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Coliseum Area Surcharge System (CASS) and The Raiders PSL Problem

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CASS was developed to solve a problem. In 1995, The Oakland Raiders, represented by AL Davis of "AD Football" signed several agreements leading to the return of the Oakland Raiders to Oakland. The centerpiece of the deal was a $220 million plan to renovate the Oakland Coliseum stadium. The plan added over 10,000 seats, new luxury boxes, and a brand new kitchen facility to the stadium complex.

The deal was financially supported by the "Personal Seat License" (PSL) concept. The PSL is simply a paid "right" to purchase season tickets over a period of time.

Generally, that time frame is the life of the team's lease with the stadium. But in the Raiders case, that was a ten-year period (a length of time that gained the displeasure of the Raiders and of Raiders fans, who called for a "lifetime" period).

While there's some dispute over who invented the idea (some claim that it was Marc Ganis of SportsCorp in Chicago - and who served as a consultant to the City of Oakland, Alameda County, and the Oakland Raiders on this deal - and first used by the Charlotte Panthers) it has been successful in every city it has been used, from Houston to St. Louis. Only one city has not had a good experience with the scheme: Oakland.

The problem was and is a simple one: if the deal was to pay for itself, over 44,000 seat licenses had to be sold when they went on sale, and not over a period of years. Moreover, the price for those licenses ranged from $250 to $16,000.

The "breakeven" point was $84 million. That was the revenue needed for the deal to pay for itself. The seat license sale brought in $56 million, a shortfall of $28 million. That does not include annually compounding interest, which when combined with the principal drives the annual debt payments to approximately $20 million, and payments totaling over $400 million.

The reason for the deficit was a large number of declined credit card payment requests.

The $20 million yearly debt payment is the contractual responsibility of the City of Oakland and the County of Alameda, and is split evenly. Thus, what was advertised as a "privately-financed deal" has turned into a kind of general obligation bond issue, where the municipality pays for the bond directly from the same revenues used to pay for services.

At a time where both Oakland and Alameda County have to cut back on service provisions because of record deficits, it's hard to justify payments for other matters that are not directly service-related. This is one of them.

The problem "on top of the main problem" is what SBS calls "the Son of the PSL problem." The way this PSL program was designed calls for a "remarketing" program set to commence 10 years after the PSLs were sold in 1995. That's 2005, and the year's rapidly approaching.

Documents produced by Stephens McCarthey Kuntzel and for the Oakland and Alameda County officials and investment bankers called for an additional $54 million to be raised from the remarketing. But there are several problems with this target:

1. It's based on the need of the bond issue, and not the Bay Area market's ability to pay for it.

2. It will not pay for the entire cost of the deal because interest payments have pushed the total over $400 million.

The problem is with the way the deal's designed. The one and only chance to have enough "cheap" (non-interest debt coverage) money to pay off the debt was in 1995, and that's it. The best current answer is to do away with the PSL program. This is where the surcharge idea comes in.

The Coliseum Authority Problem

A bigger problem - one that the surcharge will not solve - is the way the Coliseum is ran by the Oakland-Alameda County Coliseum Joint Powers Authority, the limited number of revenue sources drawn on to finance operations and stadium improvements, and the poor deal-making structure that exists. Right now, the main deal-making activity rests with the Coliseum Board itself. Prior to 1996, deal making authority was with the Chairman of The Board of the Oakland Coliseum (then George Vukasin) and the President of the Coliseum (then Robert Quintella), who was not on the board itself.

Now, the Executive Director (Anne Haley, who's doing a great job) is basically taking direction from the board. A standard corporate practice is for the board to give advice to, but not direct, the Executive Director.

A related problem is that the resolution created to establish the Oakland-Alameda County Coliseum Joint Powers Authority in 1996, called for four elected officials, and four "private sector" representatives, rather than four elected officials and five business people. Thus, the possibility of tie votes exists, and with no way to break a deadlock.

The other problem is that the enabiling resolution also called for a 20-member advisory board - the board was never created. Thus, the Coliseum does not have an effective way to harness the knowledge and talent of the Bay Area sports industry, as they try to solve this revenue problem.

The passage of the 1996 resolution creating the authority also was matched by the celebrated dismantlement of the afformentioned system ran by Vukasin. The Oakland Coliseum Corporation was financed by payments by the City of Oakland and Alameda County, and totalling $1 million annually since 1966, when the original municipal bonds were issued to build the Coliseum Complex.

The SMG Problem

Stadium Management Group (SMG) was brought in to take on the task of running the Coliseum for the new Authority. SMG has a contract such that the management company makes money from "cost savings." Thus, SMG has every incentive to defer stadium maintenance, resulting in such undesirable developments as dirty walls in luxury boxes, and along the hallways leading to them.

Thus, SMG has a profit-related reason for suggesting that the Authority would save money if the Oakland Athletics did not play at the Coliseum, as SMG did in a recent report to the Authority. The design of their contract is such that SMG would enjoy the benefits of cost savings from the A's departure from the Coliseum.

In the years since the passage of the 1997 SMG contract, Oakland and Alameda County officials have never reviewed SMG's contract performance before a public hearing of either the Oakland City Council or the County of Alameda.

Over that time, the Authority has permitted SMG to have unusual freedoms: one of them an exclusive contract with a ticket brokerage firm called Tickets.Com. In this, Tickets.Com has first access to tickets for all concert events, which in some cases leads to early sellouts and the kind of entertainment ticket price inflation fans have complained about for the last six years.

The Surcharge Idea

The plan is to replace the PSL system with a ticket surcharge that basically breaks down to an average of $20 per ticket for Raiders games, and $7 per ticket for all other events. The math is simple: the more events held at the Coliseum, the larger the money.

The idea is to gradually replace the public authorities payments with revenue from the surcharge. For example, 129 A's and Warriors games and 25 events at a $7 surcharge with an average attendance of 5,000 people, plus 10 Raiders games at a $20 surcharge assuming an average attendance of 50,000 would give an annual revenue from the surcharge program of just over $15 million. Increasing the Raiders surcharge to an average of $30 would increase the annual revenue to just over $20 million. By comparison, the City of Oakland and the County of Alameda pay $20 million annually to the Raiders bond debt.

The ticket prices would certainly increase from $71 for each club seat, to a $91 average when a $20 surcharge is added the surcharge would vary with seat location. For season ticket holders, the Oakland Football Marketing Association and the Raiders could give season ticket holders the option of paying the surcharge in installments, rather than adding it to the per ticket total

For example, a $20 surcharge times ten games is $200, and the payments could be divided, so that a $50 payment was due each month over a four-month period. So, the "cost barrier to entry" for interested season ticket purchasers is dramatically reduced. They don't have to make a lump sum payment.

Revenue for A New Coliseum Operations Office

A simple increase in the "other events surcharge" (meaning events other than the Raiders) to a $10 average would raise about $2.3 million more annually, part of which could be used to finance the development of a Coliseum Operations office (and do-away with the SMG contract) and the rest could be "parked" and saved to pay for EIR and feasibility studies for a new ballpark for the A's. That's only about $500,000 and a "one-time" cost, a small dent in the total Coliseum Surcharge revenue for one year.

And remember, as the Coliseum adds events, the surcharge revenue increases.

Replacing The Raiders PSL System

In theory, it should not be a large issue to dismantle the PSL system. While there are contracts calling for the remarketing program, they should be rewritten, as the Coliseum authority will not raise the $54 million anticipated from the re-sale of PSLs. Plus, the remarketing yields a "one-time" payment; the Coliseum surcharge program can raise $407 million over a 20 year period.


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