REPORT TO STADIUM AUTHORITY BOARD AND CITY COUNCIL
SUBJECT
Title
Action on a Proposed 10-Year Extension to the Stadium Naming Rights Agreement with Levi Strauss & Co., a Related Implementation Agreement with Forty Niners SC Stadium Company LLC (StadCo), and Delegation of Authority to the City Manager to Implement a Charitable Grants Agreement
Report
BOARD PILLAR
Ensure Compliance with Measure J and Manage Levi’s Stadium
BACKGROUND
On May 9, 2013, the Santa Clara Stadium Authority (Stadium Authority) and Levi Strauss & Co. (Levi’s) entered into a Naming Rights Agreement. Under the 20-year agreement, Levi’s provides an annual payment to the Stadium Authority in exchange for exclusive naming rights and branding at the stadium.
Levi’s also has a separate sponsorship agreement with Forty Niners SC Stadium Company LLC (StadCo) which includes digital content, merchandise collaborations, among other things, that the Stadium Authority Agreement is not a party of.
The existing Naming Rights Agreement between the Stadium Authority and Levi’s includes the following key terms:
• Naming Rights Payments: In consideration for its naming rights, Levi’s is obligated to make annual payments to the Stadium Authority increasing at the rate of 3% per year. The payment in Year One was $5.74 million. In the current year (2023-24), the annual payment is $7.6 million. This equates to $154 million of payments over the initial term of 20 years. These payments go into the Stadium Authority’s “operating fund” and are used to support stadium operations, maintenance, and reduction of the Stadium Authority’s debt from the initial stadium construction.
• Extension Right: Levi’s had the option to extend the term for an additional five (5) years by delivery of written notice no later than the last day of the fifth contract year. The extension right expired on May 10, 2018.
• Right of First Negotiation: Levi’s has until May 9, 2030 to notify the Stadium Authority of its intention to negotiate a new naming rights agreement or an extension. If exercised, this triggers a 60-day exclusive negotiation period.
• Naming Rights Entitlements: In addition to naming “Levi’s Stadium”, Levi’s is entitled to signage, media, and tickets to stadium events, among other things. The signage includes two Exterior Stadium and two Interior Stadium signs (Naming Rights signage).
Sign Maintenance/Replacement: The Stadium Authority is responsible, at its sole cost for cleaning, repairing, and maintaining the Naming Rights signage throughout the 20-year term. If Levi’s requests that the signs be replaced (for example, if they change their logo and want updated signage to match) this replacement will be done at Levi’s sole cost.
In mid-December 2023, Levi’s prior CEO, Chip Bergh, and StadCo discussed a potential naming rights extension. On January 8, 2024, StadCo briefed the Stadium Authority on Levi’s proposed terms for an extension to the Naming Rights Agreement and arranged a January 17th in-person meeting between Stadium Authority, StadCo, and Levi’s to discuss the proposal.
As a product of those discussions and subsequent negotiations between the parties, the following proposal is being presented to the Stadium Authority Board for its consideration and approval.
Proposed Naming Rights Extension
Under the proposal, the parties will enter into a First Amendment to the Naming Rights Agreement to extend the term of the agreement for an additional 10 years terminating on February 29, 2044. During the extension period, Levi’s will continue paying the annual fee to the Stadium Authority, increasing at a rate of 3% per year. The total anticipated revenue over the 10-year extension period is approximately $119 million.
As part of the extension, the Stadium Authority will provide a one-time enhancement of the Naming Rights signage (Enhanced Signage). The Enhanced Signage includes the stadium Name Letters on the east and west exteriors of the Stadium and the two signs above the Stadium scoreboards in the interior of the Stadium. StadCo has provided a preliminary cost estimate for the project, including the removal of the existing signs and the design and installation of the Enhanced Signage in the amount of approximately $3 million. These costs will be shared between StadCo and the Stadium Authority through a Cost Sharing Agreement, further detailed below. The Enhanced Signage must be installed by on or before December 31, 2025.
With the extension, Levi’s will continue to have the right of first negotiation for an additional Naming Rights Agreement extension. Levi’s will maintain this right until the last day of the twenty-seventh contract year. If Levi’s exercises this option, the parties would be required to negotiate in good faith for a period of sixty (60) days from the date on which Levi’s delivers written notice. If the parties do not reach agreement, the Stadium Authority can go out to seek a new naming rights partner.
Cost Sharing: Concurrent with the First Amendment to the Naming Rights Agreement, the Stadium Authority and StadCo will be entering into the Levi’s Stadium Naming Rights Extension and Enhanced Signage Project Implementation Agreement (Implementation Agreement) to coordinate the Enhanced Sign Project and the share in the costs for the design, construction, and installation of the signage. The Stadium Authority will be required to fund the first $2 million of the Enhanced Signage Project. Any Costs over $2 million will be shared between the Stadium Authority and StadCo in a 70/30 split.
Community Grants: In conjunction with the Levi’s Naming Rights Extension, StadCo has agreed to enhance its ongoing commitment to support charitable causes within the City of Santa Clara for each “Contract Year” of the remainder of the amended term of StadCo’s Sponsorship Agreement with Levi’s (beginning April 1, 2024). The commitment is to provide an annual grant in the amount of $200,000 for 20 years for organizations and projects serving the City of Santa Clara. This commitment is contained in the Naming Rights Implementation Agreement between the Stadium Authority and StadCo, with the intent that it will be implemented through the execution of a grant agreement with the City so that the funds will be directed into the City’s existing Community Grant Program.
Levi’s Sponsorship Agreement with StadCo: Levi’s and StadCo plan to concurrently extend their Sponsorship Agreement on terms that Stadium Authority staff has been informed are consistent financially with their original agreement, and “proportionate” in value to the Stadium Authority’s proposed Naming Rights Agreement extension. The payments to StadCo under the Sponsorship Agreement extension is expected to be $51 million over the 10-year extension period.
DISCUSSION
This item presents for Stadium Authority Board consideration a proposed First Amendment to the existing Naming Rights Agreement with Levi’s and an Implementation Agreement with StadCo. The First Amendment sets forth the financial terms for the proposed 10-year extension, including Levi’s requirements for the installation of an Enhanced Signage Project. The Implementation Agreement with StadCo provides for coordination and cost sharing for the Enhanced Signage Project and formalizes a commitment by StadCo to provide annual charitable contributions for the benefit of Santa Clara. The specific terms and rationale for these agreements are presented in more detail below.
First Amendment to the Naming Rights Agreement.
The total value of the existing Naming Rights Agreement is projected to be $154 million over the initial term of 20 years. In the current year (2023-24), the annual payment is $7.6 million. To date, the Stadium Authority has received $65 million in Naming Rights revenue. The Stadium Authority utilizes naming rights revenue to fund stadium operations and maintenance, and to pay down the debt from the initial stadium construction.
Proposed Payments Over the 10 Year Extension Period: As discussed above, the proposed 10-year extension will generate an additional $119 million in revenue for the Stadium Authority over ten years from 2033-34 to 2042-43. The annual payments during that extended time period will begin at $10.3 million and increase at a rate of 3% per year.
Below is a breakdown of the annual Naming Rights revenue with the proposed extension:
Naming Rights Signage: In consideration for the 10-year extension, Levi’s is requiring an enhancement of their existing “Naming Rights Entitlements” signage package. The Naming Rights Entitlements includes the following Exterior Stadium and Interior Stadium Signage:
• Suite Tower - Marquee Sign. One (1) primary exterior stadium identification banner sign displaying the Stadium Name in large lettering (the "West Side Lettering").
• East Facade Marquee Sign. One (1) large, centered sign across the east-facing exterior displaying the Stadium Name in large lettering (the "East Side Lettering" and, together with the West Side Lettering, the "Stadium Name Lettering"), visible to surrounding corporate and residential areas.
• Two (2) primary seating bowl stadium identification channel cut or panel signs above the Stadium scoreboards displaying the Stadium Name. The signage will face the inner bowl of the Stadium and will be illuminated during all Stadium events.
The Enhanced Signage Project involves the replacement of all four of the existing signs. The interior signs will increase in size to be proportionate to the proposed replacement of the Stadium scoreboard/jumbotron signage to which they are attached. The overall quality is to be equal or superior to the quality of comparable NFL stadium signage installed over the past 5 years. Final design is subject to Stadium Authority approval. The estimated cost of this overall project is $3 million and will need to be completed by December 31, 2025 at no cost to Levi’s. Under Sections 3(g) and 5(f) of the Naming Rights Agreement, the Stadium Authority will continue to be responsible for the cleaning, repair, and maintenance of the Naming Rights signage.
The Stadium Authority Fiscal Year (FY) 2023/24 Capital Expense (CapEx) Budget includes a line item for a Levi's Naming Rights Signage Refurbishment project ($1,260,000) related to the maintenance of four (4) signs located above the North and South Scoreboards, west side of the suite tower, and on the east side of the grandstands. These funds have not been expended and staff will recommend that they be carried forward to FY 2024/25 as part of the upcoming Stadium Authority FY 2024/25 budget process.
Levi’s Stadium Naming Rights Extension and Enhanced Signage Project Implementation Agreement: As part of the proposed extension, Stadium Authority staff has also negotiated the terms for an Implementation Agreement with StadCo. The purpose of the Implementation Agreement is to coordinate the Enhanced Sign Project and provide terms for the sharing in the costs for the design, construction, and installation of the signage. The Stadium Authority will be required to fund the first $2 million of the Enhanced Signage Project. Any Costs over $2 million will be shared between the Stadium Authority and StadCo in a 70/30 split. StadCo will solely fund the project to enlarge the jumbotron/scoreboard that will happen concurrently with the replacement of the Levi’s interior signs at the north and south ends of the Stadium.
Additional terms for the implementation of the Enhanced Signage Project include (a) project design with “value engineering” to minimize project construction and long-term maintenance costs; (b) project implementation to mitigate adverse impacts on NFL and Non-NFL events; (c) accounting that separates StadCo’s jumbotron/scoreboard project costs from Levi’s signage costs; and (d) a minimum 3-year sign warranty, with the cost of any extended warrant to be borne by the Stadium Authority.
Grants to Santa Clara-based Community Organizations
The Implementation Agreement includes, as part of the proposed extension, StadCo’s commitment to provide $4 million ($200,000/annually over the next 20 years) for grants to Santa Clara-based community organizations beginning April 2024 and for each “Contract Year” of the remainder of the amended term of StadCo’s Sponsorship Agreement with Levi’s (beginning April 1, 2024).
The City has an existing Community Grant Program that awards grants to qualifying nonprofit community organizations, athletic groups or organizations, educational groups or organizations, or individuals, for events, activities, and competitions that provide a public benefit to the City of Santa Clara and its residents. This program, along with other potential existing City grant programs, is proposed to streamline the distribution of funds to Santa Clara-based organizations. Council action on this item will delegate authority to the City Manager to negotiate and enter into a grants agreement to implement StadCo’s charitable commitment.
Analysis and Consideration of Proposal
Through research, staff obtained key information that supports the value of an extension of the Naming Rights Agreement on the proposed terms. Staff found the proposed terms in line with recent naming right extensions deals, market events and expectations. In general, it is beneficial for facilities to maintain their initial and/or iconic naming rights partner. Switching to a new naming rights sponsor will likely cost the Stadium Authority a 10-20% broker commission (anticipated between $18.8 - $37.6 million) and the Stadium Authority bears sole responsibility of all Naming Rights signage removal costs. Projections indicate that around 2031, the Stadium Authority’s demolition fund reserve will be fully funded so the additional Naming Rights revenue, if beyond the amounts necessary for operations and annual debt, could offer unrestricted funding to the City.
It is also important to consider that many top tier sponsors are currently not extending their naming rights agreement due to underperforming return on interest (ROI). Examples include Target not renewing its naming rights deal in Minnesota; Wells Fargo not renewing its naming rights deal in Des Moines; and Salesforce recently announcing their withdrawal from 2028 Olympics sponsorship. The proposed extension guarantees continuity for the Stadium Authority with Levi’s, which is one of the strongest brands in the San Francisco Bay Area with a 170-year track record of solid financial performance.
As such, the staff recommends an approval of the First Amendment to the Naming Rights Agreement which will provide a 10-year extension and guaranteed continuity of long-term funding.
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
The proposed extension to the Naming Rights Agreement will provide an additional $119 million in revenue over ten years from 2033-34 to 2042-43 for the Stadium Authority.
Through the Implementation Agreement with StadCo, the Stadium Authority will be required to commit the first $2 million towards the Enhanced Signage Project. Any Costs over $2 million will be shared between the Stadium Authority and StadCo in a 70/30 split. Funding for the sign is anticipated to be included in the FY 2024/25 Budget for the Stadium Authority Board’s consideration as part of the upcoming budget process. Periodic sign maintenance, cleaning, and other repairs will be budgeted on an annual, as needed basis.
COORDINATION
This report has been coordinated between the Executive Director’s, Stadium Authority Counsel’s, and Treasurer’s Offices.
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 (see below); or
2. Such other actions as the Stadium Authority Board deems appropriate.
RECOMMENDATION
Recommendation
1. Approve a First Amendment to the Naming Rights Agreement with Levi Strauss & Co. that will provide a 10-year extension and additional Naming Rights revenue to the Stadium Authority on the terms presented, in a final form approved by Authority Counsel;
2. Approve a Levi’s Stadium Naming Rights Extension and Enhanced Signage Project Implementation Agreement with Forty Niners SC Stadium Company LLC (StadCo) to coordinate the Enhanced Sign Project and the share in the costs for the design, construction, and installation of the signage, and memorialize StadCo’s $4 million charitable commitment over 20 years, on the terms presented, in a final form approved by Authority Counsel; and
3. Authorize the City Manager to negotiate and execute a grants agreement and take other actions as may be required to implement StadCo’s charitable commitment, in final form(s) approved by the City Attorney.
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. Existing Naming Rights Agreement
2. Proposed First Amendment to the Naming Rights Agreement
3. Proposed Levi’s Stadium Naming Rights Extension and Enhanced Signage Project Implementation Agreement