San Diego Sails Into Fiscal Wind : America’s Cup: The races will go on in 1992, but the pomp around them will be reduced because of economic circumstance.
It was the kind of calculated gamble that an expert yachtsman such as Malin Burnham might have risked on the water.
But when the America’s Cup Organizing Committee announced plans last year for an unprecedented America’s Cup festival, Burnham was not seeking a sailing trophy--San Diego already had the most prestigious one--but the fame and riches that such a gala could bring to its host city.
Backed by an array of civic leaders, Burnham, the committee’s president, and his colleagues sought support for an event that, if properly staged and promoted, would bring huge publicity and economic benefit to San Diego.
“I really plead with you today to trust our judgment about what it takes to do the job,” Burnham told the San Diego Board of Port Commissioners a year ago in an appeal for $9 million in public funds.
Now, amid an economic recession that has battered plans for the race and onshore festivities, the ACOC finds itself in a curious position: Still trying to sell the mega-event that is now only two months away.
But this time the organization must live down a disastrous May warm-up regatta that lost money at every turn, months of money problems that required a Port District bailout and ended in layoffs, hesitant corporate sponsors, unhappy creditors and over-inflated estimates of private sector revenue.
Still trying to stimulate public enthusiasm for what is called by many a rich man’s sport, the ACOC is trying to prove that the America’s Cup will live up to the billing the organization gave it a year ago and produce the kind of economic and public relations bonanza that San Diego so desperately wants.
Port Commissioner Lynn Schenk, the lone dissenter in the Port Commission’s vote to give the ACOC $8.3 million, part of its $27.5-million budget for the two-year extravaganza, said: “I felt at the time, and I continue to feel now, that they have an unrealistically inflated view of the popularity of this event with the general public and what it will mean financially.”
The ACOC’s financial problems are “certainly causing concern about what kind of event they’ll be able to pull off,” said Paul Downey, spokesman for Mayor Maureen O’Connor. “It’s critical to San Diego, because the eyes of the world will literally be upon us. It’s got to come off in a first-class fashion.”
ACOC officials and Cup boosters acknowledge some of the shortcomings of their efforts, but they believe criticism of their problems will be dwarfed by an event they compare to the Olympic Games and soccer’s World Cup.
Even if the regatta’s economic impact is less than the anticipated $500 million to $1 billion, as a consultant recently predicted, the Cup’s benefit to San Diego would be nearly four times that of the 1988 Super Bowl staged here.
“If we knew then what we know now about the economy, yes, we would have structured it differently,” said Tom Ehman, executive vice president of the ACOC. “But I don’t think we’ve oversold it in terms of the impact on the economy.
“We should have come in and lowered everyone’s expectations and then have them be pleasantly surprised, rather than coming in predicting what we still think will probably be a pretty significantly sized event,” he added.
More important, organizers say, is the lesson they learned when the lavish but poorly attended World Championship for International America’s Cup Class boats hemorrhaged money in May.
Promising a streamlined America’s Cup next year, they have trimmed their budget by $5 million, licensed the America’s Cup Center to a private corporation, canceled parties and receptions, trimmed the public relations effort, recruited more volunteer help and cut back on expensive exhibits at the America’s Cup museum.
“Our original thought was, ‘We have to be as good as, if not better than, Fremantle,’ ” the 1987 America’s Cup in Australia, said Tom Mitchell, the ACOC’s vice president for operations. “That’s what the media does, compare you to the last event. It became clear after the Worlds that we just couldn’t afford to do that.”
Even former critics of the ACOC’s operation say they are encouraged by the organization’s new focus on its area of expertise--putting on a race--and away from the peripheral parties and functions that caused it so much trouble this year.
“All they’re interested in is putting on a first-class race,” said Bruce Hollingsworth, Port District deputy director for administrative services.
Questions about how the event will proceed in 1992 seem almost a natural extension of the America’s Cup soap opera of the past four years.
In 1987, skipper Dennis Conner, sailing for the San Diego Yacht Club, reclaimed the 140-year-old trophy he had lost to the Australians four years earlier, sweeping Kookaburra III in four races off Fremantle, Australia.
But the club and its nonprofit arm, the ACOC, delayed naming a site and date for the next defense, during what critics described as an ill-fated attempt to wring the greatest amount of money out of a Cup defense.
The time lag gave New Zealander Michael Fay the opportunity to issue his surprise 1988 challenge for a one-on-one race. After a lengthy and expensive battle in the courts, Conner was forced to sail against Fay.
The United States prevailed in a controversial mismatch, sailing a light, quick catamaran against Fay’s much heavier monohull boat. Fay went back to court to contest Conner’s victory. Conner’s victory was upheld.
By the time that decision was reached, the ACOC had only 18 months to prepare for an event that organizers say requires twice the time, in a city where a full-fledged defense had never been staged. Compounding the problem, the organization was $4.6 million in debt from legal fees and the 1988 victory. And the economy was slowing.
Nevertheless, the ACOC proposed a $31-million event--after recalculating, officials now say that a more accurate figure would have been $27.5 million--and asked for more than $10 million in Port District funding, before being awarded $8.3 million.
The ACOC promised not only to stage the event, but said it would pay off old debts and bank money for a 1995 defense, should Conner or America-3 skipper Bill Koch retain the Cup for the United States. In addition, the ACOC decided to produce television coverage of the event in a bid to generate more revenue than would have been received by simply selling rights to ESPN.
But that was before the recession reduced the number of boats in the race, deflated the estimated attendance by visitors and cut the organization’s prediction of the number of reporters who will cover the event from as many as 5,000 to between 2,000 and 3,000.
Revenue from foreign television rights, which organizers had planned to spend during their year of preparation, lagged many months behind schedule as various European outlets waited to determine whether their nations would send boats to the race.
The ACOC also drastically overestimated the revenue that its marketing arm, America’s Cup Services, would generate. Instead of $5 million in net income that could be used to fund Cup events, ACS will funnel less than $1 million to the ACOC, Ehman said.
Having initially agreed not to compete with American defense syndicates for corporate sponsorships, the ACOC was heavily dependent on Port District funds, payments from its $5-million ESPN contract and a line of credit from Burnham’s bank during its formative and cash-poor months.
The ACOC’s free-spending ways soon conflicted with the frugal Port District’s practice of scrutinizing every nickel of reimbursement that the organization requested, creating a time lag that contributed to cash-flow problems.
“We’ve played hardball in a sense, because we want to make sure there’s going to be money to pursue the purpose that the (Port) board granted it for,” Hollingsworth said. “We’ve been fair, but we’ve been conservative.”
But the ACOC spent freely on the world championships, erecting a lavish village that cost virtually all the Port District funds budgeted for festivities during both the world championships and the Cup.
One week before the village was scheduled to open, a Port District advance of $332,836 was necessary merely to provide deposits for vendors.
Five months later, a separate Port District advance of $158,285 was needed to pay lingering debts from the event. Some vendors are still waiting for payments, although in most cases, payment schedules have been established.
Virtually everything associated with the event lost money. Even at $225 a ticket, the Worlds Ball did not break even. Sales of merchandise at the village, anticipated as a revenue producer for the ACOC, did not materialize because attendance was far below the 200,000 expected.
ACOC salaries, rumored to be in six figures for some top executives, also have drawn criticism. The organization refuses to release salary information, but Pete Litrenta, who was vice president for communications before being laid off in August, said he was earning $95,000 a year. Dennis Morgino, the media center director whose salary is paid by the Port District, is earning $91,000 annually.
In the end, layoffs of 11 ACOC staffers were required to cut expenses. Burnham, who is also part-owner of the San Diego Padres, forgave $2 million of a loan he had made to the ACOC, and an anonymous board member made a $500,000 loan to the organization. Foreign television money is beginning to trickle in.
The ACOC abandoned its pledge not to seek major corporate sponsors, jumping in to compete against Team Dennis Conner and America-3. Conner has announced that the shortage of corporate sponsorships would prevent him from building a second boat. Some foreign syndicates are testing as many as five boats.
Burnham and Ehman said that during the world championships, the village’s location behind Seaport Village, the cool weather, Conner’s withdrawal halfway through the event and other factors combined to depress attendance.
Even so, the lesson was a valuable dress rehearsal for the Cup by a group that was staging the huge event for the first time, Burnham said.
“Was it an expensive lesson? Not in the big picture,” Burnham said. “Sure, if we just look at (the world championships), we might say, ‘Well, we spent some money we didn’t have to spend.’ But if we hadn’t spent that money in overdoing some of these things, we may well have tried to duplicate that village for the America’s Cup. And then it could have been a real disaster.”
Media focus on the cash-flow problems misses the point that next year’s race is certain to be the biggest, most lucrative sporting event ever staged here, Cup boosters claim.
R.A. Rauch and Associates predict that 220,000 will attend the Cup races between January and June, instead of the 1.1 million originally forecast by a University of San Diego consultant. The ACOC considers Rauch’s prediction “conservative,” but it would still make the Cup the biggest sporting event ever staged here.
Among those crowds are sure to be corporate heavyweights associated with the 12 racing syndicates and the race itself, people who will spend considerably in the San Diego area and might want to return to invest, backers believe. Along with them, foreign sailing enthusiasts will make up the majority of visitors during the early months of the competition, Rauch predicted.
For example, sponsors of Nippon Challenge, the Japanese entry, are a Who’s Who of that nation’s top corporations, the kind of top business officials any city would like to lure for even a week, according to ACOC officials.
The syndicates and race committees themselves will spend about $324 million--including the costs of their $3-million boats--much of it in San Diego during 1991 and ‘92, the ACOC estimates. The race teams will leave behind permanent improvements to some of the San Diego boatyards where they will be housed, according to the ACOC.
Other corporations such as Citizen watches, an ACOC sponsor, are using the Cup to reward their top salespeople and woo important customers. Some organizations are staging conferences to coincide with the event, including a major gathering on Pacific Rim issues and a seminar sponsored by Business Week magazine that will bring in top corporate executives.
“There are people in the world who feel that . . . during certain events, you just have to be there,” said County Supervisor Brian Bilbray, a member of the ACOC board of directors. “No matter who’s playing, who’s involved, you have a guaranteed market.”
The value of publicity involved will be incalculable, officials claim. When they aren’t following yachts, reporters are sure to be profiling the setting of the event.
Already, Cup previews and profiles of the city are being prepared for magazines in Europe and Asia, according to the ACOC. Monthly television previews have been appearing on ESPN, which will broadcast the races beginning in March.
“San Diego can’t help but impress the world,” Bilbray said. “But the critical part of it is to put on a world-class event that really polishes our jewel and puts it in the best setting possible.”
Still seeking to involve the community, the ACOC and its private licensee will stage an America’s Cup Center that is short on pomp and ceremony but provide more of a Del Mar Fair setting, where families will want to spend the day, Ehman said. Its location likely will be moved to a parking lot near the Amtrak depot.
Lessons on the race and the subject of sailing will be integrated into the curricula of 400,000 schoolchildren, a $480,000 program that has been planned from the beginning. In addition to talking about economic impact, Burnham is emphasizing the cultural aspects of the race and reminding San Diegans that the bottom line is to enjoy the event. Gone are expensive receptions and luncheons that were a staple of the world championships. A huge party planned for the Convention Center will be a break-even affair, Mitchell said.
Newsletters, museum exhibits, special events, paid advertising and overhead have been reduced or eliminated to cut costs, Mitchell said. More volunteers are being pressed into service and more free services are being solicited from local vendors.
“The America’s Cup is more than a boat race,” Burnham said. “We’ve been saying that for a long time, but it’s hard for a lot of people to focus in on it.
“I think everybody’s working very hard to make it a first-class event,” said Port Commissioner Schenk. “Everyone’s pulling together to make San Diego look good.”
