Why Carl DeMaio’s “No Tax” Stadium Plan Doesn’t Work

This plan is the equivalent of this:

However, there are a few ideas this plan has which are interesting, in a divorced-from-reality, imagine a better world, shared economy utopia kind of way. So, let's unpack the plan and discuss some of the ideas before this plan is taken behind the woodshed.

If you wish to review the plan in its entirety, click here.

What's In The Plan?

Here are the potential financing sources, taken from Page 8 of the Plan:

• FanLord Stadium Shares $300M.
• Boutique Hotel Development Partner $200M.
• Retail Development Partner $300M.
• NFL (via G4 Loan and Extra Grant to the Chargers): $300M.
• Chargers (Investment or Lease): $150M.
• Naming Rights: $150M.
• SDSU/UCSD Football and Soccer (Investment or Lease): $125-200M.
• Port of San Diego Lease: $100M.
• Enhanced Infrastructure Financing District: $50M.

Ok, let's unpack some of these ideas, remaining in the abstract:

The FanLord Stadium Shares are a fascinating concept. In essence, the concept pushes Personal Seat Licenses one step further and confers upon the seat owner an actual ownership stake in the stadium, with proportional revenues to the owner based on the amount invested. I really like the concept of fan equity in the stadium, not least because those with more interest are shouldering the financing burden, but also sharing the benefits.

I think the idea of a boutique hotel, where suites get double duty as hotel rooms and luxury boxes is a fascinating concept and could be quite lucrative in a stadium - provided you can solve the security issues inherent in the concept. And it steals the joint-use facility concept of shared infrastructure and pushes it to a logical conclusion - hotel clubs and bars are open to the public during the week and used by fans during the games. As the plan points out, it's an extension of the idea used at Toronto's Skydome. I think you may see an idea like this 20-30 years from now when the next round of stadiums start getting built.

Retail Development along the outside / street front of the facility is a smart idea, as placing shops, restaurants, bars, nightclubs, and the like are smart ways to ensure the facility generates tax revenue on a year-round basis, although it could be persuasively argued the tax money isn't new money - rather, shifted tax money. However, in fairness to the Chargers, their initial concept drawings (slide 6) already suggests a similar concept for their facility.

Now, for Reality's Cold Bucket of Water:

This plan is dead-on-arrival, for a number of reasons. Let's start with these:

The Chargers and the NFL will not surrender Naming Rights. Naming Rights are considered team revenue, as NFL Vice-President Eric Grubman made clear to the Citizen's Stadium Advisory Group in April 2015. Period. End of Discussion. NFL Ownership would veto this financing concept even if the Chargers approved it.

One key question for the FanLord Stadium Shares in regards to revenues, and the higher-end estimates for $525M to $1300M. Does this plan involve the NFL and/or Chargers sharing revenues with FanLords? If the answer is yes (and it would have to be, based on those projected revenues in the plan), then the idea is a non-starter as a legitimate funding source. The NFL, and the Chargers (and SDSU, UCDC, USD, MLS for that matter) are not going to share their gameday revenues with anyone besides themselves, proportional to investment or otherwise. That means the FanLord Stadium Shares would derive limited revenues from events which a) fall outside of any sports league, and b) don't generate the added-value to justify the cost. So, you're essentially left with a PSL. With that in mind...

The comparison of markets between the Bay Area (Levis' Stadium) and San Diego are ludicrous. The San Francisco 49ers sold $531M worth of PSLs. This kind of PSL revenue is possible in large, corporate driven markets (such as New York, Los Angeles, Chicago, the Bay Area, and Dallas) precisely because of the available disposable income. The Bay Area is not only the home of the Tech Industry, but San Francisco is one of the hubs of banking and financing on the Pacific Rim. As a market, San Diego compares more closely with Baltimore and St. Louis, due to the lower corporate base and fewer Fortune 500 companies. I think it's also important to add that Levi's Stadium opened at a time when the 49ers had appeared in 3 consecutive NFC Championship Games, and demand for tickets was much higher. In a post I wrote last year, I estimated the Chargers could generate between $100M-$150M in PSL revenue.

Other annoyances with the No-Tax Plan, and its Author:

One more point about market size. The study indicates (page 14) that the Chargers and 49ers have a comparable fan base of 3.5 million. I am skeptical. In October of 2013, I studied the fixed seating size of a stadium to fit the San Diego market, and compared San Diego to other markets. According to the data from that post, the Bay Area is a market of about 8.4 million people. And while it's true that not everyone in the market is a 49ers fan, it's reasonable to expect that there are certainly more than 3.3 million 49ers fans in the Bay Area alone, not to mention other parts of Central and Northern California.

San Diego does not need a stadium with a total capacity of 83,500 people (Page 36). How on Earth are you going to create enough view space for 15,000 standing-room only patrons with clear views? And then expect someone to pay up to $20,000 for a (already shown to be nearly valueless) FanLord account with standing room access only? The post mentioned in the previous paragraph found the ideal capacity for a stadium was about 63,000, based on 15 years' worth of attendance at Qualcomm Stadium. This smacks of desperation to generate additional revenues to make the plan more attractive.

So, this plan seriously expects for the Mayor and City Council to line up multiple investors for the hotel and retail elements of the plan, determine one of three sites, and craft a companion initiative to follow the general election with a special election by mail 1 week later? Ummm, sure. Not to mention... since when has the Port Authority ever expressed interest in sharing any part of the 10th Avenue Marine Terminal, let alone contributing $100M to a stadium project?

How do you drive $300 million in retail development without building a huge shopping center inside the building? And how does that work anywhere but the one place the Chargers have already said they don't want to be?

*Nothing in the Chargers' Citizen's Initiative cancels the contiguous Convention Center Expansion (Page 6). Yes, the funding would go to an off-site expansion, as it would in the competing Citizen's Plan. As far as that point is concerned, both Initiatives leave it to the City to decide if they wish to continue pursuing the contiguous expansion plan and finding a funding mechanism for it.

The Chargers are as aware as everyone else of the difficulty of passing a 2/3rds vote for a tax increase. That wasn't necessarily by choice; it was because they believed it to be the best available option. That's why they selected the Transient Occupancy Tax (TOT) - precisely because it would have the lowest impact on residents. It also provides for financial certainty, while the guesstimates of untried financing elements in this plan don't.

As for Mr. DeMaio himself... You were a single-term member of the San Diego City Council from 2008 until 2012. Former Mayor Jerry Sanders began investigating other cities for ideas back in 2011. You unsuccessfully ran for Mayor in 2012 against Bob Filner. You narrowly lost a Congressional seat to Scott Peters in 2014. The stadium question had been bedeviling San Diego for more than a decade before you took public office. Here's my question... where were all of your innovative stadium ideas during the time when it could have actually made a difference? Issuing this plan now smacks of political grandstanding and cheap diversionary tactics meant to confuse the electorate come November.

In Closing

Some of the ideas are interesting, but as long as the existing public-private swindle financing model exists for smaller and medium size markets, this plan is a total non-starter. People in San Diego need to come to grips with the truth that if you want the NFL in your city, you are playing by the NFL's rules.

This plan reeks of either a) a desperate attempt by a former elected official to opportunistically push himself into the limelight while contributing almost nothing of real value or b) yet another attempt by the San Diego political establishment to sew confusion in the electorate in hopes of stopping a plan they don't like.

Author's Note: Paragraph denoted with * has been corrected from the original version (h/t to Cory Briggs).