America's Cup: What the Hell Just Happened?

Wait -- this is getting interesting!

​In around an hour's time, the Board of Supervisors would have likely approved a sprawling America's Cup development plan that would have committed the city to reimbursing Larry Ellison's Event Authority up to $136 million -- perhaps into the 22nd century.

Instead, the city and race organizers yesterday summoned the media to Oracle Racing's remote lair at Pier 80, and announced a drastically scaled-down development plan that may cost the city less than $10 million. It was as if the world's most epic game of Jenga had come to an abrupt and thunderous finish -- and it was decided no one needed a large wooden tower after all.

The rapid transformation of the America's Cup from a sprawling real-estate deal -- with attendant sprawling costs -- to the amorphous, yet still massively pared-back scenario now in play demands one simple question: What the hell?

Here's a shot at that.

Between the end of 2010 and the end of last week, the anticipated costs for the America's Cup have soared toward the heavens. A deal the Budget Analyst penciled out as roughly break-even in late 2010 counted on the America's Cup Event Authority investing $55 million in pre-race costs, and being reimbursed by the city via long-term free leases and the title to Seawall Lot 330.

Prior to the deal's swift implosion, that total had swelled to $111 million (and $25 million more than that if the Event Authority opted to do work on Piers 26 and 28). And while the Event Authority is paying legal tender to facilitate this work, it's being paid back via decades' worth of rent credits for the spruced-up waterfront properties. As we noted yesterday, it's highly uncertain what local and state authorities would have permitted Ellison's people to do on their new scraps of land. So while their dollar investment was guaranteed, the form of what they could build to recoup it was not.

But that's just the back end of the deal. How about up front?

Terms have changed -- and fast!

​On Sunday, the San Francisco Business Times published a short interview with Richard Worth, chairman and CEO of the Event Authority. He noted that lining up sponsorships was "bloody tough," and let on that the organization was well behind when it came to amassing sponsorship dollars.

As such, the Event Authority wasn't exactly flush with other people's money to immediately plow into the increasingly dizzying bill for rehabbing Piers 30-32. That would mean the Event Authority would have to put its own funds -- Ellison dollars -- into paying for the work, with the aforementioned uncertainty about recouping the costs.

This may have triggered the weekend's come-to-Jesus moment -- though, of course, Jesus wouldn't have required a massive, space-age catamaran to move about the bay.

(It warrants mentioning, meanwhile, that while the city's development-related costs have shrunk by perhaps 90 percent, it will still cost an estimated $52 million in logistical costs -- police, Muni, etc. -- to host this event. If private fundraising fails, it's on the city.)

Finally, while all sides remain committed to holding the event, it appears much else is in flux. While Event Authority COO Stephen Barclay told SF Weekly yesterday that his organization obtaining Seawall Lot 330 was "off the table," city officials say it's only off until it may be put back on.

Eyes on the prize...

​Jennifer Matz, director of the Mayor's Office on Economic and Workforce Development, said Seawall Lot 330, valued at $25 million, isn't totally out of play -- but may only be handed over to the Event Authority "if their expenditures add up to that amount. And, right now, we're nowhere in that realm."

It remains for the city and Event Authority to sit down in the next week and determine what, exactly, the race organizers are going to do, and how much -- and how -- the city and port will pay them for it. Matz said this isn't akin to starting over at square one as every possible expenditure has already been "scoped out" -- and, essentially, was in the costly deal that just evaporated. Now comes deciding what to still do. "We're left with something that was still within that $110 million of expenditures," she says. "We're left with some subset. And the port, with our assistance, will figure out how to pay for those."

So, that's the deal as it stands now -- or doesn't. But, on more than one occasion, the apparent arrangement between the America's Cup and the city has been radically altered.

It remains to be seen if there will be a third time.

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