SANTA CLARA, Calif. (CN) - The Santa Clara City Council unanimously voted to undergo a formal dispute-resolution process with the San Francisco 49ers over the annual rent the National Football League team pays to the city.
"Our job is to protect the city in this agreement," Santa Clara Mayor Lisa Gillmor said.
The city of Santa Clara shared the cost of building Levis Stadium, where the 49ers play their home games, and currently owns the facility. The 49ers signed a rental agreement with the city in 2012, agreeing they would pay $24.5 million annually to help the city meet stadium operating expenses.
In the initial agreement, there was a stipulation called a rent readjustment which allowed both the team and the city to revisit the terms of the rent. The 49ers have taken advantage of that option to demand the city reduce the rent by about $4.25 million per year, bringing the total to $20.25.
The team claims the enormous success of the stadium combined with the fact that the city's share of construction costs came in at about $1.36 million under budget justifies its demand.
Team chief financial officer Scott Sabatino gave a presentation where he claimed the city stands to bank $6 million in profits to the general fund in the first two years if they agree to the reduced number, and that by even conservative projections will make about $220 million over the life of the 40-year lease.
Representatives for the 49ers, including financial consultants from Goldman Sachs, argued the present rent is more than twice as expensive as the Minnesota Vikings pay to the city of Minneapolis, the second-highest rent in the league behind the 49ers.
"Location, location, location as we say in the real estate business," Gillmor said in response.
Councilmember Teresa O'Neill said what other teams pay is irrelevant and the only thing that matters is what fits the current financial model for the city. The city stands to lose an aggregate of $160 million over the length of the lease.
Gillmor, who was elected mayor about a month ago after Jaime Matthews - a key ally of the NFL team - resigned abruptly after the Super Bowl, has been criticizing the team's attempts to lower their payments.
Prior to the meeting, Gillmor told the public the 49ers were ducking $5 million worth of payments to the city as a result of the dispute.
"The fact that we recently found out the 49ers stopped paying rent as of December 31 is unacceptable," Gillmor said. "We weren't informed. There needs to be good faith negotiations on both sides."
Harry O'Brien, outside counsel for the 49ers, said the team's rent payments were not paid with the previous regularity but that the team will make the payment for the full $24.5 million by March 31. However, he cautioned that should the rent of $20.25 million end up being the final number, the team will seek reimbursement for the difference.
The resolution means the city and the team will enter into a 15-day period for meeting informally in an attempt to achieve a resolution. After the period expires, the parties will enter either formal mediation or arbitration. The city is pushing for mediation.
"We're in a 40-year marriage and we have to protect the city," Councilmember Debi Davis said.
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