America's Cup- San Francisco shortens the odds in tight Venue race

by Richard Gladwell on 24 Dec 2010
Sail-World NZ’s Editor, Richard Gladwell, caught up with BMW Oracle Racing’s Chief Operating Officer, and lead negotiator for the 34th America’s Cup Venue Selection process, the day after he returned from visiting the three candidates in Newport, San Francisco and Italy.

Barclay told Sail-World that the decision was 'going right down to the wire, documenting each city’s proposal – each are very different. The US proposals are very different from the ones out of Europe.'

Negotiations are conducted by a team from BMW Oracle Racing, rather than an individual assigned to one City. Barclay has visited all three Cities in the past two weeks. Head of External Affairs, Tom Ehman has spend a lot of time recently with Newport. CEO, Russell Coutts is also closely involved, along with other senior Event Authority members.

'There is process in the USA that must be followed where a lot of transparency is required, while in Europe things are done a little differently. That is not say that one way is better than another – it is just how these matters are processed in the different countries.'

'In the past six weeks we feel like we have continually made two steps forward and then taken one step back, as the deadline has approached. All the cities have become much more focussed, and that has both helped and hindered us,' he added.

Many in the America’s Cup media believe the Italian venue is a spoof bid - a view that some in San Francisco City Hall courted for a time. 'We have been talking to Italy at the highest level since around June. It has been there for a long time. It is no secret that there are issues in Italy which we are trying to navigate ourselves through at present'.

'It would be fantastic to have an America’s Cup in a country which is as enthusiastic about the America’s Cup as New Zealand is.'

Details confidential
Barclay won’t reveal details of the bid from Italy, or any bid. We put it to him that many believe that the deal doesn’t exist. 'Yes many have that view,' he concedes, 'and some have talked about it publicly in San Francisco. I showed the actual documentation to convince the Board of Supervisors, or those who wanted to look, that it was a serious bid.

'We won’t disclose information about any bid unless the City itself discloses it. San Francisco has been very open and posted a lot of material on the internet. If you follow the Italian newspapers, it has been plastered all over them, as far back as June.

'I went as far as I could to show the Board of Supervisors about the Italian proposal.'

Barclay refuses to reveal further details of the Italian or Newport bids. 'Every city we have spoken with, and not just the three that have been announced, have said that this is a political minefield bidding on projects like the America’s Cup.

'Look at the fall-out in Australia and England when their bids were so poorly supported in the recent Football World Cup decisions for 2018 and 2022, and the politicians had to explain how they had spent so many millions on the bids, and how few votes had been attracted in support. The last thing they want is the political fallout with a bid that has failed.

'Of course they do want the opposite, and to score the political kudos when they win.'

'It is common knowledge that once we did our original deal with the Board of Supervisors, which was supported by the majority, that we went to the other bidders and told them to start focussing on obtaining World Series events, rather than the America’s Cup hosting itself.

'That was so they had something to tell their public, rather than 'it has all failed'.

'In summary, in November we thought we had a deal with San Francisco, but it didn’t turn out that way and so we have re-ignited discussions with the others that had showed interest in the Venue Hosting.'

Venue Date shift?
Given the 11th hour nature of the discussions and with less than a week remaining until the Venue is required to be announced, Barclay does not see any need to slide that announcement date.

'We are very much focused on the 31st. We think we can achieve it. Our ambition at this time is to have three strong pieces of paper in our hands by the 31st December 2010, for us to then be able to say what is happening and where the Match will be held. That is our ambition.'

'In Newport (which is the least advanced of the three), we would like them to get to a binding Letter of Intent. We would much rather have a Host City Agreement from Newport, like San Francisco has done. But we have to cut our cloth to suit. Given the goodwill in Newport, we are happy to proceed on that basis with them.'

'Our intention on the 31st December is to come out and say 'this is our Venue choice for the 34th America’s Cup'.

On the San Francisco bid, about which Barclay is much more easily able to discuss, given that its details, costs, investments and timelines have all been put into the public domain by the City, we turned to the issues of environmental approval process – which is expected to take 12 months.

'The San Francisco deal is for the CEQA process to be complete by October 2011. The San Francisco City cannot guarantee that process. Our initial position with them was that we wanted an exemption from it. We were counselled by them and other groups to remove that request and to work with them and get approval on the consents.

'They want to make a model of the America’s Cup to show others how the CEQA process can work, and they want to work collectively with us to get that done.

'We wouldn’t select them thinking we were going to go through that process and get a dud result.'

11-0 seen as decisive
Many close to the action in City Hall at San Francisco regard the Board of Supervisors vote at 11-0 in favour of the Agreement, as being very decisive and as a show of solidarity by the 'Supes' and that unanimity is a strong factor in getting the CEQA process completed in the allowed time.

Barclay agrees: 'I think that 11-0 is very strong. We were very pleased with that level of support.'

'One thing to highlight is that it shows the degree of change in the San Francisco agreement to go from 9-2, with one of the dissenters saying he would do everything in his power to kill the deal, to a position where all eleven voted in favour of their revised bid.

The factor that swung the deal to get that unanimity amongst the Supes was to move to a more northern location with a different set of piers- some of which have a remaining life of just five years, maybe ten.

'We can’t use them', is Barclay’s opening comment. 'We have to spend 50-100 million dollars to get then usable'

'If we select San Francisco, the day after we have to sit down with them and look at the documentation required to go through the CEQA process. That process will be complete by October 2011, and we believe it will be affirmative. That will get the piers up to the standard where they are usable.'

'Then we have to spend a few months sorting out other issues. The construction starts on 1st January 2012. That takes 12 months, and then the piers are ready for the America’s Cup Event Authority to take over on 1st January 2013, to prepare them for the event.'

In construction vernacular, the 'horizontal' being the piers will be done by 1 January 2013, and then the America’s Cup Events Authority starts constructing the team bases or 'the vertical', which also includes the public area.

Different build from Valencia
Valencia type permanent structures will not be used, rather the intention is to build Formula 1 type semi-permanent (vertical) structures which can be removed and the horizontal piers put to another use once the America’s Cup has moved on.

For the World Series venues, as completely temporary facility will be erected, and Barclay says the structures will be more permanent than the 'tin sheds' in Auckland, but not to the level of construction seen in Valencia.

The point being that the short time allowed for construction of the vertical is quite achievable, in the time that has been allowed.

In the last week, Barclay says, the City of San Francisco have approved the cruise terminal at Pier 27. The shed currently on the site will be removed and the facility that is put in its place will be both good for the America’s Cup use, and as a cruise ship terminal.

'I don’t know how the Northern Alternative is going to work, because it is very new to us', he adds, 'but it is a good example of how a private and public partnership can work to help us both save money, if we are smart.'

The lack of an Event Fee is something that seems to differentiate the Italian bid from the US bid.

'In America there is not the opportunity for them to be able to guarantee an Event Fee and guarantee sponsorship. We have to be innovative as to how we arrive at those things.'

In the San Francisco deal, which is public, they have set up a private company which is full of public sector influential people including the Governor of California, plus very influential private sector individuals. That group is tasked with raising $270million. Given the calibre of the people involved, we think there is a very strong chance they will achieve that goal

'It is just a different way of achieving the Event Fees that other governments will just pay or guarantee.'

Other positives for San Francisco
Turning to the other issues, for and against San Francisco, Barclay says 'We all know that San Francisco Bay is a fantastic amphitheatre for sailing, so we can put a tick in that box.'

'The other thing that hasn’t been talked about too much is that San Francisco can create a real linkage between America’s Cup 'village', and the City. Take in what was achieved with Auckland and the Viaduct Harbour, multiply that by several times because San Francisco is a massively international City, and you have an idea of how the City is going to embrace the America’s Cup.

'The property deal in San Francisco is because the City’s balance sheet won’t stand upgrading the piers. The Event Authority is going to have to spend in the vicinity of USA$100million to make the piers usable for the America’s Cup.

'In return we receive long term development rights, which would be worth more than the original rights due to the length of time to get back the original investment– its a complex deal! At this stage, we haven’t even looked at how those long term rights might be used and in any case, will involve the City and Port in those decisions. All that we need to know is that at the end of the event, the Event Authority will get its money back.... even though it might take a long time. That is the key concept to understand.'

Barclay says they would prefer not to have to be involved in property development, and just take over the 'horizontal' as the Event manager and teams did in Auckland.

Discussions with San Francisco have come down to the wire because the agreement negotiated over four months was changed.' says Barclay.

The major differences were the change in the two deals was the change of location which Barclay says doesn’t worry them too much, in fact it could be better as it is closer to the race area.

'The real problem is that we haven’t had time to do due diligence on the Northern Alternative. It came out the blue. Can we take the risks? We are talking about several hundred million when the cost of running the event and infrastructure spend is added together.

'The point we made to the City is that they were given the opportunity to balance their books, we should be given the same.'

The Balance the Books argument is critical for both parties. Under the original deal, the City claimed it had to invest up to $100million, and under the new deal, under one view from their Budget Analyst, it is cash positive for the City.

The current deal, according to Barclay, is neutral to the City, largely by virtue of elimination of dredging costs and relocation of tenants off Pier 50..

'What was publicised was that the location had moved north and saved the City a lot of money. What wasn’t publicised was that there were two other major parts of the deal. First they had changed the responsibility for the infrastructure works and second they had changed the financial arrangements associated with the property transaction.

'They added significant risk to the Event Authority and that is why we came out and said that this deal will not pass muster.'

'What we told them was that we can’t enter into an arrangement that puts the Event itself at risk. 11-0 is fantastic for the Board of Supervisors. But on the other side we had to have the chance to balance our set of books just as they did with theirs.'

'The good news is that message has got home.'

Barclay won’t say if they are out of the woods with City Hall. 'We are in discussions' is his only comment, 'and those discussions are at the highest levels and are heading in the right direction', he adds.