Site Selection Mythbusting #3 - The best deal is the "best deal" and the saga of the San Francisco 49ers
Site selection at the local/small business level is a tricky situation - a combination of demographic and market research, analysis of costs per sqft to expected revenue, brand compatibility and other metrics that are sometimes hard to quantify such as visibility, "feel" of a space, etc. But at the large, corporate level, site selection gets a LOT harder. Labor pools, tax incentives, environmental regulations - each of these and more start factoring into the decision. Amazon's HQ2 is the most recent (and VERY public) example of how businesses determine where to locate - but there have been many other businesses over the years that have shuffled from one location to another trying to find the best spot - often through receiving massive tax breaks and other incentives to locate. Those incentives are often the most publicly reported on items, and of course those incentives are very important in terms of the bottom line to the company. Yet, all this press about incentives has created a myth that "the best deal" is when a company has been successful in squeezing the last dime out of a negotiation. As the San Francisco 49ers are finding out, sometimes the "best deal" isn't always the best deal.
First, a bit of back-story. The San Francisco 49ers are one of the NFL's most successful franchises. They've won 5 Super Bowls, been to 6, and have been a Bay-Area fixture for almost 70 years. For 42 years (1971-2013) the team played at Candlestick Park (eventually 3COM Park at Candlestick Point), a facility they shared with the San Francisco Giants baseball team - until the Giants got their own stadium (PacBell Park, now AT&T Park) in 2000. It was right around this time when NFL teams embarked on a stadium building bonanza, with almost half the league constructing new stadiums between 1995-2005. The 49ers of course, soon followed suit; or - at least - they tried to.
After some failed negotiations in the late 90's, the 49ers resumed discussions with the City of San Francisco in 2006 to build a new stadium at Candlestick Point as part of the city's larger efforts to lure the Olympics to San Francisco. Due to a variety of political and practical reasons, the 49ers broke ties with the City and focused their efforts on a new stadium in Santa Clara, which is about 40 miles south on the map and about an hour's drive if you're lucky. Today, the 49ers play in Levi's Stadium, which I hear has a nice feel in the seat (I couldn't resist).
Conceptually the Santa Clara move wasn't a completely spiteful to SF - the team's offices and training facility had been located in SC since 1987, and technically the team would still call itself "San Francisco" - though the 49ers would be much closer to San Jose than the Golden Gate Bridge. But this move wasn't about practical or logisitical elements - what this deal was about at the end of the day was money. LOTS OF IT. Unlike the Chargers or Bears from previous posts, the 49ers were able to get Santa Clara to pony up big time for their new stadium. While the good people of California like to delude themselves that this stadium was privately financed - Levi's was almost entirely financed through public money in what many would call a very complicated arrangement. While it's true the City of Santa Clara created a private authority to protect the city, Santa Clara authorized the authority to borrow $900 million - and they're on the hook for the debt, not the 49ers. In fairness, the 49ers did borrow a few hundred million from the NFL and they do pay a $5m annual lease back to the city, which on the surface, it looks similar to the Bears deal before. However, given the value of inflation, that $200m the 49ers put in in 2013 only equates to $150m back in 2003. In essence, the 49ers got themselves a $1.3 BILLION stadium, with all the benefits and heavily mitigated risks. Sounds like a great deal right?
The 49ers got a ton of cash - but their scorched-earth negotiating tactics cost themselves a ton of goodwill in the process. The 49ers leaving SF meant that the city couldn't put together a suitable stadium for their 2016 Olympic bid. Local politicians started drafting legislation in punishment, aimed at either banning the team from relocating 100 miles of San Francisco or forcing them to relinquish their name - though I would argue that those moves were political grandstanding at its finest since none ever came close to passing. Shortly after opening the doors on the new stadium, things turned sour between the 49ers and Santa Clara, and were made worse by some bizarre dealings with a local soccer league. Things are so bad now that the 49ers and the City of Santa Clara are suing each other over a alleged breach of contract. As a result of those missteps, the terrible on-field product the 49ers have produced since 2014, and other associated NFL PR gaffes, attendance this year has been awful.
So what does this all mean? There's no question the 49ers made some really, REALLY boneheaded PR moves on their way both out the door and in Santa Clara - stuff that was entirely of their own doing. That being said, at the time the team made a move that looked like the best deal on paper. So far though, it's turned out to be a really bad deal in reality. Had the 49ers worked with San Francisco and stayed put, there's a very good chance that even with their woeful play and NFL PR problems they'd have maintained better attendance and public opinion of the team. Furthermore, by staying in SF it would be highly unlikely that they would be in a lawsuit right now, because the City of San Francisco and the team had a long-standing working relationship. As a working relationship, while there was a long history of team offices and practice facilities being located there, the two sides never had to work each other on anything even remotely as complex as a $1.3 billion (with a B) stadium.
Now, typically I try to find a small business example locally but the details of lease agreements and other incentives at the store level are very hard to come by. There's a few that I'm personally aware of, but for confidentiality reasons I'm not allowed to disclose them all to you! As a result, for my local example this week, I'm choosing to use the the relocation of the Subaru headquarters from Cherry Hill, NJ to nearby Camden, NJ. For those unfamiliar, Subaru had a smaller, older HQ facility in Cherry Hill, about 20 min away from downtown Philadelphia. Needing additional space, Subaru did what every good business does - they looked for the best deal they could find. They found it in Camden...and in a comprehensive aid package totaling $118m. The new HQ is under construction and will be over double the size of their current facility and will come with all of the new shiny bells and whistles that befits the primary location of an international auto manufacturer. Not a bad deal - getting someone to give you $118m for a total of 600 jobs to move a grand total of 10 minutes! Economic development at its finest!
And yet - signs are starting to appear of issues between Subaru and New Jersey. A proposed revision of the tax break promised to Subaru led to a near-withdrawal of the company from Camden. While Gov. Christie didn't end the tax break after all - the facility Subaru is moving into has been affectionately called "an inaccessible, climate killing office park." It's too early to tell if relations between Camden and Subaru will sour any time soon - but if Subaru fails to deliver on their promises to the Camden community the way the 49ers botched their dealings with Santa Clara's soccer league (do NOT mess with Soccer Moms!), then there's a real good chance that this partnership will go sour - fast.
So how does all of this translate to a small business? It essentially boils down to this: lease holidays, tenant improvements (TI) and other financial incentives are great and critical to protecting your business - but the relationship between you, your landlord, and your community matters just as much if not more than upfront cash. Rents increase, taxes increase, and unforeseen challenges happen all the time in business. Having an understanding landlord and a supportive community can mean the difference between riding out bad wave and flipping over into bankruptcy. So, when working to find that next location, remember all those intangible, difficult to quantify aspects of your search, as it can often mean the difference to your success.
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General thoughts and musings about the work SSC Solutions does and other things happening in and around Philadelphia