Santa Clara County Grand Jury • 2023-2024

Via Email; Hardcopy to Follow Via U.s. Mail September 11 , 2024 Honorable Beth McGowen Presiding Judge Santa Clara*

Published: September 11, 2024 14 pages

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⚠️ Aviso de traducción: Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

Note: Missing finding numbers detected: F6, F7, F8, F9, F10

Findings and Recommendations 8 findings

From the beginning, the City was impatient and overmatched in its negotiation posture with the 49ers to the long-term detriment of the City/Stadium Authority. Response to Finding 1: The City/Stadium Authority generally agrees with this finding in that the original Stadium agreements did include provisions that put the City/Stadium Authority at a disadvantage in a number of areas. City/Stadium Authority notes, however, that one primary objective of the City/Stadium Authority, to minimize the contribution of public funds and to protect the City's general fund from liability to the maximum extent possible, was achieved, as noted in the Civil Grand Jury's Finding 3.

Related Recommendations (1)

Given the long-term nature of the various agreements, the 49ers' sophistication, and the history of past disputes, the City/Stadium Authority should engage advisors with specialized knowledge to determine options to level the playing field. Response to Recommendation 1: The recommendation has been partially implemented and will continue to be implemented going forward. The Stadium Authority has and will continue to hire consultants with specialized expertise in areas including the following: legal, marketing, audit and financials, systems implementation, and security. Santa Clara City Council and Santa Clara Stadium Authority Board Official Response to Santa Clara Civil Grand Jury Report Entitled "Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers"

The City has not studied the actual economic impact of the Stadium. The 49ers have produced their own studies, which they use to tout long-term unverified benefits and frame all discussions surrounding the success of the Stadium. Response to Finding 2: The City/Stadium Authority agrees that it has not conducted a comprehensive study of the full (direct and indirect) economic impact of the Stadium. The City/Stadium Authority does have detailed information on "direct" revenues generated by Stadium operations to the City and the Stadium Authority. This information is presented to the Stadium Authority Board quarterly in the form of Stadium Authority Quarterly Financial Reports. These documents outline revenues and expenses from stadium events. Specific to revenues, the Quarterly Financial Reports outline the following revenues: Stadium Revenues Rent 0 NFL and Non-NFL Ticket Surcharge 0 Stadium Builder License (SBL) Proceeds Santa Clara City Council and Santa Clara Stadium Authority Board Official Response to Santa Clara Civil Grand Jury Report Entitled "Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers" General Fund Senior and Youth Fees Base rent Performance rent Sales tax All such reports have been provided to the Grand Jury and are available to the public on the Stadium Authority's website. To date, the City/Stadium Authority has not invested public dollars to conduct an economic impact study that examines direct and indirect financial benefits. While there are "indirect" economic impacts that benefit the City (e.g., hotel tax), this information has not historically been tracked and reported as "Stadium related" because it is difficult to ascribe to Stadium Authority operations based on the data the City and Stadium Authority receive. Regarding the most recent economic impact study conducted and released by the 49ers, the City/Stadium Authority has no comment as we were not consulted on any aspect of such study.

Related Recommendations (1)

The City should commission its own report to determine the Stadium's actual economic impact over the last decade. This recommendation should be implemented by July 1, 2025. Response to Recommendation 2: The recommendation requires further analysis before it can be implemented. There are clearly "indirect" economic impacts from Stadium operations that benefit the City of Santa Clara and the greater region, (likely increases in City transit occupancy taxes and sales taxes being the most obvious). However, looking at such information in hindsight and determining the amount of such revenues that should be ascribed to Stadium Authority operations would be extremely difficult. (See also, City/Stadium Authority response to Finding 2, above.) Before it proceeds with a comprehensive economic impact analysis, the City/Stadium Authority intends to analyze the appropriate methodology and time period for such an analysis. This analysis will be completed within the next 6 months. Based on the results of this analysis, the City Council/Stadium Authority Board will proceed with a comprehensive economic analysis of Stadium direct and indirect economic impacts.

Measure J's promise to protect the City's General Fund has been realized. The funding structure from the Stadium Lease has successfully allowed the Stadium Authority to pay off Stadium construction loans and fund required Waterfall reserves faster than originally planned. Response to Finding 3: The City/Stadium Authority agrees with this finding.

Related Recommendations (1)

The May 2024 settlement agreement gives the Board/City Council new flexibility to divert Excess Revenue from the Stadium Authority to the City's General Fund. When diverting Excess Revenue, the Board/City Council should be mindful of the long-term financial health of the Stadium Authority and request the Treasurer to produce a long- term plan for funding all required Stadium reserves, including reserves for capital improvements. This recommendation should be implemented by October 31, 2024. Response to Recommendation 3: The City Council/Stadium Authority Board agrees with this recommendation, and it will be implemented. The Treasurer will provide a report to the Stadium Authority Board showing a current projection of the long-term plan. In addition, a Facilities Condition Assessment is currently underway which will help to inform the Stadium Authority Board and staff of the appropriate level of capital improvement reserves necessary to maintain the Stadium. A recommendation will be brought forward upon completion of the Facilities Condition Assessment and for presentation to the Board during the next Budget Study Session in early 2025.

The City/Stadium Authority agreed to use ManCo, an affiliate of the 49ers, with an inherent conflict of interest to handle the Stadium Authority's financial interests in non- NFL events. Response to Finding 4: The City/Stadium Authority agrees with this finding that there are inherent conflicts of interest; however we also note that there are material advantages and efficiencies to having one entity manage the Stadium for both NFL and non-NFL events, and that this arrangement is not atypical for similar venues throughout the country. Of course, care must be taken to provide proper oversight and accountability where such an arrangement exists, and the City/Stadium Authority is committed to providing such oversight, with critical self-assessment and improvements where needed, going forward. Santa Clara City Council and Santa Clara Stadium Authority Board Official Response to Santa Clara Civil Grand Jury Report Entitled "Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers"

No recommendations for this finding

The City/Stadium Authority failed to ensure that the Management Agreement included a fair termination clause. Response to Finding 5: The City/Stadium Authority partially disagrees with this finding due to a lack of any clear definition of what would constitute a "fair termination clause." City/Stadium Authority does agree that the termination clause is not ironclad and that, as a result, the Management Agreement performance standards have been challenging to enforce.

No recommendations for this finding

F11

Per the Stadium Lease, the Stadium Authority failed to negotiate pertinent details about buffet costs in the contract, such as parameters on cost thresholds and alcohol. The Stadium Authority accepted responsibility for buffet costs but failed to follow up when the expense was omitted from ManCo's budgets. Response to Finding 11: The City/Stadium Authority partially disagrees with this finding. Although the buffet costs language in the Stadium Lease is not extensive, the understanding of the City/Stadium Authority staff at the time of negotiations for the original Stadium agreements was that Santa Clara City Council and Santa Clara Stadium Authority Board Official Response to Santa Clara Civil Grand Jury Report Entitled "Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers" buffet costs would be covered by Facility Rent paid by StadCo to the Stadium Authority. In hindsight, particularly since current City/Stadium Authority staff was not involved, it would not be fair, or useful, to now characterize this as a failure in City/Stadium Authority negotiations or "follow-up." It should be noted that any contract term ambiguity on buffet costs was addressed under the terms of the May 2024 Settlement Agreement with revisions to the Stadium leases that now impose clear limits (caps) on buffet cost reimbursements and add provisions for Stadium Authority audits of such costs.

No recommendations for this finding

F12

A Multi-Use Community Facility at the Stadium was one of Measure J's original promises and was memorialized in the Stadium Lease. The current designated space for the Community Room at the Stadium is not easily accessible nor is it pragmatic for most civic events. Response to Finding 12: The City/Stadium Authority agrees with this finding.

Related Recommendations (1)

R12

The Stadium is not an appropriate location for a Community Facility. The Stadium Authority should work with the 49ers to identify and procure an alternative space for community needs. This recommendation should be implemented by June 30, 2025. Response to Recommendation 12: The recommendation has not yet been implemented and further analysis is required to determine the existence and viability of alternative locations that are acceptable to both parties. City/Stadium Authority staff will aim to discuss with StadCo/ManCo and identify alternatives by June 30, 2025. However, it is important to note that if the agreed-upon . alternative includes relocation and/or facility modifications, it is unlikely that such changes can be made (implemented)

F13

The FIFA World Cup commitments for the City and the Stadium Authority were made without consultation with the City/Stadium Authority. Response to Finding 13: The City/Stadium Authority agrees with this finding. Current staff were not involved at the time, and the Stadium Authority does not have a record of substantive communications between staff and StadCo/ManCo regarding the original proposed terms for the FIFA World Cup event.

Related Recommendations (1)

R13

The Stadium Authority should insist on consultation and prior notice before any major Stadium event commitments are made. This recommendation should be implemented by December 31, 2024. Response to Recommendation 13: This is a matter of ongoing discussions between Stadium Authority and ManCo, with improved communications and opportunities for input already implemented. The Stadium Authority intends to further implement this recommendation as follows: Within the next two Non-NFL Event booking cycles, Stadium Authority staff's intent is to formalize this consultation and notice process, including Stadium Authority opportunities to approve certain major events in advance.

Additional Recommendations 4

These recommendations are not explicitly linked to specific findings.

R7

The Stadium Authority should retain the expertise needed to meaningfully weigh in on ManCo's Marketing Plan to ensure that the Stadium Authority's profitability is maximized. The Stadium Authority should also establish a yearly audit procedure to measure and analyze each season's Marketing Plan against its outcomes, updating Santa Clara City Council and Santa Clara Stadium Authority Board Official Response to Santa Clara Civil Grand Jury Report Entitled "Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers" future plans based on this analysis. This recommendation should be implemented by December 31, 2024. Response to Recommendation 7: The recommendation will be implemented within the next 6 months. The Stadium Authority retained the services of an outside expert to review ManCo's Marketing Plan in 2021 and will do so in the future. As noted in our response to Finding 10b, above, the Stadium Authority released a Request for Proposals and has awarded a contract to an independent consultant to study the market potential trends and financial performance for stadium events and concerts at publicly-owned venues. The Stadium Authority will attempt to obtain market-based revenue information. It is important to note that information for public facilities will be easier to attain; while we solicit information from privately-owned stadiums, it will be up to the discretion of those facilities to release such information. The Stadium Authority also plans to hire consultants in the future to assist with review and input for each year's Marketing Plan. Stadium Authority staff will also review the annual Marketing Plan against performance and industry baselines. Note, such a review is technically not an "audit" and is better characterized as a performance evaluation.
R8

As part of the Marketing Plan, Stadium Authority should require that ManCo produce a marketing plan that maximizes profits for the Stadium Authority and incentivizes ManCo marketing staff to prioritize the profitability of the Stadium Authority. This recommendation should be implemented by December 31, 2024. Response to Recommendation 8: The recommendation has been partially implemented, and additional efforts will be taken to provide ongoing oversight of ManCo's Marketing Plan going forward. Please see our aforementioned responses to Findings 8b and 10b, as well as Recommendation 7. It is also important to note that the sole objective of the Marketing Plan is not to maximize profits. There are other considerations, such as the impact on the City's reputation and booking of events that pose significant public safety and community impact challenges. Notwithstanding, the Stadium Authority believes that maximizing profits is an important issue and this will continue to be an ongoing matter that we address through oversight of ManCo's activities. Santa Clara City Council and Santa Clara Stadium Authority Board Official Response to Santa Clara Civil Grand Jury Report Entitled "Outplayed: Measure J, the City of Santa Clara, and the San Francisco 49ers"
R9

The Stadium Authority should review and ensure that it receives all a) non-NFL event ticket surcharges for all event attendees, and b) ticket revenue for all suite attendees owed to the Stadium Authority. This recommendation should be implemented by October 31, 2024. Response to Recommendation 9: The recommendation has been implemented to the extent possible and the Stadium Authority's ability to provide oversight and confirm receipt of appropriate revenue has greatly improved in the last two years since the implementation of a Financial Management System. Stadium Authority staff has access to ManCo's Financial Management System and currently reviews non-NFL event ticket surcharge and ticket revenue for suite tickets sold to ensure that Stadium Authority is receiving these revenues that are owed. Stadium Authority staff will continue to review this annually as part of the year end close and review of quarterly revenue information.
R10

The Stadium Authority should hire a professional third-party consultant, not affiliated with the 49ers, to analyze the reasonable expectations for non-NFL events such as: An analysis of the market revenue potential for non-NFL events at the Stadium. An analysis of ManCo's Marketing Plans, comparing successful (FY 2022-23) and unsuccessful (FY 2017-18) bookings to potential market revenue.

No Responses Found 1

Government entities assigned to respond to this report. No response documents have been linked in our database.

Santa Clara County Treasurer-Tax Collector Elected County Office

* This report's PDF did not contain easily extractable text and required Optical Character Recognition (OCR) for analysis. There may be minor errors in the extracted findings and recommendations due to OCR limitations with scanned documents.