Deemed the “Super Bowl of Sailing,” the America's Cup is the most prestigious yachting race in the world, and its oldest at 162 years. As the world’s third-largest sporting competition ranking only behind the Olympics and soccer’s World Cup, securing hosting rights to the event is not only an extraordinary achievement, but an accomplishment that can serve as a crown jewel for the economic endeavors of any community.
So when the possibility of hosting the America's Cup in September of 2013 was first pitched to San Francisco's city leaders, it sounded almost too good to be true: A world-famous event that would ultimately cost the city little while bringing both international exposure and a bonanza of economic activityi.
The Promised Economic Boon
Not unlike bidding for other major international sporting events, bidding for the America’s Cup was a complex and highly involved process. As part of those efforts, the Bay Area Council Economic Institute (BACEI) and Beacon Economics published an economic report in 2010. Entitled “The America’s Cup: Economic Impacts of a Match on San Francisco Bayii,” and commissioned by the City and County of San Francisco, the report outlined the economic impact hosting the regatta would have on the Bay Area, the State of California and even the nation at large.
The economic impact detailed by the report was impressive. Projections touted an economic boon of $1.4 billion for the greater San Francisco region which proponents noted was three times the estimated impact of hosting the Super Bowl ($300-$500 million). The report also detailed an explosion of job growth, tourist activity and increase in local tax revenue. More specifically, the commissioned report included some of the following highlights:
- The economic benefits of bringing the America’s Cup to San Francisco would come primarily through expenditures by racing syndicates, and through spending on hotels, restaurants, and retail and other services by the 2.6 million spectators estimated to attend the race.
- The potential increase in employment surrounding the event could be on the order of 8,840, yielding a benefit to state and local government coffers of nearly $85 million.
- Additional taxes alone to the City's General Fund are expected to net more than $13 million, based on more than $24 million in revenue, and an estimated $11 million in tourism related costs.
- Looking beyond the Bay Area, the U.S. economy as a whole would see increased economic activity of $1.9 billion and the creation of 11,978 jobs.
- A local successful defense of the America’s Cup will likely lead to additional such events in the future. San Diego, for example, was the host to three successive America’s Cups, in 1988, 1992, and 1995.
A Legislative Assist
After securing the right to host the running of the 34th America’s Cup, proponents went to work on legislative efforts aimed at further strengthening San Francisco’s position as host for the 2013 regatta. While the Legislature previously passed special Infrastructure Financing District (IFD) bills for San Francisco in 2005 and 2010, the opportunity to host the next America's Cup regatta convinced Port officials that they needed more changes before they could harness property tax increment revenues to their economic development goals.
AB 664 (Ammiano, 2011) authorized San Francisco to use IFD revenues along its waterfront to support the America’s Cup venue. The legislation augmented San Francisco's special legislation by creating special waterfront IFDs for the Port America's Cup venues and the conversion of Treasure Island to civilian uses. Without the special waterfront IFDs' investments, it was argued that the trust land property would never generate enough new property tax revenues to support the needed improvements.
Moreover, the Senate Floor analysis of Assembly Bill 664, in part, noted the following;
San Francisco officials argue that the state's subsidy for the Port America's Cup special waterfront IFD and will result in a net positive revenue gain for the State General Fund. They say that both the America's Cup regatta and the Treasure Island development will generate more economic activity, boosting the State General Fund's revenues.
The Boon That Wasn’t
San Francisco Bay proved to offer a stunning backdrop for the 34th America’s Cup in September, when Oracle Team USA successfully defended the America's Cup with one of the greatest comebacks in sports. After being down 8-1, Team USA won eight straight races against Emirates Team New Zealand on San Francisco Bay to capture the cup by a score of 9-8.
And while the final stages of the competition exceeded expectations, unfortunately the financial impacts associated with hosting the event failed to meet even the low end of expectations supporters had so boldly touted just months prior.
An economic report, released early December 2013 said the international sporting event pumped $364 million into Bay Area businesses during its three-month stay. According to some reportsiii, that figure could potentially rise to more than $550 million if the long-planned construction of a new cruise ship terminal, which the regatta served as a catalyst to finally get built, is factored in.
Yet even the higher end number fails to hold a candle to the $1.4 billion economic bonanza predicted in 2010, when the races were billed as trailing only the Olympics and World Cup of soccer in terms of economic impact.
In February the San Francisco Budget and Legislative Analystiv issued a report detailing what is not only a much smaller economic impact than original estimates, but the daunting reality that hosting the event has left San Francisco nearly $11.5 million in the red.v
From the conclusion of the analyst’s full report:
Because both the America’s Cup Organizing Committee’s fundraising and tax revenues generated by the America’s Cup events fell short of the original projections, the City’s General Fund incurred net costs of nearly $6.0 million and the Port incurred net costs of nearly $5.5 million, totaling nearly $11.5 million.
Moreover, according to the Budget and Legislative Analyst’s Office, it would appear that San Francisco also failed to meet expectations of job creation and small business involvement:
- The impact of America’s Cup tourism on hotel occupancy was minimal with increases in hotel occupancy rates during the events generally less than one percentage point versus prior non-event years.
- The Event Authority did not notify or work with the Office of Economic and Workforce Development (OEWD) to recruit San Francisco residents for Event Authority Contracts in 2012.
- The America's Cup provided jobs for 517 city residents out of a total of 2,800 jobs (note original projections stood at 8,840 new jobs).
- Neither the Event Authority nor OEWD sufficiently tracked small business participation in Event Authority contracts.
What the Future Holds…
Under the rules of the 162-year-old sailing race, the holder of the Cup has the right to decide where the next regatta will be staged. San Francisco once again seems a logical location for where California native and Oracle owner Larry Ellison could host the event. Indeed, Mayor Lee has confirmed that San Francisco will bid to host the 35th iteration of sailing's premier competition.
But according to reports, San Francisco’s potential opportunity to host the event in 2017 may already be D.O.A. America's Cup officials are unhappy that San Francisco officials aren't willing to offer the same terms as last year which included free rent for piers as well as police, fire and other services. Moreover, Cup officials also are opposed to paying the equivalent of union wages for construction work.
So, where to next? According to an edited excerpt posted on the San Francisco Chronicle's website in early March, Ellison's vision could be for the 35th America's Cup match to sail off Honolulu following a series of eliminations around the world. San Diego, which previously hosted the America's Cup in 1988, 1992 and 1995, also has a chance to garner hosting rights.
While the yachting world eagerly awaits Ellison’s announcement, one thing is for certain. Don’t discount the possibility of supporters once again touting economic miracles and looking for legislative assistance to help them deliver on promises that can’t be kept.
For more information on this report or other local government related issues, contact Ryan Eisberg, Senate Republican Office of Policy at 916/651-1501.