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Some San Franciscans chafe at America's Cup costs

Team Emirates sails their AC-72 Racing Yacht by the Golden Gate Bridge as they test out the course in preparation for the upcoming America's Cup compe...
Team Emirates sails their AC-72 Racing Yacht by the Golden Gate Bridge as they test out the course in preparation for the upcoming America's Cup competition on the San Francisco Bay in San Francisco on June, 26, 2013.JOSH EDELSON / AFP - Getty Images

They are the most advanced sailboats money can buy, a hobby for billionaires who race them in a region home to more than a few of them.

San Francisco is making final preparations to host the America's Cup for the first time, and some are wondering if it's worth the expense.

"I don't think we should fund a sport that only a few people enjoy," one local resident said last week near an anti-Cup protest outside City Hall.

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"I'd be p---ed that I'm financing a billionaire, Larry Ellison, to do his little boat show," said another.

Not everyone agrees.

"We're a world-class city," said a man named Alex. "We deserve events like this."

The estimated cost to taxpayers for added security and infrastructure could top $22 million (though some estimates are more than twice that). The promised private fundraising to cover the bill has fallen far short, and now the city is counting on tax revenues from a boost in tourism to make up the difference.

That's assuming the event draws crowds.

"The fundraising effort is on track," Mayor Ed Lee said in a statement. "Visitors, as well as the teams and sponsors, will generate an estimated $900 million in spending and create 6,500 jobs." Those projections are down from earlier predictions of $1.4 billion in spending and 8,800 jobs.

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One reason for lowered expectations: The Louis Vuitton Cup, starting this week, has only three boats competing, and only two of them are currently sailing. Originally, 15 boats were expected. The LV Cup determines which country will challenge the defending U.S. champion in the America's Cup in September.

That defender, Oracle Team USA, funded primarily by Oracle CEO Larry Ellison, has raised the bar on technology and cost. For the first time, contenders are racing 72-foot catamarans so advanced that designers have consulted with Boeing and Airbus. Only a handful of teams could afford to compete.

"If they want to win the Cup, it's probably going to cost them around about $80 million to $100 million," said America's Cup CEO Stephen Barclay. "That's a lot of money in anyone's language."

The two challengers that will begin racing this week are Emirates New Zealand, funded by the New Zealand government and Emirates Airlines, and Italy's Luna Rossa, bankrolled mostly by Prada CEO Patrizio Bertelli. A third contestant, Sweden's Artemis (funded mostly by energy magnate Torbjörn Törnqvist), is recovering from a capsizing event in May that killed crew member Andrew "Bart" Simpson.

The tragedy hampered fundraising efforts. Other negative headlines include a lawsuit by a North Carolina-based, all-black sailing group suing for a chance to compete against Oracle to represent the United States. The African Diaspora Maritime says it is being unfairly shut out, a claim that Cup host Golden Gate Yacht Club said is "utterly without merit."

But why so few challengers from abroad?

"The European economy is pretty tough, right across Europe, so that's affecting the money that's available for sponsorship," said Grant Simmer, a Cup veteran who is managing the Oracle team. "It's a disappointment in terms of the number of competitors, so that's a negative, but the positive is that the boats have evolved into something that nobody ever conceived of."

Ellison is personally funding about 80 percent of the $100-million-plus going into Oracle's two boats, Simmer said. They built two so that they could practice against each other while the Louis Vuitton Cup is raced.

"If you have a billionaire behind your program, it allows you to commit to a program," he said. "If you don't have the sufficient core funding, it's really hard to get going until you get enough sponsorship dollars. The classic example ... is you get the money too late to implement the program."

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Barclay said that in the next competition, boats might be smaller than 72 feet "to bridge the gap between revenues and costs." Thirty-seven new safety recommendations have resulted from the Artemis accident, and in the end, city taxpayers will be made whole.

"The city is going to be a wash with respect to its cost and its revenues."

Even with fewer boats, spectators could be in for some fast, wild sailing with backdrops such as the Golden Gate Bridge and Alcatraz.

As one local resident told us, "The money's gotta go somewhere. At least we'll have something fun to watch."

—By CNBC's Jane Wells. Follow her on Twitter: @janewells.