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Santa Clara Stadium Authority Board Seeks More Information for Fiscal Year 2019-20 Budget Proposal

Forty Niners Stadium Management Company’s budget request highlights poor management, lacks transparency, and demonstrates resistance to accountability and oversight

Post Date:03/21/2019 9:42 AM

Santa Clara Stadium Authority SC_Logo_Tag_rgb_RESIZED FOR eNOTIFY

 

FOR IMMEDIATE RELEASE: Thursday, March 21, 2019

 

CONTACT: Lenka Wright, Director of Communications, 408-615-5515 or lwright@santaclaraca.gov

 

Santa Clara Stadium Authority Board Seeks More Information for Fiscal Year 2019-20 Budget Proposal

Forty Niners Stadium Management Company’s budget request highlights poor management, lacks transparency, and demonstrates resistance to accountability and oversight

  

SANTA CLARA, Calif. – During Tuesday night’s study session, the Santa Clara Stadium Authority Board had more questions than answers about the Stadium Authority’s proposed Fiscal Year 2019-20 Operating, Debt Service and Capital Budget, and the proposed 2019 Non-NFL Events Marketing Plan. That’s because the Forty Niners Stadium Management Company (ManagementCo) didn’t send representatives to attend the meeting.

The Stadium Authority Board is now considering what action needs to be taken against ManagementCo because of the lack of documentation and responsiveness with its budget submissions. The Board also indicated that the Marketing Plan cannot be supported in its current state due to incomplete information.

The Stadium Authority is the public entity that owns Levi’s® Stadium and contracts with ManagementCo for facility operations and maintenance, as well as the promotion of non-National Football League (NFL) events. The Stadium Authority is charged with presenting the upcoming fiscal year budget request to the Stadium Authority Board for its consideration. This year, ManagementCo’s budget request arrived with last-minute, significant monetary adjustments and a lack of backup financial documentation to support their position.

Following a public hearing scheduled for 7 p.m. Wednesday, March 27, the Board will consider whether to adopt the Stadium Authority’s proposed budget and non-NFL Events Marketing Plan. This decision will likely depend on what information is provided by ManagementCo between now and next week’s meeting.

 

Background

Currently, the proposed operating budget amount of $73.6 million represents a decrease of $58.5 million, or a 44 percent reduction, compared to the previous fiscal year. This significant decrease is primarily due to ManagementCo’s failure to adequately forecast revenue and expenses for non-NFL events consistent with the standard of care that ManagementCo agreed to in the Management Agreement. Instead of providing the Stadium Authority with even ballpark numbers about the profitability of events they schedule, ManagementCo insists they can only calculate whether the event was profitable after the fact. ManagementCo’s approach to this year’s budget process is a radical departure from prior years. As a result, the Stadium Authority made its own projections based on past averages, booked events and available financial information.

The Standard of Care provision (2.9) in the Stadium Management Agreement requires the stadium manager to exercise “prudent, commercially reasonable good faith efforts in managing and operating the stadium.” Both the Stadium Authority and ManagementCo are also tasked with maximizing operating revenues, while both parties are charged with controlling operating expenses.

In January 2019, ManagementCo announced that its estimated net non-NFL event revenue was drastically lower than forecasted, coming in at $750,000 for events held in current fiscal year 2018/19 compared to over $5 million in previous years. ManagementCo was unable to provide supporting information to the Stadium Authority of how such an amount was calculated when compared to previous years. In addition, the documentation provided to the Stadium Authority by the ManagementCo over the past nine months shows higher returns and does not support their new FY 2018/19 projections. The ManagementCo has not provided supporting documentation to show how the financial condition has changed so rapidly and drastically.

For FY 2019/20, the $73.6 million proposed operating budget is supposed to provide funding for the Stadium Authority to carry out its duties, including:

  • Support for operating the stadium for non-NFL events through ManagementCo;
  • Advancement of the FY 2019/20 Work Plan;
  • Payment of debt service obligations; and
  • Maintenance of a five-year capital plan.

However, the proposed budget numbers are in a state of flux. ManagementCo has been proposing new expenditures up to the last minute, changes, or inconsistent budget projections, even while it has provided no explanation for the sudden loss of net revenue. For instance, information related to the lender-required two-year cash budget and additional costs in the millions of dollars was provided just last Thursday, March 14, in the late afternoon. These details came two months after ManagementCo’s initial budget submission and too late for Stadium Authority staff to analyze the new figures and understand their implications for the proposed budget.

Part of this late submission by the ManagementCo was information related to the performance rent paid to the City from non-NFL events, which was proposed to be zero. In the past, performance rent averaged $2.6 million. As noted in the Oct. 1, 2018 news release, ManagementCo continues to book events that lose money instead of revenue-generating special events. This practice has meant that soccer games and most concerts, which typically make money, are mostly covering the losses of non-NFL football games.

Also, on Thursday, March 14, ManagementCo submitted an additional $2.8 million in budget revisions for services related to sales and marketing staff, ticket operations, IT staff for non-NFL events, additional administrative staff, and SBL buffet-associated costs. The original request was roughly $500,000, up from approximately $100,000 the year before. These developments raise serious questions about ManagementCo’s ability to manage this public asset and their financial management of their own expenditures

Other proposed budget highlights are noted in the FY 2019/20 Work Plan, such as:

  • Next steps on the establishment of a Community Room
  • Access to the San Thomas Aquino Creek Trail during events
  • Continuously improving the Stadium Authority’s multi-deployment model with an emphasis on law enforcement deployment methodology and neighborhood protection
  • Stadium Authority Auditor’s annual Audit work Plan which includes analysis on review procedures for non-NFL events’ revenues and expenses, and reviewing financial reporting policy for best practices

The proposed budget provides a work program and financial strategy that ensures that no City General Fund monies are used to fund Stadium costs, provides Board oversight of its property manager, and seeks to hold the Stadium Authority and ManagementCo accountable to the various agreements.

 

About the City of Santa Clara

Located at the heart of Silicon Valley about 45 miles south of San Francisco, the City of Santa Clara truly is “The Center of What’s Possible.” Incorporated in 1852, Santa Clara covers an area of 19.3 square miles with a population of 120,000. Santa Clara is home to an extraordinary array of high-tech companies, including Applied Materials, Hewlett-Packard, Intel, Nvidia, Oracle, and Ericsson. The City of Santa Clara is also home to Santa Clara University, California’s Great America Theme Park, and Levi’s® Stadium, home of the San Francisco 49ers and Super Bowl 50. For more information, go to www.SantaClaraCA.gov.

About the Santa Clara Stadium Authority
Established to provide for the development and operation of Levi's® Stadium, the Santa Clara Stadium Authority exists as a public body, separate and distinct from the City of Santa Clara. The seven elected members of the City Council serve as the governing board for the Stadium Authority. The mayor serves as chair of the Stadium Authority, with the city manager as the executive director and the city attorney as the Stadium Authority’s general counsel. The City is not liable for the debts or obligations of the Stadium Authority.

 

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