t just frozen budgets, but slashed them. The next two new NFL venues to open, in Dallas and New Jersey, will have been built largely with private dollars, while prospects of legislative funding in Minnesota appear dim. In Seattle, lawmakers refused to approve funding for a new basketball arena, letting the NBA’s SuperSonics depart for Oklahoma after more than 40 years.
“The goal of sports franchises is to make money, I understand that,” said Donna Frye, a San Diego City Council member whose district includes outmoded Qualcomm Stadium. “Unfortunately, when you’re dealing with municipalities, the goal is to serve the public. So you essentially have two entities that are at cross-purposes.”
Santa Clara’s $114 million is the exception because its civic leaders saw “a chance to get something it had no other way of getting in a city of 100,000: an NFL team,” Policy said. In truth, even that motivation might not have been enough if the city, which sits just to the west of far more populous San Jose, hadn’t been frugal to the point of penurious for decades. Or if it didn’t have public land, ideally situated, properly zoned and accessible to highways, currently generating revenue only by being rented out for police training.
With all that, Santa Clara’s dollars won’t come from a general fund that might be used to fix roads or pay teachers, but have been cobbled together from various sources, none of which require a tax increase. That’s about the only way, both the city and the 49ers acknowledge, that the project will get approved.
And that’s in fast-growth Silicon Valley, with its lofty demographics and late-model infrastructure. The more mature cities that already have big league franchises tend also to have greater social service needs, so public money for stadium construction is an even tougher sell. “When you have to lay off policemen, close parks and senior citizen centers,” Dellums said, “you have other priorities.”
Cutting spending is only one side of the equation. Dellums readily admits that Oakland hasn’t taken advantage of the revenue-generating opportunities that the city’s three big league teams might have created. An aerial map of the current Oakland coliseum/arena area in Trask’s office shows it best: blocks of warehouses in every direction, along with a smattering of homes.
Sports has been used to revitalize neighborhoods from Baltimore’s waterfront to downtown Los Angeles, but Oakland has never made the necessary investment. Someone leaving a game with $100 in his pocket ready to be spent on shopping or entertainment might give up in frustration before encountering a single restaurant, retail store, or attraction.
Trask has constructed an ambitious plan for a new stadium on the site of the existing stadium that the Raiders share with baseball’s Oakland A’s. The project would begin to reposition the site as a retail and recreation center for the East Bay and beyond. “I won’t even call it a stadium development project,” she said, “but a development project that is anchored by a stadium.”
It calls for a restaurant and even a bowling alley inside the facility that would be accessible from outside when games aren’t being played, and a hotel that uses stadium suites and boardrooms as its conference center. To help fund the project, Trask conjures up everything from possible federal stimulus money to investments from developers committed to urban renewal.
But none of that will happen unless the city and team agree to act as partners, sharing both costs and benefits. “We can’t have a discussion sitting across the table,” Trask said. “We need to sit side by side with city officials and create opportunities together.”
It’s a nice sentiment. Still, all the cooperation in the world won’t help when the economic underpinning isn’t there. Trask can propose the development, but the Raiders aren’t likely to pay for all of it, and Oakland isn’t likely to pay for any of it, except by contributing land. That’s where third-party developers become crucial.
“To get a deal done today,” said Michael Cohen, San Francisco’s director of economic development, “teams are going to have to do more than they’re traditionally accustomed to doing and the city is going to have to put something in, in some fashion. And then, even with those two pieces, you’re likely going to need a project to be part of a larger development. You can’t rely on one or two anymore. It’s going to have to be all three.”
Big ideas in L.A.
Inside a second-floor ballroom in a resort on the eastern edge of Los Angeles, an alternate reality unfolds on a video screen. A vast outdoor shopping mall and mixed-use development is thriving, including a magnificent football stadium wedged into a hillside. That the entire complex is located somewhere called City of Industry, far from the Los Angeles of “Surfin’ USA,” Spago and “Entertainment Tonight,” is immaterial. Concentric rings superimposed on a map of the area show the Westside, the San Fernando Valley, and most of Orange County within an hour’s drive. “One out of every 19 people in America” live within that range, boasts John Semcken, a project executive working with developer Ed Roski.
This is Roski’s vision for a new stadium that is supposed to — at long last — bring an NFL team back to Los Angeles, or at least Los Angeles County. It relies on a new paradigm, at least as far as funding NFL venues is concerned: a third-party developer, not the team or the municipality, doing most of the heavy lifting.
“You have some successful examples of that in other sports,” said Neil Glat, the NFL’s senior vice president for corporate development. They range from the corporate-funded Nationwide Arena in Columbus to Staples Center, which developers Roski, Semcken and Phil Anschutz created in downtown Los Angeles.
The stadium’s location is almost an hour’s drive from the glamour of the Westside and more than half that from Beverly Hills, but geographic objections would seem churlish if Roski can actually get it built. And though he has no team to play there, he’s confident that he’ll get one and perhaps two as soon as construction starts, which could be as early as next year.
That’s how Staples Center happened, but there are two big differences. City of Industry isn’t downtown, so public sentiment toward revitalization — or, in this case, initial development — isn’t nearly as strong. And 2009 isn’t 1999, as foundering projects all around the state reveal. Some involve sports teams: in Sacramento, the city and the NBA’s Kings are eager to partner with someone willing to shoulder much of the financial load in return for control of the surrounding land (see story). That might have been a sweet deal once upon a time, but not now. “You can’t get anybody to do it,” said Semcken, who has had discussions with that city. “There’s too much risk.”
And while Cohen believes that the Hunters Point project will eventually succeed because of the allure of waterfront land in San Francisco, even in a down market, no developer will be required to commit until June. “And in this economy, I don’t see how any developer looks at that and says that it makes sense financially,” said one NFL executive.
Los Angeles has been a quandary for the NFL for more than a decade. Because a football stadium is only guaranteed to have events for some 10 dates a year, it doesn’t attract enough steady traffic to warrant building a shopping mall or entertainment complex on the site. That’s another big difference from Staples Center. Add land prices and development costs that remain high, and you’re left with a lopsided equation.
“Ed already has the property, which is the only way it could possibly work,” said Peter O’Malley, the former Los Angeles Dodgers owner, who once considered a deal that would have put a football stadium in Chavez Ravine beside his baseball stadium. “Even then, it’s tough to figure out a way that both sides benefit enough to get it done. Ed’s a good man, and if anyone can do it, he can. But it’s tough.”
Roski controls the 600-acre site under a long-term lease. But he knows that isn’t enough to attract speculation. “Real estate deals ain’t going to pay for stadiums anymore,” he said. “There are probably a thousand projects around America bankrupt today because they were using the income from condo sales to pay for the development. The market just isn’t there.”
He’s willing to build a stadium with minimal help, and throw in a share of the surrounding development, but only if someone will trade a percentage of an NFL franchise to him in exchange. “You’ve got to own at least part of the team,” he said. “There’s got to be incentive to go through this shit.”
Even then, the numbers only really begin to line up with two NFL teams. In fact, up and down the state, from Candlestick Point to Chula Vista, conventional wisdom has it that if spending $1 billion on a football stadium these days is a dicey proposition, spending $2 billion on two stadiums in the same part of the state is lunacy. Almost without exception, everyone involved in one of these projects agrees that the economies of scale inherent in a two-team facility outweigh the loss of geographic identity that one or both franchises would suffer.
The problem is, everyone wants the other team to come play on their site. When Trask shows off her plans for the Oakland facility, it isn’t long before she’s talking about two teams, hosting a Super Bowl, even a World Cup. “We are keeping and will keep an open mind about the possibility of a shared stadium,” she said. “But an open mind means an open mind as to the location, too. Our site is a tremendous site.” In Santa Clara, Garratt’s inch-thick document detailing the proposed stadium’s costs and benefits spends as much space on potential two-team revenue as it does on one.
With the league set against further diluting television revenue with expansion, the pool of potential teams for Los Angeles is small. “There are seven in play,” said Semcken, but several teams he names are tied up in leases. However, the Chargers show up on his and everyone else’s list. They have been trying for seven years to build a stadium at or near their current location and haven’t even managed to work a deal that would get it free land, let alone infrastructure or anything more.
The Chargers’ market is bordered on one side by the ocean, one by the desert, and one by another country, so potential growth is severely limited. Their existing stadium was built in 1967, so nobody can argue a new one isn’t needed. And as luck would have it, they began life in Los Angeles. You’d have to think they wouldn’t mind moving back.
Standstill in San Diego
Mark Fabiani doesn’t need to be convinced of the potential of the Los Angeles market. A former deputy mayor of that city during Tom Bradley’s administration, he also served as the deputy communications director for Al Gore’s presidential campaign in 2000; his fundraising connections in the Southland proved invaluable. Since 2002, he has been working for the Chargers (who moved south in 1961 after playing their initial season at the Los Angeles Coliseum), negotiating with San Diego and surrounding towns for a new stadium.
Now Fabiani sits overlooking the Pacific Ocean, eating a fish filet at La Jolla’s iconic La Valencia hotel and acknowledging that, for all the effort, he hasn’t gotten far. “Our timing has been horrible,” he said. A real estate play that includes a stadium doesn’t work these days — not in a hemmed-in, midsized market. “Our window for that was 2003, 2004, 2005, and it didn’t happen,” he said.
The city, which doesn’t make enough on Chargers rent with the current lease arrangement at Qualcomm Stadium to even cover its debt service on the last stadium renovation, hasn’t offered anything more substantial than its best wishes. “We never thought from Day One,” Fabiani said, “that we’d get any public money.”
“People aren’t looking at all the options,” counters councilmember Frye. She mentions the Chargers somehow partnering with San Diego State, which would add five or six annual dates to a facility that otherwise might only be booked for a dozen, and considering the construction of an entire sports complex that would include recreational facilities, a venue for soccer and track events, even jazz concerts. The greater the potential benefits of a new facility, Frye believes, the more advocates it would have.
“You bring in some private development, you bring in some municipal development, you bring in some of the sports teams,” Frye said. “I think there’s a way, if people are really committed to making something work, that it can be done.”
So far, though, she hasn’t gained a bit of traction, not with an intransigent city nor a skeptical Chargers ownership, which — like most other NFL teams — would prefer a football-only venue. “You can pull a rabbit out of a hat in terms of an economic development tied to the stadium, and it would have to be a rabbit out of a hat,” Fabiani said. “Or you can look at a bigger market.”
That seems to point to Los Angeles. But even if Chargers owner Alex Spanos would be disposed to give up a chunk of the team to take a flyer on a mixed-use development, it’s hard to see how that would make sense for him economically. On the other hand, while self-funding a stadium in San Diego wouldn’t work for the Chargers, doing the same as entree to Los Angeles actually might, if Roski gives them the land. What’s in that arrangement for Roski? His development now has an anchor tenant, and he hasn’t had to conjure up $900 million to build a stadium. Equally important, he could retain the rights to bring in a second team if one becomes available. “And believe me,” said someone close to the negotiations, “as soon as the stadium becomes a reality and one team starts playing there, other teams will be lined up at the door to get in.”
It’s all conjecture. But such machinations, compromises, Plan Bs and idiosyncratic thinking are likely what stadium deals will need to get done in California — if they get done at all. Perhaps surprisingly, almost nobody involved with any of these projects is willing to consider the idea of stadium construction in America’s most populous state — home to 15 franchises in the four major North American leagues plus MLS — simply grinding to a halt.
“California has always been, and will continue to be, the land of creativity and opportunity,” Trask said. “I believe that California will find a way to solve its stadium issues, and that the solutions will be exciting.”
Added Roski: “There’ll always be idiots like me who are willing to spend time and millions of dollars to figure out how to do something.”
Eventually, one of those somethings might even work.
Bruce Schoenfeld is a writer in Colorado.