Stadium profit-sharing not feasible, L.A. council told
Real estate developer Anschutz Entertainment Group cannot afford to share the proceeds of its proposed downtown football stadium because the financial return from the $1.2-billion project is too low, analysts told the Los Angeles City Council on Friday.
During the council’s first public review of the stadium’s financing plan, economic consultant Bill Rhoda said AEG will see a 6.7% internal rate of return from the project over 30 years. Projects of a similar size typically generate a return of 15% to 20%, he said.
“You really can’t take any more revenues out of this entity because then [the deal] won’t be financeable,” he said. Chief Legislative Analyst Gerry Miller, who advises the council, offered a similar take, saying AEG’s return -- a measure of the project’s profitability -- will be “less than half” the amount that such deals normally produce.
The statements were a response, in part, to Councilman Bill Rosendahl, who has pressed the city’s negotiators to explain why the proposal does not include a profit-sharing agreement with the city, which has struggled through a series of budget crises in recent years. Rosendahl has asked repeatedly whether city coffers would benefit from a cut of the revenue from stadium naming rights.
Ted Fikre, AEG’s chief legal and development officer, told council members during questioning that his company expects the stadium to generate a “substantial profit.” But he said AEG, which also owns nearby Staples Center and the adjacent L.A. Live entertainment complex, is looking for ways to improve its investment return on the facility when it opens in 2016.
“As people full well know, we have a lot of surrounding property that would benefit from this project, and candidly, that’s part of the reason why we’re willing to consider doing a project here that no other stand-alone developer would consider doing in their right mind,” he said. Rosendahl said he was not disappointed by the explanation. He and the council’s two other stadium skeptics -- Paul Koretz and Paul Krekorian -- all said they were moving toward supporting the stadium financial plan.
“I’m not there yet. But I’m getting close,” Rosendahl said.
The council is expected to vote on a draft agreement with AEG on Aug. 9. Even though no vote was held Friday, hundreds of supporters -- construction workers, business leaders, union activists and high school football players -- filled multiple rooms of City Hall on Friday in a show of support for the stadium proposal.
“This project brings hope to the city in a time that the city needs hope,” said Los Angeles Laker-turned-entrepreneur Earvin “Magic” Johnson. “And the main thing it’s going to be bringing is jobs.”
Although the crowd was tilted heavily toward AEG, a handful of residents stepped forward to criticize the project, saying it would increase traffic on nearby streets and lead to a barrage of new signs on downtown’s doorstep. AEG has expressed interest in installing 41 signs on the city-owned Convention Center, a majority of them facing the 110 and 10 freeways, providing the city a minimum of $5 million a year from the arrangement.
Dennis Hathaway, president of the Coalition to Ban Billboard Blight, said tourists and convention-goers would find “an unbroken field of advertisements and logos from the freeway interchange all the way past L.A. Live” if the deal is approved. “What is the face of the city we will be presenting to them?” Hathaway asked. “A huge Bud Light bottle. A huge Coke bottle.”
AEG has promised to build the stadium and two nearby parking structures on its own dime. But to make room for Farmers Field, as the stadium would be called, the city must first demolish and rebuild a large wing of the Convention Center. That would require $275 million worth of city-issued bonds, which would be repaid from such sources as property taxes, parking taxes and rental income generated by the site.
Council members spent more than three hours taking testimony and asking questions about the proposed framework for a financing agreement. That document’s approval would initiate several months of more detailed negotiations. A vote on a final agreement is expected in May, along with a decision on the stadium’s environmental impact report.
Also Friday, Mayor Antonio Villaraigosa reiterated his plan to have a blue ribbon commission, headed by mayoral aspirant Austin Beutner, review the financing plan.