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Why the window closing for a Chargers stadium deal in 2015 isn't a bad thing

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It should be completely obvious to everyone that no stadium deal will be reached to try and keep the Chargers in San Diego during 2015 or early 2016. The question is whether downtown is the ONLY option the Chargers will accept.

San Diego's proposed stadium in Mission Valley
San Diego's proposed stadium in Mission Valley

I said this back in May, and I said almost 2 months ago: San Diego should be playing for 2016.

Until a decision is (officially) made regarding which stadium site will be selected – Inglewood vs. Carson – there is simply no reason for the Chargers to trouble themselves with trying to make a deal in San Diego.

That hasn't stopped San Diego from trying to make a deal happen for the end of 2015, which the Chargers (rightly) refused to consider because of the legal risk involved with signing on to a project with an expedited Environmental Impact Report (EIR). The window for that deal closes (more or less) on Friday.

Let's dispense with the suspense. That window will close, San Diego's all but non-existent option for 2015 will disappear, and we'll be playing the waiting game along with St. Louis and Oakland.

So, if nothing happens this year, what are the potential stadium options for 2016?

Convention Center Update

An eagerly awaited report regarding the San Diego Convention Center was released last week, and its findings indicate that the best convention option for San Diego would be to pursue a contiguous expansion of the existing facility along the waterfront.

I'm not going to get into the details of the Convention Center Report, as that is beyond the scope of this article. I recommend this article by Scott Lewis of Voice of San Diego for an in depth–examination.

In summary, a contiguous expansion of the current Convention Center provides a higher return on investment and makes large conventions (i.e. Comic-Con) more likely to stay than would a Convention Center annex located a few blocks away, tied to a stadium or not.

However, we should talk about the results of the report's release, and what it means for the Chargers.

Once the report was released, Mayor Kevin Faulconer wasted no time in stating he would pursue the contiguous expansion, and a raising of the Transient Occupancy Tax (TOT) to pay for it. Passing that tax will require a two-thirds supermajority to pass.

This likely spells the end of the Chargers/JMI proposal to build a combined convention center stadium (Convadium) just east of Petco Park.

Downtown Was Mostly About TOT Revenue

Back in June, I wrote a post explaining why TOT money was probably required to pursue the Convadium. My estimated cost of the facility was $1.79 billion dollars (almost $100 million more expensive than the proposed Carson stadium project, in fact). This estimate included construction, contingency, purchase of the land, and removal of the MTS bus yard.

Neither the Chargers nor the City of San Diego could pay for that facility out-of-pocket. The primary reason this was the Chargers' preferred option was because they felt this was the best opportunity to get a new stadium in San Diego. The location had to be downtown, because it had to have convention space and it had to be in close proximity to the existing convention center to even warrant consideration for TOT revenue.

From the Chargers' perspective, this was a good sell to the public. It allowed them to market the facility as more than a football stadium, and something which could generate year-round use. Also, it wouldn't face the legal opposition that a contiguous waterfront expansion might. Kill 2 birds with 1 stone.

Needless to say, the contiguous convention center crowd has been non-plussed by the idea, and likely would have considered it only if they'd been presented with no alternative. Furthermore, as the industry which generates TOT revenue in the 1st place, hoteliers are going to demand more input over how that revenue is spent.

So, going back to what I wrote in January: status quo. San Diego's current political establishment (i.e. elected officials + moneyed interests) still sees a stadium and convention center as separate projects.

One last point about downtown which proves it was always about the TOT revenue. JMI, as part of the facility study, did a write-up of a stadium only (refer to Scenario D) at the same location as the proposed "convadium." See Figure 1 for an image of the downtown stadium-only.

dt stadium only
Figure 1 - The Downtown Stadium-only design by JMI Realty

Here's the cost estimate:

Downtown Stadium Plan costs (stadium only)
Downtown Stadium Plan (in millions)
*Construction $1,058
Contingency $98
Relocate Bus Yard $150
Land Purchase $100
*Total $1,406

Now, I'd like for you to take a look at this comparison between downtown and Mission Valley, for a stadium only.

Downtown (Stadium Only) vs Mission Valley Costs
Stadium Plan (in millions)
Downtown Stadium Mission Valley
*Construction $1,058 $876
Contingency $98 $131
Soft Costs N/A $93
Relocate Bus Yard $150 N/A
Land Purchase $100 N/A
*Total $1,406 $1,100

Takeaways:

  • The city's current Mission Valley proposal saves *$300 million over any downtown option.
  • A separate convention center expansion of $549 million and a new $1.1 billion stadium is still LESS expensive than the convadium concept, by about $120 million.
  • Given enough time to do a full Environmental Impact Report (EIR) for a November 2016 vote, the option of selling land at the Qualcomm site to both raise revenue and allow for additional development is available.
  • Construction could start in 2017 in Mission Valley. Construction downtown probably doesn't happen until 2019 or later.

Am I the only person who thinks that if this were purely about location, the Chargers would be pushing the stand-alone stadium downtown and not picking political fights with the hotel lobby and elected officials over the convadium concept?

With some redevelopment of the Qualcomm site, the Chargers can make money off parking and any additional construction on that site, as opposed to losing at least some of those revenues by moving downtown. These points were made by former CSAG Spokesman Anthony Manolatos, in an interview with Scott Kaplan and Billy Ray Smith on Mighty 1090.

On the flip side, downtown provides higher visibility (in terms of business and advertising, which likely means higher advertising revenues) and probably increases the value of the franchise by a small amount over a stadium located in Mission Valley.

Lastly, members of CSAG and local public officials (including Faulconer and County Supervisor Ron Roberts) have repeatedly said that the Chargers were agnostic on location, so long as the plan was viable.

The question is really this: is downtown such a better location for the Chargers that it's worth waiting at least an extra 2 years and spending an extra $400 million?

Based on all of the information above, I submit the problem with Mission Valley isn't the location. The problem is the same as it's been throughout this process, regardless of location: time.

By the Way, Mission Valley Doesn't Preclude TOT Revenue

Let's suppose, for arguments' sake, the Chargers refuse to commit to a financing plan that doesn't involve TOT revenue. Given the initial comments Chargers Special Counsel Mark Fabiani made to CSAG, that's at least a possibility.

The upshot for the Chargers is that TOT revenue is a consistent, guaranteed revenue stream from which to draw from, which doesn't impact the General Fund or any other city services. The downside, obviously, is that it requires a two-thirds vote to access it.

So, if that's what the Chargers really want, and the only way the Chargers think they can get public money is to be tied into the Convention Center expansion, here's a suggestion for the City:

Instead of raising the TOT only for the Convention Center expansion, the Chargers should tell the city to seek a Special TOT increase to create a Sports and Convention Fund (SCF). A SCF creates a permanent replenishing fund from which the city can fund any number of projects, including convention center expansions or improvements, new stadiums (football, and soccer), improvements to existing facilities (baseball), paying off old debt on old facilities (Qualcomm) and potential new basketball/hockey arenas.

I'll reiterate this from my post in June...

The current TOT is set at 10.5%. 5.5% goes to the General Fund, 4% goes to Tourism Promotion, 1% goes to the City Council, to use at their discretion. The total amount generated by TOT in FY 2015 came in at $176.3 million. FY 2016 is projected to see a total amount of $191.4 million generated.

I propose we raise the TOT from 10.5% to 14%, while eliminating the Tourism Marketing District surcharge of 2% - this is an illegal tax and needs to be stricken. The additional 3.5% would be dedicated exclusively to the SCF.

Based on the FY 2015 numbers, this increase could be expected to generate $1.76 billion over 30 years. That number goes up to $1.91 billion over 30 years if you use the FY 2016 numbers.

For our immediate purposes, after paying for the $549 million Convention Center expansion, there's still at least $1.2 billion left over from which to fund a stadium.

It allows the City more flexibility in Mission Valley stadium negotiations. The table below shows the difference in financing between a plan without the SCF, and then with the SCF.

Table 3
MV Negotiated Financing Plan (in millions) - No SCF
Public Funding City
via Lease Revenue Bonds
$225
County
Cash
$150
Land Sale
75 acres
$225
Private Funding Chargers $200
NFL
via G4 Stadium Loan
$200
Personal Seat Licenses
PSLs
$100
Totals Public $600
Private $500
Sum $1,100
Table 4
MV Alt Negotiated Financing Plan (in millions) - With SCF
Public Funding City
via SCF
$550
County
Cash
$150
Private Funding Chargers $200
NFL
via G4 Stadium Loan
$200
Personal Seat Licenses
PSLs
$0
Totals Public $700
Private $400
Sum $1,100

Let's not forget annual operations and maintenance. Based on Qualcomm's current annual operating costs, this would come out to $360 million over 30 years.

Without the SCF, at least some amount of annual maintenance costs and capital improvements would fall on the City's shoulders. There's also interest to pay on the Lease Revenue Bonds.

Using the SCF plan, Capital Improvements could be split 50/50 with the team, while the Chargers are on the hook for annual maintenance, which would split the 30 year cost almost evenly. Further, the SCF means there's money to use, instead of capital improvements requiring finding additional money, such as the 1995 Qualcomm expansion. SCF money could also be used to retire the Qualcomm expansion debt.

While this SCR proposal does require a two-thirds supermajority, it still kills 2 birds with 1 stone.

If the Chargers really want downtown as a location, there's probably enough SCF money to pursue that option, as long as the Chargers are also willing to commit more money to the project.

The General Fund is not impacted, and other city services are not impacted. Best of all, the people of San Diego don't ever have to worry about how to pay for this stuff again.

Lastly, such a proposal creates a unified front between the hoteliers, convention center boosters, Chargers, and elected officials. That's a lot of combined campaign potential, which would be necessary to pull off a two-thirds vote.

In Closing

There will be no vote on a stadium in 2015 or early 2016. This is a benefit for San Diego, as it allows them to put a more concrete plan on the table, with the certainty the Chargers, NFL, (and possibly another franchise or two) are looking for. This will be the pitch San Diego makes to NFL Owners in October.

I think the Chargers only claim to want downtown because they think the convadium concept gives them a better chance of capturing TOT revenue. However, the City's decision to pursue the contiguous Convention Center expansion all but kills the concept.

Otherwise, Mission Valley is likely a better location for a stadium. It's significantly less expensive for everyone involved, and it can get built sooner.

However, if the team is intent on capturing TOT revenue, a possible solution would be to press the Mayor to create a Sport and Convention Fund, which allows San Diego to fund any convention center and/or sports related projects into the foreseeable future.

Assuming the Chargers don't go to Los Angeles in 2016, it will be very interesting to see just how badly the team wants to go downtown.

-Author's Note. This post was corrected on 10/6/15 due to errors in the downtown stadium cost calculations. Corrected items are identified with an asterisk (*).