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Will Goldman Sachs act as an honest broker if they are involved in negotiations to build a stadium in San Diego? It would go against their own financial interests in Los Angeles and St. Louis. The firm stands to gain much less if a stadium is built here.
Investment bank Goldman Sachs wants the Chargers to move to Los Angeles. They also want the Rams to stay in St. Louis, and out of Los Angeles.
The firm is working diligently on both fronts.
Those are not Goldman’s publicly stated positions, of course, but it doesn’t take much analysis to arrive at this conclusion.
SportsBusiness Journal’s Daniel Kaplan, citing unnamed sources, reported Monday that Goldman Sachs will finance the Chargers’ costs of moving to L.A. by covering “any operating losses suffered by the team in the first few years in that city as well as costs for any renovations needed in a temporary venue.” If they relocate, the Chargers are expected to play in the Los Angeles Memorial Coliseum or the Rose Bowl while a new L.A.-area stadium is under construction.
Chargers special counsel Mark Fabiani confirmed to ESPN that the Chargers have a long-standing working relationship with Goldman and that the firm will work with them on financing a new stadium in the Los Angeles market.
“We are in a hyper-competitive environment regarding Los Angeles at this moment, and so we won’t be releasing specifics on our work with Goldman Sachs,” Fabiani told ESPN. “The bottom line is that we, along with Goldman Sachs, are completely confident that the Raiders/Chargers L.A. stadium proposal can feasibly be financed.”
Fabiani has been less than fully transparent about the Chargers’ dealings with Goldman Sachs as recently as January, when he refuted a report out of St. Louis that the team and firm had reached an agreement to build a stadium in L.A.
Goldman’s relationship with the Chargers is not new. (Nor are Fabiani and Goldman strangers.) Covering the team’s losses and renovation costs related to relocation, if true, is definitely a new wrinkle.
Meanwhile, Goldman Sachs managing director Greg Carey is advising Missouri Gov. Jay Nixon’s task force on building a publicly funded stadium to keep the Rams from moving to Los Angeles. The St. Louis Regional Convention and Sports Complex Authority hired Goldman two years ago to find ways to keep the Rams, or at least NFL football, in St. Louis.
the [Missouri task force] has a potent player in Greg Carey, a 54-year-old Goldman Sachs Group Inc. banker who is known in professional sports circles as the guru of stadium financing. Under Carey, Goldman Sachs has worked on more than two dozen stadium deals, the company says, amounting to more than $11 billion in financing.
Carey’s specialty is crafting deals that are lucrative for team owners, often at the expense of taxpayers. What sets him apart, say his clients and critics, is his ability to steer projects through conflicting interests of teams and local government officials. He often does so by using obscure tools available in public finance to help owners get low-interest loans, avoid taxes or tap subsidies.
Carey also steered financing of the San Francisco 49ers $1.27 billion stadium in Santa Clara, cited by Fabiani as a template for the proposed Raiders/Chargers stadium in Carson.
49ers management and Goldman executives touted their work on the Santa Clara stadium in a promotional video.
“It was one of the most exciting transactions that I’ve been able to work on in my career,” Carey says in the video. “We actually committed $850 million of our own capital as a construction loan to ensure that the stadium could be built.” (It’s slightly more complicated than that.)
Carey was understandably excited about financing an $850 million loan. San Diegans might be less than excited about the implications of Goldman’s involvement with the Chargers and their prospects of remaining in San Diego.
Goldman Sachs could not expect to earn nearly as much in commissions, fees and interest from a San Diego stadium as they would from the proposed Raiders/Chargers stadium in Carson. The Carson proposal is for a privately financed $1.7 billion stadium, modeled after the financing used for the 49ers stadium in Santa Clara.
The Chargers described their view of the different market situations in a statement announcing their partnership with the Raiders:
A stadium can be financed in Los Angeles because the LA-Orange County-Inland Empire marketplace is able to support the sale of hundreds of millions of dollars of Personal Seat Licenses (PSLs) or Stadium Builder Licenses (SBLs). These licenses provide a significant amount of funding for the stadium project, as the City of Santa Clara and the 49ers recently demonstrated with the public-private partnership and the record-breaking SBL sales that helped make possible the financing of Levi’s Stadium.
In addition, the LA-Orange County-Inland Empire area is the second-largest media market in the country, and as a result, revenues from the sale of naming rights, advertising, and sponsorships will be significantly larger than they would be in San Diego. Taken together, simple economic realities make a financing reliant solely on stadium-generated revenues possible in a large market such as Los Angeles.
It’s all about PSLs/SBLs and their ability to raise hundreds of millions of private dollars for building a stadium. The Chargers and Goldman Sachs don’t think the San Diego market can generate enough PSLs to build a stadium privately.
National University System Institute for Policy Research President Eric Bruvold is preparing a study that concludes San Diego County would have to cover up to 65 percent of the cost of a new stadium. Bruvold said San Diego might buy $50 million to $100 million in PSLs, but not a large proportion of the overall package. That would mean much less private financing for lenders to the project.
That’s where the shadow of a potential conflict arises.
Goldman Sachs would substantially benefit from a privately built stadium in Carson. Their paid advocacy for the St. Louis Stadium Authority also compels them to strive for a solution that keeps the Rams in Missouri, which would bring an ancillary benefit of keeping the L.A. market open for the Carson stadium.
If the Chargers end up with a San Diego stadium solution, Goldman Sachs will have done their duty to their client, in that they would have helped them reach a satisfactory outcome. But will Goldman act as an honest broker if they are involved in negotiations to build a stadium in San Diego? It would go against their own financial interests in Los Angeles and St. Louis. They stand to gain much less if a stadium is built here.
I asked representatives of the Chargers, the mayor and the mayor’s task force to comment on Goldman’s possible involvement in the stadium process in San Diego.
Citizens Stadium Advisory Group spokesman Anthony Manolatos said the group hasn’t had any contact with Goldman Sachs. He didn’t dismiss the idea of the group meeting with Goldman at some point, though.
“Possibly, but probably not. The focus of the advisory group is on determining what site is best, then developing a financing plan for public consideration. It’s not all that interested in what’s going on Carson,” Manolatos said.
“It would appear to me that Goldman Sachs would be conflicted. I expect if it got that far, negotiations would have to be with another investment bank,” Manolatos said. “It appears there would be a conflict.”
Craig Gustafson, the mayor’s spokesman, said he needed to look into the issue and get back to me. I’ll update this post if I hear back.
I emailed several questions to Chargers special counsel Mark Fabiani. At first, he offered just a boilerplate response: “Goldman Sachs has been the team’s longtime investment banker, something that we have been very public about over the years. A Goldman representative even spoke at the Carson2gether press conference on February 20. So our relationship with the firm is hardly news.”
When I pressed him on the questions I’d asked, he wrote: “With regard to the City of San Diego, we of course have not yet seen any specific ideas from the Mayor or the task force, but we will certainly be prepared to have the appropriate experts from our side evaluate whatever might be proposed in the future.” He added: “To date Goldman has not met with the Mayor or any task force members.”
So, would “appropriate experts from our side” mean Goldman could advise the Chargers on a future San Diego stadium proposal?
“I can’t answer that hypothetical question since we have no idea what specific issues will be raised by the task force or the mayor. We would always try to bring the best expertise to bear on a particular issue, after evaluating what’s needed, checking for client conflicts, and so on,” Fabiani said.
Goldman Sachs representatives declined to comment for this story.
It isn’t ethically or legally wrong for Goldman Sachs to be the Chargers’ financial partner and stadium adviser. If, however, San Diego officials end up in stadium negotiations with Dean Spanos and his investment banker, they may wonder whether the Carson stadium is too lucrative for Goldman to let fail.