Rays equity-for-stadium swap is doomed from the get-go

University of South Florida business professor Richard Meyer has an op-ed in today’s Tampa Bay Times suggesting that, seeing as that the Rays want a stadium that could cost upwards of $500 million, and that they only want to pay $150 million towards it, and that local governments don’t really feel like fronting the difference, how about they give the public an equity stake in team instead?

Meyer’s math works as follows:

  • The Rays’ value should go up by at least $100 million if they get a new stadium.
  • Let’s say they take $70 million worth of that and give it to the public. That’d cut the public’s share of stadium costs to a mere $280 million!

If that’s not underwhelming enough, there are some additional problems with this plan. First off, as Shadow of the Stadium notes, “A new stadium has everything to do with increasing the franchise’s profits, so giving away a piece of the team would defeat the purpose of a new stadium in the first place.” On top of that, allowing the public to own a piece of the team would never be allowed by MLB: The league blocked the Pittsburgh Pirates from pursuing a similar strategy in the 1990s, and likewise barred San Diego Padres owner Joan Kroc from giving the team to that city as a gift.

Meyer has a second plan that would get around that last objection, which would be “for the Rays to sell shares in small amounts to many individual investors in the community.” (The Cleveland Indians, for one, did that 15 years ago or so.) That does nothing to defray the public’s costs, though: The city government doesn’t get any benefit from those shares, and the members of the public buying them would be buying them, so they wouldn’t be getting anything special back for their tax money. Unless Meyer’s idea is for the Rays to then turn around and put this money back into the stadium, but then we’re back to the team effectively giving away chunks of equity for nothing.

At the heart of it, the problem with Meyer’s article is the premise: The Rays need a new stadium, and they’re only willing to put in $150 million in cash, so how can we manipulate things to meet these parameters? But that’s not how the Rays owners look at it: They just want to make more money, and figure that they can do that with a new stadium, but only if they don’t pay much towards it. The real question shouldn’t be “How do we make a new Rays stadium work?” but rather “Can a new stadium be enough to pay off (via stadium revenues, increased team value, etc.) its construction costs and have profit left over?” If the answer is yes, then it should be easy enough to figure out how to divide the costs and the proceeds so that everyone is happy. If it’s no — and given that we’re talking about spending at least $500 million to increase a franchise’s value by perhaps $100 million or so, my money’s on that — then the only question is whether it’s worth throwing hundreds of millions of dollars of subsidies at the Rays in order to make them shut up about how their profits aren’t big enough.

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