Tuesday, June 25, 2013
Cal struggles with stadium financing
By Ted Miller
California's renovation of Memorial Stadium and construction of a 140,000-square foot training facility both opened to glowing reviews over the past couple of years. But pretty things cost a lot of money, particularly in the Bay Area, and therein lies the problem explored this week by Jon Wilner of the San Jose Mercury News.
Cal had a plan to finance the $474 million bill, the most expensive facility upgrades in college sports history, but that plan has fallen short. Big time.
Why? Wilner explains in four stories.
First, there was a bad financial plan.
The Bears planned to finance the projects through the sale of 40- and 50-year rights to approximately 2,900 high-priced seats in the renovated stadium. But with sales lagging -- only 64 percent of the premium seats have been sold -- the school abandoned its June deadline to secure commitments for the long-term equivalent of $272 million.
The Bears are $120 million short of that goal.
Moreover, Cal administrators used the broadest parameters to make it seem like the plan was working, when it clearly was not:
Cal announced last month that it has sold just 64 percent of the 2,902 high-priced seats available in renovated Memorial Stadium.
That figure might come as a surprise to the Regents of the University of California, who were told by a Cal official 31/2 years ago that 65 percent of the seats had been sold.
So who's to blame?
Circumstances for one: 1. Cal football experienced a major downturn while these renovations were going on, leaving many empty seats inside a once-packed stadium; 2. The economy experienced a major downturn, making folks less likely to use discretionary money to watch a losing football team.
But if you want to point fingers at humans, there is a direction to go, which Wilner explains while contrasting the highly successful plan Washington used to finance its much less expensive project:
The Bears partnered with Stadium Capital Financing Group to create a high-risk financing plan in which fans purchase long-term rights to premium seats. Like a mortgage, payments can be made up front or over time. Unlike a mortgage, there is no penalty for backing out.
The Huskies listened to Stadium Capital's pitch but ultimately opted for a more conventional approach to financing their $200 million in bonded debt: Selling luxury seats on a year-to-year basis.
Stadium Capital Financing Group is a Chicago-based subsidiary of Morgan Stanley. Noted Wilner: "Cal paid Stadium Capital Financing $4.6 million, including expenses. A former company executive declined to comment on the situation. It's unclear whether SCF remains in business."
So it was finance guys with fancy words and big promises who -- too bad, so sad for Cal -- fell short when it came to execution.
The end result is Cal needs a plan B to help service the remaining $445 million in bonded debt. Enter vice chancellor John Wilton, who was hired in February 2011. He has a plan, but the situation remains precarious:
All told, the Bears are counting on new revenue streams to produce an average of $10 million annually for the next 40 years.
If the plan works, then the shortfall in premium seat sales won't create a financial crisis.
If the plan fails, the athletic department could spend decades in a fiscal vise.
Because this is the Pac-12 football blog, we shall adopt this position. We shall not look into our souls -- or use our intellect -- and then ask about college sports spending being out of control.
But we will humbly suggest that it would be best if new coach Sonny Dykes started winning some football games fairly quickly.