Santa Clara City leaders face a big decision on Tuesday. Agree to settle with the 49ers and quash all pending litigation or continue to fund a legal battle that has been raging for more than five years.
The Forty-Niners Management Company (ManCo) has offered the Santa Clara Stadium Authority (SCSA) $18 million to resolve two current legal disputes. Both sides would also return to the table to talk about concessions that could resolve future issues.
By accepting the settlement offer, the SCSA would also be able to take $2-$4 million in annual performance rent and funnel it into the general fund. That’s money the City is currently filtering into a legal expense contingency account.
The two current disputes between the SCSA and ManCo are over the contractual cap to the 49ers payment toward reimbursement of public safety costs, and whether the stadium owner or the stadium manager should pay for the buffet offered in the priciest stadium sections. The disputes are in arbitration, so none of the documents are public.
In 2022, the SCSA settled a series of lawsuits with ManCo in a deal that brought $4 million to the general fund and resolved all but the two current disagreements.
“Our proposal both significantly increases the Public Safety Cost Threshold and creates a system which, based on the future cost estimates provided by SCSA staff, is projected to prevent the build-up of future rent credits,” wrote 49ers Compliance Director Larry MacNeil in a March 20 letter.
“This clears the way for the city to receive distributions from future Non-NFL event profits each year, as was contemplated in the city’s original financial projections when the stadium agreements were signed,” continued MacNeil.
“[SCSA] Board Members have, in the past, proposed a number of creative ideas to accelerate funding from the Stadium to the General Fund,” he continued. “You will see several of those concepts featured in our offer, as well as a cap on buffet costs. In our offer, we propose numerous amendments to the stadium contracts to accelerate the flow of stadium revenues to the General Fund.”
MacNeil also had a warning for those who think that continuing litigation will get the city a better deal.
“We want to be clear about one point in particular: these amendments are only possible through this settlement, not through litigation,” wrote MacNeil. “An arbitrator or a judge has no authority to re-write the existing contracts and would therefore be incapable of creating the new revenue possibilities that we are proposing now.”
The Stadium Authority has been negotiating with the 49ers about these disputes for several months, according to Santa Clara City Manager and Executive Manager of the Stadium Authority Jovan Grogan.
“At present, staff is analyzing the [March 20] proposal and its alignment with progress made by both parties during confidential settlement negotiations,” he said in an email.
“The Forty-Niners decision to issue a ‘best and final offer’ appears to be an effort to accelerate resolution of the issues. A closed session meeting of the Stadium Authority Board will occur on April 8, 2024. At that time, it is anticipated that the Board will review the proposal and provide direction to staff.”
MacNeil Lands Blame for Disputes at Gillmor’s Doorstep
MacNeil doesn’t pull punches and squarely lays the blame for the litigation on Mayor Lisa Gillmor.
“She has repeatedly placed her personal agenda ahead of the interests of Santa Clara residents,” MacNeil wrote. “Beginning in 2017, Mayor Gillmor and staff who were following her direction actively undermined your Non-NFL Event business to bolster their narrative that the 49ers were mismanaging the stadium.”
“The current Board enabled us to return to booking major touring shows at Levi’s Stadium,” he continued. “In 2022…Over $10M in net revenue and ticket surcharges was generated from the world-class concerts and sought-after events…In FY23, we are on track to deliver over $9M for the SCSA in net revenue and ticket surcharges, marking another historic year…After hosting two of the most successful event seasons in the stadium’s history, Mayor Gillmor can no longer claim the 49ers don’t book profitable events.”
MacNeil went on to castigate former city manager Deanna Santana’s “bureaucratic roadblocks” to implementing a financial management system “proposed in 2019” that was finally up and running in 2022.
“City Staff now has direct access to the contracts, invoices, and supporting documents for stadium transactions, and have publicly confirmed numerous times that this system allows them to more efficiently verify records related to events at Levi’s Stadium,” MacNeil wrote. “This has allowed us to dispel the notion that the 49ers were ‘hiding’ records or that there is something ‘wrong’ with the numbers.”
Years of Arguments
The public safety reimbursement dispute, which started in 2016, concerns the calculation of the 49ers’ share of the total reimbursement.
The agreements approved by the Santa Clara City Council in 2011 and 2012* state that the 49ers will reimburse the city the amount by which public safety costs attributable to NFL Games exceed off-site parking fees received by the city during NFL events, up to a threshold — the Public Safety Threshold, initially $170,000 per event, with defined increases every year.
If public safety costs exceed the total of the parking fees and Public Safety Costs Threshold amount, the Stadium Authority can bill the 49ers for the difference – in which case it becomes a credit for the 49ers against other payments – or it can be paid out of the Stadium Authority discretionary fund.
Public safety costs surpassed this threshold almost immediately, and the mayor — and the previous city council — wanted the 49ers to pay the entire difference despite the contract. The 49ers’ position has been that the city’s public safety costs are significantly higher than similar cities for NFL events, and that the overage should come out of the discretionary fund.
The contract provides for these terms to be renegotiated, but “the Tenant [49ers] will not be obligated to agree to any increase in the Public Safety Costs Threshold,” and, “Any such increase in the Public Safety Costs Threshold shall be subject to Tenant’s approval.”
In 2023, the 49ers reimbursed the city $5.7 million for public safety, which included some disputed costs, according to the stadium authority financial report for FY 22/23.
The second long-standing dispute is over buffet costs. The buffet is a specified benefit for about 900 high-priced seat licenses — the revenue of which goes exclusively to the stadium authority. The stadium lease clearly states:
“Tenant shall also be responsible to make available to SBL Holders the amenities described in Exhibit D to each such SBL Agreement to the extent applicable to NFL Events, including providing a complimentary buffet to certain SBL Holders during NFL Games; provided, however, that the Stadium Authority shall, within thirty days following receipt of an invoice therefore, reimburse Tenant for all costs and expenses incurred by Tenant in providing any such complimentary buffets.” (Page 15, 2012 Amended and Restated Stadium Lease as of 2013).
Prior to 2019, the 49ers absorbed this cost. That year, they started billing the SCSA for the buffet — $1.1 million/year — and asked for reimbursement for the past four years, saying that it had been mistakenly billed to them as the stadium managers. This precipitated a lengthy discussion at the March 19, 2019 SCSA meeting. The discussion didn’t — nor did any subsequent one — elucidate any contractual basis for the city’s claim.
“We are partners in Levi’s Stadium, and this is a win/win solution for us both,” MacNeil concluded. “If the Board is seeking to make an immediate and substantial impact on the General Fund and to the Santa Clara community, we respectfully urge you to accept this offer, which will remain open for the next thirty days.”
*The only participant in approving these agreements still on the council is Mayor Lisa Gillmor.