~~~~zZ ~t~ ~~3
Santa Clara Stadium
Authority
Proposed Santa Clara Stadium Authority FY 2022/23
Budget, Stadium Operation and Maintenance Plan,
and 2022 Markefiing Plan
Item #3 (22-303)
SCSASN1iA CLl+HA SiAOI IIM AIITIlOR1iY
March 15, 2022
1. Budget Development
2. Methodology and Limitations
3. Budget Flowchart
4. Stadium Authority Operating Budget
5. Stadium Authority Debt Service Budget
6. Stadium Authority Capital Budget
7. Levi's Naming Rights Signage Project
8. FY 2022/23 Stadium Operations and Maintenance Plan (SOMP)
9. 2022 Marketing Plan
10. Alternatives
11. Recommendations
POST NI~~YING MATERIAL 1
• . 1 • ~
Stadium Authority staff worked with ManagementCo to discuss the annual budget plan which included the October 2021 dates that ManagementCo would provide all necessary documents as required by the Stadium Lease and Stadium Management Agreement.
At least 45 days prior to the start of the fiscal year (January 31) ManCo provided the required documents per the Stadium Agreements:
• Stadium Operations and Maintenance Plan
• Annual Shared Expense Budget with Five Year Projection January 2022 Annual Stadium Authority Operations Budget • Annual Public Safety Budget
• Capital Expenditure Plan with Five Year Projection
• 2022 Marketing Pian
• Public Safety Document Updates
February 2022 Staff analyzed ManCo's budget submission. A list of questions and a request for additional details were submitted to ManCo on February 9. On February 18, ManCo responded to the list of questions submitted.
March 4, 2022 Release of Proposed FY 2022/23 Operating, Debt Service, and Capital Budget March 15, 2022 Public Hearing to approve the SCSA Proposed Fiscal Year 2022/23 Operating, Debt Service, and Capital Budget, the Stadium Operations and Maintenance Plan, and the 2022 Marketing Plan March 21, 2022 Stadium Manager required to submit Adopted Budget to the Trust (10 days prior to start of FY) 3 • Generallnformation
• Year in Review for both NFL and Non-NFL Events
• Operating Budget
• Stadium Authority General and Administrative Budget
• Stadium Manager Shared Expenses and 5 Year Forecast
• Debt Service Budget
• Capital Budget
• Capital Expenditure Plan and 5 Year Forecast
• Stadium Authority Work Plan
4 2
Attachments:
1. Proposed Santa Clara Stadium Authority Fiscal Year 2022-23 Operating, Debt Service, and Capital Budget
2. Annual Public Safety Budget
3. 2022 Marketing Plan
4. Stadium Authority Budget Policy
5. Stadium Authority Compliance and Management Policy
6. Stadium Authority Budget Submittal Questions and ManagementCo Responses to Questions
5 • The Budget report was based in part on documentation and responses submitted by ManagementCo. on January 31, 2022 and February 18, 2022. • The Capital Budget included proposals from both the Stadium Authority and Stadium Manager.
• The Budget is presented in the context of ongoing litigation with ManagementCo and continues the practice of legal contingency from prior budgets. • The Budget included directions from the Stadium Authority Board on March 27, 2019 to only release public funds to ManagementCo if all supporting documents have been submitted and adhere to legal agreements and State local laws. • Board authorized termination of Stadium Management Agreement. Work on the budget and fiscal processes do not constitute a waiver or release of termination notice or any Stadium Authority rights and claims.
6 3
City of Santa Santa Clara
Clara Stadium Authority StadCo
SCSA
■ Owns Land
■ Ground Leases to
the Santa Clara
Stadium Authority
z
Stadium Owner
■ Leases Stadium
to StadCo during
the NFL Season
(6 months)
■ Leases Stadium
to 49er Football
Company
~ • . . •
Stadium Stadium Stadium Transfers Total
Authority Authority Authority Out for Stadium
Operating Debt Service CapEx Capital and _ Authority
Budget Budget Budget Debt Service Budget
$68.8M $43.1 M $25.9M ($44.8M) $93.OM
Note: The $24.2 million difference between the Operating Budget and the Total Budget includes capital projects funded by beginning fund balance ($22.1 million) and debt service funded by the CFD ($2.1 million). 0 n
Key Assumptions in Proposed Budget:
• General and Administrative Expenses - $4.2 million, includes 7.2 full time equivalent positions as a baseline level of support • Cost decreased by $910 thousand or 17.8% based on projected legal expenses
• Net Non-NFL Events -profit of $250 thousand projected for FY2022/23 • This would be the first profitable year after three fiscal years • Three concert events scheduled
ti~
Key Assumptions in Proposed Budget:
• Stadium Manager Shared Expenses - $10.5 million set aside in Legal Contingency to cover Shared Expenses and NFL-SBL Buffet costs • Cost increased by $1.0 million or 13% due to increased additional field replacement costs associated with non-NFL Events and additional full-time positions requested
• The Stadium Manager proposes six (6) additional fulltime positions to support its operational needs: Stadium Operations &Logistics Coordinator; Procurement Contracts Administrator; Associate Counsel; Senior Counsel; Director of Engineering; and Guest Services Coordinator • Consistent with the last budget, it is recommended that the Board delegate authority to approve budget amendments that move the Legal Contingency to Shared Expenses after the review of appropriate documentation for costs ~'
5 Revenues:
NFL Ticket Surcharge $ 10,822,000
SBL Proceeds 24,398,000
Interest 15,000
Non-NFL Event Net Revenue 250,000
Naming Rights 7,380,000
Sponsorship Revenue (STR) 405,000
Rent 24,762,000
Senior &Youth Program Fees 237,000
Non-NFL Event Ticket Surcharge 574,000
Total Revenues $68,843,00011
Expenses:
12 Shared Stadium Manager Expenses $3,230,000
Legal Contingency 10,542,420
SBL Sales and Service 2,089,000
Senior and Youth Program Fees 237,000
Ground Rent 460,000
Performance Rent 0
Discretionary Fund Expense 250,000
Utilities 1,444,000
Use of StadCo Tenant Improvements 48,000
Stadium Authority General &Administrative 4,205,000
Naming Rights Commission 91,000
Other Expenses 723,000
Contribution to Operating Reserve 369,000
Transfers Out 44,785,580
Total Expenses $68,474,000
Paid to
the
C lty'S
General
Fund
Stadium Authority FY2022/23 G&A Proposed Budget
Expense Type Budget Comments
Staff Support (7.2 FTE) $2,156,000To support the Stadium Authority with its oversight duties of stadium activities
Legal Services 1,300,000As needed for outside legal services Audit Services 276,000Financial and performance audits performed by external Consultants 250,000As needed for outside consulting services Executive Director &Board Directives 150,000Funding for unanticipated Board directives, Executive Director assignments, etc.
Administrative Services 44,000Laserfiche Repository and contractor compliance Other Expenses 20,000Routine office expenses
Board Stipends 9,000Stadium Authority meetings
Total $4,205,0006.1% of $68.5 million expense budget
13 Discretionary Fund
50% of FY 2022/23 FY 2022/23 Projected
Projected Beginning Non-NFL Event Discretionary Ending
Balance Ticket Surcharge Fund Expense Balance
$2,327,850 $287,000 $250,000 $2,364,850
• The Discretionary Fund has been used to cover NFL public safety costs above the public safety cost threshold, public safety capital expenses, and other items at the Stadium Authority's discretion. 14 7
Performance Rent Calculation
15 • ~ • ~ • ~ ~ •
•
Stadium Manager Shared Expenses in Legal Contingency
• With exception of insurance, shared expenses are allocated to legal contingency until review of documentation based on prior Board direction Stadium Guest Grounds-
Security Operations Engineering Services keeping Total
Total Compensation $ 389,965 $ 2,496,635 $ 1,721,783 $ 375,622 $ 91,938 $ 5,076,943 Travel, Meals &Entertainment 7,800 112,225 2,523 16,295 2,100 140,943 Outside Services 1,117,000 877,400 727,711 6,445 357,426 3,085,982 General Supplies 23,630 20,650 330 60,237 38,610 143,457 Telephone 4,800 257,750 8,400 4,320 432 275,702
Equipment 53,630 54,088 18,376 43,200 6,300 175,594
Uniforms 7,750 - 4,000 49,143 750 67,643
Other 2,250 8,450 5,750 31,706 - 48,156
Subtotal $ 1,606,825 $ 3,827,198 $ 2,488,873 $ 586,968 $ 497,556 $ 9,007,420 Insurance 3,230,264
Management Fee 253,363
Total S 12,491,037
16 Proposed Budget Differences from ManCo Submittal
Expenditure Category SCSA ManCo Note
Proposed Submittal
Shared Stadium Manager $0 M $9.0 M Currently subject litigation; Expenses Conditioning requirement for
proper documentation
Stadium Management $0 M $0.2 M Currently subject of litigation Fee
Buffet $0 M $1.3 M Currently subject of litigation
Legal Contingency $10.5 M $0 M Items currently subject of litigation
Subtotal $10.5 M
17 $10.5 M
Debt Type Budget
CFD Advance $2,042,000
Term A Loan 25,494,000
StadCo Subloan 15,490,580
Total $43,026,580
Debt service amount of $43.0 million includes principal payment of $29.5M and interest payment of $13.5M
Total outstanding debt is projected to decreaseby $29.5 million from $279.0 million to $249.5 million
1II
Total Outstanding Debt (in millions)
~~ao -$653.4
$600 _ 561.6 62% reduction in
~soo outstanding debt
$aza.a from March 2014
$400 - $396.1
$340.2 8325.3
$300
$298.8 $279.0
$200
$100
$41.1
March March March March Mardi March Mardi March Mardi March Marrh Mardi 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2D22 2023 (forecast) (forecast)
~: Construction Loan r StadCo Agency Advance Term B Loan ■ Term A Loan ■ StedCo CFD Advance StadCo Subordinated Loan Total Capital Budget of $21.7 million
Stadium Improvements - $20.2 million
• New Projects ($9.4 million)
• Construction ($8.1 million): new padded seating replacement and aesthetic improvements in premium areas/special event spaces
• Equipment ($1.3 million): public safety and security
• Carryover Projects ($10.8 million)
• Construction ($5.2 million): Stadium wayfinding signage, women's locker room • Equipment ($5.6 million): public safety, FMS, cooling tower repairs • Stadium Warranty-Related Construction - $1.5 million
• Part of the original Stadium Development/Construction Budget 20 1.0
Santa Clara Stadium Authority
Capital Expense Plan Summary - 5 Year Forecast
2022123 2023124 2024!26 2026126 2028127
Budget Budget Budget Budget Budget
21 Electrical $ 666,190 $ 300,000 5 3,300,000 E 225,000 $ 325,000 General Building 10,032,666 438,000 3,570,000 1,300,000 2,000,000 Plumbing 87,619 150,000 - 300,000 35,000
Public Safety - - -
Securiry 707,000 - - -
Site 1,205,714 100,000 725,000
Subtotal CapEx Construction Costs ; 72,899,189 ; 988,000 $ 6,870,000 ~ 1,826,000 S 2,486,000 AudioNisuel $ 566,667 S 970,000 § - $ - $ 500,000
FF&E 7,613,810 30,000 - 61,669
Food &Beverage 592,381 - - 1,200,000
HVAC/Mechenical 437,144 150,000 225,000 75,000 325,000
Information Technology 75,000 - - -
Life Safety/Fire 50,000 - - - 335,000
Security 689,000 400,000 400,000 570,000 500,000
Public Safety Equipment 2,511,676 384,341 344,510 125,010 114,510 Vertical Su000rt 20.000 - - - 400.000
Total
FY 2020/21 Budget: Levi's Naming Rights Signage Replacement ($682,500) was approved in CapEx Budget.
FY 2021/22 Budget Process: Stadium Manager recommended same CapEx project for $945,000. Staff reviewed Naming Rights Agreement, which provides that Naming Rights Sponsor is responsible for sign replacement. Project was not approved by the Board and the Stadium Authority and Stadium Manager agreed to continue discussions regarding the Naming Rights Signage Project and to bring back a proposal for the Board to consider later, if necessary.
September 7, 2021: Board approved Stadium Manager's request to approve a budget amendment to the FY 2021/22 CapEx Budget for $250,000 for interim repairs of four Levi's Signage and an amendment to existing electrical agreement for the interim repairs.
22 11
Levi's Naming Rights Signage Refurbishment Project - $1,260,000 • The Naming Rights Agreement Section 5(f) states, "Naming Rights Sponsor shall be entitled, at its sole cost and expense, to replace, update, change, refresh or refurbish any such initial signage at any time and from time to time...".
Based on this language, it is the Stadium Authority's position that signage replacement or refurbishment is the responsibility of the Naming Rights Sponsor.
However, repair is Stadium Authority's responsibility. Therefore, if this project is actually repair, and if such ongoing costs of repair exceed the costs of replacement, then further discussion is warranted to determine how the Stadium Authority should move the project forward in the most cost-effective way for the Stadium Authority. 23 Required by the Stadium Lease and Management Agreement.
Contains a plan for the operation and maintenance of Levi's Stadium which includes confidential information on the stadium building.
Staff is reviewing this confidential document and will share the City and Stadium Authority's comments with the Stadium Manager directly.
SOMP document is approved administratively.
za
12 • Consistent with the Board's March 23, 2021 direction, staff hired an independent third-party consultant, Stone Planning LLC and its subcontractor, to review and assess the Draft 2020 and 2021 Marketing Plans and prepare a Levi's Stadium Marketing Plan Assessments report.
• On February 22, 2022, Stone Planning and its subcontractor presented their findings to the Board.
• The Board noted and filed the consultant's report, and referred the report to the Stadium Manager for their response and accessibility to the consultant and to return back with an updated Marketing Plan.
• Consultant's existing agreement doesn't cover the additional scope of work and there are no remaining funds. A Board authorized amended agreement would be required before the consultant can provide these additional services. 25 • It is recommended that the Board takes the following actions on the 2022 Marketing Plan:
• Note and file the 2022 Marketing Plan;
• Authorize the Office of the Executive Director to execute an Amendment No. 1 with Stone Planning to add an additional $10,000 and to amend the agreement's scope of work to allow the Stadium Authority to request, on a time and materials basis, 1) the Contractor and/or subcontractor's participation in meetings with Stadium Authority staff and Stadium Manager to discuss any areas of the assessment report, or 2) other work related to the assessment report; and Request the Stadium Manager to return to the Board in four to six months with an updated Marketing Plan.
26 13
1. Adopt the Santa Clara Stadium Authority Fiscal Year 2022/23 Operating, Debt Service, and Capital Budget;
2. Delegate authority to the Office of the Executive Director or Treasurer to approve budget amendments that move funds from Legal Contingency to Shared Expenses after the review of adequate documentation for costs;
3. Direction to explore options for a more cost-effective way to address repairs to the Naming Rights Sponsor Sign;
4. Note and file the 2022 Marketing Plan, authorize the Office of the Executive Director to execute an Amendment No. 1 with Stone Planning to add an additional $10,000 and to allow the Stadium Authority to request, on a time and materials basis, 1) the Contractor and/or subcontractor's participation in meetings with Stadium Authority staff and Stadium Manager to discuss any areas of the assessment report, or 2) other work related to the assessment report, and request the Stadium Manager to return back to the Board in four to six months with an updated Marketing Plan; or
5. Take any other Action the Board deems appropriate.
27 1. Adopt the Santa Clara Stadium Authority Fiscal Year 2022/23 Operating, Debt Service, and Capital Budget;
2. Delegate authority to the Office of the Executive Director or Treasurer to approve budget amendments that move funds from Legal Contingency to Shared Expenses after the review of adequate documentation for costs;
3. Direct staff to explore options for a more cost-effective way to address repairs to the Naming Rights Sponsor Sign; and,
4. Note and file the 2022 Marketing Plan, authorize the Office of the Executive Director to execute an Amendment No. 1 with Stone Planning to add an additional $10,000 and to amend the agreement's scope of work to allow the Stadium Authority to request, on a time and materials basis, 1) the Contractor and/or subcontractor's participation in meetings with Stadium Authority staff and Stadium Manager to discuss any areas of the assessment report, or 2) other work related to the assessment report, and request the Stadium Manager to return to the Board in four to six months with an updated Marketing Plan.
2s
14 ~~~~~~~~~~~ <<~~ are ~~adi~~ll~~
Aut~~ ~-~ ~it~
Proposed Santa Clara Stadium Authority ~Y 2022/23
Budget, Stadium Operation and Maintenance Plan,
and 2022 Marketing Plan
SCSASANTA CtMA STADIUM AIfTIlOR1iY
Item #3 (22-303)
March 15, 2022
15 X 3-15 -ZZ IIeM~3~~~~ ~~ 5
STADIUM
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Agenda
STADIUM
• Annual Budget Summary
• Revenue Breakout
•Operating Expense Breakout
• Debt and Reserves
•Unnecessary Interest and Advanced Funding
• Stadium Manager Proposal
COST MEETING rVIATERIa~-
Budget Summa
Revenues $68.6M
Expenses ($25.9M)
Mandatory Debt ($29.8M)
Excess Cash $12.9M
Note: Numbers presented are on a cash basis.
STADIUM
Facility Rent, SBL Receivables,
Naming Rights, Ticket Surcharge
Shared Stadium Expenses, SCSA
Overhead, SBLS&5, Insurance,
Capex
Term A (P&I), StadCo Subloan
(P&I)
Opex Reserve, Capex Reserve, etc.
Revenues
• Total Stadium Authority Revenues = $68.6M
S in 000s
Facility Rent 24,762 24,762 -
SBL Receivables 24,398 24,398 -
NFLTicket5urcharge 10% 10,822 10,522 -
Naming Rights 7,380 7,380 -
Non-NFLTicketSurcharge 574 574 -
STR Marketplace 405 405 -
Senior/YouthFees 237 237 -
Non-NFL Events Net 250 250
Total Revenue $ 68,593$ 68,843 $ (250)
= 98% of
Total
Revenue
($67.4M)
STADIUM
~~
— _
.Fna~rynem •SOlflKeivaNes
. NCL TkAtl Su~<hai5e f0:; •Naming RiB~ts
• Non~NiL I kkel5urzhaigx • Slft CIarV:atplate
. senior /vouln tens • kire~e9 L~mme
• Non~Nit E~~nts, Ntt
Note: Numbers presented by Stadium Manager are on a cash basis. Non-NFL Events, projected to be in the range of $250k - 51.75M will be included on the 2023-24 budget as that is when the cash will be transferred to the Stadium Authority. 4 2
Revenues: Year-over-Year BvB Changes STADIUM
• NFL Ticket Surcharge ($10.8M) is up 25% largely due to 49ers ticket price increases and an additional regular season game versus apre-season game. • SBL Receivables ($24.4M) are up %3 largely due to the expected timing of cash received year-over-year.
• The 2022-23 SBL Budget assumes that Owners Club SBL holders will make their payments — requiresaction by SCSA Staff which has been stalled since July 2020. • Non-NFL Ticket Surcharge ($574k) is up 283% due to the ticketed events assumptions for Fiscal Year 2022-23.
• STR Marketplace ($405k) is up 25% as fees are forecasted to eclipse the minimum guarantee.
• The extension of the STR Marketplace Agreement will be provided to the Board this spring.
Operating Expenses
• Total Stadium Authority Operating Expenses = $25.9M
5 i~ 000s
Shared Stadium Ex enses 9,027
Stadium Authority overhead 4,205 J
SBLSaIes &Services 3,351
Insurance 3,230
CapEx Reserve Funding 2,534
Utilities 1,444
Other Expenses 723
Ground Rent-Base 460
DlscretionaryFundDeposit 287
Stadium Manager Fee 253
Senior Youth Fees 237
Naming Rights Expense 91
StadCo Equipment Use Fees 48
Ground Rent -Performance
To[alExpenses $ 25,890
— 16% of Total Expenses
■Shared Stadium Expenses ~ ~ Stadium Authority Overhear ■ SBL Salet &Services ■Insurance
■ CapEz Reserve Funding ■Utilities
■ Other Expenses ■Ground Rent -Base
■ Discretionary Fund Deposit ■Stadium Manager Fee
■ Senfor Youth Fees ■Naming Rights Expense
■ S[adCo Equipment Use Fees ~ Ground Rent -Performance
STADIUM
Note: Stadium Authority Overhead is the second most expensive line item in the budget. Second only to costs associated with operating the stadium. 6
3 1 LeVI'S~'
Expenses: Stadium Authority Overhead STADIUM
• Stadium Manager does not plan to battle City
Staff's excessive Overhead cost this year. Santa Clara Stadium Authority Overhead a,soo,aoo Stadium
• Last year, Stadium Manager proposed a 4.0°°•0°° ~~ry S~,ff MaPager Pro oral
Stadium Authority Overhead budget of 3M s,soo,000 P~a;ected ~
A«~a~~ 1
versus the 5.1M that City Staff Proposed. 3,000,000
• After needlessly spending money on legal costs Z'S°°'°°° fighting us on this, City Staff provided projectedz,~-~~ actuals of approx. 3M. i,soo,000
,2,156,000
i,000,000Staff Support
Legal Services 1,300,000 SQp pip
Audit Services 276,000 '.
Consulting 5ervicei 250,000 _
Executive Director &Board Initiatives 150,000 ~ 2018-19A 2019~20A 2020.21A 2021-22F 2021-226 2022-23B Other Expenses 73,000
Santa Clara Stadium Authority Overhead $ 4,205,000
7 7
Expenses: Year-over-Year BvB Changes STADIUM
• Shared Stadium Expenses ($9.OM) are up 13% largely due to six (6) new positions being added to the budget, as well as the costs associated with replacing the field for assumed concerts.
• These positions are important to execute our procurement and public works initiatives, and more effectively operate Levi's Stadium to the standard of our customers. • The total headcount is still less than it was prior to the pandemic. • Other Expenses line item ($723K) is up 31% .The actual costs will depend on the staff time required to implement the SCSA's new accounting system and respond to other requests from City Hall.
a
0 Debt and Reserves
• Total Cash Flows Available for Debt and Reserves = $42.7M S i~ 000s
f~
Term A Principal 15,459
Term A Interest 10,771
StadCo Subloan Principal 2,499
StadCo Subloan Interest 1,055
Total Mandatory Debt $ 29,784
1. ManCo Line of Credit• -
2.Operating Reserve Funding 369
3. Capital Reserve Excess Funding 1,267
4. Prepayment of StadCo Subloan 11,285
Total Excess Cash Flow $ 12,921
Total Debt and Reserves $ 42,705
•Teem AlMandatary) •SWdCo Subloan~Mandatory)
•RlanCo lined Credit •OOe~aUng Raserve Funding
. Capital Resent Excess Fu~rp • StadCo SuWoan (PrepaynwnQ Note: *Assumes Stadium Manager does not have to provide a line of credit to the Stadium Authority for it's unpaid bills.
STADIUM
9 w
U n necessa ry I nterest Cost — FY 2021/22 STADIUM
• The Board saved the SCSA approx. 250k in unnecessary interest cost by directing City Staff to pay (~$4M) in Shared Stadium Expense (SSE) employee wages in FY 2021/22.
• However, the SCSA has incurred approx. 300k of unnecessary interest expenses due to City Staff withholding payment for the other operating expenses, including expenses for contracts that have been approved by the SCSA Board, in FY 2021/22.
• It males no business sense for the SCSA to continue to incur unnecessary interest costs —and yet City Staff doubles down in FY 2022/23... ~a
10 5
U n necessa ry I nterest Cost — FY 2022/23 STADIUM
STADIUM I APPROX.
CATEGORY MANAGER CITY STAFF INTEREST
SHARED STADIUM
$5,076,~~~ $~ $325,~~
EXPENSE (COMP)
SHARED STADIUM $3,951,0~~ $~ $2$Di~~EXPENSES (NON-COMP) ALL-INCLUSIVE BUFFETS $1,262,000 $O $7O~000
STADIUM MANAGER FEE $253,000 SO $S,OOO
"LEGAL CONTINGENCY" $O $10,542,000 $O
m
11 Stadium Manager Proposal STADIUM
• Removal of ALL Shared Stadium Expenses from "Legal Contingency." • Direct City Staff to fund costs in advance, per the contracts. • Approve the Public Safety Cost Budget
• Removal of SBL Rll-Inclusive Buffet costs from "Legal Contingency." • Resolve the Naming Rights signage issue in next 30 days. • Reject the recommendation by City Staff to expand the scope of the Rooney Marketing Plan project. ~z
Zz
~ ~~~~~M elissa Lee
From: Ly, Vinette <[email protected]>
Sent: Tuesday, March 15, 2022 10:52 AM
To: Mayor and Council
Subject: SCSA Budget for FY 2022/23
Attachments: LM to Board_2022_03_15.pdf
Hi Mayor and Council,
Please see the attached correspondence.
Thank you,
Vinette
VINETTE LY
Executive Assistant to the CFO
San Francisco 49ers
T 408.673.2034 ~ M 408.315.9736
SAP Performance Facility
4949 Marie P. DeBartolo Way
Santa Clara, CA 95054
THE BAY
#FTTB
49ers.com
POST MEE'RNG MATERIAL
S~~ ~evrs
~+►
FORTY NINERS STADIUM MANAGEMENT COMPANY
M arch 15, 2022
VIA EMAIL - MayorAndCouncil cr,santaclaraca.~ov
Santa Clara Stadium Authority
1500 Warburton Avenue
Santa Clara, CA 95050
Dear Board:
This letter is to assist you in your March 15, 2022 meeting to consider the Stadium Authority Operating Budget, and to address a number of issues raised in the budget proposed by your City Staff.
As a preliminary matter, the Board should consider requiring that City Staff coordinate i ts annual budget submission with the Stadium Manager. The budget submitted by City Staff contains numerous errors, both large and small, that could have been corrected before being submitted to the Board. For example:
The budget from City Staff (Page 8) states: "Tlzer~e we~•e ~zo Nora-NFL e>>e~zts held at tlZe Stadzinn in both FY2020/21 and FY2021/22 due to tl~e cancellation of°~ostponerrae~zt of events as a ~•esult of the COVID-19 pandemic. " That is i ncorrect. The Stadium reopened for events in July 2021 and hosted ten special events in FY 2021/22. I Those events are reported in the quarterly reports to City Staff, and copies of the event contracts were provided to City Staff when they were executed.
The pie chart presented by City Staff on page 11 is labeled "Operating Expenses". That is incorrect. The chart includes debt service and excess cash fl ow totaling $44.8M, which are clot "operating expenses". One important result of this error is that the SCSA overhead cost of $4.2M is characterized as only
6.1 % of operating expenses, when in fact it is actually 16% of operating expenses.
City staff included a $369K contribution to the Operating Reserve account as an operating expense in the table on page 12. This is incorrect. The contribution to the operating reserve is not allowed as an "operating expense". It is a component i A similar error appears in City Staff's "Financial Status Report -Quarter Ending 9/30/2021" which i s included in the Board packet for the 3/15/22 meeting. Table 3 of that report incorrectly indicates there were zero special events in the quarter ending 9/30/21. This is another example of the administrative waste at City Hall -The 49ers provide reports and copies of event contracts to City Staff, and they appear to be lost in the paper shuffling factory at City Hall. 4900 Marie P. DeBartolo Way I Santa Clara, CA 95054
1 of 7
of Excess Revenue plusuant to Section 14.4 of the Stadilun Lease, and the funding to this reserve only happens after the more senior excess revenue commitments are fiilfilled.
All of these issues (and more) could have been corrected if City Staff had worked with Stadium Manager prior to submission to the Board.
Setting aside those error's, I will focus on the key issues for the Board to consider.
City Staff seeks to continue funding its "Leal Continency" rather than paying Stadium operating expenses
In 2019 the SCSA stopped paying its Stadium bills and diverted those fiends to a legal contingency reserve.
This strategy has resulted in the SCSA incurring hundreds of thousands of dollars in unnecessary interest costs, because when the SCSA refuses to pay its bills, they are paid by the 49ers and the SCSA is charged 12%interest on the defaulted amoLults. In FY 2021/22 this decision cost the SCSA roughly $300,000 in default interest. Meanwhile, the SCSA parks nullions in cash that is designated to pay the bills ii1 a ba~~lc account earning interest at less than 1 %.
Last year, the Board wisely directed City Staff to begin paying the majority of the bills (specifically, the wages of workers at the Stadium) each month. That decision saved the SCSA roughly $250,000 in interest cost in FY 2021/22.
But in the FY 2022/23 budget, City Staff proposes that the SCSA revert back to its former practice of refiising to pay entire categories of expenses, including the workers' wages. This proposal is ill-advised and coiltraiy to the plain language of the M anagement Agreement.
The SCSA is required to fiend its monthly budgeted expezlses in advance, not in arrears.
Section 5.2.1 of the Management Agreement states:
b2 order to pr°ovide fit~~ds r2ecessary to peg°»pit the Stadiui~~ Mcn~~c~ger to perfo~°~n zts obligations hey°eunder, t~I~e Stc~cliti~r~z Mcz~~age~° s7~call ~°eeeive fi°o»a eaelz of StadCo and Stadiu»z Aut17~o~^ity amoitn~ts fog° funding Nlan~agei~ Operating Expenses and other• a»zounts ineir~°~°ed oi~ tl~ei~° ~°espeetive behalf cgs p~roviclec~ in tl~e Stc~dCo Bztdget and the An~~zral Stadizr~n Azrtl2o~°ity Bztclget, respectively.
Section 5.5 of the Management Agreement states, explicitly, that Stadium Manager has no obligation to advance funds:
~TJhe Stcrcliztnz Mar~age~° shall ~~ot be obligated to male a~zy advci~~~ee of its o1-vr~ firn~ds to o~° fo~~ the caeeount of eitl~.er Stcrc~Co or~ the Stc~diu~n~ Azrtlzo~~ity oN to pc~y arty sit»~~s z~zcur~red fo~~ t1~~e peg for°mance of see°vices o~° goods deliver°ed to the 4900 Marie P. DeBartolo Way I Santa Clara, CA 95054
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S`tadiu~n, nor• shall the Stadium 1Vlcrn~age~° be obligcrtecl to incur crazy liability o~° obligation for the crccoun~t of either° StadCo or• the St~rcliitm Azrtl2o~°ity.
If the SCSA (or StadCo) have been over or undercharged for a particular item, that is adjusted at year end. City Staff clearly understands this process because they specifically mention it on page 22 of the FY 2022/23 budget that they themselves submitted;
"O~~ce the budget has been. adopted, AIcr~2crge~~~entCo invoices Stadium Aut1~o~°it~~ »zonthly fog° its budgeted portiojz of shcr~°ed expenses ~-vl2ich i~zclude stadium tna~~ager~ oper~c~ting expenses. As pay°t of the yecrr~-e~~~d 1~~o~°k, the b~.rdgeted c~rnozr~~.ts that wei°e paid ar e to be t~°fired up ~~~itl~. actual e~penditirres. " The premise foi~ this entire "legal contingency" strategy was based on the false narrative concocted by the former City Attorney: That the SCSA can't pay its $9M in amlual expenses because the 49ers didn't follow proper "procurement practices". The 49eis dispute that premise, but even if it were true, there are no "procurement practices" applicable to the Stadium Manager's staff, nor do the handful of procurement claims asserted by City Staff impact the vast majority of the Stadium costs.
Recommendation: The SCSA Board should direct City Staff to pay its monthly budgeted stadium expenses in advance, and true up its actual expenses at the end of the fiscal year in accordance with the Stadium contracts.
City Staff recomrraends that the SCSA refuse to pav for the costs of buffets it sold to its SBL customers
The SCSA sold premium SBLs to customers that inchide all-inclusive buffets, generating roughly $80M in contracted revenue for the SCSA. The 49ers agreed to provide this benefit for NFL Games, subject to reimbursement by the SCSA. Here is the unambiguous language from Section 4.6.2 of the Stadium Lease:
Tena~~t shall also be i~~esponszble to maize available to SBL Holc~e~°s tl~e c~i~zenities desc~°ibed in Exhibit D to each sz~ch SBL Agr~eel~ae~~t to tl~e extent applicable to NFL Events, including providi~zg u co»~plr'r~Zei~ta~ y buffet to cer~tcr.if~ SBL Holder°s dzcr~ing NFL GaT~2es; ~T^ovided, Izotivever~, that the Stadiu»z Azctho~~ity slZall, ~~itl~in this°ty (30) daXs ollowin ~~•ecei~t of an. invoice tl~~e~^efor, ~^ein~bz~~~~se Tenant o~° all costs and ex~e~zses incul~~°ed b1~ Tenant i~~~rovidzn~~>> sztclz co~npli»aentca~°Z bu ets.
Over the past few years, City Staff has flailed about for various reasons not to pay the $1.3M annual cost of the buffets for its customers. In the past few months, the City's lawyers have asse~~ted a new "legal theory": The SCSA doesn't have to pay for the buffet costs because the cost of the buffets is somehow included in the price of tickets 4900 Marie P. DeBartolo Way I Santa Clara, CA 95054
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for 49ers games. That is false. The Stadium Lease is clear, the SCSA has to bear the cost of the buffets for these customers.
Although there is no basis or evidence for this new "legal theory", City Staff will now say this matter is "in dispute" and they will not pay for the cost of the buffets until the dispute is resolved —several years down the road. This is another example of the SCSA allowing its business decisions to be made by lawyers.
The 49ers do not want to suspend the complimentary buffets while this made-up dispute is sorted otrt in arbitration, because these are important customers to both the SCSA and the 49ers. You can imagine how these customers will react when they show up to find that a key component of their $80K investment with the SCSA has been eliminated because the SCSA is tulwilling to pay for what they are contractually obligated to provide per the SBL Agreement and Stadium Lease. This type of litigation-first strategy is likely to incite snore third-party litigation, which continues to only benefit the lawyers who stand to gain from the never-ending stream of billable hours.
Recommendation: The StadiLun Authority Board should direct staff to pay for the cost of buffets for its customers in accordance with Section 4.6.2 of the Stadium Lease. The SCSA can reserve its rights in connection with the payments for the buffets pending the resolution of the arbitration. This protects the SCSA's interests while maintaining the benefit for SBL holders.
The Naming Rights Si~na~e issue should be resolved by the Board There are two line items in the SCSA Capital Expenditure budget relating to the mining rights signs on the Stadium (page 33 of the budget from City Staff :
$400K emergency temporary repair to address the failed lighting, which must be completed immediately in order to have signage operational for upcoming events.
$1.2M to remove and refurbish the existing signs, which will take roughly six months.
This proposal was our attempt to navigate another asinine legal position by City Staff.
There is obviously a better solution for the Board: Replace all four signs.
Here is how we explained the situation to City Staff in our submittal on 2.18.22:
Yale I~~ave con7~eyed f~zultiple tines that it as rnor~e cost effective crud effr.cient to simply ~°enlace tl2e sigi~age. We have decided that coi~tinuzr2g to debate this ~^epai~^ vs. r~eplczce isszre with Cite Staff is unp~°oc~uctive. Accoi°di~2gly, the cure°enf yecr~° budget 7~as been ~~evised to 3~eflect cr vex y r°ozlgh conceptual estin~~crte to ~~efin°bis12, r~utl~e~° t7~crn f~e~lace, tl~e exrstr.'ng signs, wl~icl2 ~~ve expect will ~°equine t1~~crt they »zcry be r•e~noved fi°onz the bzrilding c~n~cl slipped off site fo~~ ~~efi~j°bzshi~~~en~t. TI7e esti»~~ated cost of $1.2M is pf°eli»ain~aNy based on esccrlc~ting 4900 Marie P. DeBartolo Way I Santa Clara, CA 95054
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the r~efir~°bishr~2eizt estz»~ate fi°om tl2e AD/S ~°epor°t tl~cat ~a~as pr~ovic~ed to yozr last yecn~. Th~ct estimate tivill be ~°efined ccs ~1~e develop a plca~. for° t1~e r°efirr~bashme~~t.
Fzri°tl~ern~or°e, tl~e proposed budget does not iJ~cluc~e tl~e cost of ten~pot~c~r y szgi~~age ~a~l~.iclz will ~~~eed to be instcrllec~, since t7~e i°efirr~bislzm~e~~t pla~~ will r^egzrii°e that tl~.e existing signs be ~°e~n~oved for a~2 exte~zded pe~•iod of tine. It's also i»zpor°tant to note t7~~crt the ~°efi~r°bishmen~t cost zs zn cadditio~~ to the zf~~m~ediate zr~gent i°eperir cost of $400k, tinliicl~~ is requi~°ed because tl2e lighting in tl~~e sig~~s is notia~ expe~°fencing ac~clitio~~crl fcrilztres, which is exactly wl2at 1ti~e told yoz~ would I2appen lust year^.
In its latest repo~•t to the Board, City staff states: "... Bused on t1~is language, it is the Stcrdiir~n Author•it}~'s position t7~at the full signcrge ~°eplaeem~ent zs tJ~e r°esponsibility of the Na»zing Rights Sponsor'. Hotivever~, if t7~e ongoi~zg costs of ~^e~crz~° exceed the costs of ~°eplacement, thesz fu~~tl~er~ discussion is waJ°r~ai~tec~ to deter°mine low the Stadiu»z Authority should move the pr~oject~ forward in the most cost-effective way fo~~~ the Stcacliur~2 Az~thority. "
This is just more bureaucratic rhetoric and delay from City Staff. There is no need for "further discussion". We told City Staff three years ago that the signs were failing and should be replaced. We told them that continuing to do emergency repairs on old signs is a mistake. City Staff then handed the problem to the City's lawyers who first tried to blame the 49ers for the signage failures, and then tried to push the cost on to the sponsor. Reams of letters and accusations ensued, which have no doubt cost the SCSA tens of thousands of dollars in legal costs and staff time. An emergency temporary repair was done last year, and another one is required this year.
It is obvious to us that City Staff is now looking for a way to gracefully walls back its ill- advised strategy by engaging in more "discussions", and then perhaps they can hire some consultants, write more reports, get more input from their lawyers, and generally waste another year. It is time for the Board to end this unfortunate chapter.
W e sent City Staff a report from an industry expert that says the signs should be replaced because:
• The conditiozl of the four signs meazis that they likely cannot be salvaged for reconstruction.
o Removing the signs for refurbishment will leave the Stadium without illuminated signage for months.
• Repairs and refurbishment will not come with an effective warranty.
Signage construction has evolved in the past seven years. New signs will save the SCSA money in energy and maintenance.
Although pricing for replacement and repair have likely escalated in view of recent inflationary pressures and supply chain issues, it remains our view that z•eplaceinent is the best alternative for the SCSA.
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Recommendation: Approve the emergency temporary repair of $400K in the Capital Expenditure budget, and return to the Board in 30 days with a plan for fill replacement of the sighs, including a v,~al7anty.
The SCSA Overhead costs are out of control
For FY2022/23, City Staff requests a budget for its own overhead costs of $4.2M. This is the second highest expense on the SCSA income statement, and is roughly 3X what it ought to be. The alarming increase in this line item coincides with the massive bureaucracy that blossomed under the former City Manager. It was a classic bureaucratic maneuver: demand more paperwork, then hire more people — at outrageous salaries - to evaluate the paperwork and write reports that have no value.
None of these overhead costs have anything to do with operating the Stadium. None of these people actually work at the Stadium. If all their work ceased tomorrow the hundreds of thousands of people who patronize Levi's Stadium every year would be completely unaware of their absence. This $4.2M is all diverted to administrators who work at City Hall, their consultants, and their lawyers.
There are countless examples of the administrative waste and busy work buried in this $4.2M budget, but it's important to note that the actual cost to the SCSA is higher than that —because all the pointless reports and paperwork requested by City Staff require a significant amount of work by the Stadium Manager —and we pass 100% of those costs onto the SCSA.
It's also important to note that all that wasted cost reduces the funds available to pay down the SCSA debt — so every dollar that is wasted on bureaucrats and litigators is another dollar that continues to cost the SCSA interest expense.
City Staff s recommendation to spend another X10,000 assessing the Marketing Plan is a waste of time and money.
W e have reviewed the report by the consultant along with a transcript of his presentation to the Board on 2.22.2022. That was a waste of time and money and there is no value in any further interaction with this consultant on this topic.
The consultant stated that a good year would be five large ticketed events and 100 private catered events. Prior to the former City Manager's war with the 49ers, Levi's Stadium hosted more than that, and with the recent elimination of the Mayor's music ban, we are expecting four conceits for the upcoming year. • The consultant stated that venue inarlceting strategies contain confidential proprietary infori~7ation alld are not public documents. The former City Manager then reconunended that the Stadium Manager could create a c~iffe~°ent marketing plan — in which we could provide City Staff with confidential information, 4900 Marie P. DeBartolo Way I Santa Clara, CA 95054
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because the City Attorney has worked out a way to keep the information from becoming public. We don't believe that. Much of the damage to the Stadium's event business is precisely because City Staff and Mayor Gillmor intentionally publicized confidential information.
The consultant opined that weekend concerts are rare and curfews kill deals. This Board already fixed that problem earlie7~ this year. The eliininatioii of the M ayor's music ban has allowed us to bring concerts back to Levi's Stadium. We have already ai~~ounced three concerts for the upcoming year, and are targeting at least one more this year.
Furthermore, the cost estimate of $10,000 in the City Staff report is woefully inadequate.
It excludes the cost of City Staff (who are billing time at approximately $200 per hour) and it excludes the cost of the 49ers staff who would be asked to work on this project.
Adding those costs to the consultant's fees will easily triple the cost of this project.
Finally, the entire premise for this assessment of the Marketing Plan was the false narrative pushed by Mayor Gillmor and the former City Attorney and City Manager that the decline in profits from Non-NFL Events was due to some deficiency in the M arketing Plan.
Recommendation: Reject the suggestion by City Staff to spend any more time on this project.
Sincerely,
Larry MacNeil
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