Our City is now in the middle of a very expensive arbitration with the San Francisco 49ers.
This million dollar expense was not in our budget.
The 49ers did not want to enter arbitration, they just wanted Santa Clara to honor their contracts.
When our Mayor and City Council decided not to honor the Stadium Lease contract, the 49ers did not sue the City. The contact terms mandate arbitration to resolve disputes instead of litigation—a more objective way to obtain a legal decision.
Both sides get to state their case and all the pertinent facts are laid on the table. These facts, contracts, agreements and arguments are presented by high priced lawyers.
Here is the substance of the issue:
The City and the 49ers formed a partnership in 2012. The 49ers by contract, agreed to pay the City $25 million a year in rent the first year. This amount was more than double what any other football team in the NFL pays for their stadium.
Our partnership with the 49ers also included an agreement that they would manage and operate the stadium. Not only for NFL games, but for other events as well.
This would include big shows like Taylor Swift, Beyonce and Wrestlemania, from which the City’s General Fund receives at least $175,000 per show and about $400,000 goes into the Stadium Reserve and Discrentionary Fund.
In addition to these headliner shows, the stadium hosts private parties for Silicon Valley companies, and there were hundreds of those.
Based on the 49ers’ management skills, the $25 million in rent would be increased if they made less revenue than projected or the rent would be reduced if they did a great job.
Contrary to what some people have been saying, the 49ers did an exceptional job.
Now that’s the problem.
According to the contract, the $25 million in rent would be reduced in direct proportion to the excess earnings generated by the 49ers management team. This worked out to about $7 million a year or a new rent amount of $18 million a year.
This is the rub. The contract states that the new rent amount will be set in stone for the next 30 years. Now you can see that $7m x 30 years is a lot of money.
Our Mayor, who proposed the motion, voted for it as a Council Member and signed this agreement, also realized after the first year this was a lot of money.
Rather than renegotiate the agreement and arrive at a compromise, she has done her best to discredit the 49ers management of the stadium.
This campaign of disparagement includes the much touted $200,000 audit that has turned out to be a total bust. Even our City staff questions the auditors’ assumptions.
In Silicon Valley, rewarding success has been our culture for decades. The 49ers stadium management has produced millions for Santa Clara. By contract, their rent should be reduced as their reward and as agreed.
It just seems that we would make more money with honey than with another law suit.