LEGISLATIVE ANALYST REPORT: COSTS AND BENEFITS OF HOSTING THE 34TH AMERICA’S CUP IN SAN FRANCISCO EXECUTIVE SUMMARY The America’s Cup is the premier sailing event in the world. Hosting the 34th America’s Cup in San Francisco, an event reported to be the third largest in all of sports behind the Olympics and the World Cup, would make San Francisco one of only seven cities in the world to have hosted an America’s Cup. In addition to the prestige of such an event, hosting the America’s Cup would also bring significant economic benefits to the region. The Budget and Legislative Analyst wants to make it very clear that the disclosures made in this report, pertaining to the estimated costs and benefits to the City and County of San Francisco, are not for the purpose of determining whether the America’s Cup should be held in San Francisco. We clearly recognize the importance and prestige of hosting such an event in San Francisco. However, it is the responsibility of the Budget and Legislative Analyst to report the facts to the Board of Supervisors. On February 14, 2010, at the 33rd America’s Cup in Valencia, Spain, BMW Oracle, a sailing syndicate (or team) based out of the Golden Gate Yacht Club in San Francisco, defeated the defending syndicate to become the winner of the 33rd America’s Cup. Under the rules governing the America’s Cup, the winner of the America’s Cup is entitled to select the race format, date, and location of the next race. BMW Oracle and the Golden Gate Yacht Club have formed an Event Authority, a private entity which will organize the America’s Cup events, and announced the general parameters for the format and date of the next race (those parameters are specified in a document referred to as the Protocol). However, as of the writing of this report, a location has not yet been selected. In efforts to bring the 34th America’s Cup to San Francisco, the Office of Economic and Workforce Development and Golden Gate Yacht Club negotiated a Term Sheet which described the general terms under which San Francisco would host the 34th America’s Cup. The non- binding Term Sheet was approved by the Board of Supervisors on October 5, 2010. In exchange for choosing San Francisco as the venue for the next America’s Cup, the Term Sheet generally requires the City and County of San Francisco to: • Make various improvements and alterations to selected Port properties and deliver such properties to the Event Authority, free of tenants, to be used for the America’s Cup events over a 2.5 year window, with the final match (races) occurring in the summer of 2013. • Provide environmental review services for Event-related development activities on Port properties, at no cost to the Event Authority. Budget and Legislative Analyst 1 Executive Summary: Costs and Benefits of Hosting the 34th America’s Cup in San Francisco • Lease various Port properties, free of charge, to the Event Authority for 66 to 75 years, and allow the Event Authority to develop such property with the City and County of San Francisco charging no rent to the Event Authority for the term of the leases. • Provide security and transit capacity for the anticipated America’s Cup spectators. Although hosting the event under the provisions of the Term Sheet as described above would provide significant economic benefits to private businesses and the general economy in San Francisco, the scope of this analysis also focuses on the estimated costs and benefits that would result directly to the City and County of San Francisco, if the 34th America’s Cup is held in San Francisco, based on the provisions of the non-binding Term Sheet1. In order to determine the estimated costs and benefits to the City and County of San Francisco, the Budget and Legislative Analyst considered the following sources of information, in addition to the Term Sheet and the Protocol document. • A report prepared by the Bay Area Council Economic Institute and Beacon Economics (the “Beacon Report”) estimating the economic impact of hosting the America’s Cup in San Francisco. • A report from the Instituto Valenciano de Investigaciones Economicas (IVIE), a private research institute based in Valencia, Spain, calculating the economic impact of hosting the 32nd America’s Cup in Valencia in 2007. • A report from Bay Area Economics, prepared for the Port of San Francisco, estimating the value of the long-term leases to be provided to the Event Authority (the private entity, controlled by the BMW Oracle Team and the Golden Gate Yacht Club, charged with organizing the 34th America’s Cup). • Data from various City departments including, the Port, the Police Department, the Municipal Transportation Agency, and the Office of Economic and Workforce Development. In summary, the estimated costs and benefits of hosting the 34th America’s Cup can be divided into those costs and benefits for the event, and the estimated costs and benefits of the long term development opportunity provided to the Event Authority. As shown in Table A below, the Budget and Legislative Analyst estimates that by hosting the America’s Cup in San Francisco, the City and County of San Francisco (a) would receive estimated revenue benefits of $22.0 million, (b) would incur estimated new costs of $64.1 million, thereby resulting in an estimated net loss to the City and County of San Francisco of $42.1 million. 1 This report does not address the estimated costs and benefits which would result from the 34th America’s Cup Host City and Venue Agreement currently pending before the Board of Supervisors (File 10-1259), which will be the subject of a separate forthcoming report from the Budget and Legislative Analyst. Budget and Legislative Analyst 2 Executive Summary: Costs and Benefits of Hosting the 34th America’s Cup in San Francisco Table A: Estimated Net Benefits to Be Incurred Directly By the City and County of San Francisco Associated with Hosting the 34th America’s Cup Net Costs to the City and County of San Benefits Costs Francisco (Costs Less Benefits) The America’s Cup Events $22.0 million $64.1 million $42.1 million Source: Budget and Legislative Analyst’s calculations. Aside from the estimated net costs of $42.1 million to the City and County of San Francisco as shown in Table A above, the City and County of San Francisco would also be impacted by (a) leasing various Port properties to the Authority, (b) granting development rights to the Event Authority for 66 to 75 years, and (c) allowing the Event Authority to develop such properties, with the City and County of San Francisco charging no rent to the Event Authority for the term of the leases. As shown in Table B below, by leasing the Port Property to the Event Authority, the City and County of San Francisco would receive estimated increased property tax revenues of $3.6 million resulting from new development constructed by the Event Authority. However, as also shown in Table B below, if the Event Authority were not provided with the 66 to 75 years of development rights, and instead, if the City and County obtained a private developer through a competitive process, then the City and County could receive estimated increased property tax and lease revenues of $89.8 million. Therefore, while the City and County will receive estimated increased property taxes of $3.6 million, it is foregoing $89.8 million of revenues, thereby resulting in an estimated net loss of $86.2 million of revenues being forgone by the City and County of San Francisco. This estimated net loss to the City and County of San Francisco of $86.2 million related to the granting of long-term development rights to the Event Authority is in addition to the estimated net loss to the City and County of San Francisco of $42.1 million as shown in Table A above. Table B: Estimated Net Costs to the City and County of San Francisco By Granting Development Rights for 66 to 75 Years to the Event Authority Without Charging Any Rent to the Event Authority Increased Foregone Increased Taxes Tax and Lease Revenue Which Net Cost (Costs Revenues to the City and County Would Less Benefits) the City and Forego to Host the County America’s Cup Subsequent Long Term $3.6 million $89.8 million $86.2 million Development Source: Budget and Legislative Analyst’s calculations. The following section discusses (a) the benefits, resulting from hosting the 34th America’s Cup, for private businesses located in San Francisco, and for the City and County of San Francisco, (b) the costs, resulting from hosting the 34th America’s Cup, (c) the increased estimated taxes to be received by the City and County as a result of leasing Port property to the Event Authority Budget and Legislative Analyst 3 Executive Summary: Costs and Benefits of Hosting the 34th America’s Cup in San Francisco and allowing the Event Authority to develop such Port property, and (d) the increased estimated taxes which could have been received by the Port if the City and County did not lease such Port property to the Event Authority. America’s Cup Estimated Event Benefits, As A Result of Hosting the 34th America’s Cup, For Private Businesses Located in San Francisco and for the City and County of San Francisco • The Budget and Legislative Analyst estimates that the America’s Cup would generate an estimated $1.2 billion in new spending in the San Francisco economy.