REPORT TO STADIUM AUTHORITY BOARD
SUBJECT
Title
Informational Report on Levi’s Stadium Activities During the COVID-19 Pandemic [Board Pillar: Ensure Compliance with Measure J and Manage Levi’s Stadium]
Report
BACKGROUND
In response to the growing COVID-19 outbreak in the United States and specifically in Santa Clara County, on March 16, 2020, the Public Health Officer of the County of Santa Clara directed all individuals living in the County to shelter at their place of residence except to provide or receive essential services, effective March 17, 2020. The Public Health Officer further directed that all business and governmental agencies cease non-essential operations at physical locations in the County. On March 17, 2020, the Council ratified the City Manager’s March 11, 2020 proclamation of a local emergency.
On March 19, 2020, Governor Newsom issued Executive Order N-33-20 directing all residents to immediately heed current State public health directives to stay home, except as needed to maintain continuity of operations of essential critical infrastructure sectors and additional sectors as the State Public Health Officer may designate as critical to protect health and well-being of all Californians. This directive, as well as the previous “shelter-in-place” mandate for six Bay Area counties, including Santa Clara County, requires individuals to remain in their homes and for non-essential businesses to close or require staff to work from home. Order N-33-20 does not have an end date and therefore is in place until further notice.
On March 31, 2020, Santa Clara County extended its Shelter-In-Place order through May 3, 2020 to help preserve critical hospital capacity across the region. The order restricted access to shared public recreational spaces, like picnic areas, dog parks, golf courses, etc.; prohibited most residential and commercial construction; expanded the scope of essential businesses; and required essential businesses operating facilities to scale down operations to their essential components only.
On April 28, 2020, Governor Newsom revealed a phased plan to re-open the State’s economy, which included:
• Stage 1 - Safety and Preparedness;
• Stage 2 - Lower Risk Workplaces;
• Stage 3 - Higher Risk Workplaces; and
• Stage 4 - End of Stay-At-Home Order.
The State is currently in Stage 1 and will likely reach Stage 2 over the course of the next couple of weeks, in which lower risk workplaces will be allowed to reopen. Stage 3 allows for the reopening higher risk workplaces, which require close proximity to other people, including sporting events without live audiences. Environments with the highest risk, like concert venues, convention centers, and sporting events with live audiences, will not be re-opened until Stage 4. Governor Newsom has stated that Stages 3 and 4 are "months, not weeks" in the future.
On April 29, 2020, Santa Clara County issued a revised Shelter-In-Place order that will be effective May 4 through the end of May. The order largely maintains previous restrictions on non-essential business and social distancing mandates but loosens restrictions on construction, certain outdoor businesses, and outdoor recreational spaces.
The City has recently provided COVID-19 related updated on the City of Santa Clara, Silicon Valley Power, and the Convention Center. Staff is providing this information about current Santa Clara Stadium Authority activities that have surfaced since March 2020.
DISCUSSION
This informational report provides an update to the Stadium Authority Board (Board) on the status on Levi’s Stadium activities during the COVID-19 Pandemic, including staffing and events. Levi’s Stadium has had events postponed, or canceled, during the State and County Orders and will continue to be impacted for months until the State reaches Stages 3 and 4 of the Governor’s plan.
On April 23, 2020, Stadium Authority staff asked for the Stadium Manager to provide a summary of how the Stadium Manager is implementing the State and County Orders. Particularly, Stadium Authority staff sought information to report to the Stadium Authority Board on essential services that are being maintained and related public agency expenditures.
Given that there had been several statements made by several public officials (from different levels of government) that it is unlikely that sporting events will resume until late 2020 or 2021, it is prudent for the Stadium Authority Board to be apprised of management and fiscal impacts to the Levi’s Stadium.
Stadium Manager Expenses
During an April 23 meeting, the Stadium Manager provided an extremely vague statement that services like security, minimal maintenance, receiving and shipping are still being performed at Levi’s Stadium during the current Shelter-In-Place Order, other staff is working remotely, and that all expenditures for services will continue at the same level as projected before the shutdown. Despite the current projections that major events will not resume for months, the Stadium Manager confirmed that it will not:
• Spend less on Shared Stadium Manager Expenses;
• Furlough any staff; and,
• Provide projected impacts on game revenue or non-NFL event revenue.
Additionally, the Stadium Manager will not commit to providing any calculated projections or develop any strategies to mitigate the loss of revenue from the postponement and/or cancellation of events. This business-as-usual strategy is in violation of the Stadium Manager’s duty to minimize expenses and departs from what other major venues in the area are reporting, including Oakland Arena. The cancellation of major events like concerts loses revenue for arenas and stadiums. Additionally, Oakland-Alameda Coliseum Authority’s CEO shared that while there haven’t been any events, they also haven’t been spending money on certain expenses.
The Stadium Manager’s statements that it has not done any revisions to its revenue and expense projections and its refusal to provide any information about how it is responding to the State and local orders is concerning to Stadium Authority staff, as the Stadium continues to incur expenses that are paid for by public funds. While the Stadium Authority Board did not approve many of the Stadium Manager’s Shared Expense lines in the Authority Budget, it is believed based on conversation with the Stadium Manager that expenditures which includes compensation, travel, meals and entertainment, outside services, general supplies, equipment, and other expenses will continue to be charged to the Stadium Authority. As public agencies across the country and region, including Santa Clara, anticipate budget shortfalls and are cutting expenses, the Stadium Manager has provided no reasonable explanation to continue spending at pre-COVID-19 levels on compensation, supplies, travel, meals, and entertainment with all events being cancelled for two or more months. The Stadium Authority Board approved items considered fixed, such as insurance, utilities, banking fees, and SBL sales and services costs, savings as a result of reduced events should be expected.
Stadium Authority staff has asked the Stadium Manager to submit a written status report to the Board for the May 12, 2020 Board meeting that provides information about what services are being maintained at the Stadium, details about continued expenditures, and their projections for financial impacts due to the State and County orders.
Revolving Loan Fund
As previously reported to the Board, the Stadium Manager and StadCo have issued Revolving Loans to cover Operating Expenses in FY 2019/20. This was in response to Board direction on the partial suspension of Operating Expenses at the March 27, 2019 Stadium Authority Board meeting, arising from the Stadium Manager’s inappropriate use of public funds relative to procurement practices and potential self-dealing/conflicts of interest.
As part of the budget actions approved by the Board in March 2020, a litigation reserve was established in the event funding would be necessary to pay revolving credit loans totaling $6.5 million. In April 2020, the Stadium Manager directed the repayment of these revolving credit loans from proceeds that were instructed by the Trustee to repay the outstanding StadCo Subordinate Loans. The Stadium Authority disagrees with the repayment of these loans from funds allocated to pay off stadium debt and believes that practice of revolving credit loans was not authorized in accordance with Section 2.2 of the Revolving Credit Agreement. Staff continues to work with legal counsel on this issue.
In late April, the Stadium Manager noticed the Stadium Authority that it has taken $741,000 from the Revolving Loan Fund.
Levy’s Premium Foodservice
On March 19 and April 24, 2020, the City of Santa Clara received Worker Adjustment and Retraining Notification (WARN) notices from Levi’s Stadium’s concessionaire vendor, Levy Premium Foodservice Limited Partnership (Levy) (Attachment 1). The March 19 notice stated that Levy anticipated that the majority, if not all, of its 613 hourly positions at Levi’s Stadium will experience a further reduction of hours compared to prior years or will experience a temporary suspension of work based on COVID-19 related cancellations and closures. The letter stated that those employees would not be terminated. The April 24 notice stated that 19 salaried managers will be temporarily furloughed, effective May 2, 2020. This is the extent of what the Stadium Authority and City is aware of in terms of staffing impacts at Levi’s Stadium during the COVID-19 Pandemic.
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
There is no cost to the Stadium Authority to prepare this report other than administrative staff time and expense. In this report, various topics address the fiscal impacts to the Stadium Authority resulting from actions of the Stadium Manager and/or COVID-19.
Below is additional information about fiscal projections related to COVID-19:
Stadium Authority Operating Budget Scenarios
Scenarios on the potential impact of reduced or no events occurring were developed by the Stadium Authority, these are detailed in Attachment 2 of this report. In all scenarios, with reduced or no events, the following revenue assumptions and impacts are assumed:
• No revenue related to Non-NFL Events or NFL Events (Includes NFL Ticket Surcharge, Revenue from Non-NFL Events, Non-NFL Event Ticket Surcharge, Senior & Youth Fees)
• SBL Proceeds: Assume 75% drop in new sales and 10% default rate
• Interest: Assume 50% decline
• Naming Rights Revenue: Per Agreement
• Sponsorship Revenue: Minimum due per Agreement
• Rent: Per Agreement
While the fixed required for the stadium debt payments would continue to be covered, operational savings would need to be realized to offset the revenue reduction. Attachment 2 details the following scenarios with reduced expenditures and the resulting projected operating shortfall:
Scenario A (Full Budgeted Operating Expenditures)
• Minimum Payments Met for Capital and Debt
• No Senior & Youth Fees Paid to City
• No Performance Rent Paid to City
• All other expenses assumed at full budget
• Results in an $8 million operating shortfall
Scenario B (Reduced Operating Expenditures, maintaining baseline support)
• Minimum Payments Met for Capital and Debt
• No Senior & Youth Fees Paid to City
• No Performance Rent Paid to City
• SBL Sales & Service: Removed costs associated with events, training, buffet costs
o Staff time kept at 100%. Intent to keep staff employed during pandemic
• Discretionary Fund Expense removed - $250k
• Use of StadCo Tenant Improvements - $73k
• G&A
o Noise Monitoring Cost Removed - $68k
o Unanticipated Cost Removed - $100k
o Public Safety Consultant Cost Removed - $100k
o Supplies - 50% Reduction
o Staff time kept at 100%. Intent to keep staff employed during pandemic
• Legal Contingency (Shared Stadium Manager Expenses)
o Staff time kept at 100%. Intent to keep staff employed during pandemic
o Management Fee remains at 100%
o Travel, M&E removed - $253k
o All other costs (Supplies, Outside Services, Equipment etc.) reduced to 25%
• Other Expenses reduced - $1M
• Results in a $1.5M operating shortfall
Scenario C (Reduced Operating Expenditures, keeping vacant positions vacant)
In addition to reductions in Scenario B:
• G&A: Management Analyst and Deputy City Manager Remain Vacant
• Results in a $1M operating shortfall
Based on the limited information that we have received; it appears that the Stadium Manager is operating under Scenario A assuming fully budgeted expenditures. While we believe operating reserves would be able to cover these shortfalls, further analysis would need to be conducted to view the full impact of COVID-19. Because the Stadium Manager has not provided any details to the impact from COVID-19, the assumptions made in these scenarios were not coordinated with the Stadium Manager and represent only potential outcomes from having reduced or no events at the stadium.
BNY Mellon Club Buffet Costs for SBL Holders
Further, on April 30, 2020, the Stadium Authority received invoices totaling $4,388,709.26 for the cost of the BNY Mellon Club Complimentary Buffet for SBL holders of two sections of the stadium, as discussed in the SBL agreements and the Stadium Lease Agreement. These costs are StadCo requests for reimbursement for buffets provided to SBL holders for the 2014 through 2018 NFL season that were never budgeted or requested for reimbursement for those prior fiscal years.
The delayed submission of these costs is exacerbated by the lack of transparency caused by the failure to maintain a separate accounting system, complete and accurate books that show clear delineation of costs, as required in the Stadium Lease Agreement Section 8.4.1. If valid, submittal of this invoice demonstrates two key issues: (1) the Stadium Manager’s actions were less profitable for the Stadium Authority than previous reports and (2) the Stadium Manager’s accounting and fiscal management of public funds is grossly mismanaged.
With the catastrophic financial effects resulting from the Stadium Manager’s management and COVID 19 pandemic on the Stadium Authority, it is critical that the Stadium Authority not be presented with demands for extraordinary payments, especially when such demands were held back for years during which some expenditures were charged and some were not (e.g. the recent assertions of “not charging” for the WiFi services for the Stadium and “reduced” NFL signage costs for the RedBox Bowl.).
COORDINATION
This report has been coordinated with the Treasurer and the Stadium Authority Counsel.
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>.
RECOMMENDATION
Recommendation
Note and file the Informational Report on Levi’s Stadium activities during the COVID-19 Pandemic.
Staff
Prepared by: Christine Jung, Acting Assistant to the City Manager (Executive Director)
Approved by: Deanna J. Santana, Executive Director
ATTACHMENTS
1. March 19 and April 24, 2020 Levy Premium Foodservice WARN Notices
2. SCSA 2020-21 Budget COVID-19 Scenarios
3. BNY Club Buffet Invoices