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EVALUATING CAL’S RENOVATION OF MEMORIAL STADIUM, PART 3

By Rock Mayock 11:00 p.m.  |  After a brief hiatus it is time to resume our dialog about the University of California’s ongoing effort to update their antiquated football facilities. We have already discussed the motivation behind undertaking this costly endeavor as well as the recent completion of Phase I. Today we will delve deep into Phase II, the renovation and retrofit of both end zones and the west side of Cal Memorial Stadium (CMS).

The need to retrofit and renovate CMS is more than a cosmetic one. A primary driver of the renovation/retrofit is the fact that running directly under Memorial Stadium is the Hayward Fault, a seismic fault line that stretches from goal post to goal post into the East Bay. A 1998 seismic study commissioned by the University deemed the safety risk posed by a moderate to significant earthquake event represents an “appreciable life hazard.” As a result the University was spurred to take action regarding their aging stadium.

The University was faced with two options regarding CMS; raze and rebuild or renovation. Due to the fact that CMS was placed on the National Register of Historic Places in 2006 the University was prohibited from demolishing the structure. Furthermore, the dearth of open space and the overall real estate cost in and around Berkeley made construction of a new on campus facility impossible. Therefore the only remaining option was to renovate and retrofit the existing structure. The initial estimate for bare minimum retrofits to stabilize CMS was roughly $14,000,000.

Thus the San Francisco based architecture firm HNTB Corp. was retained to preserve the historical gravitas of CMS while at the same time update the structure to 21st century standards in terms of interior design and amenities. Major construction for Phase II commenced December 2010 under the direction Webcor Builders. Webcor’s core business competency resides with large scale seismic renovation and construction projects. Their portfolio of completed high profile projects include the Lawrence Berkeley National Laboratory, Guam Naval Hospital, Ironhouse Wastewater Highland Reservoir, and the S.F. Transbay Transit Center. Here are the details of the Phase II renovations being made to CMS:

As with the Phase I construction of the Simpson Student Athlete High Performance Center (SAHPC), the cost of the west side renovation project is staggering when placed in the context of Cal being a nontraditional football “powerhouse.” The budget for Phase II is  a whopping $321 million. CMS proponents attribute nearly 60% of the budget to the fact that the stadium straddles the Hayward Fault and retrofitting an existing structure is typically more expensive than new construction. Incidentally the University of Washington is on pace to complete renovations to Husky Stadium for approximately $250 million, or 2/3 the cost of CMS renovations, despite the fact Seattle is also located in a highly seismically active area. Regardless of the rationale behind the project’s cost, the fact remains that it must be paid for via cash or debt financing. Using the SAHPC model, Cal elected to use 100% debt financing to cover the project’s cost.

To recap the SAHPC model, the majority of funds were raised through the sale Series Q Bonds in accordance with a 2009 bond referendum designed to raise an aggregate of $300,620,000.00 to finance athletic facility improvements. The financed debt has maturity dates ranging from 2012 through 2040 with yields anywhere between 4.0%-5.25%. The intent of the bond referendum was to assure that no money outside of Intercollegiate Athletics (IA) would be used to cover CMS renovation/retrofit expenses. This means that no money from either the University’s general fund or from increased tuition would be applied to cover construction costs.

Like SAHPC, the capital raised through the bond sale was augmented by private donations invested into a fund functioning as an endowment (FFE) managed by the UC Berkeley Foundation. Unlike SAHPC, the primary anticipated source of the donations was placed upon the much maligned Endowment Seating Program (ESP). The ESP is intended to function in the same capacity as a life time season ticket sale . Buyers have the option to pledge their purchase of University, Stadium or Field Club level season tickets. Over the life of the ESP the University has projected an amalgamated total of $270 million in ticket sales. The pricing structure for these premium seats is detailed below:

To date only $31 million of the expected $270 million anticipated in lifetime ESP revenue has been collected. The shortfall in revenue is due to the fact that the ESP is predicated upon pledges, not contractual commitments, to purchase tickets. Compounding this issue is the fact that Cal does not have reliable access to an affluent fan base willing to pay $2,700-$15,000 annually or up to a $225,000 in a lump sum up front pledge like Texas, Michigan, or USC does. Therefore the long term cash flow created by ESP sales cannot be accurately be projected.

Collectively these donation procurement issues has resulted with the FFE seed money to be woefully inadequate. The FFE deficiencies have resulted with a smaller pool of money to draw regular annuity payments from thereby limiting the University’s ability to satisfy its bond debt obligations. We will explore the nuts and bolts of the debt payment structure in our next post detailing the difficulties Cal will invariably incur satisfying this massive debt load. 

The kicker to this conundrum is that Phase II of the CMS renovation plan does not encompass the entire stadium. Phase II only addresses the western portion and both end zones. The east side of CMS will not be renovated until Phase III. To date neither the start date nor budget for Phase III has been set however pundits estimate the Phase III cost may eclipse Phase II’s cost if there is a need to excavate the east facing hillside. All in all this is turning into a lot of expense to preserve the west facing façade of an old stadium.

Rock

rock@footballphds.com

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