The San Francisco International Airport’s proposed advertising contract took off Wednesday despite the Board of Supervisors’ number-cruncher recommending rejection, saying The City could lose out on revenue.
The proposed eight-year contract for Clear Channel to continue to advertise at the airport has sparked an unusual amount of debate. A vote was postponed in March over concerns about The City using a different revenue model for the contract.
For ad contracts at other U.S. airports and for other city departments, including concession leases at SFO, the revenue paid is a percentage of gross revenue if it exceeds a minimum annual guaranteed payment.
But the proposed Clear Channel contract has eliminated the percentage and only requires a minimum annual guaranteed payment of $10 million.
“Every other airport in the country requires a percentage of gross if it exceeds the minimum annual guarantee,” said Budget Analyst Harvey Rose. Rose said, “This is not in the best interest of The City. The general fund will get less money.” The City receives 15 percent of airport revenue.
But John Martin, director of SFO, said he “personally made the decision” to eliminate the percentage of gross revenue and stood by the decision during Wednesday’s Board of Supervisors Budget and Finance Committee meeting.
“We are virtually maxed out on our capacity,” Martin said. “I don’t care what other airports are doing. I want to do what’s right for SFO.”
Martin said “the opportunity to lock in” the “aggressive” annual payment was “the right business decision,” explaining that passenger growth has slowed down.
Rose said the guaranteed payment “always protects on the downside. The problem is without the percentage of gross we don’t participate in the upside.”
The committee voted 2-1 in support of the contract, which will be voted on next week by the full board. Supervisors Mark Farrell and Eric Mar supported; Supervisor John Avalos opposed it. Mar said he would “defer to the expertise of our airport director.” Avalos said it was not the right way to do business and was “leaving money on the table.”
Since 2001, Clear Channel has paid the gross-receipts percentage in five of the contract years, totaling an additional $5.6 million. It grossed $103 million in revenue during that 12-year contract and paid the airport $72.2 million, according Rose’s report.
The proposed contract reduces ad sites from the current 286 to 179, of which 34 would be digital.