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There's been a lot of debate on what kind of proposal the San Diego Stadium Advisory Group (Stadium Group) will come up with later this year. The Stadium Group's mission is to find a stadium solution which is fair to taxpayers and keeps the San Diego Chargers in San Diego for the long-term.
This will be difficult, as stadiums have become incredibly expensive, and provide only a modicum (at best) of return on investment for taxpayers, while providing a huge economic boost to the team ownership through increased franchise value, advertising and naming rights, concessions, and most importantly - club and luxury seating.
When the Stadium Group meets with the Chargers on Monday, these are the issues to be discussed. In an (admittedly simplistic and likely futile) attempt to help both parties out, here are the options as of right now, as I see them.
Going forward, all of the options below are going to work under the following assumptions:
- New Stadium Cost: $1 billion.
- Chargers and NFL Contribution: $400 million. $200 from Chargers and $200 million via NFL's G4 Stadium Loan Program.
- Public Contribution: $600 million.
- New Stadium Capacity: 62,000.
- 8,000 club seats.
- 112 Luxury Boxes
- 52,000 General Admission seats.
Option One: Raising Taxes to Pay for a Stadium.
The simplest way for the City of San Diego (City) to pay for a new stadium is to raise taxes in order to cover the public contribution. However, California law requires a 2/3rds supermajority vote to pass any tax increase for specific purposes.
In light of the extreme difficulty of passing a tax increase, the best tax to target in San Diego is the Transient Occupancy Tax (TOT), which is applied to persons staying at hotels and resorts for a limited (i.e. less than 30 days) time. The current TOT tax is set at 10.5%, which is lower compared to many other cities in the United States.
According to the City's proposed FY2015 budget, the City receives $174 million in revenue from the TOT. Of that $174 million, only $91.14 million reaches the General Fund. Without impacting other services, and assuming an added cost of about $20 million/year over 30 years, the TOT would have to be raised from 10.5% to at least 14% to completely cover the public cost of a new stadium.
In addition to general public anathema to raising taxes for anything, this proposal would find bitter opposition among hoteliers, who would much rather see any increase in the TOT be put towards a contiguous Convention Center expansion, which is expected to cost between $550-600 million.
While I suppose it could be done (in this sense that nothing is impossible), I think the odds of anyone pulling off this type of campaign is somewhere between Han Solo successfully piloting the Millennium Falcon through an asteroid field and winning the Mega Millions lottery.
Option Two: Other Revenue Sources to Cover Public Cost
If we're choosing to eliminate the tax option, the next option is to figure out how the public can recoup its investment. In this area, i should note that a partnership between the City and County of San Diego (County) - hinted at by County Supervisor Bill Horn in this interview with KPBS - could help to reduce the risk for either the City or the County.
This could get a bit complicated, but let's crunch some numbers.
Considering the NFL will contribute $200 million with the G4 loan, we're left with $800 million left to raise. Since we know the Spanos family doesn't have $200 million to give up front, and the City and/or County don't have $600 million laying around, let's take a look at how revenue can be generated and / or shared in a (fairly) reasonable way.
Here are some revenue sources.
- Naming Rights.
- Luxury Suite Sales.
- Personal Seat Licenses (PSLs).
- Public Property Sales.
- Other. This would include any parking fees, advertising rights, concession rights, etc.
| Revenue Source | Chargers | Public | Total | Revenue Split |
|---|---|---|---|---|
| Amount to contribute | $400,000,000.00 | $600,000,000.00 | $1,000,000,000.00 | |
| Naming Rights | $50,000,000.00 | $150,000,000.00 | $200,000,000.00 | Chargers 25 / Public 75 |
| Personal Seat Licenses | $36,500,000.00 | $109,500,000.00 | $146,000,000.00 | Chargers 25 / Public 75 |
| Luxury Suites (10 years) | $91,500,000.00 | $91,500,000.00 | $183,000,000.00 | Chargers 50 / Public 50 |
| Property Sale | N/A | $249,000,000.00 | $249,000,000.00 | |
| Other | $22,000,000.00 | N/A | $22,000,000.00 | |
| NFL G4 Stadium Loan | $200,000,000.00 | N/A | $200,000,000.00 | |
| Totals | $400,000,000.00 | $600,000,000.00 | $1,000,000,000.00 |
- 3,000 of 4,000 Club Seats x $12,000 per PSL = $36 million. These are the best Club Seats.
- 3,000 of 4,000 Club Seats x $ 9,000 per PSL = $27 million. These are the remaining Club Seats.
- 24,960 of 33,280 General Admission Seats x $2,500 per PSL = $62 million. These are the lower level and between the 20s' seats.
- 14,040 of 18,720 General Admission Seats X $1,500 per PSL = $21 million. These are the upper deck and end zone seats.
- 61 Best (i.e. inside the 20s, on the field, etc.) Suites: $175,000 per year x 10 year lease = $107 million.
- 61 Other Suites: $125,000 per year x 10 year lease = $76 million.
- All Luxury Suite leases revenue after the initial 10 year term goes to the Chargers.
Option Three: Sweetheart Lease and Minimum Public Contribution
This is the deal most open to speculation, and probably the hardest to secure. However, it's probably the best route to success.
A Sweetheart Lease would essentially lease the Qualcomm and / or Sports Arena sites for pennies on the dollar. In exchange, the Leasing Company (or Coalition, including the Chargers) would develop the chosen sites (likely Qualcomm and the Sports Arena) with a combination of Commercial and Residential properties to coexist with a new Stadium.
This is the route being pursued by Stan Kroenke in Inglewood, and apparently has been pitched by "someones" called the San Diego Stadium Cooperative Commission to Redevelop the Qualcomm site.
In this scenario, the Public would be asked only to fund infrastructure improvements, such as access roads, pedestrian access, trolley / transit improvements, and some environmental improvements in and around the stadium site. The linked to proposal for the Qualcomm Site suggests a Public cost of about $150 million, with the project total reaching $2.2 billion.
Other Concerns
One other critical element to be decided is the Environmental Impact Report, which usually takes about 12-18 months to produce findings. According to this article from Voice of San Diego, there is question about whether the City can even begin this process until a stadium site is selected.
If the answer is no, and the Stadium Group doesn't release its final plan until September 2015, there's no way a vote can take place until Fall 2017 at the earliest - which may be too late for the Spanos family in regards to Los Angeles.
Aside: I recommend this podcast with VOSD's Scott Lewis and Chargers' Special Counsel Mark Fabiani regarding Stadium Issues.
Final Thoughts
Because neither the City, County, or Chargers have the money to build their own stadium, there's no perfect solution. Only a few imperfect options. One option places the burden largely on San Diego's tourists, but requires 2 out of every 3 voters to agree on. The second option makes a stab at sharing the cost and the revenue between the public and the Chargers. The third option requires a developer with a sense of adventure and vision to execute, in a market which historically has shown little of either.
Feel free to take the poll and let us know which of the 3 options (if any) you like the best.
Author's Note 1: Thanks to both the Chargers and City of San Diego for creating the Stadium Information and Research Page, and making all the documents contained therein available to the public for review and use.
Author's Note 2: I realize many of you are ideologically opposed to any use of taxpayer money to build a stadium for a privately owned sports franchise. The simple truth is that the odds of a deal getting done without any use of public money are infinitesimal. The focus of this post has been to find a revenue neutral (or better) way for public investment in a stadium to work out for the public.