REPORT TO CITY COUNCIL AND STADIUM AUTHORITY BOARD
SUBJECT
Title
Action on Amendment No. 2 to the Ground Lease, and Amendment No. 1 to the Restated and Amended Stadium Lease, to Implement the Settlement Agreement and Mutual Release (Buffet and Public Safety Cost Arbitration) with Forty Niners SC Stadium Company LLC and Forty Niners Stadium Management Company LLC, and Approve Related Budget Amendments
Report
COUNCIL AND BOARD PILLAR
Ensure Compliance with Measure J and Manage Levi’s Stadium
EXECUTIVE SUMMARY
After many months of negotiations, at the recent May 20, 2024 Closed Session, the Santa Clara Stadium Authority Board and City Council accepted terms for settlement of longstanding disputes with the 49ers over Stadium Authority obligations to reimburse the 49ers for “buffet costs” for certain NFL game ticket holders, and to reimburse “public safety costs” paid by the 49ers to the City above a contractual public safety costs “threshold”. Council/Board action included direction to the Authority Executive Director/City Manager to finalize and execute a Settlement Agreement consistent with those terms in a final form approved by the Authority Counsel/City Attorney. That agreement was finalized and executed by all parties on May 23rd. A copy of the agreement was provided to the public that same evening.
Tonight’s item presents for Authority Board and City Council consideration two lease amendments that are necessary to implement a number of the key terms in the Settlement Agreement. The first lease amendment is to the Stadium Lease between the Stadium Authority and the 49ers entity known as “StadCo.” The second lease amendment is to the Ground Lease between the Stadium Authority and the City which owns the Stadium property. Authority Board/City Council approval is also sought for delegation to the Executive Director/City Manager to amend any other agreements required to implement the Settlement Agreement. Finally, approval is also requested for the necessary, related budget amendments.
In order to provide the public with an understanding of the context for these actions, this staff report first presents a brief history and summary of the terms for the development and operations of Levi’s Stadium. A brief history and summary of the public safety costs and buffet costs disputes is then provided, followed by a summary of the terms in the Settlement Agreement that resolve these disputes. Finally, the terms for the required lease amendments and budgetary actions are presented.
BACKGROUND
On June 8, 2010, Santa Clara voters approved Measure J which provided for the development and operation of a stadium suitable for professional football games and other events on City-owned property and called for the creation of the Santa Clara Stadium Authority (Stadium Authority), a joint powers authority. Measure J’s terms include, but are not limited to, the following pertinent terms:
• The City of Santa Clara (City) shall not use or pledge any money from the City’s general fund or enterprise funds for the development of the stadium.
• The ground lease shall require payment by the Stadium Authority to the City’s general fund of fixed base rent totaling $40,875,000, in nominal dollars, over the initial forty (40) year term of the ground lease, with annual fixed base rent commencing in the first year of stadium operations and increasing periodically over the term of the ground lease to a minimum of $1,000,000 beginning in the eleventh (11th) year of stadium operations.
• In addition to the fixed base rent, the ground lease shall require payment by the Stadium Authority into the City’s general fund of performance-based rent which, together with the fixed base rent, the City Council has determined is projected to provide fair market rent to the City. Performance-based rent shall be pursuant to a formula that provides for sharing of the revenues less expenses of non-NFL events at the stadium.
• Neither the City nor its Redevelopment Agency shall be liable for the obligations of the Stadium Authority, including operating and maintenance expenses of the stadium.
• The private tenant’s lease shall require the private tenant to pay rent to the Stadium Authority that will provide the Stadium Authority with funds to pay the ground rent and operating and maintenance expenses of the stadium.
• For the first season of NFL Games at the Stadium, Public Safety Costs attributable to NFL Games, including a charge for capital expenditures, will include a “Threshold” of $170,000 per game. The Threshold increases every year by 4%. Public Safety Costs attributable to NFL Games that exceed the Threshold will be reimbursed by Stadium Authority from its Discretionary Fund or through “Credits” which reduce Performance-Based Rent payments to the City.
• If Public Safety Costs attributable to NFL Games exceed the Threshold for 3 consecutive seasons, the Parties may engage in good faith negotiations with respect to a possible increase in the Threshold, however, 49ers will not be obligated to agree to any increase.
• The ground lease shall require that following the opening of the stadium the City shall receive, in addition to the ground rent, a fee equal to thirty-five cents ($0.35) per ticket on each ticket for professional football games in the stadium up to a maximum of $250,000 per year (the “senior and youth program fee”). The senior and youth program fee is to be used for City programs for parks and recreation and libraries, such as senior activities and the youth championship team fund.
On March 28, 2012, the City and Stadium Authority entered into a Ground Lease that provides the Stadium Authority, as the Tenant, the exclusive right to use the Stadium Site (i.e., the ground under Levi’s Stadium) for the development and operation of the Stadium for the hosting of NFL games and other events, use and permit Forty Niners SC Stadium Company LLC (StadCo) to use the Stadium Site for the permitted uses outlined in the Stadium Lease Agreement for an initial term of forty (40) years. The Ground Lease requires the Stadium Authority to make Fixed Ground Rent and Performance Based Rent payments to the City, among other things. The City and Stadium Authority amended the Ground Lease on June 19, 2023, to modify certain definitions and terms.
On June 19, 2013, the Stadium Authority entered into a Reinstated and Amended Stadium Lease Agreement (Stadium Lease) with StadCo as the Tenant to use and occupy Levi’s Stadium for the operations of an NFL franchise for an initial term of forty (40) years. Per the terms of the Stadium Lease Agreement, StadCo leases the Stadium from the Stadium Authority for half of each fiscal year and is responsible for the Stadium Manager’s operating expenses during that period.
Through the Stadium Management Agreement (Management Agreement), the Stadium Authority and StadCo each engaged Forty Niners Stadium Management Company LLC to act as the Stadium Manager and to provide management services for the Stadium on its respective behalf in accordance with the Stadium Lease, including oversight of the day-to-day operations and maintenance of the Stadium. The Management Agreement also provides the Stadium Manager the responsibility of handling the marketing and booking of Non-NFL Events at the Stadium on behalf of the Stadium Authority.
In addition to the Management Agreement, the Stadium Authority and StadCo also entered into a Stadium Operations Agreement with the Stadium Manager which outlines Stadium operational terms including, but not limited to, procedures for scheduling Stadium events; the preparation and approval of the annual Stadium Operation and Maintenance Plan, Annual Shared Stadium Expense Budget, the Annual Stadium Capital Expenditure Plan and the Annual Statement of Stadium Operations; procurement guidelines; and rules and regulations regarding Stadium access by Suite licensees of their Suites and Premium Stadium Areas.
For reference, the table below shows the different stadium entities and roles:
There are many other Stadium Authority agreements that are connected to operations and financing of the Stadium that are not discussed above, but the agreements discussed above as well as some additional documents that are pertinent to day-to-day operations at the Stadium are available for reference on the Stadium Authority website at <https://www.santaclaraca.gov/our-city/santa-clara-stadium-authority/leases-and-agreements>.
49ers and Stadium Authority Litigation Disputes
Disputes over the interpretation and implementation of a number of terms in the various Stadium agreements and the parties’ actions related to the management and operations of the Stadium occurred over a four-year period, 2014-2019. Issues under dispute included accounting transparency, procurement procedures, fiscal and operational management of non-NFL events, and public safety and buffet costs calculations and payments. These management and operations disputes led to a 2019 Superior Court lawsuit and also arbitration proceedings between StadCo, Stadium Manager and Stadium Authority. Separately, in June 2019, StadCo initiated the Public Safety Costs Arbitration, which was followed by the Buffet Costs Arbitration in September 2020. The City is not a party to the arbitration claims.
Since 2018, because of the pending disputes, Stadium Authority has not reimbursed StadCo any NFL Public Safety Costs. That resulted in Performance-Based Rent to the City during this time period also being put on hold until the disputes were resolved. Starting in Lease Year 2021/22, an estimated amount of what could be Performance-Based Rent to the City (that might also be needed to pay StadCo for Public Safety Credits depending upon the outcome of the pending disputes) was held by Authority as a Legal Contingency Reserve. Separately, because of the pending disputes, Authority also did not pay StadCo eight of ten years worth of claimed Buffet Costs. Starting in Lease Year 2021/22, Stadium Authority also held in its Legal Contingency Reserve the claimed amounts of Buffet Costs that would have been due to StadCo.
On August 31, 2022, the City, Stadium Authority, StadCo and Stadium Manager reached a settlement agreement that resolved the management and operational disputes claimed in the 2019 Superior Court lawsuit and arbitration claims. Notably, however, that settlement did not resolve the Public Safety Costs and Buffet Costs disputes and arbitrations. Instead, as part of the settlement, the parties agreed to “stay” (put on hold) the arbitration proceedings for the Public Safety Costs and Buffet costs disputes to give the parties the opportunity to resolve those claims. While resolution efforts were ongoing, the parties agreed that no interest would accrue on the parties’ claimed amounts or balances due.
Background of Public Safety Cost Dispute (NFL events)
The existing contracts between the parties require that the City provide public safety services for stadium events. StadCo, in turn, is obligated to reimburse the City in full for all such costs for NFL events. As provided in Paragraph 7.5.2(a) of the Stadium Lease, “StadCo is obligated to pay city actual and reasonable public safety costs.” Public safety costs include police, fire, traffic management, and parking support.
To the extent the public safety costs for NFL events exceed a contractually determined “Threshold,” StadCo is contractually entitled to be reimbursed the costs over such Threshold by the Stadium Authority, either through payments out of the Stadium Authority’s “Discretionary Fund” or through credits against StadCo’s future Facility Rent obligations. (Stadium Lease, Paragraph 7.5.3(a)) The Discretionary Fund is partially funded by non-NFL event ticket surcharges. (Stadium Lease, Paragraph 12.1.) Notably, any credits issued for public safety costs in excess of the public safety costs “Threshold” not only reduce StadCo’s payment of Facility Rent to Authority, they also reduce the amount of Stadium Authority’s Performance-Based Rent payments owed to the City by the Stadium Authority under the Ground Lease. (Stadium Lease, Paragraph 7.5.3 (a)) As noted above, these terms follow the terms of Measure J terms which establish a public safety cost Threshold and provide that costs that exceed the Threshold are to be paid from Stadium Authority funds. Importantly, the Public Safety Costs dispute is only related to NFL events. For Stadium Authority’s non-NFL events, the City is reimbursed by the Stadium Authority for public safety costs and there is no applicable Threshold.
The Public Safety Costs “Threshold” described above (as initially set in Measure J and in Stadium Lease Section 7.5.3 (b)) was set at $170,000 per game for the Stadium’s first NFL season (2014-15). Thereafter, it was set to increase at the rate of 4% per year. By the most recent (2023-24) football season, the Threshold had grown to $241,963 per game. The yearly threshold amount, which is calculated by multiplying the per game threshold by the total number of pre-season, regular season and post-season NFL games played at the Stadium during the lease year, is the aggregate number used to calculate the total threshold amount, and any public safety credits for that year.
On September 14, 2014, the 49ers hosted their first regular-season game at Levi’s Stadium. By the end of the first season, 2014-15, the public safety costs exceeded the $170,000 per game threshold by $75,514 per game.
Public safety costs in the subsequent eight seasons (seasons 2-9) also exceeded the threshold, with the exception of the seventh season, 2020-21, which was impacted by COVID (see chart below). In 2023-24 (season 10), public safety costs, estimated at $521,494 per game, are expected to exceed the $241,963 threshold by $279,531 per game (see diagram below). Under the terms of the agreements, this difference, from the very beginning and increasing over time, between the Public Safety Costs Threshold and the amount of actual public safety costs billed has had material adverse impacts on Stadium finances and the ability of the Stadium to generate Performance Based Rent for the City.
The Stadium Lease does provide for a process to adjust and increase the Threshold after any three consecutive years of public safety costs exceeding the threshold (Paragraph 7.5.4(b)). However, under the terms of the contract, after good faith negotiations, StadCo retains “sole discretion” as to whether or not to increase or not increase the Threshold. The appropriate interpretation, performance and enforcement of this provision has been at the center of the parties’ public safety costs dispute.
In 2017, Stadium Authority and City initiated the Threshold adjustment process under the Stadium Lease with StadCo requesting an increase in the Threshold starting in Year 4. Stadium Authority disputed StadCo’s negotiations and handling of this request for the Year 4 threshold adjustment which ultimately lead to the 2019 Arbitration filing by StadCo against the Authority. Stadium Authority and StadCo also had other disputes pertaining to the interpretation and obligations of related PSC Threshold terms in the Stadium Lease (such as off-site parking permit fees and Capital Expenditure depreciations).
Since 2019, StadCo has continued to fulfill its obligations to pay the City for public safety costs incurred by the City in providing security for NFL Games. However, in light of the pending disputes between the parties regarding the appropriate adjustment to the Public Safety Costs Threshold, over that same time period the Stadium Authority has not reimbursed StadCo for any such Public Safety Costs payments over that Threshold.
StadCo’s public safety costs claim against Stadium Authority for the period spanning years 4 through 10 (2017-18 through 2023-24) amounts to approximately $15.4M. This claim includes unresolved adjustments and fees that StadCo believes are owed under the terms of the agreements. Meanwhile, in light of the pending disputes over the correct amount of Public Safety Costs Threshold, and the related Performance Based Rent Credit amount that might need to go to StadCo, the City was not paid any Performance-Based Rent for years 2021/22 through 2023/24. Essentially, any Performance-Based Rent that might have been earned by the City during this time period could be negated by the accruing Public Safety Costs credits, hence the need for the creation of the litigation reserve, described in more details below.
Background of Buffet Costs Dispute
The Stadium Authority sells Stadium Builders’ Licenses (SBLs) on all seats within the stadium. SBL holders are required to purchase season tickets for each season (i.e., all season ticket holders are also SBL holders). The cost of an SBL depends upon the location of the seat as well as the benefits associated with that seat. There are approximately 942 Legacy SBL holders, which are more expensive SBLs, that provide the SBL holders with a complimentary buffet on game days. The initial sale of the Legacy SBLs generated around $75M for Stadium Authority. Because that access was “purchased” by the patron through their SBL, the cost of the buffet is allocated to the Stadium Authority in the Stadium Lease.
The Stadium Lease (Paragraph 4.6.1) provides that Authority will reimburse StadCo for the costs associated with the complimentary buffets provided to these SBL holders within 30 days of invoice. While SBL revenues are fixed, and resales and financing revenue decline over the lease term, the Stadium Lease does not contain provisions that cap, or provide Stadium Authority with any operational control over, buffet costs. Therefore, there is significant financial exposure to the Stadium Authority associated with the buffet costs. Projected buffet costs through the lease term, without a cap, can range from $70M to over $100M, with uncertain revenue sources to cover this expense.
For the first five years, StadCo did not invoice Authority for buffet costs and Stadium Manager did not include these costs in any Stadium Authority budget. 2019 was the first year StadCo invoiced Stadium Authority for these costs, which totaled approximately $4.39M. In 2020, Stadium Authority paid $1.39M for buffet costs related to the FY2019/20 season. In 2022, Stadium Manager paid through the Revolving Credit Agreement the $902K of buffet costs due for FY 201/22. (The parties’ disputes regarding Stadium Manager’s use of the Revolving Credit Agreement was resolved in the August 2022 Settlement Agreement; including no charge of interest to the Stadium Authority.) For years other than Season 6 and Season 8, due to the pending litigation, the Stadium Authority has not paid the full invoiced amount of accrued annual buffet costs. Currently, accrued buffet costs total $6.8M (see table below).
Funds Held in Litigation Reserve
Due to ongoing legal disputes, in 2021/22 Stadium Authority started to hold funds in a litigation reserve to offset accrued potential liability. The Finance department coordinated with the City Manager’s Office and the City Attorney’s Office to calculate the potential liability of the Stadium Authority, which is was estimated at $11.1M and reflects the current balance in the litigation reserve. The proposed budget amendments address, in part, the allocation of the litigation reserve funds to implement the terms of the Settlement Agreement.
DISCUSSION
On May 20, 2024, the Stadium Authority, City of Santa Clara, StadCo and Stadium Manager reached an agreement to settle the public safety and buffet cost disputes. This agreement was finalized on May 23rd, with a copy of the agreement released to the public that day. The Settlement Agreement is also attached here. This settlement concludes all pending litigation between the parties.
In addition to resolving disputes over the claimed prior balances (described above) for buffets and public safety costs, the settlement also takes a forward-looking approach to these issues with the aim of mitigating future disputes. To achieve this goal, the settlement restructures cash flows into the City’s General Fund, increases ticket surcharge revenue, increases the senior and youth program fee, and includes a mutual release of claims except as expressly reserved. Some of these settlement terms require formalization in amendments to the Ground Lease and Stadium Lease because they arise from disputes over existing contract terms, and modify the terms and processes set forth therein.
The actions before City Council and the Stadium Authority Board at this time are to Approve the Amendment No. 2 to the Ground Lease, and to Approve the Amendment No. 1 to the Restated and Amended Stadium Lease in order to implement the related terms in the Settlement Agreement. Delegated authority is also requested for the City Manager/Executive Director to make modifications to any related agreements among the parties that require conforming changes in order to implement the terms of the Settlement Agreement. In addition, in order to effectuate the transfer of funds currently in the litigation reserve and to make other related money transfers contemplated by the Settlement Agreement, certain budget amendments are also required.
As described above, in order to settle the outstanding disputes and simultaneously increase revenue and financial stability for the City and Stadium Authority Agreement, a number of settlement terms were negotiated. Such terms related directly to the disputes at issue, and went beyond. Many of these deal points must also be included in amendments to the Ground Lease and Stadium Lease. Each key required lease amendment term is discussed below.
Public Safety Costs Terms
Carryforward and Payment of Accrued Public Safety Costs Credits out of Excess Revenues.
Under the Settlement Agreement, the approximate settlement amount of $14.9M in accrued but unpaid Public Safety Cost Credits are partially paid down using approximately $3.3M in litigation contingency funds. The remaining $11.6M amount is redefined as the “Stadium Lease for Public Safety Costs - 2024 Outstanding Balance,” and will be repaid through new provisions added in Section 14.7 of the Stadium Lease. Specifically, this amount will be paid over time out of “excess revenues” that, under existing terms of the Stadium Lease, would otherwise have gone into the Stadium Renovation/Demolition Fund. The lease amendment provides a restructuring of the Stadium Lease “waterfall” provisions governing the distribution of “Excess Revenues”. Instead of 100% of excess revenues going into the Renovation/Demolition Fund until a $70M balance is reached, “Excess Revenues are now distributed 50% to the demolition reserve fund, 25% to repay the balance of the Public Safety Costs 2024 Outstanding Balance, and 25% available for distribution to the City’s General Fund. Once the Public Safety Costs 2024 Outstanding Balance is fully repaid, the waterfall will be restructured on an on-going basis with 50% of excess revenues to the demolition reserve fund and 50% available for distribution to the City’s General Fund. With these modifications, the City’s General Fund directly benefits by receiving “excess revenues” sooner during the lease term than otherwise projected. This restructuring is reflected in amendments to Paragraphs 14.7 and 14.8 of the Stadium Lease.
Increase in the Public Safety Cost Threshold.
Another key settlement term increases the Public Safety Costs Threshold starting in Fiscal Year 24/25 from $251k/game to $360k/game (an increase of approx. $108,000/game). Over the course of ten games, this increase would equate to an additional $1.09M in value. The existing 4% escalator remains in place. This is reflected in amendment to Paragraph 7.5.3 of the Stadium Lease.
Increase in the Non-NFL Ticket Surcharge.
The settlement also creates a new revenue source to address public safety costs that may exceed this new public safety cost threshold. The Non-NFL ticket Surcharge is currently $4 per ticket and, as explained above, Measure J and the Stadium Lease always provided that this Stadium Authority’s Discretionary Funded (which is partially funded by this surcharge) will be used to reimburse StadCo for public safety costs that exceed the threshold. Under the settlement agreement, this ticket surcharge will increase to $8 per ticket starting for events not yet booked in fiscal year 25/26, with a $1.00 escalator every four years thereafter. The Stadium Manager will consider further one-time increases on an event-by-event basis. The “new” additional surcharge revenue (“Additional NNE Surcharge Revenues”) will be used to reimburse Public Safety Costs that exceed the Threshold. Once these costs-over-threshold are repaid, the remaining new ticket surcharge revenue will be used first to fund a $2M Public Safety Costs offset reserve. If there are any remaining surcharge revenues, the parties will meet and confer to determine how to apply the monies. If no agreement is reached, any such excess funds will go into the Stadium Capital Expenditure reserve fund. These changes are reflected in amendments to Paragraphs 12.1 of the Stadium Lease as well as 8.4 and 8.5 of the Ground Lease. Using the current fiscal year 2024-25 projected budget for surcharge revenues as a reference point, this additional ticket surcharge could generate an additional $1.35M annually once all the non-NFL events in the fiscal year are subject to the new surcharge.
Modifications to the Performance-Based Rent Credits Formula.
The Settlement Agreement also modifies the existing formula for the payment of Performance-Based Rent to the City to make such payments more likely. Going forward, in any given year where there are sufficient Stadium Authority non-NFL net revenues, the City can now receive 50% of performance-based rent as if no public safety costs credits were applied. This is accomplished through modifications to the Stadium Lease. Under its existing terms, public safety credits that reduce performance-based rent are capped at 50% of non-NFL events' net revenue. Under the settlement agreement, the that cap will be reduced 25%. This lower cap can result in higher Performance-Based Rent to the City even when public safety credits are due. Deferred public safety credits are still carried forward and available to reduce StadCo’s future Facility rent obligations. This is reflected in amendment to Paragraph 7.5.3 of the Stadium Lease and 1.94 of the Ground Lease. In exchange, the City/Stadium Authority agree to modify the Facility Rent credit carryforward expiration date from 5 years to 10 years in Paragraph 1.95 of the Ground Lease.
Other Public Safety Cost Related Terms.
Lastly, some other public safety cost related settlement terms are not reflected in any amendments to lease terms. The Capital Expenditure (CapEx) depreciation expenses on Non-NFL events will not be deducted from Non-NFL event revenue on an on-going basis. This avoids a double-charge because the Stadium Authority already accounts for the full value of Cap Ex expenditures in its fiscal budget as a Stadium Authority expense. Next, the City will engage its consultant to assess the overhead calculation for double-badgers (e.g. temporary police officers employed by the City to provide necessary supplemental public safety services for NFL games). StadCo will be consulted regarding the scope of the assessment, but the City and its consultants will have sole discretion over the findings and the overhead to charge. If the City concludes that these overhead rates should be reduced, the reduction will become effective for the 2024/25 Lease Year. Additionally, StadCo has agreed to pay for cancellation fees as long as they are included as public safety costs under the Stadium lease.
It is worth noting that a number of fundamental public safety terms in the original agreements have not been altered by the Settlement Agreement or the Lease Amendments. These include:
-- StadCo remains obligated to pay the City its “actual and reasonable” public safety costs; and
-- Santa Clara Police Department will continue to determine public safety needs and make deployment decisions.
Buffet Costs Terms
The settlement of the Buffet Costs claims includes two components: (1) resolving the accrued buffet costs balance to date; and (2) setting a fixed payment of buffet costs going forward to limit Stadium Authority’s liability for these expenses and establishing an accounting and verification process. Only the second component requires an amendment to the Stadium Lease (Paragraph 4.6.1).
As described above, the Stadium Authority has not paid all of the buffet costs over the past few years, due to pending litigation. The 49ers’ claim against the Stadium Authority for accrued buffet costs through Fiscal Year 2023/24 totaled $6.8M. Through the settlement, the 49ers have waived this balance in its entirety. Stadium Authority’s obligations to reimburse buffet costs from Fiscal Years 2018/19 through 2023/24 is now confirmed as completed.
Going forward, Stadium Authority has confirmed its obligation to reimburse these Legacy SBL buffet expenses to StadCo. But starting on and after Fiscal Year 2024/25, these costs allocated to Stadium Authority will be fixed and limited, which reduces Stadium Authority’s financial liability and exposure. As referenced in the Background Section, the Stadium Lease does not include a cap or limit on Buffet Costs charged to the Authority. As a result of the settlement, Stadium Authority will now pay a flat fee of $90k per game for the buffet, with an increase of 3% annually.
Here’s a financial analysis on how this flat fee will help mitigate risks and reduce costs to the Stadium Authority on an on-going basis vs. the terms stipulated in the Stadium lease:
• Actual buffet costs have exceeded $90k per game in 6 of the last 9 years (no buffet provided in FY 2020-21 due to the pandemic).
• In the most recent season, the average buffet costs per game was $104.5K per game. This equaled a $1.2M Stadium Authority’s liability the for 12-games season.
• If there was a limit of $90K/game in the most recent season, the 12-games season would cost $1.1M. Authority would have saved $14.5K a game and $174K for the year.
As shown, actual buffet expenses for the past few seasons have been higher than the $90k a game fixed payment amount. Also, as part of the Settlement Agreement, StadCo provided a representation and warranty that all prior invoices were only related Legacy SBL buffet costs.
Nevertheless, the Settlement Agreement also provides Stadium Authority the rights to
initiate an accounting process to verify that the $90k per game flat payment obligation is not greater than actual buffet costs. The Authority also retains the right to audit such accounting. Based on that request, the 49ers will implement a system to track buffet expenses incurred for Legacy SBL Holders for NFL Games, and provide documents demonstrating the buffet expenses incurred for those SBL holders.
For any year in which the Authority requires the accounting process, an additional 5% accounting fee is added to the fixed payment to cover the administrative costs. (e.g., In a year where the total fixed payment owed is $1M, the accounting fee would be $50,000.) If the year-end accounting shows that buffet costs attributable to Legacy SBLs is less than the flat payment, then StadCo will refund to Stadium Authority the greater of the (i) Difference of actual costs v. fixed payment, or (ii) the 5% accounting fee.
To implement these terms, Paragraph 4.6.1, is proposed to be amended. The amendment implements the fixed payment for buffet costs at $90K per game with a 3% annual escalator, and the Authority’s optional accounting process.
Additional Revenues - Senior and Youth Program Fee.
As stated above, through the Settlement Agreement, the City and Stadium Authority were able to negotiate beneficial terms that would otherwise have been unavailable through the arbitration process. The increase to the Senior and Youth program fee is an example of such a beneficial term. The fee will undergo several adjustments to increase its contribution to the City. The fee will rise from $0.35 to $0.40 per ticket, with incremental increases of $0.05 every ten years. Additionally, the annual cap of $250,000 will be elevated to $300,000 for the fiscal year 2024-25 and will further increase by $50,000 every ten years. This is reflected in an amendment of Paragraph 12.2 in the Stadium Lease and Section 8.2 in the Ground Lease. This revised fee structure is expected to generate a minimum of $2M in additional funds for the City over the next 30 years, providing further support the City’s senior and youth programs provided by the Parks and Recreation Department.
Additional Revenues - Excess Revenues.
As stated above, the Settlement Agreement provides for a restructured waterfall of the use of Stadium Authority’s year-end excess revenues (Paragraph 14 of the Stadium Lease). The Stadium Lease waterfall terms required that excess revenues first fill up the $70M Renovation / Demolition Reserve Fund before any excess revenues flow to the General Fund. The Settlement Agreement provides for a restructured waterfall, so that excess revenues will continue to fill the Renovation / Demolition Reserve, while also repaying the Public Safety Costs 2024 Outstanding Balance due to StadCo, and also releasing excess revenues to the City’s General Fund. Once the balance to StadCo is fully repaid, the restructured waterfall will then provide for 50% of excess revenues to flow to the Renovation / Demolition Reserve fund, with 50% available for distribution to the City’s General Fund. It is estimated that these settlement terms will provide $2.8M of funds to the City’s General Fund at the end of this year, and expedite by four or five years the funds flowing to the General Fund in future years. The restructuring is reflected in amendments to Paragraphs 14.7 and 14.8 of the Stadium Lease.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
Senior & Youth Program Fees
The Senior & Youth Program Fee will be increasing from $0.35 to $0.40 per NFL ticket sold starting in FY2024/25. As a result, Stadium Authority is projected to collect an additional $35,000 in Senior & Youth Program Fee revenue which will subsequently be paid to the City’s General Fund to support Senior & Youth Programs in the Parks & Recreation Department.
Public Safety Costs
Through FY2023/24, it is estimated that Stadium Authority will owe StadCo $15.5M as a Public Safety Costs (PSC) 2024 Outstanding Balance. StadCo has agreed to waive $664,000 of these costs related to FY2017/18 and an additional $9,296 of costs related to FY 2018/19. The remaining $14.8M will be owed by Stadium Authority. Stadium Authority will pay $3.4M to StadCo from the balance in the Legal Contingency Reserve and additional funds are projected to be paid to StadCo at the end of the FY2024/25 from Excess Revenue.
Excess Revenue
In accordance with the adjustments to the lease regarding how excess revenues are distributed, the amount that was originally budgeted in FY2024/25 to be deposited into the Renovation/Demolition Reserve, will instead be distributed as follows (1) 50% to the Renovation/Demolition Reserve, (2) 25% to the PSC 2024 Outstanding Balance, and (3) 25% to the City’s General Fund. The amount of Excess Revenue available for distribution to the Renovation/Demolition Reserve at the end of FY 2024/25 is now estimated to total $12.3M. This is an increase from the FY 2024/25 Adopted SCSA Budget of $11.4M due to net revisions in the estimate for FY 2024/25 buffet costs ($221,000 savings) and a ground lease performance-based rent credit ($736,000 savings). Therefore, based on the terms included in this report, it is currently projected that in FY 2024/25, $6.1M will be transferred to the Renovation/Demolition Reserve, $3.1M will be paid to StadCo to pay down the PSC 2024 Outstanding Balance, and $3.1M will be transferred to the City’s General Fund.
Performance Based Rent
Stadium Authority will pay the City a projected $7.1M for performance-based rent related for FYs 2022/23 and 2023/24 from the Legal Contingency Reserve. Additionally, it is projected that Stadium Authority will pay the City $2.5M for performance-based rent related to FY2024/25; this was originally budgeted to go to the Legal Contingency Reserve and based on the terms included in this report a budget amendment is recommended to allocate the estimated payment for FY 2024/25.
Buffet Costs
Stadium Authority originally budgeted $1.1M to be transferred into the Legal Contingency Reserve related to FY2024/25 SBL Complementary Buffet costs. It is now projected that Stadium Authority will pay $900,000 for SBL Complementary Buffet costs. The funding from these savings is now expected to flow through Excess Revenue at the end of the year.
Legal Contingency Reserves
The Legal Contingency Reserves are budgeted with a $14.7M balance at the end of the 2024/25 Fiscal Year. The settlement provides for the Legal Contingency Reserves to be liquidated and these funds appropriated for payments, planned expenditures or Excess Revenue transfers at the end of the year.
Renovation/Demolition Reserve
The Renovation/Demolition Reserve was projected to have a balance of $35.5M at the end of Fiscal Year 2024/25. As noted above, adjustments to the lease provide for Excess Revenue to be distributed differently from how originally budgeted. This, along with the liquidation of the Legal Contingency Reserves result in a net decrease of $5.3M to this reserve.
FY 2024/25 Santa Clara Stadium Authority Operating Budget Amendments
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Description |
Current |
Increase/ Decrease |
Revised |
|
Sources |
|
|
|
|
Senior & Youth Program Fees |
$233,000 |
$35,000 |
$268,000 |
|
Total Sources |
$233,000 |
$35,000 |
$268,000 |
|
|
|
|
|
|
Uses |
|
|
|
|
Expenses |
|
|
|
|
Senior & Youth Program Fees (paid to City) |
$233,000 |
$35,000 |
$268,000 |
|
Performance Rent 2022/23 & 2023/24 (paid to City) |
$0 |
$7,100,000 |
$7,100,000 |
|
Performance Rent 2024/25 (paid to City) |
$0 |
$2,500,000 |
$2,500,000 |
|
Public Safety Costs (from Settlement) |
$0 |
$3,400,000 |
$3,400,000 |
|
Public Safety Costs (2024/25 Excess Revenues) |
$0 |
$3,073,000 |
$3,073,000 |
|
Transfer to City General Fund (2024/25 Excess Revenues) |
$0 |
$3,073,000 |
$3,073,000 |
|
SBL Complementary Buffet |
$0 |
$900,000 |
$900,000 |
|
|
|
|
|
|
Ending Fund Balance |
|
|
|
|
Legal Contingency Reserve - Buffet Costs |
$4,441,801 |
($4,441,801) |
$0 |
|
Legal Contingency Reserve - Public Safety Costs |
$10,305,725 |
($10,305,725) |
$0 |
|
Renovation/Demolition Reserve |
$35,476,705 |
($5,298,474) |
$30,178,231 |
|
Total Uses |
$50,457,231 |
$35,000 |
$50,492,231 |
COORDINATION
This report was coordinated between the City Manager’s Office/Executive Director’s Office, City Attorney’s Office/Stadium Authority Counsel’s Office, and Finance Department/Treasurer’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov>.
ALTERNATIVES
1. Staff’s recommendation; or
2. Any other direction from the City Council and Stadium Authority Board.
RECOMMENDATION
Recommendation
1. Authorize the City Manager, on behalf of the City, and the Executive Director, on behalf of the Stadium Authority, to execute a First Amendment to the Ground Lease with the Santa Clara Stadium Authority to in substantially the form presented, in final forms approved by Agency Counsel/City Attorney.
2. Authorize the Executive Director to execute a First Amendment to the Amended and Restated Stadium Lease Agreement with Forty Niners SC Stadium Company, LLC to in substantially the forms presented, in final forms approved by Agency Counsel/City Attorney.
3. Authorize the City Manager, on behalf of the City, and Executive Director, on behalf of Stadium Authority, to negotiate and execute modifications to such other agreements as may be necessary to implement the terms of the Settlement Agreement, in final forms approved by Agency Counsel/City Attorney.
4. Approve the following FY 2024/25 net budget amendments in the Santa Clara Stadium Authority Operating Budget:
a. Increase the revenue estimate and corresponding payment to the City for Senior and Youth fees by $35,000, and
b. Increase the Performance-Based Rent expense to the City by $9,600,000, increase the Public Safety Cost expense by $6,473,000, increase the transfer to the City’s General Fund by $3,073,000, increase the SBL Complementary Buffet expense by $900,000, offset by the elimination of Legal Contingency Reserves in the amount of $14,747,526 and a decrease to the Renovation/Demolition Reserve by $5,298,474.
Staff
Reviewed by: Chuck Baker, Assistant City Manager
Approved by: Jovan D. Grogan, City Manager/Executive Director and Glen R. Googins, City Attorney/Stadium Authority Counsel
ATTACHMENTS
1. Proposed Amendment No. 2 to the Ground Lease (Stadium Site)
2. Proposed Amendment No. 1 to the Restated and Amended Stadium Lease
3. May 23, 2024 Settlement Agreement and Mutual Releases (Buffet Arbitration and PSC Arbitration)