How not to evaluate how much public money to spend on a stadium, in seven easy steps

I’ve often said that cities should calculate what sports teams are actually worth to them before writing a blank check for a stadium or arena — you know, like Naheed Nenshi has tried to do in Calgary — so when Andrew Dunn, editor-in-chief of something called the Charlotte Agenda (“Charlotte Agenda exists to make Charlotte the smartest, most human city in the world”! Also: “We believe in drinking beer at work”!), set out to do just that today for a Carolina Panthers stadium deal, gotta give him at least some props, right? Let’s see how he did:

  • “Economists generally agree that the costs to taxpayers outweigh the benefits of all the additional spending on construction, hotels, restaurants, tickets and concessions.” He can read! Good start!
  • Notes that Charlotte paid $87.5 million in 2013 for a six-year lease extension for the Panthers, which means “the going rate is at least $13.75 million per year to make a team stay put.” He doesn’t note that that was one of the worst returns on a stadium subsidy in history, so maybe his reading doesn’t extend to this site.
  • “I believe that the Panthers are worth public money.” That’s kind of assuming your conclusion there, but in case he means “something, even if it’s only a penny,” I’ll allow it.
  • “I’ll grant that Charlotte’s government will never be able to directly recoup in employment and sales taxes the money it puts toward the Panthers. But putting public money toward pro sports shouldn’t be analyzed that way. Think of it more as a marker of what kind of city we want Charlotte to be.” Followed by an assertion that the Hornets and Panthers “put the Charlotte name in the national consciousness and touched off a business boom,” his sole presented evidence being a 1994 Chicago Tribune article in which a Hornets season-ticket holder says that the teams put Charlotte on the map.
  • “An investment in the Panthers is not using the same money that would build affordable housing.” This because the city could use hotel and rental car tax money that is earmarked for promoting tourism, notwithstanding that if general fund revenue ends up being used on a tourism project because the hotel and rental car tax fund is all spent on a football stadium, it’s absolutely taking away from money for things like affordable housing.
  • “Let’s figure out what we’re willing to do before a new ownership group gets involved. They’ll buy the team knowing what support they can count on from the community.” I.e., let’s make an offer before we’ve even been asked for anything. Where figuring out what a team’s presence is worth to a city (and, just as important, whether it has any better options for leaving if you don’t lavish its owners with cash) is a great preparatory step for negotiations, up and telling new team owners, “Hey, we have a check this big waiting for you!” is a terrible, terrible idea. What were we just saying about bidding against yourself?
  • “Perhaps both sides will come out in the black.” Uhhh, remember bullet point #1 back up there? Where you wrote that economists agree a win-win situation almost never happens? Maybe his reading doesn’t even extend to the very editorial he’s writing.

Overall grade: D, maybe C-minus for a good essay topic, but the execution needs a lot of work. To do this right you need to analyze the actual return on a stadium investment in tax revenues, the emotional value of an NFL team to a community, any measurable impact on business activity as a result of the presence of sports teams (though those economists back in the first paragraph have it covered for you: there is none), what other options the team has to move, and so on. Instead, Dunn’s analysis comes down to: Economists say stadiums don’t pay off, but I really like football, and there’s tourism tax money just sitting right there, so somebody just offer something already, I can’t take this uncertainty! Sounds like somebody needs another beer.

RI house speaker kills PawSox subsidy bill again, for silly reason that everybody hates it

Ever since the Rhode Island state senate approved $44 million in state and city subsidies for a new Pawtucket Red Sox stadium a couple of weeks back, the big question has been how the bill would fare in the state house, which killed the last version of the bill. So how’s that going?

The plan to build a new stadium for the Pawtucket Red Sox in Rhode Island is “dead,” according to House Speaker Nicholas Mattiello...

“The Senate bill is dead in the state of the Rhode Island. Two-thirds of Rhode Islanders do not support it and therefore, the House will not support it,” Mattiello said.

That sounds pretty dead!

The current PawSox stadium funding plan, you’ll recall, involves the state putting up $26 million and the city $18 million toward an $83 million stadium; in return, the city would get $250,000 a year in naming rights fees and unspecified cash from a surcharge on premium tickets — which I can’t imagine would amount to all that much, since minor-league ticket buyers aren’t known for their eagerness to sit in luxury boxes. All this for a team that you could just up and buy for about $20 million. It is an awful deal, and those two-thirds of Rhode Island voters have good reason to hate it.

The only argument for the deal is hinted at in the source of the above quoted text, which is from the Worcester Telegram, which is covering the story because the PawSox owners have threatened to move to Worcester if they don’t get their way in Rhode Island. Worcester has done absolutely nothing to offer the PawSox a stadium or money for one, though, beyond hiring economist-for-hire Andy Zimbalist as a consultant (which Mattiello also did in Rhode Island, weirdly). So offering $44 million as an inducement to stay to a team whose threat of moving so far comes down to “maybe this is really more of a Shelbyville idea” would be the epitome of bidding against yourself. It would be totally reasonable negotiating for Mattiello to come back with “How about we only put up $10 million, or better yet, you actually pay us enough rent so the public can recoup all of its stadium debt?” and see what happens; we’ll see if that’s the route he goes.

Finally, I can’t leave out my absolute favorite part of the Telegram article:

Meanwhile, in Rhode Island, PawSox supporters are going into the heart of Mattiello’s home district in Cranston on Tuesday to pitch their stadium-financing deal.

“You’re invited!″ said the mailer that arrived over the weekend at homes across skeptic Mattiello’s House District 15. “Learn more about the Ballpark at Slater Mill … and enjoy some Tommy’s Pizza.”

Locally sponsored stadium propaganda. Isn’t that just the best thing about minor-league baseball?

Three bills introduced to try to block Washington NFL team stadium bidding war

One of the big questions in the stadium-subsidy world is “Why don’t local elected officials just get together and say, ‘Fuck those greedy sports owners, let’s agree among ourselves not to get played for subsidies in interstate bidding wars’?” (Actually, it’s the same question for non-sports bidding wars, too.) And now some legislators in Maryland, Virginia, and D.C. are getting attention for trying exactly that in response to Washington NFL team owner Dan Snyder’s stadium shakedown attempt:

The liberal Democrat in Maryland, conservative Republican in Virginia and left-leaning independent District of Columbia Council member have introduced legislation to set up an interstate compact barring any public spending on incentives for a new stadium.

The idea is to prevent the jurisdictions from competing against each other with lucrative offers of public assistance for the new facility. The team’s current lease at FedEx Field in suburban Maryland ends in 2027 and it is exploring new potential locations.

This is, needless to say, a great idea for protecting the public purse, and the elected officials behind it — Virginia Republican delegate Michael Webert, Maryland Democratic delegate David Moon, and District Council member David Grosso — deserve to be cheered for their efforts.

It’s important to note, though, that these bills have a long road ahead of them. Each one has only been introduced, and there’s no indication yet of how much support they have — and each jurisdiction (man, would choosing nouns for these articles be easier if D.C. were just a state already) will no doubt be keeping a close eye on the others to make sure they don’t jump into a non-aggression pact before any of their erstwhile rivals. And then, too, even on the rare occasions when pacts like these have been enacted in the past, they haven’t held up well — non-poaching agreements between New York, Connecticut, and New Jersey, and between Minneapolis and St. Paul, pretty much immediately collapsed back in the 1990s. (Though I’m not sure if those had the same legislative teeth as these bills — it’s been 20 years, my notes are in a box somewhere.)

In short: A for effort, but the devil is going to be in the political machinations necessary to get these bills passed. Everyone watch this very closely, because if D.C., Virginia, and Maryland somehow do manage to say “You’re not the boss of us” to Snyder, it could have nationwide repercussions.

NY Times business section cheers urban stadium trend, doesn’t seem to know why

The New York Times has a weird affinity for big sweeping articles about the stadium industry that don’t quite justify their declarative headlines, and the latest one ran in Friday’s business section under the headline “Welcome to the Neighborhood: America’s Sports Stadiums Are Moving Downtown“:

Across the country, in more than a dozen cities, downtowns are being remade as developers abandon the suburbs to combine new sports arenas with mixed-used residential, retail and office space back in the city. The new projects are altering the financial formula for building stadiums and arenas by surrounding them not with mostly idle parking lots in suburban expanses, but with revenue-producing stores, offices and residences capable of servicing the public debt used to help build these venues.

There is a germ of truth in this: Yes, more stadiums and arenas are being built near city downtowns instead of out in the suburbs, the Atlanta Braves‘ new ballpark notwithstanding. That’s true of everything, though, not just sports — we’re in the middle of what’s been dubbed the Great Inversion, a decades-long process where people are increasing moving back to cities instead of out of them. (For “people,” here, read “people with money and options” — plenty of people continued to live in and especially immigrate to big cities even in the 1960s and ’70s.) So yes, there are lots of mixed-use urban developments being built around sports venues, but there are plenty built even with no stadium, or even when a stadium was planned and not built. “America’s Sports Stadium Builders Jumping on Urban Land Rush Bandwagon” might have been a fairer headline.

On top of that, the Times article tries to counterpose the traditional business model where “owners threatened to move their teams if governments did not build them new stadiums along with the roads and public utilities needed to operate them” against the new downtown development trend. But plenty of urban ballpark districts have gotten public funding after team owners threatened to move — hell, the Sacramento Kings arena that is the article’s centerpiece is getting $226 million in public subsidies that were approved only after the team owners threatened to move the team to Seattle.

There are plenty of good things about building sports venues near urban centers: They’re easier to get to by public transit, they support more economic development in cities (such that they support much of any at all), and in general they promote the idea that cities are good places to live and work and go see high-priced entertainment. They also take up valuable land that could better be used on buildings that aren’t dark a couple hundred days a year, displace residents and businesses, and by promoting the idea that cities are good places to live and work and go see high-priced entertainment, spark gentrification and force out the city residents who are supposed to benefit from all this alleged economic development in the first place. The urban-stadiums trend is not a simple good, in other words — and it certainly has nothing to do with any shift away from public stadium subsidies, even if some urban stadium developers are using ancillary land grabs to help pay for their construction costs.

If you want one paragraph that neatly sums up the Times’s perspective, this quote from Kansas City city manager Troy Schulte on that city’s publicly funded downtown Sprint Center should do the trick:

M. Schulte acknowledges that although tax revenue from the district is steadily increasing, it is not clear that enough will be generated to cover the debt service. “But from the perspective of economic development and economic resurgence,” he said, “it’s the best $300 million we’ve ever spent.”

Urban sports venues: They don’t pay off for cities, but they’re still great! Your paper of record, people.

Friday roundup: Naming-rights woes, Austin update, and the World’s Largest Chest of Drawers

It’s Friday already? Seems like we were just doing this, but the pile of stories in my Instapaper queue says otherwise, so away we go:

  • The Florida state house has again passed a bill that would ban building or renovating private sports facilities on public land, which would potentially affect the Tampa Bay Rays, among others. This is kind of a dumb idea, as we discussed back in October, since there’s nothing wrong per se with putting stadiums on public land so long as the public gets a good deal for it; a far better plan would be a Seattle-style bill to require that local governments get a return on their investment in any sports lease project. But then, this bill already passed the Florida house last year and died in the senate, so probably not worth getting worked up over too much just yet.
  • Sports Authority agreed in 2011 to pay $6 million a year for 25 years for the naming rights to the Denver Broncos stadium, and now Sports Authority is bankrupt, and Metropolitan State University of Denver marketing professor Darrin Duber-Smith is saying I told you so: “My big warning was, ‘I’m not sure Sports Authority is a big enough or healthy enough company to commit that much money from their marketing budget each year.’ And I was right.” The Broncos are now looking for another company to pay $10 million a year for naming rights, and haven’t found any takers yet, hmm, I wonder why?
  • Chelsea F.C. will get to move ahead with its new-stadium plans after the town council used a compulsory purchase order — like eminent domain, surely you’ll remember it from that Kinks song — to clear an injunction that a nearby family had gotten on the grounds that the new stadium would block their sunlight. The purchase order isn’t actually seizing their home, but the land next to it, which is enough to invalidate the injunction; not that this doesn’t raise all kinds of interesting questions about the use of state power for private interests, I’m sure, but man, don’t you wish this were the only kind of stadium controversy we had to put up with in North America? League monopoly power over who gets a franchise is a bad, bad thing.
  • High Point, North Carolina is spending $35 million on a stadium to bring an indie minor-league Atlantic League baseball team to town, and City Manager Greg Demko says this will help the city’s commercial tax base recover, because “the construction of a stadium is like an anchor for the revitalization and development of a downtown.” Demko is going to be so disappointed, but at least he got mention of his city in a Bloomberg article as “home to the World’s Largest Chest of Drawers,” and you can’t buy publicity like that.
  • New Seattle mayor Jenny Durkan says that while it’s “a longshot,” it wouldn’t be impossible for Chris Hansen to build his Sodo arena while OVG renovates KeyArena at the same time. I’m going to interpret the tea leaves here as “Hey, if you want to spend your money to try to compete with another arena across town, be my guest,” but stranger things have happened, maybe?
  • The city of Austin has issued a report on eight possible sites for a stadium for a relocated Columbus Crew, and are now waiting on Crew owner Anthony Precourt to tell them which, if any, he likes. A consultant for Precourt has since ruled out a site or two, but it looks like nothing might be ready for the city council to vote on February 15 as planned; Austin MLS lobbyist Richard Suttle says the problem is “between the holidays, flu season and winter storms, it’s been slow going.” It’s not quite helping to spark women’s suffrage, but the flu still reminds us who’s boss from time to time.
  • Now that Amazon has announced its short list of cities that will get to bid on its new second headquarters, it’s time for another look at how to stop corporations from launching interstate bidding wars to be their homes, which once again leads us to David Minge’s 1999 bill for a federal excise tax on public subsidies. “Of all those offers [made to Amazon] there’s one obvious one that should have been made and it should have come from Congress,” University of Minnesota economist and former Minneapolis Federal Reserve research director Arthur Rolnick, who helped Minge concoct that bill, tells CityLab. “Now if that offer were on the table it would end it, it would end the bidding war. Then Amazon would simply base its decision on where location is best for business.” It’d work for sports leagues, too!

Sacramento Bee says city must “hold line” on MLS subsidies by providing MLS subsidies

Back during the Kings arena debate, the Sacramento Bee had a pretty consistently terrible record of being a booster for spending public money on the project, and never mind what the actual numbers showed about whether it would be worth it. So it was encouraging to see this editorial yesterday about the city’s proposed MLS stadium:

Sacramento City Council must hold the line on public money for MLS stadium
One big draw about the proposed Sacramento soccer stadium is that it doesn’t call for a large, direct taxpayer subsidy.

That is a line that shouldn’t be crossed as city officials and Republic FC owners try to beef up their bid for a Major League Soccer franchise.

Now that’s more like it! The team owners promised to build a stadium themselves, and City Hall shouldn’t let them back down on that just because MLS is withholding a franchise in hopes that the ownership group can come up with more cash. (Their cash, new investors’ cash, the public’s cash, MLS seems pretty agnostic on which they prefer.) This is good stuff, what does the next paragraph say?

Mayor Darrell Steinberg is on the money: It could make sense for City Hall to reduce or defer some building fees, to donate land for a training facility, to give the team the revenue from new digital billboards, or to help with roads, sewers and other infrastructure near the stadium.

(DEEP SIGH)

Let’s say it all together: MONEY IS MONEY, SPORTS TEAM OWNERS DON’T CARE HOW THEY GET IT. If very rich dude Kevin Nagle can get a pile of tax or fee breaks or free land or a pile of billboard revenue that would otherwise go into city coffers, that’s going to be just as fine with him as getting city checks with “4 STADM BLDG” written in the memo field. To pretend there is any moral or fiscal difference is, well, the kind of thing you do when you’re a mayor and want to propose a sports team subsidy but don’t want it to look like one. Or if you’re a newspaper that wants to do the same, I suppose, but you’d think their copy editing department might have balked at using “hold the line” to describe it — if the Bee still has a copy editing department, that is.

Virginia Beach getting sued by developer for killing terrible arena deal

What’s worse than offering to build a $426 million arena to lure an NBA team, then giving up on it when it became clear no NBA team was going to move to your city, then approving spending $206 million in public money on a $220 million arena instead, then giving up on that project when the developer couldn’t find anyone to loan it the money even though the city would be repaying it? I guess “proposing yet another harebrained arena plan” would be worse, but getting sued by the developer who failed to get a financing deal together because it says its “reputation” was damaged is right up there, and that’s what Virginia Beach is facing now:

In the lawsuit, Mid-Atlantic argued that it delivered the loan documents on time and that the contract did not require the developer to have the $70 million in the bank. It also said that it had deposited “tens of millions in equity” into an escrow account.

“The city pulled the rug out from under the developer, causing a substantial waste of time, money, goodwill and other resources,” according to the suit…

“We needed every hour, but the city and its lawyers, to our astonishment, decided at noon that day, ‘without legal authority or justification,’ as it states in our suit, to ‘not perform its obligations to convey the project land to the Virginia Beach Development Authority, nor execute and deliver the last few documents required of the City by the Development Agreement.’”

Mid-Atlantic Arena LLC further noted that now that there won’t be an arena, both investors and people who put down deposits on premium seats want their money back, which, duh.

The point of contention here looks to be whether the developers got in under the gun with financing plans and the city council said, “Sorry, we don’t care, hit the road,” as Mid-Atlantic contends, or the developers showed up at 11:59 pm waving a piece of paper and saying, “All good!” and the city council said, “Yeah, no, we don’t believe you, hit the road,” as the city contends. Either way, it’s likely to be a mess of a lawsuit, and a worst-case scenario ending to the Virginia Beach arena saga — unless it’s somehow resolved by the city reviving the arena plan, in which case that would clearly be the worst-case scenario for Virginia Beach taxpayers.

Islanders owner says Cuomo will use state money for train upgrades to new arena

Newsday’s Jim Baumbach has again sat down with a calendar to calculate when a new New York Islanders arena might open, and again come up with a best-case scenario of the 2021-22 season, if construction can be completed in 26 months after the environmental impact study is done; if it takes longer than that, which is entirely possible, the Islanders might not move into their new home until 2022.

All of which is perfectly reasonable and we already pretty much knew. The more interesting bit is about increased train service to the new development, which Baumbach sheds a small bit of new light on:

ESD has begun talks with the Metropolitan Transportation Authority about increasing service at Belmont’s Long Island Rail Road station, which is only part time. The Islanders’ proposal calls for a full-time station. [Islanders co-owner Jonathan] Ledecky said on WFAN radio Wednesday that [Gov. Andrew] Cuomo also will be involved with the LIRR aspect.

“There’s money in the budget according to the governor and his people,” Ledecky said. “We have to make sure that money gets spent and that station becomes a vital part of the community, not just when there is horse racing and not just when there is a concert or a game. All the time, 365 [days a year], 24 hours a day.”

Cuomo’s office, in response to a request for comment, referred back to a statement last month that said the LIRR “will develop a plan to modify service to accommodate New Yorkers for sporting and special events.” The LIRR reiterated in a statement this week that it is “committed to expanding service” at Belmont but did not offer specifics.

As Aaron Gordon reported last month for the Village Voice, the Metropolitan Transportation Authority, which runs the LIRR, doesn’t even have a cost estimate for how much it will cost to extend full-time train service to Belmont, but clearly Ledecky is counting on the state to pay for it. Add in the steeply discounted land lease payments and possible breaks on property taxes and the public subsidy for this project has to be considered to fall in the category of “dunno, but it could be a whole helluva lot.” At least there’s a 16-month environmental review before this thing gets finalized; while the state will be focusing on things like how a new arena will affect traffic patterns, I’ll be over here trying to determine how the money will actually work. Stay tuned.

Sacramento mulling public subsidies for MLS stadium so that rich owner can stay rich

If there’s been one given in the insane world of MLS expansion, it’s been that the Sacramento bidders were promising to come up with private money to pay for the entire cost of a $245 million stadium. Except that Sacramento didn’t win a expansion franchise last month as had been anticipated, reportedly because the league was worried that the prospective owners couldn’t afford a stadium on top of a $150 million expansion fee, and you know where this is headed, right?

Sacramento city leaders and the local ownership group seeking an expansion spot in Major League Soccer are discussing public contributions to a new $250 million soccer stadium planned for the downtown railyard – conversations that eventually may include a request for a direct public subsidy to the project’s construction.

(DEEP SIGH)

This was probably inevitable given the way MLS was running its expansion bidding: Setting expansion fees as high as possible, then picking winners based less on what’s the best soccer market than on which was offering the biggest guaranteed subsidies. (While two expansion teams were supposed to be announced last month, only Nashville got the nod, and it can’t be coincidence that Nashville was the only city among the finalists that had approved $75 million in public cash.) For a while it looked like Sacramento would sneak through on the basis of having a new stadium even if the owners were paying out of their own pockets, but MLS’s determination that “No, we want a team that can afford to pay us $150 million so we can keep funding our league by selling rights to more teams for big bucks, and yet still have lots of money left over for team profits, which isn’t going to happen if you’re on the hook for all stadium costs” put a fork in that, so now it’s back to the subsidy drawing board.

What that subsidy could look like is anyone’s guess: Mayor Darrell Steinberg mentioned reduced building fees and free land for a training facility as possibilities, which don’t sound too bad until you remember that Steinberg was formerly the California state senator who wrote a bill to fast-track the Kings arena by exempting it from environmental challenges, so he doesn’t exactly have a great track record in protecting the public interest. Steinberg also said, “I’m confident we can get Major League Soccer without a major public construction or operating subsidy,” and if you’re concerned by that qualifier “major,” you’re not the only one.

As for prospective team owner Kevin Nagle, who sold his prescription-drug-benefit company two years ago for $2 billion and estimated his net worth in the hundreds of millions, the Sacramento Bee reported this:

Asked if he would request a direct construction subsidy from the city, Republic FC CEO and Chairman Kevin Nagle said the team remains “incredibly appreciative to Mayor Steinberg and the City Council for their support and are committed to continuing to work with them to explore any and all paths that will help win this for Sacramento.”

No, you’re right, that’s not an answer at all. California’s tough laws allowing referendums to block sports stadium spending may be an obstacle to any team subsidy demands here, but it might be a good idea for Sacramento residents to put one hand on their wallets, just as a precaution.

Raiders’ lease blocks Nevada from levying ticket taxes, we’ve heard this song before

The Washington Times had a big article yesterday on the Oakland Raiders‘ lease for their new stadium in Las Vegas, and how it contains a provision that would prevent the state from trying to recoup its $750 million in stadium costs by levying new taxes on the team down the road:

An unusual provision in the Raiders agreement with the state allows the team, currently playing its final seasons in Oakland, to break the lease and look for another home if Nevada attempts to impose new taxes over the next three decades on the team, stadium, fans or players. That includes visiting teams and fans as well.

The provision applies to any “targeted tax” aimed at collecting revenue specifically from players or fans. It would not protect the team or its fans from any new taxes applied generally on businesses or individuals across Nevada, however.

I’m quote in this article, calling the lease clause “adding insult to injury” since it “makes sure Nevada taxpayers never see a penny from the stadium.” Which is true, but what the Times left out was that I mentioned this isn’t unheard of — other teams have leases that prohibit local governments from levying team-specific taxes as well. This is probably because I didn’t actually cite any examples to the Times reporter — I was busy and couldn’t look any up — but a quick search through the FoS archives reveals two examples right off the bat:

  • The Cincinnati Bengals and Reds owners have lease clauses that allow them to block ticket tax surcharges during the course of their leases, and did so in 2010.
  • The owners of Minnesota United asked for limits on that state’s ability to impose future taxes on the team, though I’m having a hard time confirming whether that provision made it into the final lease agreement. (The world really needs a database of stadium leases. Get right on that, world, okay?)

I realize this isn’t overwhelming evidence, but it is a sign that the Raiders clause isn’t entirely unprecedented, even if the Times reports that Temple economist Michael Leeds said, in the paper’s words, that this provision “goes beyond anything he has ever seen.” And it makes sense that team owners would try to forestall ticket surcharges: As we’ve covered before, targeted ticket taxes tend to mostly come out of team owners’ pockets because, unlike other taxes, they reduce the amount of money an owner can get away with charging for tickets. So if you sign a 30-year lease and then the state turns around and says, “Hey, $10 surcharge on all your tickets, we get the money!” and you can’t get out of the lease, that’s a huge chunk of change that is suddenly going out of your pocket and into the public’s.

Which, of course, is exactly why it’s so disappointing that the Raiders lease contains this clause — with the state already on the hook for $750 million, a ticket tax would have been one of the only ways for taxpayers to get some of that money back. But the Raiders had smart contract lawyers, so that’s not going to be happening. Evidence really is accumulating that Mark Davis may be smarter than he looks.