MLS expansion city profile: San Diego

Thursday February 16th, 2017

Market Analysis

The NFL team formerly known as the San Diego Chargers will spend the next two seasons playing in a soccer stadium more than 100 miles from their former home. And on the site of the arena they left behind, a brand new soccer stadium may rise in its place.

“The loss of the Chargers is really unfortunate. It’s really unfortunate,” Nick Stone said. “But sometimes when one door closes, opportunity-wise another one opens and it creates the very real chance for us to step in [because] soccer in this market is very logical.”

Stone and his partners have stepped in quickly and formulated a plan leading to a new facility on the Qualcomm Stadium site in Mission Valley, a few miles north of downtown San Diego. Where there was once NFL football, there would be fútbol (an MLS expansion team) and college football (San Diego State) instead.

“Should the Chargers make the decision to not remain in San Diego, the market would be more attractive to us,” MLS commissioner Don Garber said before the Chargers made that exact decision. “We take that and we believe that because we've seen what happened in Seattle when the Sonics. And in many ways, the Sounders were able to fill a void in sort of their professional sports landscape in that city.”

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Can soccer in San Diego come close to what it’s been in Seattle? The Californian paradise certainly doesn’t have the tradition of pro support found in its Cascadian counterpart. But deeper down, there are signs that San Diego could be a thriving MLS market. Stone certainly sees them. And Garber does as well. When the bid was unveiled at the end of January, the news conference was held aboard a decommissioned aircraft carrier docked at the city’s Navy Pier. That leaves an impression.

“If we didn’t think San Diego would work, we wouldn’t be here today,” Garber told reporters, adding, “We’ve positioned ourselves as a league for a new America. That new America lives here in San Diego.”

Said Stone, a Liverpool fan, “There is a following here … I think there is a lot more embedded enthusiasm [for soccer] in this market that would otherwise be apparent if you went to the beach.”

He cited a group of some 150 fans who showed up at the Monday press conference with signs and drums.

“Organizing that literally had nothing to do with us,” Stone said.

San Diego is at the heart of the 17th most-populous metro area in the country and among the 12 cities vying for an MLS expansion team, it ranks third (behind Phoenix and Detroit). It’s famous for its status as a naval hub, its climate, zoo, Spanish colonial and Mexican architecture, beaches and its proximity to Tijuana. Between the cities sits the busiest border crossing in the world. And they’re connected by cultural, economic and social ties that very well could have a significant influence on whether MLS chooses San Diego. 

“We have a lot of cross-border links. It’s very powerful,” Stone said.

San Diego is the only the 28th largest media market in the U.S., but measured by Hispanic households, it shoots up to 12th. Around 30% of the market’s population is Hispanic or Latino. The U.S. Navy is the city’s largest employer, and the area is home to two Fortune 500 companies, including Qualcomm.

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Ownership Group

The lead investor behind the San Diego bid is Mike Stone. He’s not related to Nick, but they are colleagues at FS Investors, a small investment firm that once held a stake in the Sacramento Kings. Mike Stone graduated from Duke and Harvard Business School before heading into the world of private equity and venture capital. Nick Stone, also a Harvard alum, is a partner at FS Investors.

Joining the Stones are former Qualcomm president Steve Altman, San Diego Padres managing partner Peter Seidler, Univision Deportes president Juan Carlos Rodriguez and other investors.

Regarding Mike Stone, Garber said. “He represents that new breed of sports team owners we like … He’s young, successful working in private equity and he moved to San Diego because he wanted to be here. He could have lived anywhere in the country, and he chose San Diego because he loved it.”

Gensler

Stadium Plan

The Chargers aren’t the only football team that might help pave the way for MLS in San Diego. The SDSU Aztecs are looking for a new home as well (Nick Stone said Qualcomm costs $12 million per year to operate and faces $100 million in deferred maintenance costs). On their own, the MLS group and the Mountain West Conference champs may not have enough to make their stadium dream a reality. But together, they have a plan to transform the Qualcomm Stadium site into what Garber called, “one of the most unique stadium and mixed-use development projects in the country.”

Stones and Co. and SDSU will split the cost of a $200 million stadium with retractable seats that allow for capacity configurations of approximately 20,000 to 32,000. The MLS group intends to gift its half of the stadium back to the university while acquiring the 166-acre Qualcomm site at market value through purchases and leases and paying the entirety of the MLS expansion fee. The land not used for the soccer stadium will be reserved for mixed-use development (including entertainment and student housing), a 55-acre river park and, should it ever be necessary, 16 acres set aside for the city to repurchase to house a future NFL franchise.

The site isn’t “urban core,” but it’s not far away and it’s a place San Diegans are used to going for sporting events. The idea is that the retail, office and entertainment options the Stone group intends to attract would make the area even more attractive. Nick Stone said Mike Stone is a musician who’s invested in Fender and Altman owns part of GigTown, an online service that connects musicians with venues and groups seeking to book one.

“There’s great music and there’s fun stuff to do after they game that extends it from being a two-hour game to a four-hour block of time, and we think that’ll make it a lot more compelling,” Nick Stone said.

Although the plan requires no public money, it does require public consent. The city would be parting with a civic asset, Qualcomm Stadium. In addition, Nick Stone said that the required environmental quality reporting and ensuing public comment period is part of a process that can take three years or more. The group doesn’t have that time if it intends to put a team on the field in 2020. So the Stone group intends to furnish the necessary environmental reports and then ask the city council to give the go-ahead without a public vote. If it receives a minimum number of signatures from registered voters (reportedly 72,000), the nine-member city council is permitted to make the decision on its own. Stone said the group plans to gather 125,000 signatures.

“We’re relieving a $300 million liability from the city and university [in the current stadium] and creating 55 acres worth of river park. It’s a highly sought-after environmental win. We’ll give it to you and we’ll fund it,” Stone said. “This plan creates a tax base. It’s good for the environment. It brings MLS to town and it’s good for the university because they’re no longer playing at Qualcomm. It’s a huge win-win-win.”

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Soccer and Sports Scene

San Diego has a lot going for it, but it’s wasn’t typically considered a major sports city even before the Chargers left. The football and baseball teams struggled for relevance and didn’t win a whole lot. The most recent major title came back in 1963, when Lance Alworth’s Chargers captured the AFL championship. That’s a 53-year wait and counting.

Many blame the Chargers’ departure on the Spanos family rather than the city, although voters did reject a November ballot initiative (by a 57%-43% margin) that called for a hotel tax hike, a bond issue and a $350 million public contribution toward a new NFL stadium plus additional funding for land acquisition and a convention center annex.

The Padres play at Petco Park, a downtown facility owned jointly by the city and the baseball team that opened in 2004. The Padres ranked 15th in MLB in attendance last year, averaging just over 29,000 per game. The city also is home to the AHL’s Gulls, the Anaheim Ducks affiliate that began play in 2015.

Soccer, as Stone said, is prevalent but not necessarily obvious. Most of the city’s soccer history occurred indoors, where the powerhouse Sockers won 10 league championships in the 1980s and early ‘90s. The Sockers played NASL games outside as well and drew nearly 15,000 fans per match in 1981, but attendance dropped quickly thereafter and focus turned toward the carpet inside the San Diego Sports Arena (now the Valley View Casino Center). A new iteration of the Sockers now plays in the Major Arena Soccer League and has won four titles. Games at Valley View typically attract more than 3,000 fans.

The outdoor pro game has struggled to gain traction in San Diego since the original NASL’s demise. The Nomads won a WSA championships in 1987 and 1989—the WSA combined with the ASL to form the A-League that eventually formed the core of what remains D2 soccer in the U.S. Both Paul Caligiuri and Marcelo Balboa suited up for the Nomads. The Flash played in the second tier in 1989-2001 and returned to the NPSL in 2011. Both the USL and NASL are exploring expansion in San Diego.

The most popular soccer team in San Diego isn’t in the United States. That makes it a soccer market unlike any other in the country. While 3,000 might like indoor soccer, Stone said that twice that many cross the border each weekend on the way to Estadio Caliente, where Club Tijuana has become a Liga MX power in under a decade. Founded in 2007, Xolos have won one league championship, made runs in both the CONCACAF Champions League and Copa Libertadores and been home to numerous American players. At the moment, Michael Orozco, Paul Arriola and Joe Corona are among the U.S. national teamers on Tijuana’s books.

Xolos are so popular that some have wondered whether there’s room in San Diego for MLS. Stone argued, “It’s just an indication of the depth of the passion here for the sport, because if you’re willing to cross the border and then wait two hours to get back….”

If he’s right, that’s just one sign of San Diego’s somewhat latent soccer interest. The market finished fifth in overall English language TV ratings during the 2014 World Cup and second in the country behind Washington, D.C., for the final between Germany and Argentina. The U.S. national team’s January friendly against Serbia drew more than 20,000 fans. That’s the largest crowd for a domestic friendly since September 2015. The American men have played nine times in San Diego overall. The most recent game before January was a 2013 friendly against Guatemala, which was the only U.S. win in the city. The U.S. women are 4-0-1 all-time in games at Qualcomm and Torero Stadium.

Qualcomm was the site of the 1999 MLS All-Star Game and has hosted numerous international matches. It hosted group-stage games, a quarterfinal and two semifinals during the 1996 and 2000 CONCACAF Gold Cups and will be back in play this summer for a doubleheader that will include Mexico. El Tri is a relatively regular guest. Last year, their 1-0 win over Chile drew 68,000.

Lately, new San Diegan Landon Donovan has been looking for pickup games in the area. Soccer is simmering.

MLS Pros

San Diego is a top-20 market with very little major sports competition, great demographics and, if you believe Stone and some of the numbers mentioned above, a long-standing affection for soccer that still hasn’t been tapped into. It’s a large TV market, which is important during network contract negotiations. The climate is ideal and the city likely would prove to be an attractive option for players. Stone also made the case that an MLS club would enhance what already is an active and productive youth soccer scene.

“The part I like most is the prospect of what we can do with the academy. It pulls at my heartstrings, particularly in this neck of the woods because we can be really clever about how we connect cross-culturally,” he said. “We have the weather. We’ll have great facilities. We’ll repurpose the Chargers [training] facility to do something value added, and part of what we’re going to do is go out and bring a bunch of international teams to town for friendlies and training … You’ll start a virtuous cycle, and you start to build an academy where the kids are training at the same facility that really high level international teams and the MLS team [train].”

In addition, the stadium and development project the Stone group proposes would be quite attractive if they can pull it off. MLS truly would be major in San Diego. 

MLS Cons

It’s unclear at this point how politics might influence the city council even though the Stone group isn’t asking for public money. Mayor Kevin Faulconer supports the project, but the council could delay it or still decide to send it to a public vote. If that happens, then anything could happen.

San Diego is sandwiched between Los Angeles—which will have two MLS teams, two USL teams and maybe an NASL team down the road—and Tijuana. It’s hardly a hole on the map, and while the support for MLS would seem to be there, it’s not necessarily a place the league needs to be if it wants to spread soccer to new areas. In addition, Garber has all but promised a team to Sacramento. Would MLS want five teams in California, and would it want to commit half of its four expansion slots to the state?

Commissioner's Thoughts

“We have spent a lot of time [in San Diego],” Garber last month in Los Angeles. “There is a very good group that’s come together. We know the investor prospects well. I’ve been there quietly probably two or three times … I think it would be a great MLS city.”

Regarding Xolos, Garber said, “People ask me that a lot and I don't understand [the negativity] …. We have two teams in L.A. We have two teams in New York. So what could be better than having a Liga MX rival across the border? It never remotely occurred to me that that would be a competitive threat. Frankly, it's the opposite. It's an opportunity.”

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