Red Sox replace old sweetheart deal on Yawkey Way with new sweetheart deal

The Boston Red Sox have cut a new deal to lease Yawkey Way — the street outside Fenway Park that they use as an open-air concessions concourse — from the city of Boston on game days. Under the new plan, instead of paying a yearly rent, the Sox will pay $734,000 a year over the next ten years to buy a limited easement on the street, after which it will own the rights and pay nothing.

That’s better for the city than the $186,000 a year that the Sox have been paying, albeit not all that much better, since after the year 2023 they’ll be able to use the street for nothing, forever. And considering that the team brings in an estimated $5 million a year in additional revenues from using the street, $7 million and change over a decade is still a relative pittance.

So, crappy negotiating by Boston Redevelopment Authority director Peter Meade, who’d initially indicated that he’d seek a cut of Red Sox revenues from Yawkey Way, but instead decided to go for the “predictable revenue stream.” There’s some logic in that, but in either case the question is why Meade agreed to give up use of a public street for about 10% of its value to the team — especially when the Red Sox’ only option if Meade demanded more would be to lump it.

Red Sox president Larry Lucchino seemed to have that in mind with his statement: “If you’re looking for a short answer to ‘What’s in this for the city?,’ one answer is the preservation of Fenway Park.” So, if Boston had demanded a more equitable lease, the Red Sox were going to what, walk away from their hundreds of millions of dollars in renovations to Fenway and move out of town in a hissy fit over whether to cut the city in on sausage profits? Explain that again, Larry?

“It’s unlikely that if we were not able to make the kind of improvements that these two projects represent that we would have found a viable way to stay there,” Lucchino said.

So, double negative, past tense subjunctive, and we get … I think something involving Lucchino threatening to go back in time and kill his own grandfather. Phew — sure am glad we avoided that!


14 comments on “Red Sox replace old sweetheart deal on Yawkey Way with new sweetheart deal

  1. Doesn’t the city collect sales taxes on everything sold on Yawkee way?. On $5,000,000 per year that works out to $312,000/yr (our city sales tax is 6.25%)… which the city will collect regardless of whether or not the team pays them for the limited easement. If the city forbade them using Yawkee Way in this manner, they would lose this perpetual revenue stream. And, it costs the city nothing (since the team pays for increased police presence on game days). There is also limited opportunity cost here for the city as well. The surrounding properties are, by and large, privately owned.

  2. Well, people are going to eat sausages somewhere, even if not on Yawkey Way. (The vendors used to line up along Lansdowne, where the Red Sox didn’t get a cut.) So it’s hard to argue that the city is getting significantly increased sales tax revenues based solely on which street people are spending their money on.

  3. I guess the point of my previous comment was this question: what is the city foregoing by agreeing to this deal?

    They are collecting a decent chunk of money through 2023. Do you think they should be charging the team more for the use of Yawkey Way? It seems to me the revenue value of the street has more to do with the presence of the team, than to the city ownership of the street. Would the city be better off restricting commercial activity on this street for the 81 days a year the team has a game?

  4. “Do you think they should be charging the team more for the use of Yawkey Way?”

    When the Red Sox are earning $5 million a year from the street rights? Absolutely.

    I’m not saying they should be able to demand the same kind of profit margin that a commercial landlord would, say, since the Red Sox are the only realistic bidder for the street rights. But do you seriously think if the city had said, say, “$1.5 million a year, take it or leave it,” the Sox would have said, “Never mind, we’re moving to Portland?”

  5. Knowing this was coming up (through past threads on this site), I consulted my personal psychic – The Amazing Betty (she’s amazing, but not overly imaginative or exotic sounding) – and was told not to expect more than $500k a year in payments to the city from the Red Sox.

    So, like many psychics, she was wrong… but yet right…. err, sort of, depending on how you hold your head/nose when you read the answer.

    $500k p/a would have been a very reasonable cut in my view. It is fair to say the Red Sox have built this “business” on the street, and thus the city does ‘get something’ just in the form of tax revenues (be they state or city, tax dollars funnel from one to another – often both). Having said that, this revenue stream would not be possible without allowing the Red Sox to use what is by any definition public land. So yes, they should pay more. And they are paying more… what is troubling is the ten year fixed term and the apparent assignment of rights in perpetuity after that.

    Unless the city has some long term plan for the area that involves collapsing the street and selling/giving it to the Red Sox, I don’t understand why that was included. Surely the rights fees should be revisited in ten years when, who knows, perhaps the value will have doubled (or halved) depending on what is the then current mood and economic climate?

    After all, the value of the ‘commercial’ rights to the streets on game days 20 years ago would have been very low. And very few people could have told you even ten years ago that the Sox would be willing to pay what they have just agreed to pay for the rights to the street on game days.

    As for Lucchino’s double negative pre/post apocalyptic near threat of possible uncertainty… I took that to mean the board had voted to burn down Fenway park if Meade didn’t agree. I’m less clear on what they would have earned from this action, beyond a prison sentence.

    As the man in the white polyester suit said in 1978, “Burn the mother down, now”…

  6. Again, I ask my unanswered question:

    What is the city foregoing by giving this team such a “sweetheart deal”?

    They are essentially collecting about $9,000 a day (81 game days) for doing what? Owning the street? I have no issue with the government charging for the use of publicly owned infrastructure for a private commercial venture. Is $9,000/day a lot less than they charge other groups for using city streets for things like block parties, street fairs and the like? Is that what makes this a sweetheart deal? Is the point, rather, to confiscate as much revenue from a private entity as possible, without taking on any sort of financial risk? What amount should the city collect before it ceases to be a sweetheart deal (a rather loosely defined term)?

  7. They are not collecting $9k/day in perpetuity, Vic. Under the terms of this deal, they will collect $9k/gameday for period of ten years, then nothing. So what term do we amortize the deal over? Not ten years. It has to be at least 25 and probably more like 40-50yrs…. so, no, it’s not a particularly good deal at $2k/day.

    The suggestion made earlier about $500k p/a is based on an approximate ten percent taxrate. You can argue that the city isn’t really “doing” anything for that money, but then, you can also argue that the Red Sox would lose the other 90% if the city didn’t agree to let them use the streets for profit making business ventures on gamedays.

    Where I live and work, business taxes tend to amount to 15-20% or so in total, so the city is clearly getting a fair shake at 10% IMO. It is the nature of our economic system that governments do take a percentage of every economic opportunity.

    The opportunity cost for the Red Sox is clearly much greater than for the city, as money not spent at the ballpark/street on game days will mostly be spent elsewhere in the city (meaning the city/state/feds will still get their “cut”). In fact, one can argue that allowing the Red Sox to use the street to operate a for profit business might be cannibalizing taxable revenue from other entertainment venues/options within the city. The only portion that might actually be “lost” is the revenue earned from visitors who only spend money at the stadium, and even then it’s not certain this would be lost as there are obviously other buying opportunities within the stadium that are not dependent on the street being ‘available’.

    The Red Sox want use of a public asset next to their stadium for a for profit enterprise. Should they be exempt from taxation or lease payments for this access? I would argue no.

  8. John.

    Please don’t miss my point. I’m not trying to argue that the team should not pay for the use of the street.

    My point, which I tried to make (poorly) a couple of times, is that I don’t see how this is a “sweetheart deal”, as Neil characterized it.

    So, (to continue beating this dead horse further into the ground)

    Assume a couple of things:
    1. The team actually collects $5 million per year on Yawkey Way
    2. An annual sales growth of 2.5% thru, say, 2030 (and that Fenway Park is still standing then)
    3. Your 10% tax on those sales, as a use fee for the street.
    4. I am not a finance guy. :-)

    1. Not that it is Neil’s point, but It certainly isn’t a sweetheart deal for the city. I calculate they would lose out on $3.1 million thru 2030 with the new agreement vice collecting 10%/year.
    2. It’s not really a sweetheart deal for the team either. The team would actually be better off paying 10% year through at least 2030, if you factor in that between 2014 and 2023 the new agreement requires them to pay the equivelent of just over 13% of sales to city. If you amortized the 10 year savings (that the 10% rate would give them) out to 2030, they would come out ahead (so long as John Henry could earn 5% or so on his invesments)

    Of course, the city could save the amount it collects over the 10% tax rate over the next 10 years and pay itself the proceeds from that investment. However, governments spend money, they don’t save it.

  9. I still maintain that $7 million, paid out over ten years, is a cheap price to pay for something that’s worth $5 million in profits a year in perpetuity — especially when the Red Sox’ only alternatives if the city had asked for more would have been to like it or lump it. But if you want to mentally rewrite the headline to “Red Sox replace old sweetheart deal on Yawkey Way with new slightly-less-sweetheart deal,” you’re welcome to do so.

  10. It’s not worth $5 million in profits per year.. It is $5 million in revenue.

    If it WERE $5 million in profits (which would be tens of millions in revenue every year), then the agreed upon deal would INDEED be a sweetheart deal.

  11. I just checked the original article, and it appears to be net revenues, not gross. Though it’s also more like $4 million a year than $5 million (the larger number included the Green Monster seats for some reason as well):

    “Since 2003, the team’s share of Aramark’s concession sales on Yawkey Way has exceeded $23 million, according to calculations based on industry studies.”

    http://www.boston.com/news/local/massachusetts/articles/2011/11/07/streets_use_a_sweet_deal_for_red_sox/?page=5

    An estimate later in the piece says a $3 million increase in *sales*, though, not profits. Unfortunately, the sidebar discussing methodology is paywalled – anyone with a Globe subscription able to check and see what it says?

    http://www.bostonglobe.com/metro/2011/11/06/how-calculated-fenway-revenue/Fo2s6OJxlBelUJ9RfePaTM/story.html

  12. I don’t think we’re talking at cross purposes here Vic. It sounds like we are, if not on the same page, at least close.

    The “special low introductory rate” that Boston offered the Sox for the first ten years or so generated relatively little revenue for the city (was it about $200k/yr?). I think that’s understandable, given that the team/aramark were trying to build up a new business for all intents and purposes, and that it could have failed to generate anything meaningful in terms of net revenues. New ventures are new ventures, of course, and do carry some risk.

    As time has gone on, this has turned into a pretty good money maker for the Red Sox (which is why other clubs are trying to emulate this, except without the part where they pay their city for use of the street). In my view the team is probably overpaying for the next ten years if we look at the amount they agreed to pay. Their net will have to grow by 60% or so to keep the “10%” rule I talked about. But of course, it really isn’t a ten year contract as the team appears to get the rights in perpetuity for nothing after that.

    With that in mind, let’s look at the cost of “replacement” revenue for the stream the city appears to be surrendering as part of this deal. If the city were to try to get $4-500k a year from a fixed term investment to replace the revenue they “should” be getting from this deal, they’d need to put considerably than $7.5m in to do it (depending on what they invest in and how the interest payments are made, perhaps double that amount)… and they’d need that money up front, not paid in installments over ten years.

    The other option I might suggest is that the city set a fixed percentage rate of net revenues from this enterprise so that they and the Red Sox share the wealth “created” by the Sox use of the street. That way neither party can claim to be harmed by the inevitable fluctuations of the open market (which MLB is not, of course) in play.

    As I believe Neil suggested above, the city getting $7.3m over ten years is nowhere near the same as the city getting $7.3m tomorrow, much less the $10-12m it would take on deposit to replace the revenue they are losing over the long term in this deal.

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