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49ers Take Stadium Rent Dispute to Arbitration

Santa Clara’s dispute with San Francisco 49ers over Levi’s Stadium facility rent just got tenser. Yesterday the 49ers issued a public letter announcing they have filed for arbitration to enforce the stadium lease contract approved by Santa Clara City Council in 2013.

The dispute, going on since November, concerns the amount of the stadium facility rent – one of three elements of the total rent. It was set initially at $24.5 million for the stadium’s first full year of operation, based on a cost model created by Santa Clara’s consultant, Keyser Marsden.

The 40-year lease includes a one-time facility rent reset after the first year. If debt, interest or operating expenses change the facility rent is to increase or decrease likewise – retroactively as well as going forward. The initial 2012 lease agreement said explicitly, “Facility Rent is projected to be reduced over time.”

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Final stadium construction costs are $136 million less than forecast, seat license revenues are $140 million over forecast, and interest expense is $8.3 million under forecast. A $100 million variable rate bank loan was paid off last month, instead of in 2024. And seat license resale and default rates haven’t changed from the expected 2 percent.

Using the actuals in the financial model results in a facility rent of about $20 million.

However, a majority of the Santa Clara City Council – Mayor Lisa Gillmor, Vice Mayor Teresa O’Neill, and Council Members Debi Davis and Kathy Watanabe – refuse to acknowledge the contract’s terms or accept the financial model, even though Gillmor, O’Neill and Davis approved the 2013 lease terms. Instead, they allege that the 49ers are finagling for lower rent.

Meetings between the City and the 49ers since November have failed to produce agreement, according to the 49ers’ letter. These include private Feb. 25 and Apr.1 meetings with Mayor Gillmor, an “informal” dispute resolution meeting on Apr. 20, and discussions at two public meetings.

The City won’t disclose information about meetings and communications between City officials and the 49ers concerning the facility rent; saying that relevant documents can be withheld based on the exceptions to the California Public Records Act allowed by “Government Code section 6254(k) and Evidence Code sections 950 et seq.”

Now the dispute will be handed off to an outside arbitrator who will have the final word on the matter, letting Council Members avoid a contentious decision.

In arbitration, the arbitrator makes the decision – it’s not a negotiation. Unlike judges, arbitrators don’t have to follow the law or precedent in their decisions, which are difficult to appeal. And arbitration meetings aren’t public proceedings.

“There will continue to be serious discussion about this matter in the coming days,” said the 49ers letter. “It is imperative that the community has all the facts to understand the true nature of the dispute and why the costly, time-consuming process of arbitration is, unfortunately, the only remaining course of action. The 49ers organization has always been, and will continue to be, a committed partner to the community.”

The City released a statement early Tuesday evening in response to the 49ers’ letter.

“The Stadium Authority made the difficult decision to initiate the process for arbitration with the Forty Niners SC Stadium Company LLC (StadCo) regarding rent adjustment at Levis Stadium in March 2016 due to the dispute regarding the appropriate adjustment to Facility Rent required pursuant to Section 6.1.2 of the Stadium Lease.

“Since that time, a resolution has not been reached by the parties involved and as such, the arbitration process will continue. It is of the utmost importance to the Stadium Authority that the rent amount, when coupled with other revenue sources of the Stadium Authority, be sufficient for the operating costs, including public safety, and debt service of the stadium without the use of General Fund dollars.”

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