Board backs $10 million-a-year airport advertising deal after weeks of debate

The San Francisco Board of Supervisors voted on May 14 to approve an eight-year airport advertising lease that guarantees a minimum annual payment of $10 million to the city.

Why it mattered: The lease structure marks a departure from the airports traditional practice of combining a minimum annual guarantee (MAG) with a percentage-of-gross-revenue rent. Supporters said the high MAG locks in revenue at a time the airport may be at near-capacity; critics argued the city could forgo upside revenue if passenger growth exceeds projections.

What the Board decided The resolution approving the airport advertising lease passed on a roll call vote: 9 ayes, 2 noes. Supervisors John Avalos and David Campos voted no. The bid awarded to Clear Channel Outdoor, Inc. (doing business as Clear Channel Airports) will run for eight years with a minimum annual guarantee of $10 million. The airport director said the total over eight years would be about $80 million, compared with $72 million under the prior 12-year lease with the incumbent.

Key arguments in the debate Airport director John Martin told the board that San Francisco International Airport is operating near capacity and projected passenger growth would be modest; he said a high MAG protected municipal revenues against downside risk should domestic capacity shift to nearby airports such as Oakland and San Jose.

Harvey Rose, the Budget and Legislative Analyst, and several supervisors pushed back, saying independent data supplied by a competing bidder suggested the airport might receive more than the MAG if a percentage component were included. A document provided to the Board that day suggested a roughly $600,000 excess over the MAG in the current-year estimate, but the citys budget office said it had just received the data and had not verified it. Several supervisors asked for a short continuance to allow verification.

Those who supported the MAG-only approach argued the airports director, as the department head responsible for the enterprise, was making a reasonable business judgment. Some supervisors emphasized that the new contract reduces the total number of physical advertising locations in the terminals by roughly one-third and could reduce visual clutter.

Outcome and votes The Board approved the resolution by roll call: Supervisors Chu, Cohen, Farrell, Kim, Mar, Tang, Wiener, Yi and Breed voted aye; Supervisors Avalos and Campos voted no. Supporters cited the airport directors revenue modeling and the reduced advertising footprint; opponents cited the need for more independent verification and the potential for higher revenue under a different rent formula.

Details and next steps - Contract term: 8 years. - Minimum annual guarantee (MAG): $10,000,000 per year. - Reported bid comparison: staff indicated a projected $10.6 million figure in a memorandum that the budget analyst said required verification.

Supervisor Avalos moved to continue the item to give the budget analyst time to validate the newly supplied ridership and revenue data; that motion was withdrawn after several members said the data did not justify a delay. The airport director said staff would continue monitoring revenues and that the departments decision was based on a long-term business outlook.

Ending note: The vote leaves the new MAG-only structure in place for the airport for the next eight years. Supporters said it insulates the city against downside passenger risk; critics are likely to watch revenues closely to measure whether the MAG is revenue-maximizing over the term.