Monday, January 16, 2017

The Chargers' Fraudulent Path to Los Angeles

The media campaign to ingratiate the Los Angeles Chargers into their new market has begun in earnest. We've seen/heard Dean Spanos give interviews all over Los Angeles (hereafter LA). He's shown up at Clippers and Kings games to do interviews and pose for pics with mascots.

So far, the campaign has not gone well. Spanos has been excoriated both by LA and San Diego (hereafter SD) media for the move. He's also been the subject of national media scorn, ranging from sources as disparate as The Jim Rome Show, Jonah Keri, and Justin Halpern.

Back here in SD, the community grapples with the sudden loss of a franchise which called SD home for over half a century. But history is also being written, and it's crucial to get it recorded right.

If there's one thing I want to make sure everyone understands going forward, whether in SD or not, it's this. Measure C, and most of what happened in 2016, was a fraud perpetrated by the Chargers to get to LA.

First and foremost, I owe a lot of long-time readers and followers an apology. Back when I covered stadium news for Bolts From The Blue, I was blinded in part by my desperation to keep the Chargers in San Diego.

I didn't see the forest for the trees. And I apologize to everyone who trusted me to do so.

Now, before we lay out the case for why Measure C was a scam, we need to take a moment to review the situation which lead up to Measure C's deployment.

A Brief History of 2016


Dean Spanos had just been humiliated in Houston. On January 12, 2016, NFL owners convened to settle the question of a) which teams would be allowed to relocate to LA, and b) which stadium project would be selected.

The teams were the St. Louis Rams, owned by Stan Kroenke, and pitching a mixed use development in Inglewood, including a new stadium. The San Diego Chargers and Oakland Raiders were pitching a new stadium in Carson. The initial vote of the NFL's stadium committee voted 5-1 in favor of Carson. Dean looked like he was in control, and then the NFL decided to use secret ballots.

Owners voted 21-11 in favor of Inglewood, with the Rams being joined by a yet to be determined team. After negotiations, the final vote was 30-2 in favor of Inglewood and the Rams.

The Chargers and Raiders were given an extra $100 million each to use toward new stadium deals in SD and Oakland, respectively. Further, the Chargers were given the 1st option to join the Rams in Inglewood, which they had to use by January 15th, 2017. If the option was unused by that date, the option would then shift to Raiders.

The implied message is the one which matters here... to both the Chargers and Raiders. The NFL and other owners were telling Spanos (and Mark Davis) to go back to their home markets and get a deal done.

After an abortive attempt at reaching a deal with City and County of SD officials, including Mayor Kevin Faulconer and Supervisor Ron Roberts. the Chargers decided they would pursue a downtown stadium project via Citizen's Initiative.

Measure C was the result - a proposal for a new stadium, combined with a convention center annex. The projected cost of the proposal was $1.8 billion. The stadium element was expected to cost about $1 billion, the Convention Center Annex $600 million, and another $200 million was slated for land acquisition. To cover $1.15 billion of the construction cost, bond interest, and facility maintenance + capital improvements, Measure C proposed an Transient Occupancy Tax (TOT) increase from 10.5% to 16.5%. The Chargers and NFL were to contribute a combined total of $650 million.

The measure received immediate opposition from SD's tourism industry, which wants an expansion of the existing Convention Center. Local community groups objected to the stadium, based on concerns about jobs, parking, and urban land use.

On November 8th, Measure C was defeated 43% to 57%. It required a 66.7% majority to pass.

Form Follows Function - Why Measure C Was A Fraud


Simply put, it never had a chance to succeed. Let me explain why.

As I get older, I've started seeing the wisdom in commonly used axioms. In this case, "form follows function." The idea being a shape or object should primarily be designed based on its intended function or purpose. So, with this idea in mind, let's look at the elements which would be part of an ideal successful stadium ballot initiative:
  • A lowest possible threshold needed for success (i.e. 50% + 1).
  • A location favored by a majority of citizens.
  • A plan with input from a wide spectrum of interests, to ensure a broad based coalition.
  • A plan which did not offend any established economic or politically powerful interests.
  • A plan which minimized (as much as possible) the use of public funds.
  • A plan which could go to voters in a high-turnout General Election.

Here were the core components of Measure C as conceived and written by the Chargers:
  • A plan which required a special tax increase and a two-thirds majority to pass it.
  • A location which was not preferred by a majority of citizens.
  • A plan which alienated a core (many would say the primary) economic interest group in SD, which in turn virtually guaranteed no broad political support.
  • A plan which relied on at least $1.15 billion in taxpayer funding.
  • A plan which had virtually no input from any other interests.

Now, before we can expose Measure C as a scam, the question is whether there was a variation on Measure C which could've gained broader support?

Given the public's disinclination with exposing the General Fund, a tax increase at least makes sense on the surface, even with the difficulties involved.  Therefore, the Chargers could (if not should) propose a solution with a TOT increase that SD's Tourism Industry - and by extension politicians - would receive favorably, especially given the increased difficulty of success? As Chargers' Special Counsel Mark Fabiani himself said:
"Any proposal that emerges from this Task Force should be one that the Mayor and City Council majority would be willing to place on the ballot themselves, and then campaign wholeheartedly to pass." - Mark Fabiani to CSAG on 2/16/15 
So, if we're keeping the TOT increase, but want something everyone can (theoretically) get behind, let's try this:

A TOT increase to 16% for a Convention and Stadium Fund? Money from the increase would be earmarked to expand the existing convention center or build an annex, and also used to help build a new stadium in Downtown or in Mission Valley. If there's surplus money in the fund, it can be placed in the General Fund at the City Council's discretion. Simple and clean. Everyone wins. Difficult to pass, yes. But key stakeholders get what they want, enabling politicians to jump on board.

As we know, that's not the plan we got.

Let's put aside the Chargers had gone 4-12, actively attempted to leave SD in 2015, retained an unpopular Head Coach in Mike McCoy, and got into a largely unnecessary contract fight with 1st Round draft pick Joey Bosa.

Here's the actual issues with Measure C itself:
  • SD's Tourism Industry (and by extension political establishment) specifically wanted a contiguous convention center expansion, but Measure C locked them into an annex plan they expressly didn't want.
  • At CSAG's public forum in early 2015, attendees supported Mission Valley by a substantial margin, yet Measure C put the stadium downtown.
  • Community groups were not made partners at the outset of the process, and in fact their concerns were never adequately addressed.
  • From 2001-2014, 20 different votes to raise the TOT for specific purposes took place in California. Only 8 out of 20 propositions reached the 66.7% threshold.
  • While the TOT increase was likely sufficient to protect the City's General Fund, the total outlay over 30 years was likely to exceed $3 billion dollars (factoring construction, bond interest, maintenance and upgrades).
  • Aside from Fred Maas, no one affiliated with the Chargers regularly campaigned for Measure C. Spanos was noticeable in his absence (seems Fabiani's requirement above for elected officials campaigning whole-heartedly would apply to the Chargers as well, but hey, I'm just a blogger).
  • Further it should be pointed out that the Chargers' $350 million would've been more than covered by Personal Seat License (PSL) sales, Naming Rights sales, and Sponsorship/Advertising deals. In other words, it's likely no actual out-of-pocket costs would be incurred. Keep this in the back of your head for later.

As a final statement of the predetermined failure of Measure C, I submit this open letter from David Agranoff, co-founder of the Save Our Bolts group, to Chargers' QB Philip Rivers:


Here's the money quote:

"Dean Spanos tanked the campaign. He barely staffed the campaign hiring only one person to run it. They ignored hundreds of fans willing to volunteer." - David Agranoff, 1/14/17

Agranoff's account doesn't square well with this quote from Dean Spanos:

"We were all enthusiastic about the referendum until it actually lost." Dean Spanos in the LA Daily News, 1/12/17

Here's the thing: Measure C still got 43%.

Spanos later intimated that had the vote reached 50%, he would be more inclined to give SD another chance. That intimation was voiced on December 19, 2016, about 2 months too late to make a difference.

Form follows function. In this case, what appeared to be an attempt to stay in SD was in reality the final nail in the coffin for SD.

Why Would Spanos Want Measure C to Fail?


Leverage.

As established above, Spanos was sent away from Houston in January 2016 with implicit directions from the NFL and fellow owners to make it work in his home market.

Once he demonstrates that he did indeed "try to make things work in his home market", how can the NFL or other owners reasonably keep him out of LA?

Further, if the NFL really doesn't want him in LA, they might be prepared to provide additional funding towards a stadium in SD.

I think that's what Dean thought.

Therefore, following the election, we had story after story from Jason La Canfora of CBS Sports reporting that the Chargers "had no choice" but to use their option and relocate to LA. By the way, the LA Relocation Derby demonstrated one element of Fabiani's strategy - stories intended to effect local reporting were leaked to local sources, while stories intended to influence the NFL or other owners were leaked to national media.

We also know Spanos appealed to his fellow owners for help as recently as the 2016 NFL winter meetings, according to this piece by ESPN's Seth Wickersham.

After Christmas, SD had apparently made a final offer of $375 million ($200 million from the City, $100 million from SDSU, $75 million from the County). Paired with the $650 million offered by the Chargers and NFL for a total of $1.025 billion, there was a gap of probably $100-$200 million remaining.

Author's Aside - Apparently you can't build a quality NFL stadium in SD for $1.025 billion.

Reminder, the Chargers' $350 million would be covered by PSLs, Naming Rights, and Sponsorship/Advertising deals.

However, when the NFL's recent meeting to review the Raider's stadium plan in Las Vegas produced neither a) Davis' relocation application or b) additional help for SD with c) the deadline for exercising the option closing in, Spanos pulled the trigger. It also appears some owners were simply fed up with Spanos and the whole situation, and wanted the matter definitively settled.

Greed... Is Good


A few last thoughts - as it regards Spanos' unwillingness to do any deal unless on his terms.

First, we're talking about an owner in a negative rent situation at Qualcomm Stadium (i.e. SD pays him to play there) who refused to allow SDSU to rent out skyboxes for revenue, and who rebuffed attempts by SDSU to make improvements at the Stadium (e.g. WiFi, HD replay boards, modern LED advertising boards, etc.), because he had a "narrative" to protect.

Second, Spanos' is financing a move to LA. The NFL approved a debt waiver for Spanos to finance his relocation costs. The debt ceiling prohibits owners from excessively using their franchises as collateral for other interests. In short, this means Spanos cannot afford to pay the costs of moving to LA.

Spanos, by financing the relocation fee, will pay $650 million once he moves into the stadium in Inglewood. He also is leasing temporary headquarters in Costa Mesa, as well as physically relocating equipment and materials from SD. He will also need to build a new practice and training facility, along with permanent team headquarters. Fred Roggin of NBCLA has estimated this will cost at least $100 million.

That's at least $750 million in relocation costs, plus interest on his loans from Goldman Sachs. All told, the Chargers will probably pay well over $1 billion to complete and pay off the move to LA over the next 20-30 years.

Lastly, let's go back to that apparent last deal in SD.
  • $350 million from the Chargers - again, none of this is actually out of pocket.
  • $300 million from the NFL (of which only $150 million is paid back).
  • $200 million from the City.
  • $100 million from SDSU.
  • $75 million from the County.

Remember, the SD deal is short by $100-$200 million. Here's a couple of options for an owner who, according to Wickersham's piece, pleaded to his fellow owners: "Please keep it here. I don't want to go to LA. I want to stay."
  • Spanos can take out a loan for at least $750 million to move to LA, but can't take out a loan of no more than one quarter that amount to make it work in SD?
  • Spanos couldn't sell about 5% - 10% of the franchise, estimated to be worth $2.08 billion, and use those proceeds to make the deal work?

Neither of those options were broached, to my knowledge.

The other owners, as indicated earlier, rightly called his bluff when they saw he wouldn't put skin in the game.

Spanos is in LA because he didn't want to spend any of his own money to make it work in SD.

Closing Thoughts


The Chargers left San Diego because they wanted to go to Los Angeles.

Form follows function. If Dean Spanos pitched Measure C and genuinely expected success, then he's either myopic or a fool (maybe both).

On the other hand, if Dean Spanos wanted to pitch an initiative which gave the appearance of trying to stay in San Diego from a distance, but upon close inspection was virtually guaranteed to fail and provided no shortage of scapegoats... he could hardly have done better.

The Spanos family didn't give one damn about San Diego's 50+ years of history with the franchise.

While Dean Spanos left a goodbye letter and sprinted off to do media in Los Angeles, they left their franchise QB and other current and former players the messy and difficult task of telling the fans in San Diego how much they were appreciated.

In the end, we were all as disposable as their former defensive coordinator, who (like San Diego) was fired without so much as a phone call or face-to-face meeting.

In the end, San Diego's only (hollow) victory is that the Spanos family is now Los Angeles' problem.

3 comments:

  1. Well, he is definitely either a schemer or a fool. A schemer would have been able to put a better product on the field these last few years though (especially with a QB like Philip Rivers), so what does that leave us with?

    ReplyDelete
  2. great article. It's right there in black and white and the most telling thing is at the end. He would borrow $750 million to move to LA but didn't want to borrow $175 million to stay in San Diego and move into a $1 billion stadium. Dean Spanos is so full of shit.

    ReplyDelete
  3. Spanos is a moron. Let's hope karma comes his way. Karma, is off to a good start.

    ReplyDelete