Stop me if you’ve heard this one: Billionaire comes to City Hall. Says that if the city will get behind him, he’ll bring a major sports enterprise to town and might even renovate some decrepit municipal infrastructure as part of the bargain. Huge economic boost foreseen. Won’t cost taxpayers a dime.
Sounds like Phil Anschutz, the NFL and the Los Angeles Convention Center, doesn’t it?
But it’s not: We’re talking about software billionaire Larry Ellison, the America’s Cup sailing race and a few rotting bayside piers in San Francisco.
There are some differences between the L.A. and San Francisco cases: L.A.'s NFL deal is still as vaporous as ever, but San Francisco is actually getting the America’s Cup. Races begin on the bay in July, with the finals in September.
The development deal — which started as a $150-million investment by Ellison’s group in return for 75 years of rent-free development rights, then evolved into an investment of $55 million in return for nominal rent — has been dropped entirely.
But San Francisco is still nervous about being stuck for a bill for the yacht races that could run as high as $10 million. There may be a lesson looming here for every community that accepts on faith the forecast that any big event will bring riches on such a scale that it produces a cost-free economic boom.
The problem always boils down to the fact that the event’s costs are real and near-term, and the riches are conjectural and lurk somewhere over the rainbow.
“The original idea was that we would not have a general fund impact,” San Francisco County Supervisor John Avalos, who has been aggressively questioning the America’s Cup deal, told me. “At this point we’re looking at how much of a subsidy we’re going to give it.”
Avalos was a member of the Board of Supervisors when it approved the America’s Cup event unanimously in 2010. More recently, he has said that “all the members of the Board of Supervisors were … played.” If you fill in that ellipsis with a dirty word, you’ll have the full accurate quote.
A word about the America’s Cup, an event with which landlubbers may be unfamiliar. It’s named after the yacht America, which so thoroughly trounced a British vessel in the first race (around the Isle of Wight, 1851), that when Queen Victoria asked who came in second place, she was supposedly told by crestfallen courtiers, “There is no second place.”
American yachts enjoyed an unbroken skein of victories for the next 132 years. From 1930 to 1983, the races were staged off Newport, R.I., and I can tell you as a former Rhode Island resident that there are two traditional ways of describing the multimillion-dollar sport of yacht racing: For spectators, it’s like watching paint dry; for participants on the open water, whose boats today cost up to $8 million, it’s like tearing up $100 bills and tossing them overboard while standing under an ice-cold shower.
The race organizers say the San Francisco version will be unique. The boats are sleeker and faster than ever before, and for the first time the races will be viewable from shore. It’s not inconceivable that this will make the event a big draw.
“San Francisco is fortunate,” says Stephen Barclay, CEO of the America’s Cup Event Authority, the Ellison-affiliated group that is staging the race. “For the first time a family can go to the waterfront and watch.” Barclay says that as the races get close, public excitement in the city will emerge “like a light switch turning on.”
The current defending champion is a team owned by Ellison, Oracle’s CEO and co-founder, who was listed last year by Forbes as America’s third-richest individual, with $41 billion to his name. It shouldn’t come as any surprise that there’s a grassroots movement in San Francisco to ask Ellison to underwrite any shortfall, which he could probably do from spare change. He hasn’t responded to the plea.
In 2010, the city and county administrations lined up foursquare behind the municipal bid to host the race. Then-Mayor Gavin Newsom (now California’s lieutenant governor) was a big advocate. He was abetted by the Bay Area Council, a local business advocacy group, which projected that the three months of cup-related regattas would produce $1.4 billion in economic activity.
But that figure was always a bit squishy. The council’s estimate of new sales, hotel and payroll taxes was as high as $24 million; the Board of Supervisors’ estimate was below $18 million.
The council acknowledged that late summer is not exactly a dead period for San Francisco tourism needing to be filled in by a new event; rather, it’s the high season, with hotel occupancy running at 85%. That figure itself is misleading, because it’s citywide — good luck getting a hotel room around Union Square or the Embarcadero from July through September. So the suggestion that hotels all over the city from downtown to skid row will fill up, producing an additional $12.4 million in hotel taxes, sounds very optimistic.
Fundamental to the event promoters’ pitch was the notion that the cup is “the world’s third-largest sporting competition,” after the Olympics and soccer’s World Cup. This claim appeared on Page 1 of the Bay Area Council’s report, which said the ranking was based on spectatorship and “economic activity” generated by spectators and participants.
But the metric looks to be based more on marketing than math. The America’s Cup doesn’t rank very high on the lists of top sports events I could find. Turner Broadcasting’s Bleacher Report doesn’t list it among the top 25 events in sports, which include the Indy 500, Le Mans, March Madness and the Tour de France.
The deal eventually cut between the city and the America’s Cup Organizing Committee was that the latter would raise $32 million in donations to cover the city’s $32 million in hosting costs. Actually, the committee said it would “endeavor” to raise that sum.
But its “endeavor” has fallen way short. The committee acknowledges that it has raised only $14 million so far, four months before the races start. Of that, $8 million came from the event authority — and $5 million of that is a loan to be repaid from portions of any corporate donations collected by the committee.
Over the last couple of years, the event has shrunk. Twelve international teams were once expected to race for the big prize; the field is down to as few as three. The estimated economic impact has dropped to $900 million from $1.4 billion, and the estimate of new jobs to be created has fallen to less than 6,500 from nearly 9,000.
The good news is that as the event has gotten smaller, the city’s estimated cost has fallen to $22.5 million. The organizing committee says the potential shortfall is down to about $2.7 million, but that’s because it’s counting $13 million in new tax revenue against the cost. Race organizers said it was always expected that those revenues would be available to cover the city’s expenses. But City Controller Ben Rosenfield disagrees, and he’s not enamored of the idea.
“Projections of future economic activity need to be treated with open eyes,” he says. “We won’t know if they’re accurate until after the event has happened, and by then the money will be spent” by the city. He estimates that the city is still at risk to the tune of $8 million to $10 million.
The organizers say the America’s Cup event has already spurred the construction of a new cruise ship terminal and other amenities, for which taxpayers should be thankful. But if city funds have to cover even part of the event’s tab, questions are sure to be raised about who really made out. As with the NFL, America’s Cup teams are owned by billionaires, and it’s probably safe to say the sport’s appeal to the working person is not quite as great as pro football’s. That’s true even for Bay Area families that may spend a day or two at the waterfront this summer watching the big boats.
Avalos says his district, which hugs San Francisco’s southern boundary, has the lowest per-capita income in the city. “In my neighborhood,” he says, “there’s no connection to the America’s Cup.” It will look worse if his constituents’ tax dollars have to be spent covering the costs. He’s experiencing buyer’s remorse, big time. The question is whether the rest of the city will come to feel the same way.
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at firstname.lastname@example.org, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.