Santa Clara Borrows Against Odds of Gain With 49ers — Businessweek

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Santa Clara Borrows Odds of Gain With

By Darrell Preston and Aaron April 19, 2012

The proposed new for the San Francisco 49ers, is seen in artist’s rendering. Source: San 49ers via Bloomberg

Michele says Santa Clara, a Valley city of 116,500, by betting it can build a $1.18 stadium for the National Football San Francisco 49ers without taxpayers.

Elected officials, in $950 million for the project firms led by Goldman Sachs Inc. (GS:US ). went the $114 million investment by voters, says Ryan, who high school mathematics. for the field is today, with the planning to move in for the 2014

“What happens if this work?” Ryan, chairwoman of the group Santa Clara Fair, said by telephone. don’t want to ask those

Santa Clara is wagering on the most-popular sports league, U.S. cities that owe at $10 billion combined for professional venues, according to data by Bloomberg. Atlanta, Minneapolis and San are in talks to borrow hundreds of of dollars more, while a by Harvard University’s Judith Long suggests that investments generate little benefit and typically cost about 40 percent more forecast.

Santa Clara, to chipmakers Intel Corp. ) and Nvidia Corp. (NVDA:US ). using its general fund or tax to pay for its plan. By relying instead on stadium revenue, including the of naming rights and personal-seat along with $200 from the NFL, the city is what may be the largest per-capita for any municipal sports facility. Its spending reached $138.3 in fiscal 2011.

Revenue Variables

The size of the unfunded liability hinges on how a sponsor would pay to put its name on the and the amount fans agree to over to guarantee a seat, as as the economy and the team’s business said Roger Noll, a emeritus of economics at nearby University.

“The thing makes this such a dog is Santa Clara first of all is a town,” Noll said by “There’s some amount of hit the city could probably but the probability that it’s to exceed that is certainly not

Santa Clara is about 45 (72 kilometers) south of San Francisco, the 49ers missed a chance to go to the Bowl when they their conference championship to the New York Giants in January. The hasn’t played for the NFL title 1995 and made the postseason year for the first time in a In December, two power outages at the seat Candlestick Park up a nationally televised game.


After a year of the 49ers said in 2006 the team would move to Clara, the site of its headquarters and a center, and leave 52-year-old Park.

Unanswered questions remain what happens when the from Goldman Sachs and 15 firms matures in 2015 and has to be said Jamie McLeod, a Council member who opposed financing. The cost of subsidies has for facilities including the Louisiana in New Orleans, Lucas Oil Stadium in and in Ohio, where Cincinnati is a hospital to cover debt for used by Major League Reds and the NFL’s Bengals.

seen a lot of cases where want to limit their and have to be bailed out by the public,” said. “The bottom-line I have is how water-tight are the legal that are supposed to shield the

City Shield

The protections placing ownership of the 68,500- facility with the Santa Stadium Authority, a city set up to arrange the loan and finance the Gregory Carey, who heads the Sachs infrastructure group in New told the council in March the loans were oversubscribed and the team’s Forty Niners SC Co. would cover cost

Bob Lange, a team spokesman, respond to a telephone call and an seeking comment on the plan.

The debt will be less $600 million when refinanced, which may be as soon as Carey said.

“We’re probably going to be back with somewhere a $575 million loan is a combination of the authority and StadCo,” said. “But we feel have gone exactly as which is very unusual in and we feel very, very about the position we’re

Cost of Loan

The loan cost about $78 million, fees and interest during and must be refinanced by September either with new lending or long-term debt. Goldman won the business “because it had the most terms,” said Alan the assistant city manager who the deal.

Interest will be set on the 90-day London interbank rate, or Libor, which 1.02 percent last plus 3.25 percentage Kurotori said. Libor is a benchmark that reflects the at which banks in London are to lend to each other for a time period.

The football that has played in San Francisco 1946 has agreed to stay in the Valley city for at least 40 with the possibility of extensions, said. The 49ers, whose won’t change, must pay to the Santa Clara stadium it becomes obsolete.

The agreement fans shoulder the loans of Santa Clara taxpayers, said at a March council The facility’s financial and maintenance belong to the team’s corporation and not the authority, he said.

Buffered Risk

“There are layers of protection,” said “If they wanted to leave, would have to pay off the loans and the stadium.”

City taxpayers need to cover any of the costs, the loan was made to the stadium which was created last to handle the project. Revenue from the facility, such as and other payments from the is to be used to cover debt

“What happens a few years the stadium is built and they to pay remains to be seen,” councilwoman said, referring to the team. told that they the city, but there are still in my mind about the risk the is taking.”

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Although the city’s fund is supposed to be spared, the problem for the taxpayers of Santa becomes inadequate debt said John Vrooman, economist at Vanderbilt University in Tennessee.

Team Commitment

the funding will come the team, and the 49ers’ commitment to the debt “is less than an guarantee,” said Stanford’s If the team reneges on the deal, the only alternative is “to let it go bankrupt.”

creditors will own the stadium the city kicks in millions of of financial support,” said “The guarantee from the only works if it works.”

are “the worst thing you possibly build” from a economic perspective, Noll Public subsidies for sports cost taxpayers an average of 40 more than planned for 99 built through 2001, to research by Long, who teaches planning at Harvard in Cambridge,

The deal is different than a measure authorizing the project passed in 2010, McLeod Although cost wasn’t she said a term sheet that the city would to investing $114 million in the and borrowing $330 million the authority. The public didn’t the amount of the loan until than a year later, said.

Unsuccessful Battle

Clara Plays Fair the plan as the borrowing level collecting signatures on a petition a new referendum, said Ryan, the chairwoman. A judge rejected the bid month, clearing the way for today’s

“We’ve done everything we can to the taxpayers and the general fund risk,” said Kurotori, the city manager.

Taxpayer haven’t been detailed $75 million from municipal and special districts, plus a hearted promise prohibiting the use of Clara city funds for or operating the 49ers stadium,” said.

“The wording of the has been vague and confused the beginning,” Vrooman said. “If a professional sports club public money, then the should be privy to quasi-public

Following are descriptions of coming

ILLINOIS, Moody’s Investors lowest-rated U.S. state, to sell $1.8 billion in refunding debt as soon as 30, according to the ratings company. The may save more than million in interest costs on a net value basis, said a from the company. Moody’s the securities A2, sixth-highest. (Added 18)

NEW JERSEY ECONOMIC DEVELOPMENT plans to offer about million of tax-exempt bonds and $22 in taxable debt by competitive as soon as next week, to an offering document. The proceeds be used to fund or refinance the of school facilities projects. SP the bonds A+, fifth-highest. (Added 18)

To contact the reporters on this Darrell Preston in Dallas at Aaron Kuriloff in New York at

To contact the editors responsible for story: Stephen Merelman at Michael Sillup at

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