REPORT TO STADIUM AUTHORITY BOARD
SUBJECT
Title
Report from the Stadium Authority for Action Regarding the Stadium Manager and StadCo’s Request to Add Stadium Builder’s Licenses to Field Seats in the North and South End Zones of Levi’s Stadium
Report
BOARD PILLAR
Ensure Compliance with Measure J and Manage Levi’s Stadium
EXECUTIVE SUMMARY
The Forty Niners Stadium Management Company (Stadium Manager) and Forty Niners SC Stadium Company, LLC (StadCo) have presented a proposal to add Stadium Builder’s Licenses (SBLs) priced at $17,500 per seat to field seats in the North and South end zones of Levi’s Stadium which provides for possible additional Stadium Authority revenue for debt repayment by the Santa Clara Stadium Authority (Stadium Authority).
Staff recommendation is to approve the Stadium Manager/StadCo’s proposal, which is projected to generate Stadium Authority revenues totaling $1,651,953 over the life of the SBLs. Additionally, Board approval is recommended to authorize the Executive Director to 1) negotiate and execute an agreement with Stadium Manager/StadCo to formally document the new obligations and commitments of the parties related to the field seats and 2) to work with the Stadium Manager to make modifications, provide clarifications and other clean up language to the SBL agreement in compliance with the Stadium Lease Agreement.
BACKGROUND
This section of the report summarizes the various relevant legal provisions of multiple agreements, NFL approval, and a summary of Board action on previous proposals.
Relevant Agreement Provisions
The following provisions from multiple Stadium Agreements should be taken into consideration as they align with the Stadium Manager/StadCo’s proposal.
Stadium Lease Agreement -- Section 4.6.1 of the Stadium Lease Agreement with StadCo provides that the Stadium Authority has the sole and exclusive right to sell, license, or transfer SBLs and similar instruments for all the seats located in Levi’s Stadium, with the exception of those seats located in, or accessible through, the Suites.
Credit Agreement -- As the Borrower, the Stadium Authority is required to use SBL proceeds to pay down debt, currently the Term A Loan, after date of receipt as required by Section 2.14(d) in the Stadium Authority Credit Agreement.
Stadium Operations Agreement -- Section 13 of Stadium Operations Agreement provides that StadCo, as the Tenant, shall have the encumbered right to sell tickets for seats that don’t have SBLs by May 31 of each calendar year for the immediately following NFL Season.
Stadium Management Agreement -- Section 2.6.18 in the Fourth Amendment to the Management Agreement requires the Stadium Manager to make recommendations to the Stadium Authority with respect to facilitation of a secondary market for SBLs, and market, monitor, and manage any SBL agreements of the Stadium Authority.
Non-Relocation Agreement and Team Sublease -- The Non-Relocation Agreement defines “NFL Ticket Surcharge” as a surcharge on the price of admission to all NFL Surcharge Games that is ten percent (10%) of the Ticket Receipts from such NFL Surcharge Games, which is payable to the Stadium Authority. Ticket Receipts, which the Stadium Authority and Stadium Manager have referred to as “Reserve Ticket Price” in previous reports and proposals respectively, do not include any of StadCo’s revenues that are described in Article IV of the Team Sublease. As defined under Section 4.1.2 in the Team Sublease, StadCo’s revenues are the following: all StadCo’s Concession Revenues, Premium Seating Premiums, StadCo’s Advertising Revenue, parking revenues from Forty Niners Events and other Forty-Niners related activities, and any other revenues of the operations of the Stadium which are not expressly included in Forty Niners Revenues. “Premium Seating Premiums” is defined as the premiums received pursuant to and/or in connection with the sale of tickets for any Premium Seating for any Forty Niners Event and/or other Forty Niners-related activities, as determined in accordance with NFL Rules and Regulations.
SBL Agreement -- By entering into an SBL Agreement, an SBL Holder has exclusive rights to purchase 49ers season tickets and priority access to other events at the Levi’s Stadium for the term of the agreement. Additionally, the SBL Agreement between the Stadium Authority and the SBL Holder provides guarantees in the event that the seats are not available due to various circumstances. In such event, the SBL Agreement requires the Stadium Authority to either assign the SBL Holder a comparable seat or return the unamortized portion of the SBL if no such comparable seat exists.
These referenced agreement provisions are documented in Attachment 1.
NFL Approval
Based on a 2019 NFL approval letter and subsequent discussions with the Stadium Manager, it is the Stadium Authority’s understanding that the NFL holds full authority to annually review and approve the seating structures prior to each season. Any changes to the field seat locations and set up require additional NFL approval. Stadium Manager/StadCo submitted a May 20, 2022 letter from the NFL that provides conditional approval for 44 seats in the North end zone and 26 seats in the South end zone (approval letter is attached to corresponding report #22-580) for the 2022 NFL season; however a new NFL approval will be required for changes to the field seat configuration that are currently in the design process. It is anticipated that the field seat configuration will provide a total of 70 seating positions, including three (3) ADA wheelchair positions and 3 ADA companion seats. The financial projections do not forecast any SBL revenue from the six (6) ADA positions but do include the 10% ticket surcharge revenue from tickets for those 6 positions that will be sold to ADA patrons. Stadium Manager/StadCo staff has also advised that the NFL will typically provide their annual approval in early June of each year.
Summary of Board Action on Previous Proposals
The Stadium Authority first initiated the discussion of assigning SBLs to the field seats in the North and South end zones during the 2018 NFL season when field seats were installed without assigned SBLs. The Stadium Manager responded that the temporary nature of the seats did not make for optimal conditions to assign SBLs due to the NFL’s requirement to annually approve the installation of the field seats.
The potential assignment of SBLs to field seats was also discussed during Summer 2019 when the Stadium Manager submitted permit applications for field seats on the playing field for NFL games during the 2019 NFL season and, separately, proposed developing an SBL pricing plan for the seats. In the end, the seats were installed by the Stadium Manager for the 2019 NFL Season without SBLs.
In April 2020, the Stadium Manager submitted a proposal to add SBLs to the field seats and requested that the proposal be submitted to the Stadium Authority Board for consideration. The 2020 proposal was presented to the Stadium Authority Board on May 14, 2020 while the regional and State’s Shelter in Place Orders were in full effect. At that time, staff expressed the following concerns regarding the proposal:
1. Stadium Manager proposed the sale of a product, of a temporary nature, that would be amortized over a 30-year life but could not guarantee its availability each year.
2. Annual renewal of the temporary field seats depends entirely on the NFL’s approval.
3. Stadium Authority must guarantee the replacement of a comparable option to make the SBL Holder whole if the seats are not approved in any given year or return the unamortized portion of the SBL.
The Stadium Authority Board took no action on the Stadium Manager’s 2020 proposal in order to receive further information from the State and Santa Clara County on how large sports gatherings will be conducted in response to the COVID-19 pandemic for the 2020 NFL season and directed the Stadium Manager, after such information about the 2020 season was received, to continue to develop a “similar instrument” proposal that addressed the Stadium Authority’s concerns.
The Stadium Manager submitted another SBL proposal in May 2021 to add SBLs priced at $10,000 per seat to the field seats. On June 8, 2021, the Stadium Manager’s proposal was presented to the Stadium Authority Board. In addition to some of the concerns outlined above, the report included discussion about the Reserve Ticket Price, which the Stadium Authority receives 10% of as NFL Ticket Surcharge revenue as outlined in the Non-Relocation Agreement. The Board took action to direct the Executive Director to engage in discussions with the Stadium Manager over pursuing the SBLs, provide alternative schemes for licenses, and engage in a discussion on how to maximize the reserve price for tickets for the field seats.
This report is in response to the Board’s June 8, 2021 direction.
DISCUSSION
On April 19, 2022, the Stadium Manager submitted a proposal to add SBLs priced at $10,000 per seat to the field seats in the North and South end zones of Levi’s Stadium. Stadium Authority and Stadium Manager/StadCo staff met on May 4, May 25, and June 9 to discuss the proposal. Through these discussions, Stadium Authority and Stadium Manager/StadCo staff discussed increasing the SBLs to $17,500 and the Board’s June 8, 2021 direction.
As a follow up to the Board’s direction, staff inquired about the Reserve Ticket Price. In response as to whether there was any flexibility to increase the Reserve Ticket Price (wherein the Stadium Authority receives 10% of as NFL Ticket Surcharge), Stadium Manager/StadCo staff indicated that the 10% ticket surcharge is calculated in accordance with terms of the Stadium contracts (specifically the Non-Relocation Agreement) and the 49ers are not amenable to renegotiating the contracts at this time.
On June 16, Stadium Manager/StadCo submitted an alternative proposal that priced the SBLs at $17,500 for the field seats. Stadium Manager/StadCo indicated that increasing the price from $10,000 to $17,500 will make it more challenging to sell the SBLs, and that it will take longer to sell the SBLs at the higher price point; however, the overall economics for the Stadium Authority are better at the $17,500 price point even with a lower sell through rate. This $17,500 pricing alternative assumes that the majority of the field seats with SBLs priced at $17,500 would be sold over three years. While 70 seats will be available, the financial projections do not include anticipated revenue for: SBLs for the ADA and ADA companion seats as well as for 6 of the 64 remaining seats due to potential sight line obstructions and overall pricing. The 10% NFL Ticket Surcharge for all seats have been included in the projections. Based on these assumptions, the Stadium Authority’s projected revenue at a price point of $17,500 totals $1,651,953 over the life of the SBLs, compared to total revenue of $1,154,031 at the $10,000 price point.
Staff recommends Board approval of the $17,500 pricing alternative for the field seats based on various factors, including:
1. Field seats provide a unique, premier fan experience with close proximity to players on the field compared to other seats in the stadium bowl; however the sightlines from the seats are often considered less attractive than other seating options for two reasons: they are not elevated above the field so the views are often obstructed by camera crews/ event staff, and their position in the end zone (rather than along the yard lines) limits the view of the action on the rest of the field.
2. Pricing of SBLs throughout the stadium - Currently, there are SBLs priced at $6,000 in each end zone directly behind the field seats (e.g. Sections 101-105), and there are SBLs priced at $6,000 to $12,000 in the lower level along the yard lines (at Sections 111, 112, 118 and 119). Those seats do not have access to the Clubs;
3. Stadium Manager/StadCo has indicated that the field seats may have access to certain club areas, however the specific club areas have yet to be determined, may be changed from time to time, and are likely to have a more circuitous access route than the club seats that have dedicated club access.
4. Limited number of seats (70 seats or less); and
5. Additional revenue for the Stadium Authority compared to the $10,000 SBL proposal.
Because these seats are temporary in nature, the Stadium Authority cannot guarantee that they will be available for the life of the stadium, and if they are removed for any reason, it is unlikely that there will be a relocation option that will be acceptable to the customer. Accordingly, the Stadium Authority will carry the obligation of refunding the unamortized portion of the SBL to the customer in the event the seats are removed.
The Stadium Authority’s refund customer obligation will change over time. The potential refund amount if the seats are not available adjusts per year due to 1) the requirement that only the unamortized portion needs to be refunded if there are no comparable seats available and 2) the timing of the receipt of payment. Since the Stadium Authority is not paying any upfront capital costs to install the seats, the Stadium Authority will always be in a net positive revenue position even if it has to make refunds to the customers at some point in the future.
StadCo has committed to the following obligations as part of this year’s SBL proposal:
1. Stadium Authority will not be responsible for paying any complimentary food and beverage amenities/costs provided to these field seat SBL Holders.
Staff Analysis: The potential responsibility of paying for food and beverage amenities was a major concern for the Stadium Authority during consideration of prior years’ proposals. There are significant costs associated with providing complimentary buffet to SBL Holders that have such amenity outlined in their SBL agreement. Without this guarantee, food and beverage costs to the Stadium Authority could likely outweigh the projected revenue that could be generated by adding SBLs to these seats. As such, StadCo’s commitment that the Stadium Authority will not be responsible for paying for any food and beverage amenities/costs provided for these field seats resolves this key concern.
2. StadCo agrees to extend the May 31, 2022 cutoff date to sell tickets for any field seats that do not have SBLs to July 31, 2022.
Staff Analysis: The Stadium Operations Agreement allows StadCo, as the Tenant, to sell tickets for seats that don’t have SBLs by May 31 of each calendar year for the immediately following NFL Season. Any SBL Agreement applicable to such seats entered into after May 31 of any calendar year shall be effective only for Non-NFL Events and, unless the Parties otherwise agree, subsequent NFL Seasons. StadCo’s agreement to extend the cutoff date to July 31, 2022 for the field seats provided Stadium Authority and Stadium Manager/StadCo staff additional time to discuss the proposal in more detail and come to agreement about these commitments. The extended cutoff date also provides the Stadium Manager’s SBL team additional time to sell SBLs. If the Board approves staff’s recommendation, the SBL team will have over a month to start selling SBLs for the field seats.
3. StadCo will be responsible for any initial capital costs and for any future capital improvements, maintenance, repairs, and replacements related to the field seats.
Staff Analysis: Capital improvements, maintenance, repairs, and replacements can have significant costs to the Stadium Authority as the owner of the Stadium. The StadCo proposal relieves the Stadium Authority of financial responsibilities associated with the field seat improvements now and over time.
Should the Board approve the sale of SBLs (at any price point) for the field seats, the Stadium Authority would assume the following risks and liabilities, several of which have been previously communicated to the Board through prior reports on:
• Any SBLs assigned to the field seats are amortized over their 30-year life, but the Stadium Authority, Stadium Manager, and StadCo cannot guarantee its availability each year.
• Annual renewal of the temporary field seats depends entirely on the NFL’s approval.
• If a seat is not available, SBL agreements require the Stadium Authority to guarantee the substitution of a comparable SBL or refund the unamortized portion of the SBLs.
• The Credit Agreement requires SBL proceeds to be used for debt repayment upon date of receipt. As such, the Stadium Authority cannot hold on to any SBL revenue from these field seats to be used for any potential refunds if no comparable seats are available and would need to find alternative funds to refund the unamortized portion of the SBLs.
If the Board approves adding SBLs to the field seats (at any price), staff recommendation includes authorizing the Executive Director to negotiate and execute an agreement with Stadium Manager/StadCo to formally document the new obligations and commitments of the parties related to the field seats. Separately, staff also recommends authorizing the Executive Director to work the Stadium Manager to make modifications to the SBL agreement template to include, among other items, a disclosure that field seats are subject to annual NFL approval and provide clarifications and clean up language that is consistent with the SBL agreement that is included in the Stadium Lease. Once a new SBL agreement template is administratively approved, any new SBLs that will be executed will use that form.
ENVIRONMENTAL REVIEW
The potential environmental impacts of the project are addressed within an Environmental Impact Report (EIR) prepared for the development and operation of the stadium and related approvals (“49ers Proposed Stadium, 4900 Centennial Boulevard”) in accordance with the California Environmental Quality Act (CEQA). The EIR analyzes project-level impacts of the stadium including the potential for up to 75,000 seats.
FISCAL IMPACT
Stadium Manager/StadCo’s updated proposal to add SBLs priced at $17,500 to the field seats projects Stadium Authority revenue will total $1,651,953 over the life of the SBLs (of which $304,246 is attributable to the NFL Ticket Surcharge). The anticipated revenue is based on the assumptions outlined above for the respective proposal and was provided by Stadium Manager/StadCo.
The Stadium Authority’s obligation for customer refunds will change over time. The potential refund amount if the seats are not available adjusts per year due to 1) the requirement that only the unamortized portion needs to be refunded if there are no comparable seats available and 2) the timing of the receipt of the SBL payment. Since the Stadium Authority is not paying upfront capital costs to install the seats, the Stadium Authority will always be in a net positive revenue position even if it has to make refunds to customers at some point in the future.
If SBLs are not sold for the seats, the Stadium Authority anticipates receiving $304,246 in NFL Ticket Surcharge.
The commissions associated with the sale of SBLs can be accounted for in the overall SBL Sales and Services portion of the Stadium Authority FY 2022/23 Operating Budget.
COORDINATION
This report has been coordinated with the Treasurer and Stadium Authority Counsel’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. Approve Stadium Manager/StadCo’s recommendation to add and sell SBLs priced at $17,500 per seat for the field seats located in the North and South end zones of Levi’s Stadium;
2. Authorize the Executive Director to negotiate and execute an agreement with StadCo regarding their obligations related to the field seats consistent with what is described in this report prior to the Stadium Manager selling SBLs for the field seats;
3. Authorize the Executive Director to work with the Stadium Manager to make modifications and provide clarifications and clean up language to the SBL template form that is in compliance with the Stadium Lease; or
4. Take no action to approve SBLs for the field seats located in the North and South end zones Levi’s Stadium.
RECOMMENDATION
Recommendation
Alternatives 1, 2 and 3.
1. Approve Stadium Manager/StadCo’s recommendation to add and sell SBLs priced at $17,500 per seat for the field seats located in the North and South end zones of Levi’s Stadium;
2. Authorize the Executive Director to negotiate and execute an agreement with StadCo regarding obligations related to the field seats consistent with the staff report prior to the Stadium Manager selling SBLs for the field seats; and
3. Authorize the Executive Director to work with the Stadium Manager to make modifications and provide clarifications and clean up language to the SBL template form that is in compliance with the Stadium Lease.
Staff
Prepared by: Christine Jung, Assistant to the Executive Director
Reviewed by: Ruth Shikada, Executive Director’s Office
Approved by: Rajeev Batra, Executive Director
ATTACHMENTS
1. Relevant Agreement Provisions