Addendum To MLS Expansion – Election Day Results Impact The Process

An addendum update to the post yesterday on Election Day referendum ballot measures and the impact on the Major League Soccer expansion process:

San Diego residents voted against the Soccer City proposal of the referendum overwhelmingly. The vote all but ends the bid by Landon Donovan and his partners for landing an expansion franchise in that city. The biggest issue that I perceived with that proposal was, although the stadium and other development was going to be completely privately financed, the public was unsure that an affirmative vote on the land use for that purpose without any guarantee by MLS of them getting an expansion team was a sound choice for the land.

However, the football stadium for SDSU did get approved as well as the campus extension for the school to include the “Innovation Zone”. The public evidently understood the need for the campus extension and also understood the need for a place for the school’s football team to have an updated and appropriate venue to host games. The SDSU football team is already in the city and has a tradition going back decades, it is a safer play to vote that proposal through to the next stage. It also should be noted that the taxpayers have been paying for repairs and upkeep on the enormous Qualcomm Stadium since the Chargers moved almost two years ago. It is time to tear down that facility and replace it with a smaller, less costly venue on that site.

This vote by San Diego residents gives both Phoenix and St. Louis a better shot at landing the one remaining expansion slot left for MLS.

In Miami, the voters approved the ballot measure to allow Beckham and his partners to negotiate the lease and terms of the development of the stadium in the Freedom Park project. The issue remaining is two-fold: the group has to get approval by the city council and can have only one dissenting vote so they need 4 of 5 votes cast to approve the development moving forward. They also must face the reality that the site will not be ready for 2020 opening day and will have to explore temporary stadium sites in the area if MLS wants the team to launch in 2020.

Many moving parts, but the vote yesterday in two cities brought some clarity to the process.

MLS Expansion Update: Election Day Impacts Both San Diego & Miami Expansion Bids

The Election Day ballots impact very important and significant policies which will affect every American. The impact of the referendum questions will shape reform of tax laws, allocate funding for infrastructure projects, and formulate training programs for jobs; among many other important initiatives.

The referendum vote will also impact sports in certain cities, especially in San Diego and Miami. The voters in those two respective cities will have a choice to make on allocation of tax payer money for land use for new stadiums for two potential Major League Soccer (MLS) expansion franchises.

The San Diego residents will have to decide what to do with the city owned land that currently is occupied by the football stadium once used by the Chargers in the Mission Valley area of the city. The team vacated the city and relocated to Los Angeles prior to the 2017 NFL season. The city has been paying for the land and maintenance on the aging stadium, now they have to determine the next use for that complex.

One proposal is for San Diego State University (SDSU) to use the land for a smaller football stadium that would have a secondary use as a soccer venue for an MLS team. The rest of the land would be used for an extension of the campus and part of it would be dubbed an “Innovation Zone” for different academic/research pursuits.

The second proposal is for Soccer City which would be primarily a soccer specific stadium with a secondary use as a college football facility for the SDSU team. The plan also calls for entertainment and retail development as well as a park facing the river. The plans are both similar and would both include a facility with multi-purpose use, but the difference is how each party plan to pay for the development.

Soccer City will be funded by private financing and will require no tax money outlay from the residents. The SDSU proposal will pay for the stadium and campus extension through public-private funds, donations from alumni/benefactors, and revenue generated from the gate from football games/events.

The extension of the campus, according to local media reports, is seen as a crucial element for the university at this point. The land available to achieve this needed expansion is limited, and the football team does need a place to play as well, but not the scale of the NFL stadium on the site.

The group of business and civic leaders backing the soccer team need a stadium or else the expansion bid has no hope of survival. I covered the referendum vote for the Chargers proposed new stadium in the downtown waterfront years ago (a plan that was voted down by residents) and that vote ultimately led to the team relocating to Los Angeles.

The voters of San Diego have been here before, and they can turn the fortunes of either the university or the soccer team very quickly in one direction or another. It is worth noting that if neither proposal gains 50% of the vote, then the proposal with the majority of the votes would be the winning proposal for the land.

The stakes are high, MLS prefers the soccer team to be the primary tenant for revenue stream control, and so even though both proposals allow for a facility to host soccer matches, if the Soccer City plan loses, MLS is unlikely to approve the bid.

Conversely, if the campus extension fails, then the university is back to the drawing board on where it can potentially put this new “Innovation Zone” in a rapidly shrinking area of available land that is scalable for such usage.

The fact that the people have the determining factor here, rather than a group of elitists and politicians is, in my view, an excellent way to make such a far-reaching civic decision. It is completely American in the way that it was conceived and San Diego deserves credit for multiple times placing the residents above their own personal gain.

In Miami, the expansion of MLS to that very important market is already approved, but the stadium site is elusive. I have reported on this situation in the past, and lead investor and former international soccer superstar, David Beckham and his partners in this endeavor have struck out on six potential sites in the past few years.

The Freedom Park proposal, as I covered previously on this site, is a $1 billion stadium and entertainment complex proposed by Beckham and his well-financed partners on a site that is currently a public golf course. The voters must decide whether to allow the group to bypass the competitive bidding process to negotiate a lease with the City of Miami directly.

Those with knowledge of the deal report that it is a 99 year lease with the city. The issue with the land is that it was once used as a waste treatment facility with an incinerator known as “Old Smoky” and to tear up the golf course and disrupt the land to build a stadium and multiple structures on the property would create an environmental cleanup that would be very costly.

The mitigating factor is that the private investors are going to pay for all the construction and all of the costs of developing the site. The proposal calls for no tax payer contribution.

The referendum needs to pass for Miami to be able to move forward with the stadium plans to meet the 2020 entry into MLS. The way forward if the vote goes against them is unclear, and could create a tremendous stumbling block to a expansion bid that has been riddled with problems from the start.

Election Day will have implications that are far-reaching for residents in cities and towns across America. In the case of San Diego and Miami, two major markets will have referendum votes that will shape sports and entertainment in those two respective cities for decades into the future.

(some background courtesy of, Miami Herald, Sports Illustrated, and NBC 7 San Diego)

MLS Expansion: LA, Miami, “Group of 12”, Future of Soccer In America

MLS Commissioner Don Garber announced recently that the newly rebranded Los Angeles Football Club (LA FC) which are the initials they will be known by in the future, will be entering the league alone in 2018. This is a deviation from a trend of expanding the league by two teams at a time, and it also casts some doubt on the state of the Miami expansion bid.

It was anticipated that the Miami bid spearheaded by former soccer superstar, David Beckham, would also begin play in 2018 with LA FC. The Miami bid has had numerous setbacks, most notably with securing land for a stadium as well as securing total private financing for the stadium.

When the calendar flipped to 2017, the news out of Miami was, that after striking out on their attempts at obtaining land at the Port of Miami, Museum Park, and a plot of land across from Marlins Park; Beckham had secured land in the Overtown section of Miami. The group does need to acquire the adjacent lot which is owned by the county for municipal vehicle storage.

The Overtown section is north of Miami’s main downtown and is notably a high crime and economically depressed area with a very diverse population from several countries. The Beckham group proposal has the jobs generated from the stadium and team being located there as the primary piece in his pitch to the government.
The plan for the stadium, according to local news sources and the MLS site, is for a 25,000 seat venue that will cost around $200 million in the final estimates. The Beckham group is currently reported to be seeking out additional minority investors to help come up with the rest of the financing needed to get the stadium facility built successfully. The target date now is for Miami to join the league in 2019, but all parties involved caution that those parameters could change in the future.

The league has issued statements of support for Miami, which also happens to boast the highest overall TV ratings for soccer in the U.S. (which is a huge reason why the MLS has been so patient) and a demographics mix that is favorable for supporting a soccer club for the long term. In my prior coverage of the expansion of MLS, the media rights deal for the television packages both regionally and nationally has come into focus.

The league wants to grow their presence in large TV markets so they can increase their revenue capture in the next TV rights deal. The addition of Atlanta and Minnesota as expansion clubs this season and the second team in LA in 2018 as well as potentially Miami in two years, will be a huge bargaining chip for MLS to get more revenue dollars out at the negotiating table.

The second LA team mentioned earlier, LA FC, has a star studded ownership group and is the rebranded entry for the disbanded Chivas USA which shared the Los Angeles market with the Galaxy for a period of years in MLS history. The Chivas experiment was a complete failure, as the club never gained real traction in L.A. and shared a stadium with the Galaxy, which did not help their marketing attempts.

LA FC will have their own modern stadium which is under construction currently on the site of the former LA Sports Arena which is just south of the LA Memorial Coliseum. The location is very good and very convenient for fans, and the league will be releasing information on the expansion draft to help them construct their roster in the near future.

Group of Twelve

The addition of LA FC in 2018 will bring the league to 23 teams, the first time in a while they will have an odd number of teams, which will be a scheduling headache for the league office. The Miami bid looks like it is eventually going to get done as the 24th entry to MLS, which has a stated goal of expanding to 28 teams.

The remaining four spots for expansion will be decided among what is called the “Group of Twelve”, the twelve cities that submitted proposals for consideration for an MLS expansion franchise. The group consists of: Tampa/St. Petersburg, Cincinnati, Detroit, Indianapolis, Nashville, Charlotte, Raleigh-Durham, Phoenix, Sacramento, San Diego, San Antonio, and St. Louis.

I have produced individual articles on some of these cities and their quest for an MLS expansion franchise in the past, I have also completed larger summary articles on each of these bids as well as others which were not included in the “Group of Twelve”. It should also be noted that MLS executives intend on reducing down this group to a smaller number, potentially as early as this summer.

In my view, and I have no indication from the league on this part of the process, it would make sense to cut the group down from twelve bids to eight, since only four slots are available. Then it could either be cut again to six bids, or the four approved bids could be announced.

The summary of each bid can be found below:

Tampa/St. Petersburg – see my full article on this emerging and popular bid. The Tampa Bay Rowdies have an established fan base, a passionate owner, and plans to renovate and expand their existing stadium on the St. Petersburg waterfront. The stadium plans do not require any changes to the city street grid or any “fill” in the bay to complete which is a big positive with local government and the residents. MLS executives are intrigued by the stadium site and the size of the market for TV purposes. They also have a very organized social media campaign.
The negatives would be that the Tampa Bay area is already part of the territorial rights for the Orlando City FC franchise and they would have to agree to another franchise joining MLS from the same region. Orlando City would also have to be compensated for the alteration to their territorial rights, which could get very sticky and expensive.
Some analysts see that territorial issue and the fact that the league had a team in Tampa which folded in the early 2000s as two major issues with the bid. I think it is still very much in play because of the size of the market, the fan base of the team, the ownership, and the stadium.

Cincinnati – The bid has many strong points such as an established fan base for their current minor league club, strong attendance figures at those matches, and a committed ownership group with great resources. The Midwest is an area of need for MLS expansion when looking at the current footprint of the league.
The negative point for the Cincinnati bid is a big one: the stadium. Their current stadium for their minor league club is too old and too small. The successful bid for this city would need to include a new stadium plan that is actionable. The government seems supportive of that concept and the stadium is a vital component to an MLS bid because the league needs full control of the facilities that their clubs play in for scheduling and maximum revenue generation purposes.
Some analysts feel that this bid only needs a vote on the new stadium and it is going to be one of the approved bids out of the this “group of twelve”. I am not so sure because the spots are limited and MLS executives are very high on the presentations by St. Louis and Detroit and may think those two cities will be an adequate representation of the Midwest at this point.

Detroit- The bid for Detroit is also a process which I wrote a separate article about several months back, it has risen from a long shot to a very real possibility for one of these last four spots on the MLS franchise expansion list. The strong points are: an ownership group that includes two billionaire professional sports owners, one of the largest untapped TV markets for MLS, a diverse population with a history of supporting soccer, and it is the second most populated metro area after Phoenix in the “group of twelve”.
The downsides to this bid: they have no high level minor league presence in the market. Detroit City FC is essentially a fifth tier team that is supporter funded, though they have done a great job on a small scale with marketing the club.
The other main issue is the stadium site. Dan Gilbert and Tom Gores, the two principle potential owners are eying a site in the rapidly redeveloping District Detroit, where the other sports stadiums are located. The site is a few blocks from Ford Field / Comerica Park and is currently a failed municipal construction site for a proposed jail. The budget money ran out and the site has been abandoned for some time. Mr. Gilbert and Mr. Gores have proposed essentially a land swap where the jail would be moved to another area in the city and they would acquire the former jail site to build the soccer stadium. The city is mulling the proposal, and if they turn it down, there is no contingency plan for a site for a stadium. There are some analysts and soccer media people who feel that the stadium site could sink this deal, and others who believe that MLS is so interested in reviving Detroit that it could still move forward with a successful bid.

Indianapolis- This city which I have visited several times is one of the most underrated sports cities in the nation. The downtown is very easy to walk and all of the stadiums are in the same area which makes it very convenient. MLS favors the downtown urban setting for the stadiums for their franchises and the league has appeal with millennials, who also favor the concept of living in a downtown area with access to sports as well as entertainment options.
The city has an upper tier minor league team called “The Indy Eleven” which play in Carroll Stadium and have garnered some impressive attendance numbers. The support of this club is seen as a very strong aspect to the bid. The club has a very wealthy and well connected owner that is very driven to get into MLS.
The city also has robust support from the local and state governments, which just created a tax zone for the area that the proposed new stadium would be constructed. The tax revenue from gate receipts (ticket sales), concession sales, and tax revenue from those that work at the stadium would comprise the public portion of the new stadium funding. The proposed site is near the Colts NFL stadium downtown.
The negative aspects to this bid are that the minor league club does not have an established history, the Midwest could get crowded if the league decides to grant access to St. Louis and Detroit as well, and the last negative is the stadium. The proposal for the tax zone may not gain passage before MLS decides on the last two bids for expansion. In the event that the financing plan for the stadium is uncertain, this bid will fail. I view this as more of a long shot bid.

Nashville- A bid that has gained some traction in recent months is the proposal from Nashville to join the largest soccer league in North America. This push is being spearheaded by the Ingram family worth billions of dollars and enjoys outstanding governmental support. The city is the smallest metro area of this group of twelve applicants, and it has never supported a soccer club on any level.
The stadium site has gained some clarity now that the Nashville Fairgrounds has been zeroed in as the proposed area for development of that facility. The city has a large millennial population and a growing diversity in their population which MLS executives have noted as strength areas.
The fact that they have a strong ownership group and substantial potential corporate sponsorship support are the positive aspects to this bid.
The negative aspects are that they have no attendance figures or history of supporting a soccer club, the size of the metro area, and the lack of a definitive stadium plan puts this bid in jeopardy of being passed over for one of the final spots in this process.

Charlotte- The bid by Charlotte is one of two from the state of North Carolina (Raleigh-Durham is the other) and MLS Commissioner Don Garber has stated that the league would like to expand their presence in the Southeast. There was some confusion between the potential owners and the city council because of the timing of their request for public funds to build a soccer stadium on the site of the old American Legion Memorial Stadium. The municipal government felt it was rushed, and that is because essentially Charlotte came late to the MLS expansion party and had to apply prior to the deadline.
This bid will most likely be for one of the final two spots in the process because other cities are at a more advanced stage at this point. The positives for Charlotte are the location and the passion of the potential owners, the powerful Smith family of NASCAR fame and wealth. The political support is a bit split with the mayor on board and the county level officials on board with the bid and the stadium plan, and some city level officials that are seeking more time to evaluate the use of funds for an elite level pro soccer team.
The stadium site is fairly convenient as it is close to Charlotte’s Uptown area, which is where the NBA’s Charlotte Hornets have their arena. However, in recent weeks there seems to be some uncertainty being reported by the local media around the stadium plan and the financing for the project. That is obviously never good news when it comes to the prospects for an MLS expansion team. The other positives include the corporate sponsorship presence, the size of their media market, and the support of their other sports teams.
The Independence are a minor league affiliate of the Colorado Rapids of MLS, and they play in Charlotte currently. The support for the team will be part of the evaluation of the bid as will be the robust support that the residents there provided to the U.S. Men’s National team games held in the city recently. My view is that the demographics and some other metrics make this bid interesting, but if the city council blocks the stadium deal, this bid will be eliminated.
Raleigh – The other Southeast bid is from Raleigh, which has a successful minor league team (Carolina RailHawks re-branded recently as North Carolina FC) a dedicated ownership group led by businessman Steve Malik, and a demographic mix of highly educated professionals transplanted from the Northeast as well as millennials starting their careers.
The corporate presence is a bit lacking in major Fortune 500 types, but several large multinational corporations have a presence in the “Research Triangle” area. The bid proposal stressed the fact that the area has just one major pro team, the NHL’s Hurricanes, and that the population can support an MLS team. It also stressed the teamwork between the owner, the local government, the corporations, and the local residents.
The media market size is on the smaller side, but MLS has clubs in small markets that have done very well. The all-important stadium situation is the area where the most progress is needed. They have a design concept, a mid-20,000 seat stadium with a translucent roof. The renderings look amazing, but the site is still not determined. The North Carolina FC club plays currently in a small facility in Cary, which is outside of Raleigh. MLS prefers downtown urban stadium locations with access to public transit. The stadium will be mostly privately financed.
Raleigh is an interesting bid, I still think if Charlotte gets the stadium plan voted through it may have an advantage. Many analysts close to the league feel that North Carolina will get one of the four teams. Then, others feel that Atlanta and Orlando are so dominant in the Southeast that the league may look to hit other areas where they need a presence.

Phoenix- The entry of this city into the group was a surprise to some because the market has not done particularly well supporting their lower tier minor league team through the years. The market is the largest metro area without an MLS club and they have no competition, the next closest MLS club is over 300 miles away so that makes this bid unique.
This bid by Phoenix is a mixed bag of positive and negative elements. The positives are that they have a current minor league club: Phoenix Rising FC, they have an ownership group, and they have a stadium plan as well as a site. There are groups within Phoenix that believe that the support for the minor league club was not strong because the stadium location is not convenient. The new stadium would be in Scottsdale, an ideal location for accessibility.
The negative elements are that the corporate support for the potential MLS club is tepid, the city has other major sports so competition for entertainment dollars is steep, and the market has limited soccer heritage or history to draw upon.
In my view, the stadium moving to Scottsdale is a key component. The population and TV market numbers are very compelling. I think Phoenix has a strong chance because I think MLS wants to be there just from the size of the market and the demographics of the market, just from that perspective. I do have reservations about the ability of the area to support a team and whether it would work, particularly playing matches in the summer months in Arizona.

Sacramento- The soccer world was anticipating this expansion bid to be a virtual “lock” based on the progress that this group made in all phases of the process. The events of the past few months, however, have put the Sacramento bid in a degree of jeopardy. The capital city of California has been working tirelessly over the past four years to obtain an MLS expansion franchise. The demographics are ideal for MLS, the market size has some attractive attributes, and there is little competition with only one pro sports team in town: the NBA’s Kings.
The other main positive to the bid is that the minor league club, Sacramento Republic FC, has been a huge success in that market. The club has set attendance records in their league and was the initial reason behind the interest level for MLS being so high in potential expansion to that market. The branding of that club clearly has connected with the community and it “checks all the boxes” as far as MLS criteria for a minor league club presence and established fan support base.
The stadium site is also a positive attribute to their quest for one of the last four spots in MLS. The new facility is designed and the project is shovel ready in a tract of land in the Railyards section of the Sacramento downtown, which is part of a huge redevelopment project being spearheaded by the city.
The ownership component is a bit tricky because Kevin Nagle, who is leading the MLS bid process did not have the rights to the branding of the Republic name, logo, and colors. Those rights are controlled by Warren Smith who runs the operations of the minor league club. The two men caused the issues with the bid alluded to earlier in this section because at the time the bid was due to MLS, Nagle submitted it without the Republic being a part of the submission. This created concern within the league over whether the local ownership was fractured. In the end, an agreement between Nagle and Smith was made about four days later, and the MLS process will move forward with the Sacramento Republic being the name and branding used for the potential expansion team.
The other issue with Sacramento is the emergence of San Diego as an exciting candidate for expansion, which raises the question of whether MLS would add two more teams in California.
In my view, this bid is still very solid and MLS cannot ignore the unbelievable success pattern that Sacramento Republic FC has had over the past few years. The ownership situation appears to be solidified as far as the transition of the branding for the minor league club. This bid seems more reliable than others in the group.

San Diego- This city, along with the two bids from North Carolina, are the most recent additions to “the group of twelve”. The San Diego attempt at MLS expansion gained a huge amount of momentum when the city’s longtime NFL franchise, the Chargers, relocated to Los Angeles in January. The city officials, seeking to fill a void, moved quickly to facilitate a comprehensive proposal to obtain an elite pro soccer franchise for San Diego.
The proposal has several positive attributes from the outstanding climate, the proximity to other franchises in the league for rivalry purposes, and to the favorable demographics. San Diego has a growing millennial population and has strong potential corporate sponsorships available as well.
The other positive attribute is the stadium proposal which calls for a comprehensive redevelopment of the Mission Valley site that was home to the Chargers football stadium. The old stadium would be torn down and a new smaller venue for soccer and college football would be built there along with other housing, office, and retail space for the university.
The downside is that the San Diego bid is up against some stiff competition with cities who have been honing their MLS bids for years. The government is supportive but the league also currently has teams in California and may want to use the expansion slots to grow the game in other areas of the country.

San Antonio- The bid from this city is interesting because the support for the minor league team is solid, and that club was just recently purchased by the same group which owns the San Antonio Spurs of NBA small market success. The ownership group is the strongest aspect of this bid. The renovation and expansion plan for the facility where the minor league Scorpions club plays currently is very unclear, and thought to be the negative that could eliminate this bid from the whole process.
San Antonio has the right demographics and millennial population, but it is in a similar predicament as San Diego. MLS has two clubs already in Texas and may not want to add a third franchise there, especially when FC Dallas has struggled to connect with the fan base in that market over many years.

St. Louis – The bid is similar to San Diego, this city also lost their NFL team (Rams) to a relocation to Los Angeles. The plan is to build a soccer stadium on land near the Union Station railway hub downtown. I wrote a separate article about this city and the quest to gain an MLS spot. The ownership is dedicated and passionate and the city has great soccer heritage as well. The downtown site is ideal.
The city has hosted some high profile soccer matches which were well attended recently. The expansion there would fill a hole in the Midwest on the MLS map.
The negative aspect is the unproven aspect of being able to support a team long term from both a sponsorship and fan base perspective. The other red flag on this bid is the stadium proposal. The Governor of Missouri has pulled the state level financing, and the city has amended a bill to try to gain tax revenue for their portion, but the use of tax revenue is going to be decided by the voters.
Commissioner Garber was in St. Louis on Monday ahead of the vote on both propositions for the proposed stadium, trying to drum up support. The long and short view of this bid is that MLS wants to be in St. Louis, but they have to iron out the financing of the stadium or this bid will not be approved. The option to privately finance the stadium project is still on the table but ownership is already reportedly going to pay $150 million in an expansion fee to MLS, then they committed another $80 million toward the stadium costs plus the overruns. They would need private financing of another $80 to $100 million to get the project completed.

In the end analysis, my own view of this situation with expansion of MLS in the future is that it is a very fluid situation. The Miami club will most likely be granted into the league at some point in the near future. The league has spent an inordinate amount of time, money, and resources trying to make Miami a viable situation. That would leave four open slots for twelve teams.

The most likely group that will emerge in my view of the situation are: Sacramento, San Diego, St. Louis, and Tampa/St. Petersburg. The league is really intrigued with those four markets for various reasons. However, in the event that St. Louis cannot get the stadium deal done, Detroit or Cincinnati could slide in as a replacement in the Midwest. That is provided that they get their own stadium deals in place, if the jail site land swap fails, Detroit is out of the running.

I know two California teams seems like a wild concept, but Sacramento is the most ready of all the bids and is such a great fit as an MLS market it makes too much sense for them. The league is really taken with San Diego, and they have a fairly straightforward bid because the city owns the land in Mission Valley and is supportive of the development project there.

In the event that the St. Petersburg group cannot reach an agreement with MLS and Orlando City FC on the territory rights, that could doom that bid. In that case, I think the league would go with one of the North Carolina bids to fill a spot in the Southeast. The stadium issues being resolved either in Charlotte or Raleigh would be the deciding factor in which bid moves forward.

I also understand that many fans and those with interest in this topic feel that Cincinnati has a great bid, and they do, but they are in a small media market. I think a spot opens for them only if one of the spots fails to seal the deal, namely St. Louis. I do not see the league adding two Midwest teams.

The interest in the league is growing and the speculation around how the league will look in the next few years is an exciting prospect. The theme of this whole process is that soccer in America has really gained a foothold and is gaining popularity.

The expansion process will play out in the next several months and it will be interesting to see from the vote in St. Louis, to the land swap in Detroit, to the city council decision in Charlotte, and to the negotiations for the St. Petersburg territory; which bids will be successful in joining the league. The process will play out and the league will have some exciting new cities on the franchise map in the near future.

Bolting Ahead: The Chargers Downtown Stadium Update

The San Diego Chargers path to a playing in a new downtown stadium just took a detour with a decision by the judicial system in California regarding the voting mechanism for the November ballot referendum. The Supreme Court of California recently handed down a ruling which would require a two-thirds majority for the stadium initiative to pass on the ballot this fall rather than a simple majority.

The Chargers and the city officials in San Diego quickly countered that news with an announcement that they had anticipated that hurdle and were approaching this measure prepared to gain a two-thirds majority for success. The Chargers have a petition with over 100,000 signatures awaiting verification from the proper legal authorities regarding the stadium measure needed to keep the NFL franchise in that city.

In the event that the referendum measure fails to gain approval from the voting majority, that would put the future of the team in San Diego in jeopardy. The team has an option on the table from the NFL and the Los Angeles Rams to play at the new Rams stadium being constructed in Inglewood outside of downtown LA.

The Chargers decision at the end of the 2015 season to put all their efforts into moving to Los Angeles left the people of San Diego very upset. The Chargers may not have enough votes to pass this stadium ballot initiative which is structured in a way that it would bypass the rigorous steps of environmental studies on the downtown site proposed for the stadium adjacent to the convention center. This method would expedite the completion date of the stadium.

The “Convadium” concept as it is known in San Diego is the project to build a new stadium for the Chargers and connect it to an expanded convention center for the city. This proposal has been rife with problems from the beginning and is basically still a mess at this point. The main issue of course is involving the financing of the project: nobody seems to be clear on who is paying for what portion and how the public financing component of the project will be structured.

The other sticking point is over who has the final approval of the design of the space, and whether the Chargers will include the playing surface as part of the convention space. The thought process being that they could potentially gain revenues for convention use of the stadium side of the expanded convention center, which some residents have taken issue with that portion of the potential plan for the site.

Mission Impossible

In my previous work on this topic I have compared the Mission Valley proposal to the downtown convention center proposal. This scenario came up again recently and Dean Spanos sent a letter to the city officials involved basically stating that the team will not consider the Mission Valley site under any circumstances. The letter basically spells out that it is either the downtown site or nothing at all.

The news that the team management will not consider Mission Valley as an alternative site has fueled speculation that the Chargers could eventually move to Los Angeles and relocate the franchise. I must admit that I was of the opinion that once the Chargers opted to remain in San Diego for the 2016 season that they would get a deal done with the city and remain there; now I am not so sure given the events of the past six weeks. The situation could get very negative between the team and the city and the residents hold the cards; and they are upset with the Chargers or skeptical of the value of the new stadium project. That is a bad combination.

There are rumors that certain city officials believe that if the initiative on the ballot for the downtown “Convadium” fails that they can move ahead with a plan to build a new stadium on the Mission Valley site and lure another NFL team to play there, assuming the Chargers bolt for LA. The most frequent team mentioned is the Jacksonville Jaguars in that relocation scenario, which is understandable because the Jags play in the smallest market in the league and have an uncertain future in Northern Florida – moving that team anywhere would be an upgrade over the market they are in from a metrics perspective – but I am not an advocate for relocating existing teams and alienating their respective fan base.

The Chargers management and some of the local political forces are fixated on the downtown site especially considering that would make San Diego a Super Bowl destination again which equates to big dollars in tax revenue and revenue for small businesses there as well. I understand having been to San Diego myself and being at both sites, Mission Valley and the Convention Center downtown, the differences in those areas are distinct. I also understand the trend for the NFL and other sports is moving to downtown stadiums attached to some other type of retail or commercial development property.

Opposition View

Furthermore I understand the opposition viewpoint regarding traffic on game days downtown and the environmental impact of a stadium in the convention center site. The situation is a total mess with no clear indication of how it will be resolved. The plans for the convention center and adjoining stadium development are controversial and have some definite down sides to it. The plan to raise hotel taxes to pay for the public funding portion of the stadium may or may not “play” well with the residents of San Diego in November.

In the end, the voters control the destiny of this project and hold the fate of the Chargers in their hands. It is a refreshing alternative to another stadium deal I have covered recently with the Atlanta Braves and Cobb County where the residents had little to no input and the decisions were made behind closed doors. The Tampa Bay Rays stadium quest is being closed to the public as well.

The Chargers and the city have to spend some time and resources on providing the residents with the facts and being transparent in the process for them to have success in November. The team will either be preparing to play in a new stadium downtown in a few years, or I believe if the vote goes against them they will relocate to Los Angeles. The decision has big implications for San Diego as well as for future stadium proposals that may go the way of public referendum voting and it is anybody’s guess how it will turn out.

San Diego Chargers Downtown Stadium Proposal News

In a follow up to earlier news stories on this topic, the San Diego Chargers of the NFL have advanced their proposed stadium plan for the downtown waterfront site in details that were leaked to the media on Tuesday. Several local news sources in San Diego have reported on this development, and the full proposal is expected to be formally released at some point this week.

The new stadium for the team is being sent through a process called citizens initiative which in the State of California is similar to a referendum voting mechanism. In this process if a certain amount of votes is gained on the proposed issue at hand then the measure will gain approval. The Chargers and the City of San Diego municipal officials are utilizing this mechanism because if the stadium proposal passes via citizens’ initiative, then the exhaustive environmental review of the land being used for these developments will be bypassed.

In California, the environmental review process could add extensive time to the completion of the project. In the event that the initiative is approved by the majority of the general public then the stadium development will take a huge step forward. It should be noted that the Chargers new stadium, under the details of this plan, would be attached to a new convention center for the city. Therefore, the vote will be for approval for both projects.

In an ironic twist, this initiative is the same procedural mechanism that the Chargers used to accelerate their stadium proposal in the LA suburb of Carson in order to “fast track” the land there in the race to LA with the Rams. Carson approved the measure, but the Chargers/Raiders joint proposal was voted down by the full league ownership panel in February.

I will outline the terms of the proposal, the “high points” and then to differentiate the other reporting on this topic, I will focus in on the potential issues with the proposal and the perspective of the parties involved in how this situation got to this point. A comparison will be made to the new stadium deal for the Chargers and what the agreement would look like if the team used the option to move to Los Angeles as a tenant in the Rams new stadium there.

Leaked Proposal

The proposal calls for the following in terms of the financing for the new stadium and convention center:

1. The San Diego Chargers will contribute $650 million to the development of the stadium (important note: the NFL contributes $100 million to any new stadium project and the Chargers will get an additional $100 million from the league as part of an incentive stay in San Diego that was granted to them when the NFL voted against their proposed move to Los Angeles)
2. The government will contribute $350 million to the development of the new stadium and will set up a Joint Public trust essentially to establish municipal ownership of the stadium. Translation: the city will own the stadium. The municipal government will also raise the $800 million for the new convention center.
3. The San Diego Chargers will get all stadium revenues for the 10 – 13 game days that they operate within the facility (includes preseason and playoffs).
4. The City will get all revenues from the rest of the events held at the stadium throughout the remainder of the year.
5. The Chargers will be responsible for all construction cost overruns that may occur.
6. The City of San Diego will finance their portion of the project through bonds and the increase of the hotel tourism tax which will increase from 12.5% to 16.5% this will be for the stadium and the convention center.
7. The increase in hotel tax will “sunset” after a period of 33 years. Then it will decrease to 13.5%
8. The stadium will have 65,000 seats and expected completion date is 2022

Some of that division of asset allocation is pretty standard in the stadium development deals. The construction overruns are usually covered by the team involved in these projects. In the current state of affairs in California where residents feel squeezed by high property taxes and increasing costs of living against flat wage increases, makes the public appetite for a tax increase to build a stadium a complete nonstarter. Therefore, the hotel tourism tax increase was the obvious pathway for both sides in this situation, the team and the politicians, to ensure the best chance for approval of the initiative.

Definite Issues

There are some definite issues with the proposal though which may be more readily discussed in the next few months. The most critical of all is the fact that the neither the Chargers nor the city own the land that the proposed stadium is supposed to occupy. In recent years similar arena or stadium proposals have faced that critical issue as well. In Seattle there is a struggle over land to build a new arena to attract an NBA or NHL team. In Sacramento, the Kings faced some of that push back in their quest for a new downtown facility. The most public dispute was in Brooklyn back when the Nets proposed the Barclays Center in the Atlantic Yards area and the local residents fought back. The government used imminent domain to push people off their property to build the arena.

The assumption could be drawn here that if the proposal has advanced to this stage that one or both parties involved has some kind of “inside track” on gaining the land for this potential use, but that is not always the case. In my view, a huge part of positioning a proposal for development is to make sure you have control of the land in the first place. However, the politics of the situation dictates that if they get this “ball rolling”, then the public will back them to gain control of the land, and that is the card that might be played in this case.

The second issue here is that the Chargers may not have the public approval sentiment necessary to get the citizens’ initiative passed successfully. The public perception of the team took a major negative blow when the team and their owners, the Spanos family, decided to pull up stakes and set their sights on moving to Los Angeles. Some residents feel that the team which has been based in San Diego since 1961 abandoned them for a better potential scenario in LA. The Spanos family now has to return to San Diego and gain a two-thirds majority in this ballot initiative to move forward with the stadium plan. That may not occur, which would set the stage for the team to either explore the longer route to the downtown stadium or exercise their option and move to Los Angeles in 2017.

In the event that the ballot initiative is successful, in fact, in the opinion of others regardless of whether it does or not – the politicians were always more in favor of the Mission Valley stadium proposal because the city owns that land. However, the attached convention center project with the stadium downtown being one component of a larger project which could benefit far more residents, could be the reason that this measure may gain approval.

Charged Up

The Chargers are viewing this situation in two ways: they have always favored the downtown site over the Mission Valley option, and they view the convention center being attached to new stadium as a way to compete with LA and other cities for Super Bowls and other large scale events.

That is a good segue to another point that was neglected from the leaked proposal yesterday: it does not state whether the stadium will have a roof or some kind of retractable cover to it. That type of feature adds a great deal of cost to a stadium development project, but it also enhances the functionality of the facility to be able to host political conventions, NCAA basketball Final Four, and other big revenue generating events.

The proposed new Rams stadium in Inglewood, CA will have a roof to be in consideration for just those sorts of events. The San Diego proposal should consider that design feature for the same rationale, however it could add around $200 million in estimated new costs to the project.

The Chargers, as was mentioned earlier, lost their bid to build a stadium in the LA suburbs, but they still have the opportunity to join the Rams in LA if they cannot get a long term stadium deal brokered in San Diego. The Chargers would be a tenant in the Inglewood stadium which means they would not have an equal share in all the revenues in that arrangement. They would essentially lease the building from the Rams and operate it on game days in that scenario.

Greed Wins

This is the main reason why I have maintained the belief that the Chargers are going to remain in San Diego and get the downtown stadium deal completed. In this agreement with San Diego, the NFL is subsidizing $200 million of the $650 million that the Chargers are contributing to the project. That means that the Spanos family will spend $450 million to get a $1 billion dollar new stadium that they will not have to share with any other team. The Chargers will reap all the football related revenue as well as the profits from any naming rights agreement to the stadium.

The Chargers will also remain in a market where they have established relationships with corporate sponsors and an established fan base of season ticket holders and they would not have to compete with another team for those audiences which they would have to in the event they moved to Los Angeles.

It comes down to greed. The reason why the Chargers will stay in San Diego if this deal gets approved is because they will not have to share revenues with anyone, and the city wants to keep the Chargers and have the new stadium and convention area to lure the Super Bowl and other big events back to San Diego. It is the same reason why the NFL approved the Rams ambitious new Inglewood colossal stadium and real estate venture: greed.

I am not a proponent of cities or counties paying for stadiums or arenas, I think the teams and the leagues involved should finance a portion of it and have private financing for the remainder. The Rams project, for what it is worth, will be fully privately financed. The City of San Diego wants to own the stadium though and has decided that is the right way for them to move forward. There is inherent risk in owning structures of that size and magnitude. That risk must be mitigated by the potential revenue return on the investment. In this case, the studies must have proven that out for San Diego to move ahead with this type of arrangement.

In the end, the November ballot measure will be the next big hurdle for this project to clear. Then, the land ownership piece will come into play. The stage could be set for the Chargers to remain in San Diego in a world class new stadium. The NFL will inevitably be the ultimate winner in that scenario, which I have reported about in the past, and it remains a valid point. Then, the league would just have to figure out what to do with the other team that whiffed on going to Los Angeles: the Raiders, but that is a whole other saga for another time. In the end analysis between the money and power of all of this politics is greed, the fans are used as pawns, in the end the pursuit of greed always wins.