301 Street
10th Floor

Phoenix,  851303-2143
Phone: ti?Z?SUG?Tfit?
Fax: 
gov

Maricopa County

Clint Hickman, Chairman
Board of Supervisors, District 4

 

April 11, 2016

AZPB Limited Partnership
AZPB FM Limited Partnership
Chase Field

401 East Jefferson

Phoenix, AZ 85004

Attention: Derrick M. Hall

Re: Team Letters of March 24, 2016
Dear Derrick:

The Stadium District certainly recognizes and appreciates the many tangible and
intangible bene?ts the Diamondbacks have brought to the residents and business
communities of Maricopa County and the City of Phoenix. The Chase Field location
in the core of the downtown Phoenix area has been a key catalyst to the phenomenal
growth and synergy that the City has bene?tted from since the ballpark opened. We
would also like to recognize that the relationship between the Diamondbacks and the
Stadium District up until recently, and from our perspective, is a rare example of a
positive and constructive publictprivate partnership for others to follow.

With that said, we are very concerned by the recent dissatisfaction expressed by the
Team with its home at Chase Field. Also of concern are the Team?s statements of
wanting to explore relocating from Chase Field before the Team?s contractual
commitment is ful?lled. In the Team?s letter of March 16, 2016, you requested that
the District waive an important provision in the Facility Use Agreement 
section 11.2.1.2, that prohibits the Team from exploring relocating the Team from
Chase Field until the last four years of the FUA, that is, in 2024. The Team?s March
16, 2016 letter states: ?Specifically, we are requesting that the Maricopa County
Stadium District allow AZPB Limited Partnership the right to take such actions as it
deems necessary in order to move and play Diamondbacks? baseball games in a
location other than Chase Field. 

In our March 23, 2016 response letter, we declined to waive that key term of the
PUA, pointing out that the provision was so important in the original negotiations that
all the cities and towns in Maricopa County were made third party bene?ciaries of
that section to ensure that the $253 Million in public funding to build the stadium for

the Diamondbacks would be protected by the Team obligation to play there for at
least thirty years. I note that if the District had been inclined to waive the FUA
section 11.2.1.2 restriction, at a minimum, notice would need to be given to all those
cities and towns granted third party bene?ciary rights.

On March 24, 2016, the day after the District delivered our response, the Team
delivered two letters to the District--a two page letter dated March 24 and a ?fteen
page letter dated January 12, 2016. In the two page letter, the Team stated its desire
to continue to play its games in Phoenix, and it wanted to seek ?economicatt?y sound
ofternotives (incinding consideration ofstoytng in the current tocotion)  In the
?fteen page letter, however, the Team states that even assuming funds are available to
pay for the $187 Million in costs projected in the 2013 Facility Assessment Study
over the remaining twelve years of the FUA, ?it makes no economic sense to invest
them in what will be a 30-year oidfacitity that isforfrotn being ?state-of-the-ort. 
Later in the letter, the Team says ?we would very much like to remain in downtown
Phoenix" and holds out the possibility that the Team would consider a retro?t of
Chase Field: ?This should not rate out the possibility of retro?tting Chose Field if it
is determined to be the best option. These con?icting statements, along with the
Team?s statement in its March 16, 2016 letter that it wanted the right to take actions
to move and play its baseball games elsewhere, leave us decidedly unclear as to the
Team?s end goal here. We invite the Team to clarify its intentions.

We were surprised at the Team?s recent allegations concerning the condition of the
Facility. In discussions over recent years, the Team has said it would like to reduce
seating capacity at the stadium, and has requested a greatly reduced ?rent? payment to
the District, but the Team has not previously complained about the condition of the
Facility. As you are aware, the Facility condition is, in fact rated ?excellent? in the
2013 Facility Assessment Study. We note that the Related Use Agreements were
structured so that Team payments to the District are to be the primary funding source
for most Capital Repairs at the Facility; thus, agreeing to a reduction in these
payments would jeopardize necessary funding to perform current and potential future
Capital Repairs. As discussed in the attachment to this letter, suf?cient funds are
projected to be available to meet estimated concrete and steel Capital Repair needs
identi?ed in the 2013 Facility Assessment Study.

On this topic of necessary Capital Repairs, please be advised that you will shortly be
receiving a letter from the Stadium District Executive Director Representative urging
you to reconsider and grant the Team?s customary approval for proceeding with the
next phase of the continuing program of concrete and steel repairs and waterproo?ng
that has been planned for the upcoming off-season. It is imperative that this
remediation and repair program continue expeditiously to avoid further damage and
increased cost to repair. It is important to recognize that it is this type of program that
will be of the most future value to the Team, the District, and the taxpayer because

such programs ensure structural viability, provide options, and mitigate the
incremental future costs associated with the possibility of retro-?tting Chase Field. As
per the 2013 Facility Assessment Study, the Engineer of Record for Chase Field has
identi?ed water in?ltration from the power washing cleaning method as the reason
for the accelerated structural corrosion and concrete damage.

Attached to this letter is a review and discussion of the relevant Related Use
Agreements as they pertain to the respective responsibilities and obligations of the
Team, the Facility Manager and the District relating to the stadium. This ?Related
Use Agreements Summary and Discussion? shows that, contrary to the allegations in
your fifteen page letter, the Team and Facility Manager, not the Stadium District,
have almost total responsibility for the maintenance, operation and repair of Chase
Field. Further, although the Facility was rated to be in ?excellent? condition in the
most recent Facility Assessment Study, the agreements do not establish any
contractual requirement to provide the Team a ?state-of-the-art? ballpark. On the
contrary, the documents are structured to place that obligation on the Team if, in its
business judgment, it chooses to do so. The District has not breached any provisions
or obligations under the agreements, and if it had, FUA section 21.4.1 makes
alternative dispute resolution the Team?s exclusive means to resolve such dispute, not
litigation.

With that said, and as indicated in our March 23, 2016 letter, we welcome any efforts
with the aim of making Chase Field an attractive place for the Team to play, now, and
beyond the current term of the FUA. The District again acknowledges that our
agreements allow for discussions with the City of Phoenix and any other entities with
the purpose of keeping the Team at Chase Field. We encourage such discussions and
are happy to continue participating in them with the Team and any other party the
Team feels would be helpful.

Sincerely,

MARICOPA COUNTY STADIUM DISTRICT



Clint Hickman 
Chairman

Attachment: Related Use Agreements Summary and Discussion

CC:

Denny Barney, Director, District 1, MCSD

Steve Chucri, Director, District 2, MCSD

Andy Kunasek, Director, District 3, MCSD

Steve Gallardo, Director, District 5, MCSD

Fran McCarroll, Of?cial Record Keeper, MCSD

Tom Manos, Executive Director, MCSD

Daren Frank, Executive Director Representative, MCSD

RELATED USE AGREEMENTS SUMMARY AND DISCUSSION

The ?Related Use Agreements? are the interrelated series of contracts governing the rights
responsibilities and obligations of the Stadium District, the Team and its af?liates relating to
Chase Field. Those contracts were carefully negotiated and entered into in 1996 and clearly
place the reSponsibility to ensure that the Facility is properly operated, maintained and repaired
on the Facility Manager, AZPB FM Limited Partnership, a Team af?liate. Virtually all
operational and maintenance costs of the Facility are a Team responsibility. Furthermore, the
Related Use Agreements do not establish a ?state-of-the-art? standard for the Facility. Provisions
of the Related Use Agreements relevant to these issues are discussed below.

Facility Manager Responsibility for Annual Budget and Tegm Payment Obligation

Facility Management Agreement section 9.1 requires the Facility Manager, i.e. AZPB
FM Limited Partnership, to produce an annual ?Facility Operating Budget. This budget is
comprised of Speci?ed components, including the Base 085M Component of which FMA section
9.1(i) states:

This Component includes at! Facility Non? Use Period operating, maintenance and repair
costs incarredparsaant to Articles 10 and i i and shall! also include at! the non-
incremental and indirect costs (inclusive of Facility Manager overhead and markups)
incurred by the Facility Manager in connection with District Events, Tour Activities and
Real Estate Manager and Stadium Garage activities, which costs are deemed to be Team
Operating Expenses. The Base Component is subject to the Team's approval.

(Emphasis added).

Two other budget components speci?ed in section 9.1 include the ?Home Game Component,?
which encompasses all operating, maintenance and repair costs relating to Home Games, and the
Component? which includes all such costs relating to the ?Baseball Team Area Lease? (a
Related Use Agreement governing the Team of?ces, locker rooms, Team Store and other areas
that are under exclusive control of the Team). These components are also identi?ed in FMA
section 9.1 as Team Operating Expenses.

Pursuant to the Facility Use Agreement Team Operating Expenses are all the
reSponsibility of the Team to pay. FUA section states: ?The Team shall pay all Team
Operating Expenses as provided in the The three budget components discussed above,
all Team costs, encompass almost all operating, maintenance and repair costs of the Facility
other than the ?actual, incremental, direct costs? incurred during other activities such as District
Events, Day Uses, Tenant Area uses, or Parking Garage revenue generating activities at the
Facility. Tenant Area costs and Parking Garage costs are the responsibility of the Real Estate
Manager and the Facility Manager, both Team af?liates, as discussed below. The one signi?cant
exception to the Team?s obligation to pay for Facility expenses is for repairs meeting the FMA
de?nition of Capital Repair, also discussed below.

The Capital Repairs Component is to be included in the annual budget as provided in FMA
section That component is to include costs for Capital Repairs as de?ned in FMA
section 17.1. The Capital Repairs Component is subject to both Team and District approval
because those costs are to be paid from the Facility Reserve Accounts as de?ned in the FMA.
There is no requirement that either Team or District fund the Facility Reserve Accounts beyond
the revenues that ?ow into those accounts pursuant to the Related Use Agreements, the source of
which is primarily the Team payments to the District, and secondarily, revenues from District
Events in accordance with section 8.1 of the Activities Agreement, another of the Related Use
Agreements.

The REMA Component of the budget is established in EMA section 9.1(vi) and includes all
actual, incremental, direct costs incurred by the Real Estate Manager, AZPB REM Limited
Partnership, another Team af?liate with Derrick Hall listed as President and CEO. The Stadium
Garage Component is established in FMA section and is comprised of the actual,
incremental, direct costs of operating the parking garage, which the Facility Manager is
responsible for as provided in FMA section 19.1.5.

The District Event Component is the only budget component the District is solely responsible for
funding, and is comprised of the ?actual, incremental, direct costs exclusive of Facility Manager
overhead and markups? that are incurred in connection with District Events at the Facility. This
District Event Component is not prepared annually, but rather it is submitted in conjunction with
booking each District Event. This budget component is the only component the District has sole
approval authority over because it is the only one the District is required to pay for.

Facility Manager Maintenance Respogsibilitv and Performance Standard

 

The responsibility for ensuring that the Facility is maintained to a high level is that of the Facility
Manager, a Team affiliate. Article 10 of the FMA, entitled ?General Standards for Operations
and Maintenance of the Facility,? establishes the performance standard which the Facility
Manager, is required to meet. FMA section 10.2 provides:

General PertEerance Standard. At all time, the Facility Manager shall:

operate, maintain, repair anaT clean the Facility as necessary to preserve and keep the
Facility in good repair, Order and condition;

(ii) operate, maintain, repair and clean the Facility so that it is style and can readily be
made available for the playing of Home Games and the conducting of District Events,
Days Uses and Tour Activities; and

operate, maintain, repair, and clean the Facility in compliance with all applicable
governmental requirements.

The Facility Manager shall discharge such duties in a manner customary for an entity
experienced in operating, maintaining repairing and cleaning comparable {taking into
account the age of the structure, the presence or absence of a retractable roof and the

climate controlled nature of the Stadium) MLB facilities. The Facility Manager's
obligations pursuant to this Section 10.2 shall not be deemed satisfactorily discharged
simply because it has expended the ?ends provided in the Base Component, the
Home Games Component, the BTAL Component, the Component or the Stadium
Garage Component.

These listed budget components--the Base Component, the Home Games Component, the
BTAL Component, the REMA Component and the Stadium Garage Component-ere all the
responsibility of the Team or a Team affiliate, all entities for which Derrick Hall is listed as
President and CEO. The General Performance Standard requires the Facility Manager to keep the
Facility compliant with all governing code requirements, and this obligation and all other
performance standard obligations are ?not deemed satisfactorily discharged simply because the
Facility Manager has expended the ?inds provided in the listed budget components. Thus,
the Team and/or Team af?liates are ?nancially responsible for virtually all costs of keeping the
stadium in ?good repair, order and condition? and this obligation is not met or limited simply
because the budgeted funds are insuf?cient.

Capital Repairs

The FMA also explicitly makes the Facility Manager responsible fer Capital Repairs. Section
10.4.2 prevides: ?The Facility Manager shall maintain and repair the Facility and shall
undertake apitai Repairs. Capital Repairs are to be funded from Facility Reserve Accounts as
stated in FMA section 17.2.2. What quali?es as a Capital Repair under the FMA is important to
understanding how the FMA and the other Related Use Agreements structure responsibility for
the cost of operating, maintaining and repairing the stadium as well as the cost of enhancing the
Facility to keep up to standards in the Maj or League Baseball world.

FMA section 17.1.1(i) establishes basic requirements for a project to be included in the de?nition
of Capital Repair:

The actual, incremental, direct costs of any necessary repairs, replacements or
improvements to any part of the Facility that are in excess ofFifty Thousand Dollars
000. 00) (which amount shall be adjusted each year by a percentage equal to the
percentage adiustment in the Minimum License Fee as provided in Section 10.1.] of the
UA either individually or, in the case of similar work done contemporaneously, in the
aggregate and are (A) necessary in order for the Facility Manager to be able to satis?
the standard set forth in Section 10.2 or (B) required to address public health and safety
concerns; provided, however, that the cost and nature of such repairs, replacements or
improvements is of a type which under generally accepted accounting principles is to be
capitalized or depreciated.

FMA sections 17. 1 and (iv) list other speci?c projects that would qualify as a Capital
Repair, including the cost of work undertaken to satisfy MLB requirements related to a health or
safety concern, but only if the project also meets the basic Capital Repair requirements in FMA
section 17.1.16) above.

Currently, the threshold amount to qualify as a Capital Repair, if the other requirements of the
de?nition are met, is $88,525.58. If a Facility repair or maintenance cost does not meet this
threshold amount, as well as the other Capital Repair de?nition requirements, then the project
generally will belong in the Base budget component category, and is a Team Operating
Expense as provided in FMA section 

As noted earlier, the Stadium District never undertook, and the Related Use Agreements do not
create, an obligation to provide a ?state?of-the?art? Facility for the Team. The absence of a
?state-of-the-art? standard anywhere in the Related Use Agreements was purposeful and is
evident in the Capital Repairs definition above. The Facility Reserve Accounts are to be accessed
only for ?necessary repairs, replacements or improvements? that meet the other criteria in the
Capital Repair definition. This is reflected in the speci?c exclusion from the de?nition of Capital
Ropairs in FMA section 17.1.2(x) of: ?Any repairs, replacements or improvements that are
solely the result of Functional Obsolescence. The FMA de?nes Functional Obsolescence as
follows: ?Functional Obsolescence means, with respect to any portion of the Facility, that it is
not physically obsolete aysfanctional due to ordinary wear and tear), but is no longer
optimal for its original intended purpose. 

This speci?c exclusion ??om the Capital Repairs de?nition of proj ects merely to update an aspect
of the Facility that is ?no longer optimal for its original intended purpose? underscores that the
Related Use Agreements intended that the determination regarding what upgrades the Team
might desire to' keep up in the Major League Baseball world, and the funding for such upgrades,
are a Team responsibility. The Facility Reserve Accounts, other than the Non-Obsolescence
Account discussed below, are not to be dissipated for mere upgrades to still functional Facility
features.

Non-Obsolescence Accow

The only Facility Reserve Account intended to be accessed for projects not qualifying as Capital
Repairs, but rather are for the purpose of updating or refurbishing the stadium, is the Non-
Obsolescence Account. This account was established, ?mded and may be accessed in accordance
with FMA section 17.3.4, Activities Agreement section 8.2, and FUA section 3.4. The Non-
Obsolescence Account was created recognizing that the Team would likely require some
incentive to extend their use of the Facility beyond 2027. This account can be used for the type
of enhancements and updating of the Facility that the Team might want, which likely do not
qualify as a Capital Repair because of the Functional Obsolescence exclusion in FMA section
In accordance with FMA section 17.3, the Non-Obsolesc ence Account is the only
Facility Reserve Account that can be accessed for projects that do not qualify as a Capital
Repair. The Team?s rights to access the funds in the Non-Obsolescence Account are set forth in
section 8.2.3 of the Activities Agreement and are tied to the Team exercising FUA extension
options as provided in FUA section 3.4.

In contrast, the District can access the Non-Obsolescence Account "throughout the term and
after the expiration of the FUA . . . solely for updating, re?rrbishing, repairing or otherwise
improving the Facility? as provided in the Activities Agreement, section 3.2.3. MA section

17.3.4 states that use of funds in the Non-Obsolescence account is subject to the reasonable
approval of both the Team and the District.

2013 Facility Assessment Studyr

The Team has focused on the 2013 Facility Assessment Study in its complaints about the
District. This study was the most recent of many such reviews which the Team and Facility
Manager have fully participated in. The Steering Committee for the Facility Assessment Study is
comprised of two members from the Team/?Facility Manager and two District staff members.
The study takes a long view of future costs of maintaining, repairing and upgrading the stadium.
These costs and categories are all lumped into the $187 Million ?gure that the Team
mischaracterizes as a Stadium District unfunded obligation.

In breaking out these costs, approximately $55 Million is part of the annual Team obligation for
the cost of operation, repair and maintenance of the stadium throughout the remaining term of
the UA. Approximately $90 Million is for multiple cycles of continuing updates and
refurbishing of fan amenities such as remodeling suites and new LED scoreboards, which are not
likely to qualify as Capital Repairs payable from the Facility Reserve Accounts because of the
?Functional Obsolescence? exclusion in FMA section 17.1.2 Thus, those costs also are a
Team responsibility to the extent the Team chooses to make those upgrades, or with District
consent, the Team can access funds in the Non-Obsolescence Account in conjunction with
exercising UA extension options in accordance with FUA section 3.4.

The Facility Assessment Study did identify costs of approximately $35 Million for structural,
steel and concrete repairs that the District, Facility Manager and Team have been addressing
over the past several off-seasons, with a plan to complete over the next several years. This work
quali?es as a Capital Repair to be paid from Facility Reserve Account funds per FMA section
17.2.2. Projections show that there will be suf?cient funds available to pay for those repairs as
they are scheduled-~or if there is a shortfall in the Facility Reserve Accounts, the District has
demonstrated a willingness to contribute District Operational Account funds towards this type of
repair, although there is no contractual obligation to do so.

Team Complaints Are Subject To Mandatorv ADE, Not Litigation

Even if the Team?s allegations against the District were true, the Team?s remedy would be to
submit the matter to alternative disPute resolution pursuant to FUA Article 21, not litigation.
FUA section 21.4.1 makes alternative dispute resolution the exclusive means available to the
Team for resolution of disputes relating to the FUA, except for very limited exceptions speci?ed
in FUA section 21.3, not applicable to the Teams allegations.

This review of the relevant provisions of the Related Use Agreements, the contracts governing
the respective obligations of the Team, Facility Manager and District regarding operating,
maintaining, repairing and funding the Facility, shows that the Team and its af?liate, the Facility
Manager, not the District, are obligated for virtually all operations, management and repairs to
the Facility, with the exception of paying for Capital Repairs which are to be paid from the
Facility Reserve Accounts.