03/14/2013 05:07 pm ET

San Francisco America's Cup Report Shows Smaller Benefit For A City That May Have To Pick Up The Tab

When hosting the 2013 America's Cup was first pitched to San Francisco's city leaders, it sounded almost too good to be true: A world-famous event that would ultimately cost the city little while bringing both international exposure and a bonanza in economic activity.

Now, as the projections of that economic benefit are being downgraded significantly and reports of lackluster fundraising could leave the city footing a multi-million dollar bill, some local politicians have begun to grouse publicly about being misled.

Among the most vocal of those critics is progressive Supervisor John Avalos, who recently told SF Weekly, "all the members of the Board of Supervisors were f*cking played."

Earlier this week, Avalos convened a pair of hearings to look into some of the issues currently swirling around the increasingly controversial race. One examined the event's violation of local labor regulations, such as paying some employees less than the city's highest-in-the-nation minimum wage, and the other looked at problems with fundraising.

At the latter hearing, the Bay Area Council Economic Institute's Jon Haveman presented a report on the America's Cup's predicted economic impact, which was markedly scaled back from original estimates.

Instead of the 15 teams expected to compete, there are now only five (including Larry Ellison's defending champion Oracle Racing). The overall number of spectators dropped by 700,000, and expected tax revenue lowered by nearly $11 million. Predicted economic activity has also been downgraded from $1.4 billion to just over $900 million.

"We looked at how the world has revealed itself to be different than it was thought to be in 2010. The biggest difference is that there is a much smaller number of syndicates competing than anybody would have predicted," Haveman told the Huffington Post. "There was initially an over-inflated sense of the level of interest people would have in the America's Cup. The attendance figures have been scaled down based on the number of people who came out to watch the America's Cup World Series last year."

Avalos remains suspicious. "I didn't think so at the time, but, looking back now, I think...[the event's backers] were being disingenuous about how much it would cost and the economic impacts," he said to HuffPost.

The relatively small number of teams competing is largely due to the worldwide economic slowdown and the mind-boggling cost of getting a boat in the water. Largely at Ellison's insistence, the competition this year has switched the type of boats used to ones that are both significantly faster and more expensive. While this shift will undoubtedly make the competition more exciting, it also priced many possible entrants out of the competition entirely.

Still, organizers haven't lost confidence. The San Francisco Chronicle reports:

"Things are going well," said Michael Martin, the city's America's Cup project director. "This is a good thing. It's good for the city, and it's good for the economy. Let's seize this opportunity."
Sean Randolph, president of the economic institute, said, "It will still be a very strong event - not on the scale originally thought - but still very strong."

Although the race has been significantly scaled back, the city could ultimately have to dip into its General Fund to foot the bill.

According to the initial agreement the America's Cup Organizing Committee struck with San Francisco, the city was to front some $32 million for infrastructure and permitting expenses. The committee, which reads like a Who's Who of San Francisco high society, would then "endeavor" to raise enough money to cover the expenses.

The word "endeavor" essentially means that if the fundraisers can't come up with the $32 million, San Francisco will be stuck with the tab.

"Now we that have a smaller race, the actual cost to the city will be less and that will lower the expectations of what the committee will have to raise," Avalos said. "The fundraisers aren't putting in the kind of work they need to be and now it looks like the city may have to use money from the General Fund to pay for shortfall on the fundraising, instead of what was initially promised."

A group called "A Responsible America's Cup Race" has posted an online petition calling on Ellison, the fifth-richest man in the world, to cover the fundraising shortfall out of his own pocket.

"If they don't pay and the city lets them get away with it then they're just being little b*tches," former Supervisor and America's Cup critic Chris Daly, whose protests while on the Board led the city to abandon its plan for a massive (not to mention expensive) race complex in Mission Bay, told SF Appeal in 2011.

San Francisco Mayor Ed Lee has personally involved himself in the fundraising effort, saying he's been meeting with the CEOs of prominent local companies in an effort to secure more donations.

However, some America's Cup boosters have argued that looking at a cost-benefit analysis that ends this year is short-sighted. If Ellison's Oracle Racing team comes out victorious this summer, the event will likely be held in San Francisco again, and the city will already have the necessary infrastructure in place. That way, it can once again reap the economic benefit of the world's most high-profile sailing competition, but this time on the cheap.

"I honestly believe that if Larry Ellison wins it, it's going to be back and be ten times more exciting with more teams next time," Organizing Committee head Mark Buell told ABC San Francisco at the hearing.

The America's Cup race hits the San Francisco Bay on July 4.



America's Cup Capsize