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Grizzlies take city rent issue to public


Published online on Saturday, Oct. 17, 2009
By George Hostetter / The Fresno Bee

A looming balloon payment is the driving force behind secretive stadium lease renegotiations that promise to dramatically change the troubled relationship between the Fresno Grizzlies and City Hall.

The financial pressure on the tottering Fresno Baseball Club LLC -- the Grizzlies' owner -- is so intense that team officials are asking the public to support their bid for an immense rent break at the city-owned Chukchansi Park.

Chris Cummings, a Fresno Baseball Club partner, said the team recently mailed about 10,000 fliers to registered voters in the city at an estimated cost of $3,000 to $4,000. The headline in big, bright letters: "City Officials Deserve Our Praise for Trying to Keep the Lights on at Chukchansi Park."

Grizzlies officials have said they want their $1.5 million annual stadium rent cut by $1 million.

The flier is not a threat to shut down or move the team if the Grizzlies don't get what they want, Cummings said.

"The whole purpose is to try to make sure we get as much public support as we can," Cummings said.

Council Member Lee Brand, who represents the council on a four-person City Hall negotiating team, said he won't be intimidated by the Grizzlies' appeal to voters.

"It means absolutely nothing to me," Brand said. "I'll listen to whatever people have to say. But in the end, my decision will be based on the facts."

Cash-strapped though they say they are, the Grizzlies also have hired a Southern California-based public relations firm to help with their campaign to influence City Hall. Andy Andersen, a Fresno-based partner in Passantino Andersen Communications, said he designed the flier.

The phrase "Keep the Lights On" is not meant to suggest the Grizzlies might leave town if they don't get the $1 million rent break, Andersen said. The phrase was simply an eye-catching incentive to get people to read the remainder of the flier, he said.

But the mailing is a clear signal that the stadium lease negotiations are entering a delicate phase.

The Grizzlies say they've lost more than $5 million from 2006 through 2008, and the just-completed season also was awash in red ink due to declines in attendance and corporate sponsorships.

The Grizzlies blame much of their financial woes on the stadium rent, the highest in Triple-A baseball. Team officials say they've discussed rent relief with City Hall since they bought the franchise in late 2005, but it has been only in the past year that the efforts turned serious.

Those efforts produced an amended lease in November 2008, and that's what is driving the sense of urgency in the current talks.

Lease hard to interpret

About a week before Thanksgiving 2008, the two sides signed a revised lease that tried to do the seemingly impossible: Give the Grizzlies a break without changing the $1.5 million annual rent.

The rent has been something of a sacred cow in Fresno since October 2000, when a bitterly divided City Council concluded nearly a decade of public debate by approving construction of the downtown stadium.

The decision was made politically possible only by the promise of the Fresno Diamond Group, the Grizzlies' original owner, to pay $1.5 million of the estimated $3.4 million annual bill on the construction bonds.

Stadium critics were convinced the Diamond Group's projections of the stadium's capacity to generate money were wildly inflated, and taxpayers would soon be stuck with footing most or all of the cost of providing a home for a profiting-making company.

This is why the Grizzlies and City Hall in November settled on a complex lease revision that, to this day, appears to be a source of confusion on both sides.

The Grizzlies' monthly rent was cut from $125,000 to $75,000. In a calendar year, the team would pay $75,000 monthly from January through November. Total rent for the 11 months -- $825,000.

December would be what City Hall calls the "clean-up" month -- the Grizzlies would make a balloon payment of $675,000 to raise the total annual payment for the year to $1.5 million.

But there was a wrinkle to this new way of paying rent. Both sides agreed that a $1 city fee -- called the Arts, Parks, Entertainment and Sports (APES) fee -- would be added to the cost of each ticket sold at the stadium.

In theory, the fee would apply to all ticketed events, concerts and high school football games as well as Grizzlies games.

The Grizzlies would collect the fee and apply the total toward December's balloon payment. In theory, if 675,000 tickets were sold, the Grizzlies would have $675,000 in APES fees to transfer to the city in December.

Team and city officials estimated the first year would generate $600,000 in fees.

But it hasn't worked out that way.

Cummings said this week that $175,000 to $200,000 in fees have been collected. The Grizzlies' attendance for 72 home games this season totaled 480,627. Cummings said part of the explanation for the difference is that many 2009 season tickets were sold before last Dec. 1, when the APES fee at Chukchansi Park went into effect.

The team isn't the only private firm that collects APES fees. CourseCo, a for-profit entity that operates Riverside Municipal Golf Course for the city, collects APES fees on golfers' green fees. City officials said CourseCo transfers the money to the city once a month.

Cummings said APES fees collected by the Grizzlies were deposited into the team's operations account, and he recognizes that returning the fees to City Hall is a team "obligation."

City Attorney James Sanchez said the revised lease was designed so the Grizzlies could use the APES fees for operations throughout the year.

Officials on both sides have said they assumed the APES fees collected by the Grizzlies would be a "rent credit" deducted from December's rent, even if the team had already spent the money. But Sanchez said that would be double-dipping. He said the Grizzlies get credit for APES fees only after the money has been transferred to the city.

It's not clear if Grizzlies officials will be able to pay the $675,000 bill in December. City officials say the Grizzlies would be in default if they missed December's payment. And, they add, a default would greatly complicate the city's position.

The original lease with the Diamond Group nearly a decade ago gave the city two sources of protection for its $46 million investment in building the stadium: The Grizzlies couldn't move for the life of the 30-year lease, and City Hall could take over the company in the event of a default.

Both provisions remain in the lease with Cummings and his partners. But taking over the Fresno Baseball Club isn't the same as taking over the baseball franchise. The latter belongs to the Pacific Coast League, where the Grizzlies play, and the San Francisco Giants, who have a player-development contract with the Grizzlies that expires after the 2010 season.

Pacific Coast League President Branch B. Rickey said Thursday that the league wants a franchise in Fresno. But, city officials admit, there is no way to guarantee what would happen if Fresno Baseball Club went bankrupt or if City Hall tried to leverage a missed rent payment into a city takeover of the Grizzlies.

"I don't want the city to own that franchise," Brand said.

22 years of bond payoff

With more than 22 years of bond payments still to meet, city officials said, a stadium tenant paying some rent -- any rent -- is better than an empty stadium.

Yet, Cummings and his partners have much at stake, as well. They haven't said what they paid for the Grizzlies, but a bankruptcy filing or a successful city takeover of the team could mean big losses for them. The revised November 2008 lease assumes the franchise has a market value of $7.75 million.

The result is that the two sides have plenty of incentive to cooperate, yet they are no closer to an agreement than they were this summer because neither believes it can afford to be the first to yield.

Daniel Barrett, a Southern California consultant representing the city, said he continues to compare the Grizzlies lease with leases of Triple-A teams in similar markets. He said the analysis will help city officials determine a fair rent.

Barrett said the next four to eight weeks are pivotal but, "We're still not in a position to form any conclusions."

Barrett, Brand, City Manager Andy Souza and Mayor Ashley Swearengin are on the city's negotiating team.

Cummings said the refinancing of stadium construction bonds could lower payments and give the city a painless way to help the Grizzlies. Souza said the city has twice explored the option, but, for complex reasons involving how the original bond deal was structured, refinancing currently would cost more than it would save.

Brand said his desire for the Grizzlies is simple: "They basically have to be in a position where they have recapitalized and can demonstrate they have an organization that can pay all its current bills, pay its future bills and be sustainable for the next 20 years or whatever we put on that lease."

The Grizzlies' position is summed in their recent mailing to voters: "We don't want special treatment. We just want a fair shake -- one that will keep the city whole and keep us economically viable."

The reporter can be reached at ghostetter@fresnobee.com or (559) 441-6272. 

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