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Santa Clara City Observer: Nov. 23, 2016

O’Neill Finds a Middle Way on Stadium Contract Showdown

At last week’s City Council meeting, Santa Clara Vice Mayor Teresa O’Neill offered a lesson in leadership, finding a consensus that gave the city’s consultant, public agency management consulting firm Harvey Rose and Assoc. (HRA) a week to examine Levi’s Stadium financial documents before the Council acts on Mayor Lisa Gillmor’s demand that the city issue a 30-day breach of contract notice to the 49ers stadium management company, ManCo.

At 2 p.m. Stadium Audit Ad Hoc Steering Committee members – Gillmor, O’Neill, Council Member Patrick Kolstad and City Manager Rajeev Batra – received an email from HRA consultant Fred Brousseau saying that the 49ers’ stadium management entity, ManCo, had provided, or would provide at 49ers headquarters, information about Levi’s Stadium events that, at 8 p.m., Gillmor claimed hadn’t been provided.

For weeks Gillmor has been threatening to “take over” Levi’s Stadium, claiming that the 49ers are refusing to supply documentation to the Measure J Audit Committee. Tuesday, Gillmor’s plan was to find ManCo in breach of the 2012 stadium management agreements, and send a 30-day notice.

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Davis opened the discussion with the motion to send the notice, saying that “we need to do what we need to do.” Council Member Dominic Caserta proposed a two-week delay while the consultant reviewed the new information.

Indicating that she wasn’t going to support a delay, Council Member Kathleen Watanabe said, “I’m here to support my mayor. I’m proud of everything the mayor has done.” She said she didn’t “see any other way to get the 49ers to comply.”

Gillmor’s threats brought their own blowback, namely, a meeting packed with Levi’s Stadium employees and 49er fans who came to register their dissatisfaction; telling the Council to “dial down the rhetoric,” calling Gillmor’s accusations “a witch hunt,” the Mayor herself “a bully,” and the Council’s conduct reckless.

“You have some of the best events,” said retired Sherriff’s deputy Ted Atlas, “You did something no one has done in California. You did it and now what I hear is, we have this great partnership and let’s trash it. You think you can run the stadium. You cannot.”

This protest angered some of Gillmor’s followers. And they took to social media and the podium to protest Gillmor’s critics taking equal advantage of the first amendment.

After more than two hours of public comment, O’Neill proposed a compromise, which drew on her experience negotiating contracts for HP. “I respect the job stadium employees do every day, just as I respect what the city employees do every day,” she said.

“This is no way meant as disparagement of anybody wearing a red shirt in this room. I respect your loyalty and it speaks to who you are. It’s too bad things have gotten rancorous.”

“We’re not trying to take [sensitive] information and put it out in the public.” But a budget on “half a page” for “all the work that has to be done to keep a billion dollar stadium operating” raised red flags for her.

“I know the mayor won’t like this, but if this information is truly ready for Harvey Rose I suggest we postpone one week,” adding, “I have been in contract situations where someone threw a termination letter on me, and I was ticked.”

Davis accepted O’Neill’s amendment and it passed unanimously. Before the vote, Gillmor had the last word, telling 49ers employees, “We’re sorry you had to come here tonight. Had your management provided the documentation they were required,” they wouldn’t have had to. “Nobody wants to take your jobs,” a threat she dismissed as management strategy. “If there’s anger, talk to your management.”

Many Documents Demanded Not Called Out in Contracts

Gillmor says that “documents” that should have been provided to the SCSA were not and that she has been asking for them for “a long time.”

The Mayor has never, so to speak, documented what documents she was looking for nor detailed when she asked for them. Her answer to this question is that she wants the documents that the stadium contracts require the Stadium Manager to give the Stadium Authority Board.

Searching City Council minutes doesn’t reveal demands from the Mayor prior to a few months ago. O’Neill, however, has been asking since at least March for clarification of underlying financial forecasting methods used by city consultant Keyser Marsden Assoc. to develop the 35-year budget on which the facilities rent is based. At the time it was claimed the method was proprietary.

The contracts don’t enumerate documents that must be provided to the stadium board on a schedule except the annual audited statement of operations, and the Shared Stadium Expense Budget, Public Expense Budget and Capital Expenditure Plan which are to be “presented … as described in the Stadium Lease.” Section 8.5 of the lease says this is part of “the Annual Stadium Authority Budget.”

Article 4 of the Management Agreement, “Records, Accounts, Budgets and Reports,” describes operating procedures and policies the stadium manager must develop and maintain, and records the manager must keep, budgets and plans the manager must prepare. The form and method of reporting is open to interpretation. Further, much of the information is to be provided to the SCSA Executive Director, the City Manager, at the CM’s discretion.

The annual independent financial audits since 2013, prepared by public accountants KPMG, can be found at santaclaraca.gov/government/stadium-authority. All stadium audits have been clean reports with no irregularities found.

In its Nov. 21 report, HRA essentially found the SCSA in compliance. “The Lease Agreement calls for Stadium Authority to review and approve the plan and budget documents discussed above, though such approval is delegated to the Stadium Authority Director for approval, consent or waiver on behalf of the Stadium Authority…To the extent that the required plan and budget documents are provided to the Executive Director, the process is consistent with the provisions of the Lease Agreement.”

Gillmor is also demanding that she and other counsel members see the individual budgets for non-NFL events – in other words, details of deals ManCo negotiates with promoters. This is highly unconventional, according to several venue managers the WEEKLY spoke with.

Standard practice is that only total net event revenue or loss is shown in financial statements. The details of a deal are valuable information for competitors. Making that public would damage a stadium management company’s ability to realize top revenue for its client.

Over the last thee years, city finance staff – including staff accountants, the city finance director and accounting managers – have met more than 20 times with ManCo to review stadium operations financials, including event-specific budgets, according to a report by the city’s finance director.

Gillmor is also unhappy that stadium public safety costs are higher than predicted when the contracts were negotiated in 2011 and 2012, saying that if the public safety overruns didn’t have to come out of the stadium reserve funds – reserve funds come out of stadium revenue – more money would go into the city’s general fund.

As a Council Member, Gillmor negotiated and voted for all the stadium lease and management agreements.

City Can’t Unilaterally “Take Over” Levi’s Stadium

In many cases the management company is a company such as AEG, Spectrum, PMI or SMG whose sole business is managing venues. Sometimes, as in the case of Baltimore, the stadium authority manages its own venue. In Santa Clara, a 49ers affiliate manages the stadium.

The stadium management agreement is among three parties – the Santa Clara Stadium Authority (SCSA), the 49ers Stadium Company (StadCo) and the 49ers Stadium management Company (ManCo) – and can only be terminated by the agreement of all three parties. Termination would take more than two years. Likewise, a stadium manager can only be hired by the agreement of the SCSA and the 49ers.

Measure J says nothing about stadium management companies or reporting. Nor does any contract give the Mayor of Santa Clara special authority with regard to Levi’s Stadium. The Executive Director of the SCSA is the Santa Clara City Manager.

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