Given the vanity, ambition, exercise of power for its own sake, and - most of all - the staggering amounts of money in play, the Los Angeles City Council will approve a taxpayer-backed financing scheme for a downtown stadium at Tuesday's council meeting, now that the deal has been rubberstamped by the council's select committee of stadium cheerleaders.
That said, this deal is better than the bad one Tim Leiweke of AEG asked the city council to accept uncritically six months ago. But it's not as good a deal as Los Angeles deserves.
The deal shifts the degree of downside risk to expose AEG to somewhat more and Los Angeles taxpayers to somewhat less: AEG must build the $1.2-billion Farmer's Field without direct public funding, demolish the west hall of the city's convention center to make way for the stadium, and build a new convention center wing and parking structures. The city will sell tax-exempt bonds to build the new wing and use sales tax receipts and other revenue generated by the convention center and stadium to pay bond holders. Should these revenues fall short, AEG will make up the difference.
Lurking in this sunny overview are troubling unknowns, unspoken assumptions, and missed opportunities.
The biggest unknown is the NFL. Its intentions toward Los Angeles have been murky at best. And as Michael Hiltzik pointed out recently in the Los Angeles Times:
The city's financial consultant, Texas-based Conventions, Sports & Leisure International, observe(d) . . . that if the league imposes, say, a $500,000 relocation fee on the team's owner, that could raise costs enough to scuttle the deal economically. . . . Any sizable upward revision of the cost of the stadium could also wreck the fine financial balance of the (deal).
The most worrying assumption is the spill-over effect. Because the stadium won't generate significant new net revenue for the city (perhaps only enough to cover bond payments and a bit more), AEG's cheerleaders assume that revenues generated elsewhere downtown justify putting taxpayers at risk. Stadium boosters have been burned before by imagining spill-over revenues where none later materialized. In fact, analyses of sports-based development show that over the long term cities see very little new net revenue.
Still missing from the deal points are the public safety and infrastructure maintenance costs that come with big conventions and sports events. That may not be a problem, however. As Hiltzik dryly notes, the stadium/convention center complex is expected to generate only a tiny increase in the number of downtown conventions. If convention business is supposed to drive the spill-over effect, not much will come from increasing the number of big conventions from 24 to 29.
Even with these issues, the city is getting a better-than-bad deal, but it's not getting one as good as it might. Money, say critics, is being left on the table.
AEG assumes a rate of return on its investment of just 6.5 percent - absurdly low when compared to the company's past performance and suggesting that AEG is counting on revenue streams that cut out the city to sweeten AEG's profits. Income from digital billboards, management fees to operate the convention center/stadium complex, possible rental of the stadium to two teams, and new development rights at L.A. Live might have been leveraged by harder bargaining to benefit a cash-strapped Los Angeles.
Some months of further discussion between AEG and the city will follow the city council's vote on Tuesday. An even better-than-bad deal might be worked out. But don't expect a good deal.
A good deal was never the goal of either the cheerleaders on the city council or those council members who were initially cool to the idea of downtown stadium. The city hall system doesn't need good deals, just deals that maximize survival of the system.
Stadium rendering by AEG/Gensler