BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 652 (Steinberg)
As Amended April 11, 2011
Hearing Date: April 26, 2011
Fiscal: No
Urgency: Yes
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SUBJECT
Professional Sports Teams: Relocation Agreements
DESCRIPTION
This bill would provide that a professional sports team that has
previously entered into a financial agreement with a "home
public entity" shall not enter into a relocation agreement
unless it first gives the home public entity a bond,
undertaking, or deposit in an amount adequate to ensure that all
of its obligations under the financial agreement will be
satisfied. This bill would also prohibit a professional sports
team from entering into a relocation agreement if that team is
in breach or default of any financial agreement-or if entry into
a relocation agreement would cause a breach or default of any
financial agreement-unless and until the breach or default was
cured. This bill would provide that a relocation agreement
entered into in violation of these provisions is contrary to
public policy and is unenforceable and would permit a home
public entity or home community to seek and obtain injunctive
relief. These provisions would apply to any relocation
agreement entered into on or after January 1, 2011.
BACKGROUND
Professional sports teams increasingly require modern stadiums
or arenas, practice facilities, and other infrastructure. These
facilities can cost hundreds of millions of dollars. In many
cases, local governments have helped those teams by sharing the
cost of the improvements and new facilities. In 2004, authors
Kevin Delaney and Rick Eckstein noted the increase in new
stadiums and cited the public dollars often used to help build
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those stadiums:
There has been an explosion in new stadium construction since
the 1990s . . . the breadth of new construction across the
country and the amount of public contribution is
unprecedented. In the decade since the opening of Baltimore's
Oriole Park at Camden Yards in the early 1990s, fourteen new
baseball stadiums have been built and an additional three are
under construction. When the three stadiums currently under
construction are completed, seventeen of the thirty major
league baseball teams will be playing in stadiums built since
1992, once those currently under construction are completed.
This is an unprecedented wave of stadium building, and one
analyst has estimated that approximately $10 billion of public
money has gone to all new sports stadiums since the mid-1980s.
(Delaney & Eckstein, Public Works, Private Stadiums: The
Battle over Building Sports Stadiums (2004) p.2).
Another analysis found that between 1998 and 2003, on average,
public financing accounted for 65 percent of the cost of sports
stadium construction in the U.S., and the average amount
financed publicly was $208 million. (Coates & Humphreys,
Professional Sports Facilities, Franchises and Urban Economic
Development, UMBC Economics Department Working Paper 03-103,
2003.)
Ensuring that local governments are repaid when a professional
sports team leaves town is not a new issue. In 2008, the owner
of the Oklahoma City Thunder, formerly the Seattle SuperSonics,
reached a settlement with the city of Seattle to pay up to $75
million (covering lost rent, tax revenue, and paying off the
remaining debt on the arena) to get out of its remaining arena
lease. ("Oklahoma City owner, Seattle agree on settlement for
moving Sonics," Associated Press, August 19, 2008; "SuperSonics,
Seattle reach last-minute settlement," ESPN.com news services,
July 3, 2008.)
This bill is intended to similarly help local governments
protect their investment by ensuring that any obligations owing
to the local government by the professional sports team are
repaid before that team relocates to another community in
California.
CHANGES TO EXISTING LAW
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Existing law regulates contracts for particular contracts,
including contracts for dance studio lessons, health studio
services, and the lease or rental of athletic facilities. (Civ.
Code Secs. 1812.50 et seq., 1812.80 et seq., 1812.97.)
This bill would provide that a professional sports team that has
previously entered into a financial agreement with a "home
public entity" shall not enter into a relocation agreement
unless it first gives the home public entity a bond,
undertaking, or deposit in an amount adequate to ensure that all
of its obligations under the financial agreement will be
satisfied.
This bill would prohibit a professional sports team from
entering into a relocation agreement if that team is in breach
or default of any financial agreement-or if entry into a
relocation agreement would cause a breach or default of any
financial agreement-unless and until the breach or default was
cured.
This bill would provide that a relocation agreement entered into
in violation of the above is contrary to public policy and is
unenforceable.
This bill would permit a home public entity or home community to
seek, and the court shall grant, an injunction to enjoin
performance of any act under the relocation agreement that is
unenforceable under the bill.
This bill would provide that if all of the financial obligations
the professional sports team owes to a home public entity and
home community under a financial agreement are satisfied in
full, then performance under the relocation agreement entered
into in violation of the above shall not be enjoined. This bill
would specify that the financial obligations under a financial
agreement are not satisfied in full merely by providing the
bond, undertaking, or deposit required by the bill.
This bill would provide that any action or proceeding brought
pursuant to the bill shall be brought in a court of competent
jurisdiction in the county in which the home public entity and
home community are located.
This bill would specify that the remedies provided by the bill
are cumulative and not exclusive of any other remedy or cause of
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action provided by law or equity including, but not limited to,
any joint and several liability that may arise in contract or
tort.
This bill would provide that the provisions described above
would apply to any relocation agreement entered into on or after
January 1, 2011.
This bill would provide that its provisions are severable and if
any provision of the bill or its application are held invalid,
that invalidity shall not affect other provisions or
applications that can be given effect without the invalid
provision or application.
This bill would take effect immediately as an urgency measure.
This bill contains various findings and declarations.
This bill would define the following terms, as specified:
"breach or default," "current location or home community,"
"financial agreement," "home public entity," "new community,"
"professional sports league," "professional sports team,"
"public entity," and "relocation agreement."
COMMENT
1.Stated need for the bill
In support of the bill, author writes:
Professional sports are big business. Modern teams require an
arena, team headquarters, team practice facilities and other
infrastructure that costs tens of millions, even hundreds of
millions of dollars, to construct, improve and maintain.
Frequently, and increasingly professional sports teams call
upon local governments to partner with teams to share the
costs of the improvements and the new facilities they want.
In California, local governments have entered into
multi-million dollar agreements and financing arrangements to
provide public resources professional sports teams requested
to either come to the community or stay in the community.
The teams have agreed to repay and compensate the home
communities for committing public dollars in a variety of
ways. In some cases, teams have promised that they would pay
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off bonds, buy the arena or otherwise pay back particular
government debt if the team decides to move. But the mere
promise of a professional sports team to pay back the public
money is not enough if the team disputes or delays in paying
its obligations. The amounts of the financial commitments
professional sports teams have made to California local
governments are so large that certainty about whether and when
the teams will pay back the public money and satisfy their
financial obligations is critical.
If a team relocates to another community and delays or
challenges its obligation to repay a local government tens of
millions of dollars, the home community will have to either
make huge cuts in its budgets and services or try to borrow
money while it attempts to collect from the team. If a team
relocates and challenges or delays the repayment of its
obligations, the home community may also be unable to borrow
money because financial markets may respond to the uncertainty
of the team's repayment by increasing interest rates the
government pays to borrow money or even refusing to lend money
altogether.
Although this bill has a general application and would apply to
protect all home public entities in California, the author notes
the following about a recent example:
In 1997, the City of Sacramento entered into a series of
agreements for the purpose of refinancing the Kings' debt on
Arco Arena. The refinancing was done at the Kings' request,
and without it, the Kings may have been compelled to relocate
from Sacramento. Under these agreements, the Kings covenanted
not to relocate to another city until the bonds were paid off
in full. The entire amount of this outstanding debt, $77
million, becomes due and payable by the Kings immediately if
the team signs a relocation agreement. The City has requested
that the Kings ownership explain how they plan to satisfy this
obligation, but the city has yet to receive a satisfactory
response.
If the Kings ownership fails to honor its obligation,
Sacramento will have to either make huge cuts in its budget or
try to borrow the money needed to pay bondholders, as it
attempts to collect from the team. SB 652 protects the City
of Sacramento's interests in this deal, but it also
establishes a broader public policy protecting communities
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throughout the state in their business relationships with
professional sports franchises.
2.Bill would require any financial obligations owing to the home
public entity and community by the professional sports team to
be repaid before that team relocates
This bill would require a professional sports team that has
entered into a financial agreement with a home public entity to
first provide that entity with a bond, undertaking, or deposit
before the team may enter into a relocation agreement. The
amount of the bond, undertaking, or deposit must be adequate to
ensure that all of the team's obligations under the financial
agreement will be satisfied.
This bill would also prohibit a team from entering into a
relocation agreement if that team is in breach or default of any
financial agreement, or if entering that relocation agreement
would cause the breach or default. Under the bill, this
prohibition would apply only as long as the breach or default is
not cured.
Under the bill, if a professional sports team enters into a
relocation agreement and does not provide the bond, undertaking,
or deposit required by the bill and is in breach or default of
its obligations under the financial agreement with the home
public entity, that relocation agreement would be considered
contrary to public policy and unenforceable. The bill would
permit the home public entity or home community to seek an
injunction to enjoin the relocation agreement and the court must
grant that request. Once all of the financial obligations the
team owes to the home public entity and home community are
satisfied in full, however, the relocation agreement shall not
be enjoined, or continue to be enjoined. The bill also
specifies that simply providing the bond, undertaking, or
deposit required by the bill does not satisfy in full the
financial obligations under a financial agreement.
These provisions are intended to ensure that any financial
agreements between a home public entity and a professional
sports team are honored. Supporters assert that the bill is an
appropriate exercise of the state's police powers; it is
necessary for the health, safety, and welfare of citizens to
protect local governments against professional sports franchises
when they take public money for their private benefit and then
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move and do not fulfill their obligations. (See Comment
4(c)(ii) for additional discussion.) As noted earlier,
substantial public monies are often involved in the financing
and building of stadiums. According to one analyst,
"approximately $10 billion of public money has gone to all new
sports stadiums since the mid-1980s." (Delaney & Eckstein,
supra, p.2).
Staff notes that none of the provisions described above would
interfere with a professional sports team's ability to move or
relocate. Instead, the bill is crafted narrowly and focused on
protecting the harmed home public entity by providing certainty
that substantial obligations owed to the entity will be honored.
3. Bill would apply only to those relocation agreements
entered into after January 1, 2011
This bill's provisions requiring that a professional sports team
satisfy its obligations to a home public entity before it may
enter into a relocation agreement would apply only to relocation
agreements entered into after January 1, 2011. At the time of
this writing, committee staff is not aware of any relocation
agreements that have been entered into since January 1, 2011.
As a result, at the present time, this bill would not affect any
pending relocation agreements.
4. Contracts clause issues
If a professional sports team were to enter into a relocation
agreement prior to the enactment of this bill, the question
might arise as to whether this bill-if enacted-would raise
impairment of contracts issues under the Contracts Clause
because it would declare that relocation agreement to be against
public policy and unenforceable if the team has not satisfied
its obligations, as specified.<1> The U.S. Constitution
provides that no state shall pass any law impairing the
---------------------------
<1> Some might raise concerns that this bill would impermissibly
impair the financial agreement entered into by a professional
sports team and a home public entity. It would not; this bill
would not affect that initial contract. Instead, it would
require a professional sports team that has such a contract to
provide a bond, undertaking, or deposit before entering into a
relocation agreement. It would not modify the underlying
contract.
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obligation of contracts (U.S. Const. Art. 1, Sec. 10.), and the
California Constitution specifies that a law impairing the
obligation of contracts may not be passed. (Cal. Const. Art. 1,
Sec. 9.)
a. Contracts clause analysis
The U.S. Supreme Court has held that the prohibition contained
in the Contracts Clause "is not an absolute one and is not to
be read with literal exactness like a mathematical formula"
(Home Building & Loan Association v. Blaisdell (1934) 290 U.S.
398, 428), and has explained the Contracts Clause analysis as
follows:
The threshold inquiry is whether the state law has, in fact,
operated as a substantial impairment of a contractual
relationship. . . . If the state regulation constitutes a
substantial impairment, the State, in justification, must
have a significant and legitimate purpose behind the
regulation, such as the remedying of a broad and general
social or economic problem. Furthermore, since Blaisdell,
the Court has indicated that the public purpose need not be
addressed to an emergency or temporary situation. . . .
The requirement of a legitimate public purpose guarantees
that the State is exercising its police power, rather than
providing a benefit to special interests.
Once a legitimate public purpose has been identified, the
next inquiry is whether the adjustment of "the rights and
responsibilities of contracting parties �as provided by the
state law] is based upon reasonable conditions and is of a
character appropriate to the public purpose justifying the
legislation's adoption." Unless the State itself is a
contracting party, . . . courts properly defer to
legislative judgments as to the necessity and reasonableness
of a particular measure. (Energy Reserves Group, Inc. v.
Kansas Power and Light Co. (1983) 459 U.S. 400, 411
(citations omitted).)
In other words, a state statute does not unconstitutionally
impair a contract if the impairment, notwithstanding the fact
that it is substantial, serves a significant and legitimate
public purpose and is reasonably related to achieving that
purpose.
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b. Threshold question: Does the proposed law constitute a
substantial impairment of contract obligations?
Assuming that a professional sports team were to enter into a
relocation agreement prior to the enactment of this bill and
the bill-if enacted-were challenged as an unconstitutional
impairment of contracts, the threshold question to be
determined is whether the bill's provisions constitute a
substantial impairment of contract obligations in the first
place. If the impairment is not substantial, there is no
Contracts Clause violation. (Allied Structural Steel Co. v.
Spannaus (1978) 438 U.S. 234, 244-245.) Courts look at various
factors to assess the severity of an impairment including,
among others, "whether the parties have relied on the
preexisting contract right and the extent to which the statute
violates the reasonable expectations of the parties." (Mobil
Oil Corp. v. Rossi (1982) 138 Cal.App.3d 256, 263-264; citing
Allied Structural Steel Co. v. Spannaus, supra, 438 U.S. at
246.)
Using the city of Sacramento as an example, it would be
difficult to argue that this bill, if chaptered, "violates the
reasonable expectations of the parties" to a relocation
agreement given that any parties to such an agreement were put
on notice that the Kings had entered into agreements with
Sacramento in which the team agreed to pay off outstanding
bonds if they relocated to another city before 2027. In March
2011, the city sent letters to this effect to the city of
Anaheim, the Board of Governors of the National Basketball
Association, and the Kings franchise. Given that all parties
are also aware of this pending legislation, it can hardly be
said that-should these parties sign a relocation agreement-the
bill violates the reasonable expectations of the parties who
arguably should not rely on an agreement that may very well not
take effect. As a result, because the bill in this example
arguably does not "violate the reasonable expectations of the
parties," any contractual impairment imposed by this bill is
arguably not substantial.
c. Should a court find a substantial impairment, whether the
measure serves a significant and legitimate public purpose
and is reasonably related to achieving that purpose
Should a court find the bill's provisions to be a substantial
impairment of contracts, however, the next step in the analysis
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is to consider whether-despite being a substantial
impairment-the law is nevertheless a constitutionally
permissible impairment because it serves a significant and
legitimate public purpose and is reasonably related to
achieving that purpose. The outcome of this analysis is
dependent on whether obligations of private parties are
impaired or whether the state's own obligations are impaired.
This bill would apply to both situations.
i. Private v. public contracts
With respect to the impairment of contractual obligations of
private parties, the U.S. Supreme Court has held that
"courts properly defer to legislative judgment as to the
necessity and reasonableness of a particular measure."
(Energy Reserves Group, Inc. v. Kansas Power and Light Co.,
supra, 459 U.S. at 413.) On the other hand, if the state
itself-or one of its subdivisions-is a contracting party,
then complete deference to the legislative judgment as to
whether a measure is necessary and reasonable is
inappropriate. On this point, the U.S. Supreme Court has
stated:
The Contract Clause is not an absolute bar to subsequent
modification of a State's own financial obligations. As
with laws impairing the obligations of private contracts,
an impairment may be constitutional if it is reasonable
and necessary to serve an important public purpose. In
applying this standard, however, complete deference to a
legislative assessment of reasonableness and necessity is
not appropriate because the State's self-interest is at
stake. . . . If a State could reduce its financial
obligations whenever it wanted to spend the money for
what it regarded as an important public purpose, the
Contract Clause would provide no protection at all.
(United States Trust Co. of New York v. New Jersey (1977)
431 U.S. 1, 25.)
In instances where the state is a party to the contract
being impaired, courts have held that the state must show a
compelling interest justifying the impairment. (Board of
Administration of the Public Employees' Retirement System v.
Wilson (1997) 52 Cal.App.4th 1109, 1155.) As noted above,
this bill's provisions would apply to relocation agreements
between a professional sports team and a private party as
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well as relocation agreements between a professional sports
team and a public entity. The legislature's judgment with
respect to a statute impairing contracts between private
parties would be subject to deference while a statute
impairing contracts with a public entity would demand a
heightened level of scrutiny.
ii. Application of the significant and legitimate public
purpose/reasonableness test
As noted earlier, the test is whether the measure serves a
significant and legitimate public purpose and is reasonably
related to achieving that purpose. In this case, assuming
the bill is found to be a substantial impairment, the bill's
provisions are a proper exercise of the state's police power
and serve the significant and legitimate public purpose of
protecting the health, safety, and welfare of all of its
citizens. The bill would protect local governments against
professional sports franchises when they take public money
for their private benefit and then move and do not fulfill
their obligations. As the author noted earlier, local
governments "have entered into multi-million dollar
agreements and financing arrangements to provide public
resources �that] professional sports teams requested to
either come to the community or stay in the community."
This significant investment of public dollars made by many
local governments is threatened when teams that have agreed
to repay the debt and share in the cost instead dispute or
delay paying their obligations.
Already-strapped local governments face the possibility of
losing tens of millions of dollars and having to make
substantial budget cuts and significantly reduce services.
With respect to the impacts, the bill contains legislative
findings and declarations which note that local governments
"already face unprecedented financial pressures that are
forcing them to eliminate crucial services and facilities
that they provide to residents. Police and fire stations
and jobs are being cut. Parks are being sold or closed.
Streets are going without needed maintenance. A community
with a professional sports team cannot afford to make
additional cuts if the team decides to relocate without
first paying its financial obligations to the community."
Or the local government must borrow funds to fill in the
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budget hole while attempting to collect from the team.
Doing so may very well add to that local government's cost
given that lenders may increase interest rates charged or
simply refuse to lend funds altogether given the uncertainty
that the team will actually repay its obligations. This
bill seeks to provide local governments with the certainty
that significant obligations will be honored. The bill also
is intended to reduce the instances where one California
city is pitted against another California city. This bill
seeks to remedy these broad and general social and economic
problems by ensuring that a relocating professional sports
team pays its obligations before it relocates. By
attempting to remedy these problems, the bill thus serves a
significant and legitimate purpose.
Further, this bill would appear to be reasonably related to
achieving the above-described purpose as it is narrowly
crafted and focused on protecting the harmed home public
entity by providing certainty that substantial obligations
owed to the entity will be honored. In addition, as noted
earlier, the bill does not prevent a professional sports
team from relocating; it simply requires that team to pay
its debts and obligations before it does relocate.
As a result, assuming the bill is found to be a substantial
impairment in the first place, it would appear that-with
respect to relocation agreements between a professional
sports team and a private party (such as the potential
relocation agreement between the Kings and Anaheim Arena
Management, a private party)-the bill is a constitutionally
permissible impairment because it serves a significant and
legitimate public purpose and is reasonably related to
achieving that purpose. Although the result is less clear
with respect to relocation agreements between a professional
sports team and a public entity, staff notes that subsequent
modification of a state's own financial obligations is not
absolutely barred under the Contract Clause. Rather the
state must show a compelling interest justifying the
impairment.
5. Remedies contained in the bill are cumulative
This bill would specify that the remedies contained in the bill
are cumulative and are not exclusive of any other remedy or
cause of action provided by law or equity, including any joint
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and several liability that may arise in contract or tort.
This provision would ensure that a home public entity could
still bring an action for breach of contract against a
professional sports team if that team does not honor its
obligations under a financial agreement. While this may provide
the home public entity with a contractual remedy, it is likely
that by the time any action for breach of contract is
maintained, the professional sports team will have already
entered into another agreement which binds the team
contractually. This process could take several years and, in
the meantime, the home public entity may default on its bond
obligations and be left facing substantial fiscal hardship.
This bill's provisions are intended to instead require that the
team satisfy its debts and obligations before it relocates.
6. Author's amendments
The author would like to make the following amendments to the
bill which further express the significant and legitimate public
purpose served by the bill and also augment the statewide
interest in ensuring that a relocating professional sports team
pays its obligations before it relocates:
1. On page 3, line 35, strike "California and its largest";
strike lines 36-37; and in line 38, strike "that they
provide to residents" and insert "California and especially
its larger cities and counties where professional sports
teams usually locate already face unprecedented financial
pressures that are forcing them to eliminate crucial
services and facilities that they provide to residents and
that serve their surrounding regions."
2. On page 4, strike lines 12-19 and insert "Larger cities
and counties and the regions they serve cannot absorb the
additional substantial financial pressure and cuts to
essential services that would result from a professional
sports team relocating to another community before first
paying off its financial obligations to the home community.
Under current law, there are no mechanisms in place to
ensure that a relocating team pays all of its financial
obligations before leaving, causing larger cities and
counties and the regions they serve to suffer the economic
uncertainties created by the team's relocation."
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Support : None Known
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : AB 338 (Sweeney, 1997), which would have
required professional sports franchises receiving offers to
relocate to notify their home town and provide reasonable time
for a counter-offer, failed passage on the Assembly Floor. The
bill was later proposed to be amended to prohibit a public
agency from expending public resources to purchase, construct,
or expand a sports facility used or intended to be used by a
professional sports franchise unless approved by a majority of
the voters of the public agency. That version failed passage in
the Assembly Local Government Committee.
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