With Los Angeles facing sharply reduced city income, service cuts and the prospect of layoffs of municipal workers, some officials are eyeing the proposed $1-billion downtown football stadium as a potential source of new money for the cash-strapped treasury.
But city negotiators could be bargaining partly in the dark with Denver billionaire Phil Anschutz’s lieutenants. Anschutz’s sports conglomerate, AEG, which is proposing to build the stadium on city-owned land, is privately held. Most of how it performs financially — such as how much it makes on existing projects like Staples Center — is kept secret.
Backers of the stadium say it would pay huge dividends in jobs and new economic activity, all at no cost to taxpayers. Others are more skeptical and say the city should wring as much income as possible out of a financing agreement to be negotiated in the coming weeks.
“If we go forward with the stadium there, we should participate in the profits. Period,” said Westside City Councilman Bill Rosendahl. “We need to put on our own business hat as a city.” Los Angeles should share in the financial benefits of the stadium, he said, since it already has provided financial help to revitalize that part of downtown, including AEG’s Staples Center and the L.A. Live entertainment complex.
AEG wants a quick stadium deal from City Hall, although the company has not yet explained what financial information it will provide to the city.
While stressing that the proposed National Football League stadium would be funded entirely with private money, AEG wants to lease a prime piece of public land near Staples. It also hopes to open up space for its 64,000-seat stadium by tearing down and relocating a wing of the Los Angeles Convention Center. And AEG wants the city to borrow roughly $350 million to pay for that reconstruction.
Ground rent and new sales, ticket and property tax revenue from the completed project would help repay the loan, although AEG point man Timothy J. Leiweke acknowledges it would probably fall $6 million to $8 million a year short of the amount needed to repay the bond. But he promises the company will cover that gap so “not a penny” will come from city coffers.
What isn’t clear is how much AEG anticipates profiting off the stadium and the increased business that would flow to its adjacent 1,001 hotel rooms and entertainment holdings. The project would bring in money not just from sporting and concert events, but also from an increased number of large conventions that AEG believes would be drawn to the stadium.
AEG made its first formal presentation Thursday to Mayor Antonio Villaraigosa’s blue-ribbon panel charged with reviewing the proposal, and closed-door negotiations with the city’s top financial analysts are expected in the coming days.
Councilman Paul Krekorian, who represents the San Fernando Valley, said one aspect of the project that needed particular scrutiny is the ground lease. He said city negotiators need to go in with an eye toward squeezing new revenue out of the deal and weighing other development options. “The way you do that is by having full knowledge of what the deal is and be willing to walk away from it,” he said.
Chief Legislative Analyst Gerry Miller, who is heading the city’s negotiating team, said he did not know what sort of information would be requested from AEG. But ensuring that no city money is spent on the proposal, that it is financially viable and that the city bonds can be repaid will be the main focus. “The economics of the development of the stadium and projections of ticket prices, all of those sorts of issues are going to have to be looked at,” Miller said.
AEG’s lack of transparency may make it hard for the public and city officials to know how much money — if any — might be left on the negotiating table and whether they would be passing up chances to generate cash that could help save municipal services being slashed because of the city’s ongoing financial crisis.
So far, the company has declined to release its reported $700-million, 30-year naming rights deal with Farmers Insurance, which has been held up as a financial linchpin of the deal.
In a statement, AEG said “the nature and magnitude of this project and the public commitments it entails warrant a very careful and deliberate evaluation by the City.” It pledged to “fully cooperate with elected officials, City staff and their appointed advisors and representatives.”
The talks between AEG and the city will focus in large part on how much of the new tax revenue from the project area would go toward repaying the Convention Center bonds. That will help determine how much AEG has to put in over the next 30 years to fulfill its pledge to use no public money.
One point of contention may be the $2 million to $3 million in new property taxes generated by the stadium improvements themselves. Leiweke told The Times that AEG wants that to go toward paying off the debt. But he said the city probably won’t agree to divert all of it.
“I just negotiated against myself there,” he quickly added.
To drive as hard a bargain as possible, city officials need all the financial information they can get on revenue and profit projections, says author Neil deMause, who has studied the economics of sports arenas for 16 years and has often been skeptical of such deals. The city needs to use its power to approve the project, and its borrowing ability, to get that data from AEG, he said.
“You need to understand the finances [and] make sure the split for the costs and the split for the revenues are fairly equitable,” he said. “They can at the very least use [their] leverage to demand information.”
AEG also wants to be in charge of rebuilding the Convention Center’s West Hall and parking facilities. It is proposing to include tens of millions of dollars in construction contingency funds in the $350 million that the city would borrow. The firm also hopes to take over Convention Center operations from the city.
The company and several key city officials, including the mayor, have framed the stadium negotiations as a win for the city: It gets a stadium and a much more competitive Convention Center at no taxpayer cost.
The city’s top budget analyst, Miguel Santana, said the city deserves credit for holding out for a cost-free stadium plan when many cities across the country have heavily subsidized NFL arenas. “There’s a reason we haven’t had football as long as we haven’t had it,” he said.
Austin Beutner, Villaraigosa’s jobs czar and head of the panel reviewing the deal, said he agreed the city needs to drive a hard bargain. But some elements of the proposal must be viewed in light of the $1-billion investment Anschutz is making, the tens of thousands of jobs being promised and the increased economic activity the project could spur, he said.
“I think it’s more than fair that they earn a return on that investment,” he said after Thursday’s session with AEG officials. As for what rate of return is projected to be, he said, “I don’t know that that’s necessarily relevant to this exercise.”
AEG says there will be broad payoffs for the city in new employment and hundreds of millions of dollars in new economic activity generated by the stadium, the upgraded Convention Center and possible new hotels nearby. And Leiweke stressed that AEG is taking a big gamble.
The stadium/convention proposal is “the most difficult project I’ve ever done with Mr. Anschutz,” he said. “This is a gutsy, gutsy move on our part to make the $1 billion [stadium investment] work.”
City officials and business backers of the proposal point to AEG’s success in developing Staples Center and the L.A. Live entertainment district with city assistance. The most recent public analysis of Staples Center in 2003, before L.A. Live opened, found the city was receiving $3.85 million a year in net new revenue, and the arena was generating about $35 million a year in new taxable sales.
“We know what they’re capable of doing. We have a track record on which to measure them now,” Councilwoman Jan Perry, who represents downtown and parts of South L.A., said of AEG.
However, the city report echoed the caution of some experts that promises of broad increased economic activity from such projects can be tricky to measure and hidden costs can accompany new development.
Los Angeles officials should tread carefully with AEG, said Dennis Coates, a University of Maryland-Baltimore County professor of economics who has written on the costs of stadiums to local governments. “Just because it’s the government doesn’t mean they shouldn’t be thinking, ‘What are the alternative uses?…What is the real value of using that land?’
“Government should be very dubious of companies coming and saying, ‘We’re going to give you all this stuff and it won’t cost you a penny.’”
Times staff writer Jessica Garrison contributed to this report.