San Francisco 49ers personal seat license sales for their new Santa Clara stadium continue to go well: After hitting $310 million last September, they’re now at $400 million, with still another year and a half to go before the place opens. The Niners may yet have to trim prices a bit to sell the last few thousand seats, most of which are in the end zones, but it looks like the city of Santa Clara should be able to pay off its first $450 million in stadium debt without much trouble. And with 49ers rent payments set to pay off the rest, it looks like the worst fears that the public would be saddled with humongous risk won’t come to pass.
As Bloomberg Businessweek points out, though, there’s still a big tax benefit being hidden amidst the PSL sales:
When the Carolina Panthers sold the first PSLs in 1993, the team had to pay a $50 million federal tax bill on $160 million. That didn’t sit will with NFL owners, who came up with the idea of having a government entity sell the licenses and own the venue. (In Santa Clara, the stadium authority contracted with a company called Legends to broker the sales. The team will pay about $30 million in annual rent to the stadium authority.) Figuring on a federal tax rate between 30 percent and 35 percent on the $400 million in revenue, the 49ers stand to save from $120 million to $140 million.
Basically, by having the (tax-exempt) city sell the PSLs instead of the team, the 49ers are able to use the pre-tax proceeds of PSL sales to pay off their stadium, not the after-tax proceeds. There’s nothing illegal about all this, but it is a massively lucrative favor that the city is doing for the team, in exchange for nothing at all. Santa Clara (or other cities contemplating similar PSL sale dodges, like Atlanta for the Falcons) could legitimately say, “Hey, we’d be happy to sell those PSLs for you and save you $120 million or so, but how about then you cut us in on some of your profits via, oh, let’s call it a PSL sales commission?” They don’t, but they could — so while you probably shouldn’t really consider this a subsidy (unless you consider the fact that the IRS doesn’t crack down on this sleight of hand to be a tax loophole, which you could make a pretty decent case for), it’s still very much an opportunity cost.