REPORT TO COUNCIL AND STADIUM AUTHORITY BOARD
SUBJECT
Title
Discussion, Consideration, and Direction to Staff Regarding Actions to be Taken in Response to the Santa Clara County Civil Grand Jury Report Entitled “Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers”
Report
COUNCIL/BOARD PILLARS
Enhance Community Engagement and Transparency
Ensure Compliance with Measure J and Manage Levi’s Stadium
BACKGROUND
On June 13, 2024, the Santa Clara County Civil Grand Jury published a report entitled “Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers” (Civil Grand Jury report). The Civil Grand Jury report includes various findings and recommendations. California Penal Code section 933(c) requires that a governing body of the particular public agency or department that has been the subject of a Civil Grand Jury final report to respond within 90 days on the specified findings and recommendations pertaining to matters under the control of the governing body.
This report presents the Civil Grand Jury’s findings and recommendations and solicits City Council/Stadium Authority Board input on the desired process for providing the City and Stadium Authority’s response. The City and Stadium Authority’s responses on the Civil Grand Jury report findings and recommendations are due to the office of the Honorable Beth McGowan, Presiding Judge, Superior Court of California, County of Santa Clara by September 11, 2024. For this report, staff is not aware of any requests for individual responses from City Council/Board members.
DISCUSSION
The Civil Grand Jury report made various findings and recommendations; however, only specific findings and recommendations require City/Stadium Authority response. The report included a total of twenty (20) findings and thirteen (13) recommendations. Of these, the Stadium Authority, as an agency, has been directed to respond to all of the findings and 13 recommendations. It should be noted that: 1) some findings/recommendations may require a City or joint City and Stadium Authority response instead of a response from only the Stadium Authority, 2) the Civil Grand Jury identified Recommendations 7a and 7b for Stadium Authority response; however, neither of these Recommendations exist whereas Recommendation 7 does exist and appears to be relevant for Stadium Authority response, and 3) three of the 13 recommendations identified for City/Stadium Authority response provide no recommendation (# 4, 5, and 11).
A complete list of all findings and recommendations in the Civil Grand Jury’s “Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers” report can be found on pages 70-74 of the document, which is attached to this staff report (Attachment 1) and can also be found on the Civil Grand Jury’s website: <https://santaclara.courts.ca.gov/system/files/civil/outplayed-measure-j-city-santa-clara-and-san-francisco-49ers.pdf>
Civil Grand Jury Findings
The Civil Grand Jury report findings requiring a City and/or Stadium Authority response are as follows:
Finding 1
From the beginning, the City was impatient and overmatched in its negotiation posture with the 49ers to the long-term detriment of the City/Stadium Authority.
Finding 2
The City has not studied the actual economic impact of the Stadium. The 49ers have produced their own studies, which they use to tout long-term unverified benefits and frame all discussions surrounding the success of the Stadium.
Finding 3
Measure J’s promise to protect the City’s General Fund has been realized. The funding structure from the Stadium Lease has successfully allowed the Stadium Authority to pay off Stadium construction loans and fund required Waterfall reserves faster than originally planned.
Finding 4
The City/Stadium Authority agreed to use ManCo, an affiliate of the 49ers, with an inherent conflict of interest to handle the Stadium Authority’s financial interests in non-NFL events.
Finding 5
The City/Stadium Authority failed to ensure that the Management Agreement included a fair termination clause.
Finding 6a
The City/Stadium Authority failed to ensure the Management Agreement provided the Stadium Authority with full access to financial records.
Finding 6b
ManCo’s financial transparency with the Stadium Authority has improved with the
implementation in 2022 of a new financial management system.
Finding 6c
Transaction-level testing generally supports ManCo’s reporting of financial results for non-NFL events.
Finding 7a
The City/Stadium Authority failed to ensure that the original Management Agreement and the 2022 settlement agreement contained sufficient language requiring specific items or methods and performance metrics to prioritize Stadium Authority revenue generation. This has resulted in a failure to hold ManCo accountable for the success of non-NFL events.
Finding 7b
The Stadium Authority failed to use the prescribed Marketing Correction Plan per Article 3.3.1 of the Management Agreement process to hold ManCo accountable for unsuccessful non-NFL event bookings.
Finding 8a
There is no evidence showing that ManCo is negotiating to maximize Stadium Authority profits for non-NFL events.
Finding 8b
The Stadium Authority has failed to ensure the Management Agreement requires ManCo to incentivize its staff to prioritize the Stadium Authority's success. There is no evidence that there are employee sales goals, metrics, or consequences related to unprofitable non-NFL events.
Finding 9a
StadCo/ManCo interprets the Stadium Lease to require non-NFL ticket surcharges be applied to tickets associated with Rental and Trophy Luxury Suites, but failed to remit all corresponding surcharges to the Stadium Authority.
Finding 9b
StadCo/ManCo interprets the Stadium Lease to not require non-NFL ticket surcharges to be applied to Seating Bowl complimentary tickets and Owners Club Luxury Suite tickets.
Finding 9c
Suite ticket revenue submitted to the Stadium Authority does not account for suite ticket revenue for certain suite attendees.
Finding 10a
Most revenue from non-NFL events goes to the promoter, which is typical. StadCo can make money on luxury suites regardless of the event's profitability for the Stadium Authority.
Finding 10b
The Stadium Authority is unaware of the market revenue potential for non-NFL events at the Stadium. The Stadium Authority does not know what net revenues should be expected for non-NFL, ticketed and non-ticketed, events.
Finding 11
Per the Stadium Lease, the Stadium Authority failed to negotiate pertinent details about buffet costs in the contract, such as parameters on cost thresholds and alcohol. The Stadium Authority accepted responsibility for buffet costs but failed to follow up when the expense was omitted from ManCo’s budgets.
Finding 12
A Multi-Use Community Facility at the Stadium was one of Measure J’s original promises and was memorialized in the Stadium Lease. The current designated space for the Community Room at the Stadium is not easily accessible nor is it pragmatic for most civic events.
Finding 13
The FIFA World Cup commitments for the City and the Stadium Authority were made without consultation with the City/Stadium Authority.
Response Standard for Findings
Penal Code Section 933.05(a) requires the responding entity to indicate one of the following for each Civil Grand Jury finding:
1. The respondent agrees with the finding.
2. The respondent disagrees wholly or partially with the finding, in which case the response shall specify the portion of the finding that is disputed and shall include an explanation of the reasons therefor.
Civil Grand Jury Recommendations
The Civil Grand Jury recommendations requiring a City and/or Stadium Authority response are as follows:
Recommendation 1
Given the long-term nature of the various agreements, the 49ers' sophistication, and the history of past disputes, the City/Stadium Authority should engage advisors with specialized knowledge to determine options to level the playing field.
Recommendation 2
The City should commission its own report to determine the Stadium's actual economic impact over the last decade. This recommendation should be implemented by July 1, 2025.
Recommendation 3
The May 2024 settlement agreement gives the Board/City Council new flexibility to divert Excess Revenue from the Stadium Authority to the City’s General Fund. When diverting Excess Revenue, the Board/City Council should be mindful of the long-term financial health of the Stadium Authority and request the Treasurer to produce a long-term plan for funding all required Stadium reserves, including reserves for capital improvements. This recommendation should be implemented by October 31, 2024.
Recommendation 4
None
Recommendation 5
None
Recommendation 7 (Per the note above, Recommendations 7a and 7b are identified for Stadium Authority response; however, neither of these Recommendations exist whereas Recommendation 7 does exist and appears to be relevant for Stadium Authority response)
The Stadium Authority should retain the expertise needed to meaningfully weigh in on ManCo’s Marketing Plan to ensure that the Stadium Authority’s profitability is maximized. The Stadium Authority should also establish a yearly audit procedure to measure and analyze each season's Marketing Plan against its outcomes, updating future plans based on this analysis. This recommendation should be implemented by December 31, 2024.
Recommendation 8
As part of the Marketing Plan, Stadium Authority should require that ManCo produce a
marketing plan that maximizes profits for the Stadium Authority and incentivizes ManCo
marketing staff to prioritize the profitability of the Stadium Authority. This recommendation should be implemented by December 31, 2024.
Recommendation 9
The Stadium Authority should review and ensure that it receives all a) non-NFL event ticket surcharges for all event attendees, and b) ticket revenue for all suite attendees owed to the Stadium Authority. This recommendation should be implemented by October 31, 2024.
Recommendation 10
The Stadium Authority should hire a professional third-party consultant, not affiliated with the 49ers, to analyze the reasonable expectations for non-NFL events such as:
• An analysis of the market revenue potential for non-NFL events at the Stadium.
• An analysis of ManCo's Marketing Plans, comparing successful (FY 2022-23) and unsuccessful (FY 2017-18) bookings to potential market revenue.
• A plan with measurable objectives and incentives for ManCo to achieve these results.
This recommendation should be implemented by December 31, 2024.
Recommendation 11
None
Recommendation 12
The Stadium is not an appropriate location for a Community Facility. The Stadium Authority should work with the 49ers to identify and procure an alternative space for community needs. This recommendation should be implemented by June 30, 2025.
Recommendation 13
The Stadium Authority should insist on consultation and prior notice before any major Stadium event commitments are made. This recommendation should be implemented by December 31, 2024.
Response Standard for Recommendations
Penal Code Section 933.05(b) requires the responding entity to report one of the following actions for each Civil Grand Jury recommendation:
1. The recommendation has been implemented, with a summary regarding the implemented action.
2. The recommendation has not yet been implemented, but will be implemented in the future, with a timeframe for implementation.
3. The recommendation requires further analysis, with an explanation and the scope and parameters of an analysis or study, and a timeframe for the matter to be prepared for discussion by the officer or head of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This timeframe cannot exceed six months from the date of publication of the grand jury report.
4. The recommendation will not be implemented because it is not warranted or is not reasonable, with an explanation therefor.
Next Steps
Staff is requesting that the Council/Board provide direction on the process it would like to follow to develop the City and Stadium Authority’s required response by September 11, 2024. Consistent with prior Council/Board direction and input for Civil Grand Jury reports, staff is prepared to draft an initial response to the Civil Grand Jury report for each item that relates to the City and/or Stadium Authority. We are prepared to bring the draft responses to the City Council/Stadium Authority Board for your review and possible approval at the August 27, 2024 Council Meeting or at a special meeting, if necessary based on the Council/Board’s business calendar and the extent of Council/Board input received at the July 16 Council/Board meeting.
It may be most efficient to schedule a special meeting of the City Council/Stadium Authority Board to address and finalize, if possible, the pending Civil Grand Jury responses due for both the “Irreconcilable Differences” and the “Outplayed” Civil Grand Jury reports.
Note: On July 3, 2024 the Stadium Authority received a letter from Forty Niners Stadium Management Company (ManCo) that addressed, generally, a number of the findings in the “Outplayed” Civil Grand Jury Report. A copy of this letter is attached.
FISCAL IMPACT
There is no fiscal impact associated with this report except for administrative time.
COORDINATION
This report was coordinated between the City Attorney/Stadium Authority Counsel and City Manager/Executive Director’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> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Provide direction on the desired process to develop the City and Stadium Authority’s responses for the specified findings and recommendations outlined in the June 13, 2024 Santa Clara County Civil Grand Jury Report entitled “Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers” in time to be submitted to the Presiding Judge by the required response date of September 11, 2024. One possible option would be to schedule a special meeting of the City Council/Stadium Authority Board to address both the pending Civil Grand Jury responses due for both the “Irreconcilable Differences” and the “Outplayed” Civil Grand Jury reports.
Staff
Reviewed and approved by: Jovan D. Grogan, City Manager and Glen R. Googins, City Attorney
ATTACHMENTS
1. Civil Grand Jury Report: “Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers”
2. Letter from Forty Niners Stadium Management Company (ManCo) dated July 3, 2024