Much of the feud over how much rent the San Francisco 49ers should have to pay Santa Clara to use Levi’s Stadium stems from a bitter dispute over how the annual amount is calculated, this news organization has learned.
An arbitrator recently said the team should pay $262,000 more in rent, raising the annual payment from $24.5 million to $24.762 million. The news sparked a war of words between the team and city, with the 49ers accusing the mayor of spinning numbers in the agreement to inflate the victory.
The increase in rent is relatively minimal given the large overall amount, but the dispute and the bitter fallout could ultimately damage what is an an already tense relationship between the team and the city.
A review of the 60-page arbitration award, obtained in full by this news organization, provides the most complete picture yet of the specifics of the fight. The dispute, the arbitration documents show, centered around whether revenue, and what kind of revenue, should be considered in determining the rent.
Arbitrator Read Ambler, a retired judge who served 20 years with the Santa Clara County Superior Court, ultimately attempted to strike a balance, siding with both parties on different issues.
From the outset, both the city and the team agreed on the end goal, that the payment should cover ground rent, stadium operating expenses, debt service and capital reserves. They also agreed that debt service estimates had decreased while operating expense estimates had increased as of 2015, when it came time to reevaluate the lease.
But initial revenue also came in higher than expected and the 49ers argued that should be taken into account and the rent reduced. At one point the team’s lawyers suggested the rent should be as low as $16.775 million. The team also argued that interest earnings on money sitting in reserves should be included.
But the city disagreed, arguing revenue should not be considered and that the lease clearly specified only changes in debt service or operating expenses should trigger a rent adjustment. At one point, the city suggested an annual payment of $25.862 million.
Ambler disagreed in part with Santa Clara, writing in his decision that “the provision does not unambiguously exclude updated revenues from factoring into the adjustment to facility rent.”
Ambler also admonished the city for arguing against including revenue, writing that statements made by representatives of Santa Clara indicate they at one point “understood and intended that updated revenues be used as part of the adjustment process.”
But the arbitrator also disagreed with the team that earnings on interest should be included. He pushed back at an assertion by the team that projected revenue from Stadium Builders Licenses (SBLs), which essentially give buyers the right to purchase season tickets, should be included through the end of the 40-year lease. Ambler sided with the city who maintained that the two parties had agreed earlier they would assume no revenue on SBLs during the last 10 years of the initial lease.
In the end, Ambler said revenue should be used in determining the rent, but not from interest or SBLs, and settled on the $24.762 million figure.
As is standard with arbitration agreements, the 49ers will also have to pay Santa Clara’s legal fees.
