Three years ago in a letter to the San Diego City Council and city attorney dated December 24, 1996, Bruce Henderson warned that the council had made a grave mistake in May 1995 when it approved the now-controversial Chargers ticket guarantee for Qualcomm Stadium. "It makes the city responsible for selling 60,000 tickets a game (6 million tickets in over ten seasons)," wrote Henderson. "Yet, it has the Chargers setting the prices. That gives the Chargers a cost-plus contract. For the ten seasons starting in 1997, the Chargers can raise ticket prices to whatever price required to cover their costs, passing all financial risks to us. If the prices are too high for the fans, the City buys the tickets. We get empty seats. The home games may be blacked out."
Henderson urged the city council to renegotiate the contract between the city and the team, which was then being amended by the city council to provide more amenities for Spanos and the Chargers at the stadium. For his trouble, Henderson and other critics of the stadium deal became the target of a scathing series of editorial attacks by the San Diego Union-Tribune. They called him an "obstructionist" and insisted that local businesses, led by the San Diego International Sports Council, would buy up enough tickets to keep the taxpayers off the hook. The city council ignored Henderson's warning.
In his 1996 letter, Henderson also warned of what he called the agreement's "team shopping" clause. "It creates a compelling financial incentive for the Chargers to leave San Diego before the agreement expires. Starting in the year 2000, the agreement allows the Chargers the chance to shop the team to other cities. If they get an offer, San Diego has merely the right to meet it. It means that the Chargers have everything to gain from shopping the team, again and again, but nothing to lose. It means we San Diegans have everything to lose and nothing to gain."
Today, Henderson's critics at the Union-Tribune, as well as team owner Alex Spanos, scoff at his prediction that the Chargers will soon exercise the team-shopping clause and leave town. The situation seems eerily similar to the way the newspaper belittled Henderson's correct foretelling of the ticket-guarantee disaster. Though the Union-Tribune has begun to report on just how serious the ticket-guarantee mess has become, the newspaper has repeatedly failed to give Henderson and his 1996 prediction their due. Yet despite continued editorial attacks by the newspaper, Henderson continues to speak out against the Chargers' deal. In an interview last week, he warned of a final grave consequence of the city's Chargers agreement: it may be too late to stop the NFL and Spanos from yanking the Chargers away from San Diego and moving the team to Los Angeles.
Matt Potter: You say you first read the city's contract with Alex Spanos and the Chargers in 1996, a little less than a year after it was passed by the San Diego City Council in May 1995.
Bruce Henderson: I read it and almost literally started to cry. I just felt awful as a San Diegan because I found that there were a number of provisions that were going to be very harmful for the city. Of course, the most famous of them is the ticket guarantee.
The Chargers actually make more money if they don't sell tickets than if they do — by about 10 percent. And so there was this disincentive to market the tickets. And then there was this assumption in the agreement that a group of people who were sports fans and had formed an organization called the International Sports Council were going to do the marketing. Yet there was no marketing budget for them, no money provided to them.
The economic incentive in the agreement was for the Chargers to forgo an aggressive ticket-selling policy and let the city just buy the tickets, which is, of course, exactly what's happened. And that's the provision of the agreement that's gotten a lot of attention.
MP: But now you say there's another clause in the deal that could mean trouble on the horizon.
BH: One of the fundamental problems is something that nobody's really focused on yet but as of January 1, 2000, is going to come into play under the agreement. That's Section 31 of the Chargers' agreement, the 1995 agreement, which is entitled "Renegotiation Rights." The bottom line is that, starting on January 1 in the year 2000, if the Chargers find that they've exceeded the salary cap -- the NFL salary cap, which I'm told by the experts is something that the Chargers can easily do if they choose to -- the Chargers are permitted, without any violation of the contract, shopping the team to other cities, any other jurisdiction that would like the team.
Well, of course, we all know the one location that the NFL covets the most in the United States is Los Angeles. I mean, there're about six million TV families up there. I guess, second to New York, it's probably the largest TV market in the United States by far.
MP: When you say "shopping the team," what's that mean?
BH: I believe this is the only NFL franchise that can, without any fear of breaching its contract, start asking people to make offers to them to move their team. So obviously the logical thing, right now, as of January 1, is for Alex Spanos to have maneuvered himself so that he can trigger the salary cap. Under Section 31 of the agreement, if salaries and benefits paid to Chargers team members exceed 75 percent of certain NFL revenues calculated using a per-team average, then Spanos can shop the team to other cities such as L.A. Now, I don't know what the actual numbers are for 1999, but the point is that the experts say that that's fairly easy to exceed the salary cap, particularly if you've got a situation like the Chargers have right now, where they entered into a contract with a very expensive quarterback.
MP: Ryan Leaf?
BH: Ryan Leaf. Who everyone apparently knew was a difficult personality. And now he's turned out to be worse than a difficult personality, and they've had to try to find other quarterbacks. And suddenly you may have exceeded your salary cap and you've got an excuse. In other words, you can go to the other NFL owners and say, "Well, look, you know, gee...we got this Ryan Leaf, and we thought that he'd do great and, uh, he's proven to be a real problem and we've had to bring in all this other talent to make up for the problem with him but we still have to pay his salary. So, therefore, we've exceeded the salary cap."
Then the Chargers can go out, shop the team, and negotiate. If they get an offer from somebody, then, under Section 31, they come back to the city. Technically, it goes like this: Say they, the Chargers, start in January of 2000 quietly negotiating up in Los Angeles. I say quietly, because as far as I can tell under the contract, there seems to be no requirement that they notify anyone that they are engaged in negotiations. Then, say they come back to the city and give them notice that the salary cap has been exceeded, and they would like to renegotiate the contract. Well, then the city and Chargers negotiate for the first of two periods lasting 90 days. At the same time, the Chargers can continue negotiations in L.A. If the Chargers don't reach a new agreement with the city acceptable to the Chargers, then the Chargers have 18 months to finalize the L.A negotiations. At that point, when they've finalized the deal in Los Angeles, they have to present to San Diego this offer, say, from Los Angeles, and San Diego has a period of 90 days to match it.
MP: When you say "match it," what's that mean?
BH: Well, presumably, say the Chargers find a coalition of people in the city of Los Angeles who agree to pay the NFL $500 million dollars to move the team to Los Angeles and provide the Chargers with a stadium seating 100,000. The Chargers bring this offer back to San Diego and say that if you, that is, San Diego, match it we'll keep the team here in San Diego.
And you have 90 days to raise the money — make the decision and raise the money. Well, of course, the likelihood of the City of San Diego being able to raise $500 million is unlikely, let alone agreeing to construct a new stadium seating 100,000. And that would be pretty much a minimum offer to the NFL and the Chargers. After all, when the expansion team went to Houston, the NFL was paid, I think, $700 million.
MP: Would the offer come in the form of a cash offer or the offer of a stadium, or is that made clear in the contract?
BH: Well, if you look at Section 31, it says that San Diego would have to match "the financial and overall economic terms of the proposed third-party transaction." That's about as broad as language can get. It's a provision that seems clearly drawn by the Spanos attorneys and just as clearly not reviewed or carefully considered by the City of San Diego.
For almost a year now, I've been saying to people that I thought the NFL expansion team would go to Houston because of this team-shopping clause of the Chargers.
One of the big questions this year was, "Well, gee, you know, will the NFL go to Los Angeles or will it go to Houston?" And, of course, on the face of it, one would have thought, well, the answer was easy. The NFL would go to Los Angeles because they want that Los Angeles market. Of course, Houston's a pretty big market, so the NFL also wanted to go to Houston. So the question was, where would they go first? Well, the answer was, to me, obvious. I could almost hear Alex Spanos whispering to all of those owners, "Look, go ahead and move the team to Houston because I'm going to be taking the Chargers up to L.A." And, of course, the other guy that was whispering in the owners' ears was [Oakland Raiders owner] Al Davis. And, in fact, just a few weeks ago, the Raiders and the City of Oakland went to court to argue about whether or not the Raiders have to stay in Oakland through the year 2011 under their current franchise agreement. Now, if the City of Oakland wins that fight, it means that L.A. is open. And there's only one team that I'm aware of in the United States that could move to Los Angeles, and that's the San Diego Chargers using Section 31. If Oakland wins that lawsuit, then you've got a situation in which Al Davis and Alex Spanos may go head to head over who gets to move.
MP: And didn't Spanos argue publicly for giving that franchise to Houston?
BH: Yes, that's my memory of it.
MP: So he didn't make any secret of his desire to have it in Houston?
BH: That's right. That's right. And all the San Diego Union-Tribune right now reports to people is this claim by the Spanos family that, "Well, we don't have the slightest intention to ever move out of San Diego." In which case, anyone who has read the agreement would ask, "Well, how do you explain the presence of Section 31 of the Chargers' agreement, this team-shopping clause. Why is the team-shopping clause in the contract?"
You can imagine how much more billionaires who want to own an NFL franchise would pay for the L.A. franchise as opposed to San Diego, with all the marketing rights up there -- all of the distribution rights for T-shirts and hats and mugs and toys and all of those things that the team would be able to sell in that market once they developed a loyal fan base and TV following.
Just a year ago Jack McGrory was on television telling people what a wonderful stadium Qualcomm was for baseball. The irony of all of this is that you have a situation in which just as the new baseball stadium that the city has planned for us opens, the Chargers may depart from Qualcomm. So we'll end up with the worst of all worlds. We'll end up with the city ponying up $25 million a year to pay for their new baseball stadium while we'll have Qualcomm empty.
MP: Now there is another aspect of this contract: it requires Spanos to pay the city some kind of kill fee or something if he wants to move the team.
BH: That's right. If Spanos leaves, he's got to pay approximately 60 percent of the amount of the outstanding bonds that were used to improve the stadium. The bonds were about $50 million — in that range — and so 60 percent would be $30 million. Now, one of the interesting things is that, of course, Spanos has designed into the contract the ticket guarantee — and that guarantee can take care of that little problem for him — the $30 million problem.
First the $30 million, believe it or not, if you think about it, is minuscule in comparison to the amounts we're talking about. It represents anywhere from 3 to 10 percent of any of the amounts we've been talking about. So the $30 million isn't enough to stop anyone. But in addition, Spanos has a protection clause in the contract. It's called the ticket guarantee. Because the agreement right now says that the ticket guarantee will remain in effect through 2006. But Spanos can leave at the end of the 2003 season. So here's the scenario -- an obvious scenario from Spanos's point of view. Starting in January he goes up to L.A., he does his negotiations. The Raiders lose their lawsuit with the City of Oakland. They're stuck in Oakland until 2011. The NFL doesn't want to wait that long to move a team into Los Angeles, so Alex makes his deal. Spanos then comes back to the City of San Diego a little more than a year from now, gives them their two 90-day notices, the last requiring the city to meet the L.A. offer. Let's say the total package is $700 million. The second 90 days quickly passes without the city being able to come up with that type of money in that short a time period. If it were $100 million, the city couldn't come up with it. Now you have the public announcement, of course, that the Chargers are going to leave at the end of the 2003 season. That's not too bad a problem for Alex because it's going to take a year or so to get the coliseum ready for him in any event. But on the other hand, he probably would just as soon move off to L.A. as soon as possible. So what he does is, he goes to the city and reminds them of the ticket guarantee and the fact that if he plays in the city of San Diego in 2001, 2002, and 2003, there are three years when the fans may very well boycott. You could have the city buying 30,000 tickets per game.
You could have the fans boycotting because they've been told Spanos is going to abandon the city of San Diego and go up to Los Angeles, return the Chargers to Los Angeles. And so he can say to the city, "You know, you're going to have perhaps 300,000 or 400,000 tickets that you're going to have to buy -- each year." By that time let's say the price per ticket is $50 because Spanos is free under the agreement to set any price on his tickets. That is, what the agreement says is that the city will pay any price Spanos puts on the tickets, any price. Presumably a rule of reason applies so if he tried to raise the price to $200 a ticket, the city could take him to court. But you could easily imagine ticket prices going up to $50 next year because he's been selling 60,000 tickets a game regularly. You could be looking at the ticket guarantee costing the city $10 million a year, $15 million a year. So Spanos comes to them and says, "Look, you're gonna have a terrible black eye. You think you have a problem giving these tickets away now. You wait. We're moving and you've got this ticket guarantee. I've got a way out. That is, I'll forgive the ticket guarantee, if you forgive that 60 percent of the bond payments and let me leave right now."
Will the city agree to that? I don't have the slightest idea. Does the agreement give Spanos a hammer to try to force the city to compromise and let him out of his financial obligations? Of course it does. And I personally think the ticket guarantee was put in there to complement this team-shopping clause. I figure the ticket guarantee comes to an end after the 2006 season because Spanos figured — going back to 1995 when they drew this contract — that he'd be out of here by 2006 or earlier. He'd be up in Los Angeles. And I believe that's exactly the scenario he's been working on.
But what's also interesting about this team-shopping clause is what happens if he comes back with an offer from Los Angeles in 2001 and the city accepts it. Say the city writes a check for $500 million, gives it to Spanos to keep the Chargers in San Diego. I don't think that would ever happen, but it could. One of the things that made me almost cry when I first read the agreement was that under the team-shopping clause, actually starting on January 1, 2003, he could shop the team again.
MP: Again?
BH: Again. And that second shopping period ends in 2006, namely the same year that the ticket guarantee finally expires.
MP: And then the second period, it would be the same procedure? They could match it?
BH: Yes, the city could be required to match a second offer. But there's more. Even if the city pays twice, Spanos can go out and shop the team again during the period from 2007 through 2010. And then if the city pays a third time to keep the Chargers here, then between 2011 and 2014 he can shop it again.
MP: It rolls it over.
BH: It doesn't make any difference whether the city meets offers once, twice, three times — Spanos can shop the team up to five different times. Each time the city could be compelled to meet any outside offer if it wants to keep the team here.
MP: But they still have to exceed the salary cap each time?
BH: Each time period they have to exceed the salary cap to trigger the team-shopping clause. But again, I go back to the fact that the experts tell me that exceeding the salary cap, as it's defined in this agreement, is a very simple process and fully in the discretion of the Spanos family.
MP: How does the city know that he has exceeded the salary cap? Is there any sort of provision for audit?
BH: There's no audit provision but, presumably, they could demand that he provide them with some information that demonstrated that in fact he's exceeded the salary cap. I already mentioned the formula.
MP: But is there a similar formula for determining the value of the incentive that the city would have to match in order to keep the team? In other words, if L.A. says, "We'll give you a half-a-billion-dollar stadium," how do you figure the value to be matched if it's not an all-cash deal?
BH: What would happen under Section 31 is that the Chargers would enter into a letter of intent to move the team, say, to the L.A. Coliseum. Having entered into that letter of intent, then they bring it down to the city and they give a copy of it to the city -- give notice of it to the city. And, the city then has 90 days in which to match "the financial and overall economic terms" set out in that letter of intent.
You can see why when I first read this agreement I felt like crying. I mean, I felt bad because on the one hand, the agreement is a brilliant piece of drafting. On the other hand, from the city's perspective, from the citizens' perspective, it's one of the worst agreements I have ever encountered in my entire life. It's the sort of thing that you would expect some sort of Simon LeGree would enter into with an elderly, blind, deaf, and dumb couple who had no legal representation, just had their hands guided to the signature line so they affix their X. It's one of those contracts that if it were entered into with ordinary people, they might even be able to go to court and have it set aside because the court would say, "You must have been taken advantage of. You must have been somehow threatened. You must have been defrauded." How could intelligent people agree to contract provisions like this that effectively give the city no possible way of responding to a team-shopping offer, let alone put any parameters on it? That's why when [former San Diego city attorney] John Witt says, "No one from the city attorney's office worked on this agreement with the Chargers," I believe that. I believe that's true. Somebody may have been involved in going to meetings. But I don't believe any attorney could look you in the eye and say, "I personally reviewed and negotiated these provisions on behalf of the city," since there are no protections for the city.
MP: Is there any remedy at this point?
BH: I'm not aware of any way the city could take this contract into court and break it, but you never know. They might try.
MP: So, is there a lesson to be learned from this that can be generalized in some fashion?
BH: Yeah, there's a lesson to be learned. It was a lesson that was taught to us by the people who created our city charter, who said in effect to us, "It's extremely important in a representative democracy that you not allow your elected officials to enter into long-term contracts without review by the people. And these types of documents — that is, long-term financial obligations — are not something that you can trust to elected representatives to read, to think about, or to sign on your behalf." Therefore, our charter's Section 99 provides that if the city enters into long-term contracts, it's supposed to bring them to the people for their review and either reject or approve on the basis of a two-thirds vote. That's what the charter says. Unfortunately, the city's current elected officials have tried to work around that requirement. I think I'm the first person outside of the Chargers' attorneys to read the document. And I read it in February of 1996, about ten months after the city council voted on it. It was obvious to me — and it's been obvious to every other person who's subsequently read it — that it was a one-sided agreement that we shouldn't have entered into. The point is that if it had gone to the ballot and been subjected to voter review and public debate, it would have gone down to resounding defeat.
MP: Do you think that [Spanos's] campaign contributions to various councilmembers influenced their approval of this deal in any way? Who can we blame?
BH: I think there are three people to be blamed here. One is, of course, the mayor, who was hoping to run for U.S. Senate. And it's not by coincidence that Alex Spanos is one of the biggest contributors to Republican officeholders in the state of California -- one of the most generous contributors. So she wasn't prone to bucking him in 1995 because she'd obviously be going to him asking for help for this proposed senate race.
The other person to blame was the city attorney. Here's an independently elected official who is supposed to, if he sees a contract... I mean, this contract is so one-sided that an attorney who has any self-respect, who read this agreement, would blow the whistle on it. It's like this team-shopping clause. The idea is ludicrous that giving the city a 90-day opportunity to meet an offer out of Los Angeles would be sufficient. So an attorney who read this document and who is interested in the public good would start blowing the whistle.
MP: And then you said there was a third party.
BH: Then the third party is [former city manager] Jack McGrory. The remarkable thing is that in 1995, Jack McGrory says, in effect, to the city council, "Look, this agreement isn't just good for San Diego. This agreement isn't just good for the San Diego Chargers. This agreement is fabulous for the San Diego Padres. The Padres are going to be generating huge revenues at the stadium through at least the year 2007." And yet when you read the agreement, it is absolutely clear that as of the end of the 1999 season, the Padres weren't going to have the ability to continue playing at Jack Murphy Stadium because all of the stadium advertising and other related revenues would then start going to the Chargers along with control over playing dates also going to the Chargers.
Anybody who read the agreement in May of 1995 surely knew that the plan was that the San Diego Padres were going to leave Jack Murphy Stadium, now Qualcomm Stadium. That's exactly what the agreement says — that the plan contemplated by the agreement is that the Padres are leaving. But if you look at the manager's report in May of 1995, Jack McGrory is telling the council, "Don't worry about it. There's even going to be these huge projected revenues from the Padres." Yet by November of 1996 all pretense had been dropped, and the city manager's reports were showing zero revenue from the Padres at the turn of the century because by then the Padres had made it clear to the city, although not yet to the general public, that they were leaving Qualcomm.
Here we get back to what is one of the least respected newspapers in the United States, the San Diego Union-Tribune, refusing to report this to the citizenry. So even though concerned citizens like myself in December of 1996 were blowing the whistle at city council meetings, saying, "What's going on here? The Padres are being driven out of the stadium, this ticket guarantee is a disaster, you've got this team-shopping clause that's gonna drive the Chargers out of town." We were pointing out that there was this huge economic incentive to leave [San Diego and go to Los Angeles] that was created by the terms of the Chargers' agreement. Yet the San Diego Union-Tribune, the city council, the city manager, and the city attorney were all in effect saying, "See no evil; speak no evil; hear no evil." They were refusing to listen, refusing to read the agreements or our letters, and refusing to warn the public.
MP: Do you think McGrory did that in cold blood? I mean, it's interesting now that he's working for the Padres.
BH: The answer is that I wasn't privy to Jack McGrory's thinking. So all I can do is look at the public documents and say that anyone who was involved with these documents, who was being paid money to review them, like Jack McGrory or John Witt, as city attorney, is culpable. If they did actually read the documents, and if they listened to our criticism in December of 1996, they couldn't have helped but have known what was going on. So I don't see how with a straight face or with any self-respect they can say anything else.
Chargers' Agreement as approved by City Council
May 15, 1995 (Item 201)
- Renegotiation Rights.
(a) Definitions. For the purposes of this Section 31, the following terms shall have the following meanings:
"Defined Gross Revenues" shall mean the aggregate revenues received or to be received on an accrual basis, for or with respect to any "League Year' (as such term is defined in Article I, Section 1 of the 1993 CRA), during the term of this Agreement by the NFL and all NFL Teams (and their designees), from the following sources only:
(i) regular season, pre-season, and post-season gate receipts (net of admission taxes, and surcharges paid to a stadium or municipal authorities which are deducted for purposes of calculating gate receipts subject to revenue sharing), including ticket revenue from "luxury boxes," suites and premium seating subject to gate receipt sharing among NFL Teams; and
(ii) proceeds from the sale, license, or other conveyance of the right to broadcast or exhibit NFL pre-season, regular season, and play-off games on network and national cable television (which by way of example only, would currently include all revenues generated from NFL television contracts with FOX, NBC, ABC, TNT, and ESPN). For the purposes of this Agreement only, Defined Gross Revenues does not include any proceeds from the sale, license, or conveyance of the right to broadcast or exhibit NFL pre-season, regular season, and play-off games to and on any other source, including, without limitation, local television, pay television, satellite encryption, international broadcasts, radio, or any other means of distribution.
"Team Salary Cap" shall mean for any year, on a cash basis, 75 percent (75%) of Defined Gross Revenues for such year, divided by the number of teams playing in the NFL during such year.
"Triggering Event" shall occur, if on December 1 of any Triggering Year, the sum of the following items exceeds the Team Salary Cap (as defined herein) for the year in question:
(i) the actual "Team Salary" (as such term is defined in Article XXIV, Section 6 of the 1993 CBA, except as calculated on a cash basis) of the Chargers for such year, plus
(ii) the total actual benefit payments provided by the Chargers to its players for such year, plus
(iii) the total actual benefit payments provided by the NFL to the Chargers' players for such year.
"Triggering Year" shall mean
- any one year between January 1, 2000 and December 31, 2002,
- any one year between January 1, 2003 and December 31, 2006,
- any one year between January 1, 2007 and December 31, 2010,
- any one year between January 1, 2011 and December 31, 2014
- and any one year between January 1, 2015 and December 31, 2018. [numbering added]
(b) Triggering Events. If a Triggering Event occurs in any Triggering Year, then the Chargers shall have the right to renegotiate the terms of this Agreement as follows:
(i) Renegotiation Notice. On or before the sixtieth (60th) calendar day following the occurrence of any Triggering Event or, in the event that such Triggering Event occurs in any year prior to 2001, on or before the sixtieth (60th) calendar day following December 1, 2001, the Chargers shall deliver written notice thereof (the "Renegotiation Notice") to the City. If the Chargers fail to deliver a Renegotiation Notice to the City within such sixty (60) calendar day period, the Chargers shall be deemed to have waived its right to renegotiate the terms of this Agreement for that Triggering Year only and such failure shall not be deemed to waive the Chargers' right to renegotiate the terms of this Agreement should a Triggering Event occur in any subsequent Triggering Year.
(ii) Negotiations. Upon the delivery of a Renegotiation Notice, the parties hereto shall negotiate in good faith for ninety (90) calendar days to agree upon mutually acceptable terms for an amendment to this Agreement to offset the impact on the Chargers of the Triggering Event; provided, however, that neither party shall be precluded from conducting negotiations with third parties during such ninety (90) day period. If the parties hereto reach an agreement within such ninety (90) day period, they shall execute and deliver an amendment hereto immediately after reaching such agreement and in any event not later than ten (10) Business Days after the end of such ninety (90) day period. If the parties do not reach an agreement within such ninety (90) day period, then subparagraph (iii) below shall apply.
(iii) [as amended] City's Right of First Refusal. If within the eighteen (18) month period following the end of the ninety (90) calendar day negotiation period provided for in subparagraph 31 (b)(ii) above, the Chargers execute a letter of intent providing for the Chargers' use of another stadium with any third party, the Chargers shall offer the City a ninety (90) calendar day period after the execution of such letter of intent within which to execute an amendment hereto which matches the financial and overall economic terms of the proposed third party transaction as set forth in such letter of intent. If the City does not execute such an amendment within ninety (90) calendar day period, the Chargers may terminate this Agreement at any time within sixty (60) calendar days thereafter (the "Termination Date") by giving to the City written notice of such termination at least ten (10) calendar days prior to the Termination Date and making, as of the Termination Date, the payment of the delivery of Federal Securities described below in this subparagraph 8.(b)(iii).
In the event such notice is not given or such payment or delivery is not made, this Agreement shall continue in full force and effect. In the event the Chargers terminate this Agreement in accordance with this subparagraph 8.(b)(iii), it shall pay to the City, on the Termination Date, an amount equal to sixty percent (60%) of the amount in dollars as necessary to pay or redeem all of then outstanding debts incurred to finance construction of the improvements (including any debts incurred to refund any such debt, but excluding any transaction costs relating to such refunding debt) on the earliest date or dates after the Termination Date that at least sixty percent (60%) of such debt may be paid or redeemed.
In lieu of such payment, the Chargers may deliver Federal Securities to the City, which are not subject to redemption prior to their maturity, the interest on and principal of which when paid will provide money, which as verified by an independent consultant reasonably acceptable to the City, shall be sufficient to pay when due the interest to become due on each sixty percent (60%) of such debt from and including the Termination Date to and including the earliest date or dates on which any sixty percent (60%) of such debt may be paid or redeemed as well as sixty percent (60%) of the principal thereof and any redemption premium thereon, less in either case, the sum of (1) sixty percent (60%) of the amount in any debt-reserve fund on the Termination Date which may be used for the payment or redemption of such debt, (2) sixty percent (60%) of any amount paid to the City pursuant to subparagraphs 8(b)(i), 8(b)(ii), 8(b)(iii), and 8(b)(iv) and 11(e) (the parties acknowledge the provisions of subparagraph 11(e) apply only to the fifteen percent (15%) increase in consideration paid by Service America to the City pursuant to the 1995 concession agreement with Service America, Inc. a copy of which is on file in the office of the City Clerk as Document No. (00-18227) and (3) sixty percent (60%) of the unamortized (on a straight line basis over the term of the Improvement debt) reasonable actual costs incurred by the City in connection with the issuance of such debt which were not reimbursed out of the proceeds of such debt.
Notwithstanding the exercise of the Chargers' rights under this Section 31 prior to 2003, the effective date of any termination of this Agreement as a result of a Triggering Event shall not occur prior to February 1, 2004.
Three years ago in a letter to the San Diego City Council and city attorney dated December 24, 1996, Bruce Henderson warned that the council had made a grave mistake in May 1995 when it approved the now-controversial Chargers ticket guarantee for Qualcomm Stadium. "It makes the city responsible for selling 60,000 tickets a game (6 million tickets in over ten seasons)," wrote Henderson. "Yet, it has the Chargers setting the prices. That gives the Chargers a cost-plus contract. For the ten seasons starting in 1997, the Chargers can raise ticket prices to whatever price required to cover their costs, passing all financial risks to us. If the prices are too high for the fans, the City buys the tickets. We get empty seats. The home games may be blacked out."
Henderson urged the city council to renegotiate the contract between the city and the team, which was then being amended by the city council to provide more amenities for Spanos and the Chargers at the stadium. For his trouble, Henderson and other critics of the stadium deal became the target of a scathing series of editorial attacks by the San Diego Union-Tribune. They called him an "obstructionist" and insisted that local businesses, led by the San Diego International Sports Council, would buy up enough tickets to keep the taxpayers off the hook. The city council ignored Henderson's warning.
In his 1996 letter, Henderson also warned of what he called the agreement's "team shopping" clause. "It creates a compelling financial incentive for the Chargers to leave San Diego before the agreement expires. Starting in the year 2000, the agreement allows the Chargers the chance to shop the team to other cities. If they get an offer, San Diego has merely the right to meet it. It means that the Chargers have everything to gain from shopping the team, again and again, but nothing to lose. It means we San Diegans have everything to lose and nothing to gain."
Today, Henderson's critics at the Union-Tribune, as well as team owner Alex Spanos, scoff at his prediction that the Chargers will soon exercise the team-shopping clause and leave town. The situation seems eerily similar to the way the newspaper belittled Henderson's correct foretelling of the ticket-guarantee disaster. Though the Union-Tribune has begun to report on just how serious the ticket-guarantee mess has become, the newspaper has repeatedly failed to give Henderson and his 1996 prediction their due. Yet despite continued editorial attacks by the newspaper, Henderson continues to speak out against the Chargers' deal. In an interview last week, he warned of a final grave consequence of the city's Chargers agreement: it may be too late to stop the NFL and Spanos from yanking the Chargers away from San Diego and moving the team to Los Angeles.
Matt Potter: You say you first read the city's contract with Alex Spanos and the Chargers in 1996, a little less than a year after it was passed by the San Diego City Council in May 1995.
Bruce Henderson: I read it and almost literally started to cry. I just felt awful as a San Diegan because I found that there were a number of provisions that were going to be very harmful for the city. Of course, the most famous of them is the ticket guarantee.
The Chargers actually make more money if they don't sell tickets than if they do — by about 10 percent. And so there was this disincentive to market the tickets. And then there was this assumption in the agreement that a group of people who were sports fans and had formed an organization called the International Sports Council were going to do the marketing. Yet there was no marketing budget for them, no money provided to them.
The economic incentive in the agreement was for the Chargers to forgo an aggressive ticket-selling policy and let the city just buy the tickets, which is, of course, exactly what's happened. And that's the provision of the agreement that's gotten a lot of attention.
MP: But now you say there's another clause in the deal that could mean trouble on the horizon.
BH: One of the fundamental problems is something that nobody's really focused on yet but as of January 1, 2000, is going to come into play under the agreement. That's Section 31 of the Chargers' agreement, the 1995 agreement, which is entitled "Renegotiation Rights." The bottom line is that, starting on January 1 in the year 2000, if the Chargers find that they've exceeded the salary cap -- the NFL salary cap, which I'm told by the experts is something that the Chargers can easily do if they choose to -- the Chargers are permitted, without any violation of the contract, shopping the team to other cities, any other jurisdiction that would like the team.
Well, of course, we all know the one location that the NFL covets the most in the United States is Los Angeles. I mean, there're about six million TV families up there. I guess, second to New York, it's probably the largest TV market in the United States by far.
MP: When you say "shopping the team," what's that mean?
BH: I believe this is the only NFL franchise that can, without any fear of breaching its contract, start asking people to make offers to them to move their team. So obviously the logical thing, right now, as of January 1, is for Alex Spanos to have maneuvered himself so that he can trigger the salary cap. Under Section 31 of the agreement, if salaries and benefits paid to Chargers team members exceed 75 percent of certain NFL revenues calculated using a per-team average, then Spanos can shop the team to other cities such as L.A. Now, I don't know what the actual numbers are for 1999, but the point is that the experts say that that's fairly easy to exceed the salary cap, particularly if you've got a situation like the Chargers have right now, where they entered into a contract with a very expensive quarterback.
MP: Ryan Leaf?
BH: Ryan Leaf. Who everyone apparently knew was a difficult personality. And now he's turned out to be worse than a difficult personality, and they've had to try to find other quarterbacks. And suddenly you may have exceeded your salary cap and you've got an excuse. In other words, you can go to the other NFL owners and say, "Well, look, you know, gee...we got this Ryan Leaf, and we thought that he'd do great and, uh, he's proven to be a real problem and we've had to bring in all this other talent to make up for the problem with him but we still have to pay his salary. So, therefore, we've exceeded the salary cap."
Then the Chargers can go out, shop the team, and negotiate. If they get an offer from somebody, then, under Section 31, they come back to the city. Technically, it goes like this: Say they, the Chargers, start in January of 2000 quietly negotiating up in Los Angeles. I say quietly, because as far as I can tell under the contract, there seems to be no requirement that they notify anyone that they are engaged in negotiations. Then, say they come back to the city and give them notice that the salary cap has been exceeded, and they would like to renegotiate the contract. Well, then the city and Chargers negotiate for the first of two periods lasting 90 days. At the same time, the Chargers can continue negotiations in L.A. If the Chargers don't reach a new agreement with the city acceptable to the Chargers, then the Chargers have 18 months to finalize the L.A negotiations. At that point, when they've finalized the deal in Los Angeles, they have to present to San Diego this offer, say, from Los Angeles, and San Diego has a period of 90 days to match it.
MP: When you say "match it," what's that mean?
BH: Well, presumably, say the Chargers find a coalition of people in the city of Los Angeles who agree to pay the NFL $500 million dollars to move the team to Los Angeles and provide the Chargers with a stadium seating 100,000. The Chargers bring this offer back to San Diego and say that if you, that is, San Diego, match it we'll keep the team here in San Diego.
And you have 90 days to raise the money — make the decision and raise the money. Well, of course, the likelihood of the City of San Diego being able to raise $500 million is unlikely, let alone agreeing to construct a new stadium seating 100,000. And that would be pretty much a minimum offer to the NFL and the Chargers. After all, when the expansion team went to Houston, the NFL was paid, I think, $700 million.
MP: Would the offer come in the form of a cash offer or the offer of a stadium, or is that made clear in the contract?
BH: Well, if you look at Section 31, it says that San Diego would have to match "the financial and overall economic terms of the proposed third-party transaction." That's about as broad as language can get. It's a provision that seems clearly drawn by the Spanos attorneys and just as clearly not reviewed or carefully considered by the City of San Diego.
For almost a year now, I've been saying to people that I thought the NFL expansion team would go to Houston because of this team-shopping clause of the Chargers.
One of the big questions this year was, "Well, gee, you know, will the NFL go to Los Angeles or will it go to Houston?" And, of course, on the face of it, one would have thought, well, the answer was easy. The NFL would go to Los Angeles because they want that Los Angeles market. Of course, Houston's a pretty big market, so the NFL also wanted to go to Houston. So the question was, where would they go first? Well, the answer was, to me, obvious. I could almost hear Alex Spanos whispering to all of those owners, "Look, go ahead and move the team to Houston because I'm going to be taking the Chargers up to L.A." And, of course, the other guy that was whispering in the owners' ears was [Oakland Raiders owner] Al Davis. And, in fact, just a few weeks ago, the Raiders and the City of Oakland went to court to argue about whether or not the Raiders have to stay in Oakland through the year 2011 under their current franchise agreement. Now, if the City of Oakland wins that fight, it means that L.A. is open. And there's only one team that I'm aware of in the United States that could move to Los Angeles, and that's the San Diego Chargers using Section 31. If Oakland wins that lawsuit, then you've got a situation in which Al Davis and Alex Spanos may go head to head over who gets to move.
MP: And didn't Spanos argue publicly for giving that franchise to Houston?
BH: Yes, that's my memory of it.
MP: So he didn't make any secret of his desire to have it in Houston?
BH: That's right. That's right. And all the San Diego Union-Tribune right now reports to people is this claim by the Spanos family that, "Well, we don't have the slightest intention to ever move out of San Diego." In which case, anyone who has read the agreement would ask, "Well, how do you explain the presence of Section 31 of the Chargers' agreement, this team-shopping clause. Why is the team-shopping clause in the contract?"
You can imagine how much more billionaires who want to own an NFL franchise would pay for the L.A. franchise as opposed to San Diego, with all the marketing rights up there -- all of the distribution rights for T-shirts and hats and mugs and toys and all of those things that the team would be able to sell in that market once they developed a loyal fan base and TV following.
Just a year ago Jack McGrory was on television telling people what a wonderful stadium Qualcomm was for baseball. The irony of all of this is that you have a situation in which just as the new baseball stadium that the city has planned for us opens, the Chargers may depart from Qualcomm. So we'll end up with the worst of all worlds. We'll end up with the city ponying up $25 million a year to pay for their new baseball stadium while we'll have Qualcomm empty.
MP: Now there is another aspect of this contract: it requires Spanos to pay the city some kind of kill fee or something if he wants to move the team.
BH: That's right. If Spanos leaves, he's got to pay approximately 60 percent of the amount of the outstanding bonds that were used to improve the stadium. The bonds were about $50 million — in that range — and so 60 percent would be $30 million. Now, one of the interesting things is that, of course, Spanos has designed into the contract the ticket guarantee — and that guarantee can take care of that little problem for him — the $30 million problem.
First the $30 million, believe it or not, if you think about it, is minuscule in comparison to the amounts we're talking about. It represents anywhere from 3 to 10 percent of any of the amounts we've been talking about. So the $30 million isn't enough to stop anyone. But in addition, Spanos has a protection clause in the contract. It's called the ticket guarantee. Because the agreement right now says that the ticket guarantee will remain in effect through 2006. But Spanos can leave at the end of the 2003 season. So here's the scenario -- an obvious scenario from Spanos's point of view. Starting in January he goes up to L.A., he does his negotiations. The Raiders lose their lawsuit with the City of Oakland. They're stuck in Oakland until 2011. The NFL doesn't want to wait that long to move a team into Los Angeles, so Alex makes his deal. Spanos then comes back to the City of San Diego a little more than a year from now, gives them their two 90-day notices, the last requiring the city to meet the L.A. offer. Let's say the total package is $700 million. The second 90 days quickly passes without the city being able to come up with that type of money in that short a time period. If it were $100 million, the city couldn't come up with it. Now you have the public announcement, of course, that the Chargers are going to leave at the end of the 2003 season. That's not too bad a problem for Alex because it's going to take a year or so to get the coliseum ready for him in any event. But on the other hand, he probably would just as soon move off to L.A. as soon as possible. So what he does is, he goes to the city and reminds them of the ticket guarantee and the fact that if he plays in the city of San Diego in 2001, 2002, and 2003, there are three years when the fans may very well boycott. You could have the city buying 30,000 tickets per game.
You could have the fans boycotting because they've been told Spanos is going to abandon the city of San Diego and go up to Los Angeles, return the Chargers to Los Angeles. And so he can say to the city, "You know, you're going to have perhaps 300,000 or 400,000 tickets that you're going to have to buy -- each year." By that time let's say the price per ticket is $50 because Spanos is free under the agreement to set any price on his tickets. That is, what the agreement says is that the city will pay any price Spanos puts on the tickets, any price. Presumably a rule of reason applies so if he tried to raise the price to $200 a ticket, the city could take him to court. But you could easily imagine ticket prices going up to $50 next year because he's been selling 60,000 tickets a game regularly. You could be looking at the ticket guarantee costing the city $10 million a year, $15 million a year. So Spanos comes to them and says, "Look, you're gonna have a terrible black eye. You think you have a problem giving these tickets away now. You wait. We're moving and you've got this ticket guarantee. I've got a way out. That is, I'll forgive the ticket guarantee, if you forgive that 60 percent of the bond payments and let me leave right now."
Will the city agree to that? I don't have the slightest idea. Does the agreement give Spanos a hammer to try to force the city to compromise and let him out of his financial obligations? Of course it does. And I personally think the ticket guarantee was put in there to complement this team-shopping clause. I figure the ticket guarantee comes to an end after the 2006 season because Spanos figured — going back to 1995 when they drew this contract — that he'd be out of here by 2006 or earlier. He'd be up in Los Angeles. And I believe that's exactly the scenario he's been working on.
But what's also interesting about this team-shopping clause is what happens if he comes back with an offer from Los Angeles in 2001 and the city accepts it. Say the city writes a check for $500 million, gives it to Spanos to keep the Chargers in San Diego. I don't think that would ever happen, but it could. One of the things that made me almost cry when I first read the agreement was that under the team-shopping clause, actually starting on January 1, 2003, he could shop the team again.
MP: Again?
BH: Again. And that second shopping period ends in 2006, namely the same year that the ticket guarantee finally expires.
MP: And then the second period, it would be the same procedure? They could match it?
BH: Yes, the city could be required to match a second offer. But there's more. Even if the city pays twice, Spanos can go out and shop the team again during the period from 2007 through 2010. And then if the city pays a third time to keep the Chargers here, then between 2011 and 2014 he can shop it again.
MP: It rolls it over.
BH: It doesn't make any difference whether the city meets offers once, twice, three times — Spanos can shop the team up to five different times. Each time the city could be compelled to meet any outside offer if it wants to keep the team here.
MP: But they still have to exceed the salary cap each time?
BH: Each time period they have to exceed the salary cap to trigger the team-shopping clause. But again, I go back to the fact that the experts tell me that exceeding the salary cap, as it's defined in this agreement, is a very simple process and fully in the discretion of the Spanos family.
MP: How does the city know that he has exceeded the salary cap? Is there any sort of provision for audit?
BH: There's no audit provision but, presumably, they could demand that he provide them with some information that demonstrated that in fact he's exceeded the salary cap. I already mentioned the formula.
MP: But is there a similar formula for determining the value of the incentive that the city would have to match in order to keep the team? In other words, if L.A. says, "We'll give you a half-a-billion-dollar stadium," how do you figure the value to be matched if it's not an all-cash deal?
BH: What would happen under Section 31 is that the Chargers would enter into a letter of intent to move the team, say, to the L.A. Coliseum. Having entered into that letter of intent, then they bring it down to the city and they give a copy of it to the city -- give notice of it to the city. And, the city then has 90 days in which to match "the financial and overall economic terms" set out in that letter of intent.
You can see why when I first read this agreement I felt like crying. I mean, I felt bad because on the one hand, the agreement is a brilliant piece of drafting. On the other hand, from the city's perspective, from the citizens' perspective, it's one of the worst agreements I have ever encountered in my entire life. It's the sort of thing that you would expect some sort of Simon LeGree would enter into with an elderly, blind, deaf, and dumb couple who had no legal representation, just had their hands guided to the signature line so they affix their X. It's one of those contracts that if it were entered into with ordinary people, they might even be able to go to court and have it set aside because the court would say, "You must have been taken advantage of. You must have been somehow threatened. You must have been defrauded." How could intelligent people agree to contract provisions like this that effectively give the city no possible way of responding to a team-shopping offer, let alone put any parameters on it? That's why when [former San Diego city attorney] John Witt says, "No one from the city attorney's office worked on this agreement with the Chargers," I believe that. I believe that's true. Somebody may have been involved in going to meetings. But I don't believe any attorney could look you in the eye and say, "I personally reviewed and negotiated these provisions on behalf of the city," since there are no protections for the city.
MP: Is there any remedy at this point?
BH: I'm not aware of any way the city could take this contract into court and break it, but you never know. They might try.
MP: So, is there a lesson to be learned from this that can be generalized in some fashion?
BH: Yeah, there's a lesson to be learned. It was a lesson that was taught to us by the people who created our city charter, who said in effect to us, "It's extremely important in a representative democracy that you not allow your elected officials to enter into long-term contracts without review by the people. And these types of documents — that is, long-term financial obligations — are not something that you can trust to elected representatives to read, to think about, or to sign on your behalf." Therefore, our charter's Section 99 provides that if the city enters into long-term contracts, it's supposed to bring them to the people for their review and either reject or approve on the basis of a two-thirds vote. That's what the charter says. Unfortunately, the city's current elected officials have tried to work around that requirement. I think I'm the first person outside of the Chargers' attorneys to read the document. And I read it in February of 1996, about ten months after the city council voted on it. It was obvious to me — and it's been obvious to every other person who's subsequently read it — that it was a one-sided agreement that we shouldn't have entered into. The point is that if it had gone to the ballot and been subjected to voter review and public debate, it would have gone down to resounding defeat.
MP: Do you think that [Spanos's] campaign contributions to various councilmembers influenced their approval of this deal in any way? Who can we blame?
BH: I think there are three people to be blamed here. One is, of course, the mayor, who was hoping to run for U.S. Senate. And it's not by coincidence that Alex Spanos is one of the biggest contributors to Republican officeholders in the state of California -- one of the most generous contributors. So she wasn't prone to bucking him in 1995 because she'd obviously be going to him asking for help for this proposed senate race.
The other person to blame was the city attorney. Here's an independently elected official who is supposed to, if he sees a contract... I mean, this contract is so one-sided that an attorney who has any self-respect, who read this agreement, would blow the whistle on it. It's like this team-shopping clause. The idea is ludicrous that giving the city a 90-day opportunity to meet an offer out of Los Angeles would be sufficient. So an attorney who read this document and who is interested in the public good would start blowing the whistle.
MP: And then you said there was a third party.
BH: Then the third party is [former city manager] Jack McGrory. The remarkable thing is that in 1995, Jack McGrory says, in effect, to the city council, "Look, this agreement isn't just good for San Diego. This agreement isn't just good for the San Diego Chargers. This agreement is fabulous for the San Diego Padres. The Padres are going to be generating huge revenues at the stadium through at least the year 2007." And yet when you read the agreement, it is absolutely clear that as of the end of the 1999 season, the Padres weren't going to have the ability to continue playing at Jack Murphy Stadium because all of the stadium advertising and other related revenues would then start going to the Chargers along with control over playing dates also going to the Chargers.
Anybody who read the agreement in May of 1995 surely knew that the plan was that the San Diego Padres were going to leave Jack Murphy Stadium, now Qualcomm Stadium. That's exactly what the agreement says — that the plan contemplated by the agreement is that the Padres are leaving. But if you look at the manager's report in May of 1995, Jack McGrory is telling the council, "Don't worry about it. There's even going to be these huge projected revenues from the Padres." Yet by November of 1996 all pretense had been dropped, and the city manager's reports were showing zero revenue from the Padres at the turn of the century because by then the Padres had made it clear to the city, although not yet to the general public, that they were leaving Qualcomm.
Here we get back to what is one of the least respected newspapers in the United States, the San Diego Union-Tribune, refusing to report this to the citizenry. So even though concerned citizens like myself in December of 1996 were blowing the whistle at city council meetings, saying, "What's going on here? The Padres are being driven out of the stadium, this ticket guarantee is a disaster, you've got this team-shopping clause that's gonna drive the Chargers out of town." We were pointing out that there was this huge economic incentive to leave [San Diego and go to Los Angeles] that was created by the terms of the Chargers' agreement. Yet the San Diego Union-Tribune, the city council, the city manager, and the city attorney were all in effect saying, "See no evil; speak no evil; hear no evil." They were refusing to listen, refusing to read the agreements or our letters, and refusing to warn the public.
MP: Do you think McGrory did that in cold blood? I mean, it's interesting now that he's working for the Padres.
BH: The answer is that I wasn't privy to Jack McGrory's thinking. So all I can do is look at the public documents and say that anyone who was involved with these documents, who was being paid money to review them, like Jack McGrory or John Witt, as city attorney, is culpable. If they did actually read the documents, and if they listened to our criticism in December of 1996, they couldn't have helped but have known what was going on. So I don't see how with a straight face or with any self-respect they can say anything else.
CommentsChargers' Agreement as approved by City Council
May 15, 1995 (Item 201)
- Renegotiation Rights.
(a) Definitions. For the purposes of this Section 31, the following terms shall have the following meanings:
"Defined Gross Revenues" shall mean the aggregate revenues received or to be received on an accrual basis, for or with respect to any "League Year' (as such term is defined in Article I, Section 1 of the 1993 CRA), during the term of this Agreement by the NFL and all NFL Teams (and their designees), from the following sources only:
(i) regular season, pre-season, and post-season gate receipts (net of admission taxes, and surcharges paid to a stadium or municipal authorities which are deducted for purposes of calculating gate receipts subject to revenue sharing), including ticket revenue from "luxury boxes," suites and premium seating subject to gate receipt sharing among NFL Teams; and
(ii) proceeds from the sale, license, or other conveyance of the right to broadcast or exhibit NFL pre-season, regular season, and play-off games on network and national cable television (which by way of example only, would currently include all revenues generated from NFL television contracts with FOX, NBC, ABC, TNT, and ESPN). For the purposes of this Agreement only, Defined Gross Revenues does not include any proceeds from the sale, license, or conveyance of the right to broadcast or exhibit NFL pre-season, regular season, and play-off games to and on any other source, including, without limitation, local television, pay television, satellite encryption, international broadcasts, radio, or any other means of distribution.
"Team Salary Cap" shall mean for any year, on a cash basis, 75 percent (75%) of Defined Gross Revenues for such year, divided by the number of teams playing in the NFL during such year.
"Triggering Event" shall occur, if on December 1 of any Triggering Year, the sum of the following items exceeds the Team Salary Cap (as defined herein) for the year in question:
(i) the actual "Team Salary" (as such term is defined in Article XXIV, Section 6 of the 1993 CBA, except as calculated on a cash basis) of the Chargers for such year, plus
(ii) the total actual benefit payments provided by the Chargers to its players for such year, plus
(iii) the total actual benefit payments provided by the NFL to the Chargers' players for such year.
"Triggering Year" shall mean
- any one year between January 1, 2000 and December 31, 2002,
- any one year between January 1, 2003 and December 31, 2006,
- any one year between January 1, 2007 and December 31, 2010,
- any one year between January 1, 2011 and December 31, 2014
- and any one year between January 1, 2015 and December 31, 2018. [numbering added]
(b) Triggering Events. If a Triggering Event occurs in any Triggering Year, then the Chargers shall have the right to renegotiate the terms of this Agreement as follows:
(i) Renegotiation Notice. On or before the sixtieth (60th) calendar day following the occurrence of any Triggering Event or, in the event that such Triggering Event occurs in any year prior to 2001, on or before the sixtieth (60th) calendar day following December 1, 2001, the Chargers shall deliver written notice thereof (the "Renegotiation Notice") to the City. If the Chargers fail to deliver a Renegotiation Notice to the City within such sixty (60) calendar day period, the Chargers shall be deemed to have waived its right to renegotiate the terms of this Agreement for that Triggering Year only and such failure shall not be deemed to waive the Chargers' right to renegotiate the terms of this Agreement should a Triggering Event occur in any subsequent Triggering Year.
(ii) Negotiations. Upon the delivery of a Renegotiation Notice, the parties hereto shall negotiate in good faith for ninety (90) calendar days to agree upon mutually acceptable terms for an amendment to this Agreement to offset the impact on the Chargers of the Triggering Event; provided, however, that neither party shall be precluded from conducting negotiations with third parties during such ninety (90) day period. If the parties hereto reach an agreement within such ninety (90) day period, they shall execute and deliver an amendment hereto immediately after reaching such agreement and in any event not later than ten (10) Business Days after the end of such ninety (90) day period. If the parties do not reach an agreement within such ninety (90) day period, then subparagraph (iii) below shall apply.
(iii) [as amended] City's Right of First Refusal. If within the eighteen (18) month period following the end of the ninety (90) calendar day negotiation period provided for in subparagraph 31 (b)(ii) above, the Chargers execute a letter of intent providing for the Chargers' use of another stadium with any third party, the Chargers shall offer the City a ninety (90) calendar day period after the execution of such letter of intent within which to execute an amendment hereto which matches the financial and overall economic terms of the proposed third party transaction as set forth in such letter of intent. If the City does not execute such an amendment within ninety (90) calendar day period, the Chargers may terminate this Agreement at any time within sixty (60) calendar days thereafter (the "Termination Date") by giving to the City written notice of such termination at least ten (10) calendar days prior to the Termination Date and making, as of the Termination Date, the payment of the delivery of Federal Securities described below in this subparagraph 8.(b)(iii).
In the event such notice is not given or such payment or delivery is not made, this Agreement shall continue in full force and effect. In the event the Chargers terminate this Agreement in accordance with this subparagraph 8.(b)(iii), it shall pay to the City, on the Termination Date, an amount equal to sixty percent (60%) of the amount in dollars as necessary to pay or redeem all of then outstanding debts incurred to finance construction of the improvements (including any debts incurred to refund any such debt, but excluding any transaction costs relating to such refunding debt) on the earliest date or dates after the Termination Date that at least sixty percent (60%) of such debt may be paid or redeemed.
In lieu of such payment, the Chargers may deliver Federal Securities to the City, which are not subject to redemption prior to their maturity, the interest on and principal of which when paid will provide money, which as verified by an independent consultant reasonably acceptable to the City, shall be sufficient to pay when due the interest to become due on each sixty percent (60%) of such debt from and including the Termination Date to and including the earliest date or dates on which any sixty percent (60%) of such debt may be paid or redeemed as well as sixty percent (60%) of the principal thereof and any redemption premium thereon, less in either case, the sum of (1) sixty percent (60%) of the amount in any debt-reserve fund on the Termination Date which may be used for the payment or redemption of such debt, (2) sixty percent (60%) of any amount paid to the City pursuant to subparagraphs 8(b)(i), 8(b)(ii), 8(b)(iii), and 8(b)(iv) and 11(e) (the parties acknowledge the provisions of subparagraph 11(e) apply only to the fifteen percent (15%) increase in consideration paid by Service America to the City pursuant to the 1995 concession agreement with Service America, Inc. a copy of which is on file in the office of the City Clerk as Document No. (00-18227) and (3) sixty percent (60%) of the unamortized (on a straight line basis over the term of the Improvement debt) reasonable actual costs incurred by the City in connection with the issuance of such debt which were not reimbursed out of the proceeds of such debt.
Notwithstanding the exercise of the Chargers' rights under this Section 31 prior to 2003, the effective date of any termination of this Agreement as a result of a Triggering Event shall not occur prior to February 1, 2004.