Falcons deal questioned over free tickets, church relocation

The Atlanta city council is raising more questions about the Falcons stadium deal, but again, it’s not around how much money this will cost the public:

The city of Atlanta’s economic development arm would get free seats at some events at a new downtown stadium for the Falcons, a provision in the proposed deal that drew questions Thursday as key votes loom on the plan.

“Is this even legal?” councilwoman Felicia Moore asked at a City Council discussion of the stadium plan. She said the city can’t require event tickets in contracts and Invest Atlanta, a quasi-government agency that promotes economic growth, shouldn’t be able to either. “If I can’t get tickets they shouldn’t be able to get tickets.”

Teams giving free tickets to public officials is certainly a concern — especially when there’s an indication of a quid pro quo (that’s Latin for “bribe”) — but usually the issue isn’t stated quite so much in terms of “Hey, where’s my free tickets, then?” In any event, given that this isn’t something that would cost the Falcons anything to give up — in fact, it would get them back some tickets that they could then sell at face value — it’s hard to see it as a major stumbling block.

Meanwhile, two historic churches on the proposed stadium site are deciding whether they’d be willing to sell and relocate to make way for the Falcons. The Atlanta Journal-Constitution describes this as maybe the “biggest stumbling block remaining” to the deal, but given that the Falcons have the option of another site that wouldn’t require the churches to move, that’s probably an overstatement. The only real stumbling block would be somebody balking at handing over 30 years’ worth of future hotel taxes (which still nobody has enumerated how much they’d be worth), but not a peep so far on that issue.


11 comments on “Falcons deal questioned over free tickets, church relocation

  1. The big numbers have been fairly clear all along but $200mm was useful spin. 2012 HM tax paid over to the stadium is $17 mm and it rises at about 4% to 5.5% per year with inflation and growth in hotel business. The new deal runs from 2017 to 2050, though you can argue that the money was already committed through 2020 if the Falcons remained in the Dome until then. So it’s 30 – 33 years of $17mm = $510 – 561 mm. Just as in the past 23 years with the Dome, the stadium will get that chunk of HM tax both to service debt and to use to cover other costs. Money is fungible. If the $17mm were only to pay off the famous $200 mm bond, we could stop paying after about 12 years. That is definitively not what the agreements require. We will be paying that chunk until 2050.

    The discounted present value of today’s $17mm is around the same $510-560mm. That’s because the growth in hotel motel tax has been in the same range – or actually higher – as the interest rate on current 30 year tax-free bonds. Add $15mm from Westside TAD to Vine City if you don’t believe they’d have received that regardless.

    The city’s HM tax is paying for about half of the project, in effect. The “oh what a great deal, we’re only paying 20%” line is, and always was, sheer BS.

  2. Yep, that looks about right to me, assuming the hotel tax receipts continue to rise. Cityzen, you wouldn’t happen to have a link to hotel tax revenues over time?

  3. Page 5 of the CFO’s deck has the history in bar chart form.

    http://www.atlantaga.gov/modules/showdocument.aspx?documentid=6827

    From 1989 to 2008 HM tax rose by 5.5% CAAGR. Then recession hit. Removing the 2012 tax rate raise to 8% which does not add to the Falcons’ take, the CAAGR 1989 to 2012 is 4.2%.

    Running the numbers at 5.5% growth over 38 years to 2050 and discounting the 2018-2050 stream back at 3.5% to 2012 gets a whopping $863 mm. But 3.5% is probably too low a discount rate when there’s that much growth in the stream – an equity piece as well as a bond. It’s hard to see the stream being worth less than $600 mm, though.

  4. And would 100% of the hotel tax revenues definitely be handed over to the Falcons, either to pay off stadium bonds or in yearly subsidies? I’m not clear on what page 4 means, and with no actual draft lease to look at, it’s hard to tell exactly what they’d be getting.

  5. Neil, One obvious question for you since you follow these games across the cities. Do others fund not only the bonds but also substantial O&M as in Atlanta’s case? Let’s say our tax stream is worth $600mm out of a total project capital cost of $1.025(incl the 50mm for roads etc.) So now we’re funding ~ 60 %, right? Even though we’re raising only a $200mm bond to get around state law, Blank doesn’t care because a very large chunk of the 30 -33 yr stream will fund O&M, not that smallish bond. But if the comparator cities fund a bond for 50% of the capital cost PLUS fund a big chunk of O&M, Atlanta might still rightly claim to be getting a better deal. Thoughts?

    Note that under the new deal, Falcons keep all the profits of the stadium, unlike before when they shared profit with the congress authority. But they have to cover all the expenses of it, too.

    One other qn. Is it a customary clause that the team is not obligated to play all games in the stadium if the NFL ask them to play elsewhere? In other words, that we may not even get the vaunted benefits of 10 nights per yr of activity in full.

  6. Yes and no. Hiding public costs in the lease rather than in the up-front construction costs is pretty typical — last I checked, Judth Grant Long of Harvard had estimated that the average stadium cost to taxpayers was 40% higher than the announced sticker price, thanks to hidden costs. That’s more typically tax breaks than outright operating subsidies, though — aside from the proposed Phoenix Coyotes deal, and the New Orleans Saints for a few years, and a three-year deal currently running for the Indiana Pacers, I can’t think of other cities that have given significant operating subsidies to their teams.

    As for the lease clause, I don’t know for sure, but I’d bet that it’s not atypical — the NFL sometimes likes to play games overseas, after all, or may want to move a game to get out of the way of a hurricane or something. A conscientious legislative body would at the very least pro-rate the subsidies so they’d be reduced if the team weren’t playing as many games there, but I think we’ve pretty well established that the Atlanta city council isn’t behaving like a conscientious legislative body.

  7. Falcons will get 39.3% of the 7% tax. In 2012 their share was $17mm. They get it until the end of 2050. There’s a waterfall clause in one of the agreements that shows that after a portion goes to service the bond the rest goes to various O&M accounts. Annually, $3mm to refurbishment, 1mm to renewal, 3.5mm to Other Events Staging Expense, 8mm to O&M expense, rest to Surplus to be spent as Falcons wish. It’s the Falcons’ money through 2050, just as the Dome got the entire 39.3% to spend as they liked since 1989 – even though they could have paid off the original bond much sooner than 2020 if that’s all that the money had funded.

  8. The documents are posted here. Voluminous of course. But the outline is clear in the 4- page terms summary up front: HMT proceeds waterfall paragraph on p 2 and O&M Agreement paragraph on p 4.

    The O&M waterfall detail which I described in my previous comment is at Tab IV Exhibit B p 8.

    http://www.atlantaga.gov/modules/showdocument.aspx?documentid=7191

    Thank you for your replies to my other questions. Because the supporters had to get around the $200mm state ceiling without going back to legislators for amendment, the lion’s share of the public contribution in this deal is the O&M funding, not the bond. Since cash is fungible, it can’t matter to the Falcons how they get it.

  9. Putting it another way, a $200mm bond for 30 years at 3.5% has a debt service of $7.8mm per year. Even in year 1 that leaves a lot of room for O&M out of what will be $18.7 mm of Falcons HM tax in 2014.
    By 2050,their HM tax will be at least $80mm.

  10. Yeah, I think you’re right — while the exact numbers will depend on what happens to future hotel taxes, this is looking like at least $500 million in public cost, the bulk of it via the operating subsidies. Nice bait-and-switch, there.