Business prof says Kings arena could bring MLS team, TV station gets all excited

What the what, CBS Sacramento?

Economists: Downtown Sacramento Kings Arena Could Pave Way For MLS Franchise

That … doesn’t even make any sense? Certainly Sacramento is vying for an MLS expansion franchise, along with everyone else on the planet, and maybe having successfully thrown a whole lot of money at the Kings would help convince the soccer league that they could have money thrown their way, too. But from an economic perspective, what does one have to do with the other? What kind of economists are these, anyway?

Sacramento State economics professor and Wells Fargo wealth adviser Sanjay Varshney says if that arena wasn’t under construction, there’s no way anyone would be talking about the possibility of an MLS stadium coming to the railyards.

“The fact that Sacramento succeeded in keeping the Kings here and are putting in a new arena will be a factor in whether or not we actually get soccer now,” he said.

So, first of all, that’s not economists, plural, it’s one economist. (No one else is cited by name in the CBS Sacramento story.) And second, it’s arguably not even one economist, because while Varshney does have a master’s in economics, he’s actually he’s a finance professor at Sacramento State’s business school, who recently stepped down as dean to work as an investment advisor for Wells Fargo’s wealthy clients.

Not that this makes Varshney unqualified to speculate wildly about how MLS will pick which cities to expand to, any more than any of the rest of us are. But hanging an entire story on this, and spinning it as something “economists” predict, is a low point even for TV news.

Back in the real world, meanwhile, MLS officials heard pitches from would-be owners in Sacramento, Minneapolis and Las Vegas for the last expansion team of the passel being handed out by the league this decade. A decision could be made by the league Board of Governors meeting on December 6, or not.


39 comments on “Business prof says Kings arena could bring MLS team, TV station gets all excited

  1. If only we could find some folks with “econ” credentials – real or imagined – who believed that subsidizing businesses that don’t need the money to build things they’d build anyway is a good idea…then “the whole site would unravel”. But they just don’t exist.

  2. In a twisted way, though, I think he’s correct. MLS is thinking that if Any City is willing to do something as stupid as they’ve done with the arena, they’ll be stupid enough to do something similar for a stadium.

    He’s right, it’s just not for the reasons he imagined.

  3. The Bee has acknowledged that the City will not be able to sell bonds before Spring. So right now, there is a very slim chance that the Spring lawsuit will succeed, and that the City won’t be financially participating. I stress, a VERY SLIM chance.

    If they find parts of the deal weren’t legal, I think they’ll simply renegotiate those parts. It’s the specific language in our State constitution about “gifting” government property that I find most compelling. The pieces of property we’re giving SBH should have been appraised and should have been put out for bid to make this legal; a government body can’t simply hand over property without following proper bidding procedures.

    Ironically, it could be that the City cheated itself; that some of the properties they’re counting has some value may actually be worth more. But that’s really one of the reasons our Constitution specifies bidding procedures for government-owned property.

  4. I’m pretty sure that Sacramento is guaranteed the 23rd MLS Expansion franchise, I think MLS wants to wait and see if Beckham’s group can get the Miami MLS expansion done or I suspect he’ll end up buying a majority share of the LA Galaxy with Landon Donovan.

    But I suspect that Miami & Sacramento will get the teams for MLS, it makes the most sense and then MLS should look into purchasing the United Soccer Leagues as USL-Pro is already working as a minor-league system.

    Overall, MLS is a perfect investment right now. by 2025 before the 2026 World Cup which will most likely be in Canada and they’ll get a solid TV contract out of this and should be very happy with Dan Garber’s leadership in trying to get Soccer mainstream in the United States.

  5. If the city finds a way to enhance tourism through sporting events and at least double the anticipated original estimate of tourists/event goers, who needs a degree to understand the benefit?

    This article has no meat and simply validates the original news article. Grade school children see the simple deduction and benefit. But then again, they are not using pride and emotion to derive the obvious answer.

  6. How about Seattle deserves a consolation prize of a 2nd MLS franchise because they had thousands signing up for NBA tickets and the NFL franchise is constantly sold out. Clearly, Seattle has an un-met need for more sports (even our 1st MLS franchise holds season attendance records) and we’ve got days where CenturyLink field isn’t being used.

    Let Seattle be to the MLS what Chicago/NY is to the MLB.

  7. “…before the 2026 World Cup which will most likely be in Canada …”

    No, no it won’t. Canada has just three cities capable of generating the kind of interest in any sport to justify the construction of 50-60,000 seat stadia – and they all have stadia that size already (and one that really doesn’t have that kind of drawing power but has a 50k+ stadium anyway, Edmonton). Could the country build four or five new WC calibre and size stadia? I suppose, but then do what with them? Give them to CFL teams?

    I know there has been talk that Canada will apply to host the 2026 world cup, but that has far more to do with the CSA knowing that the only way Canada will qualify for a world cup by 2026 is through hosting it. I think the CSA (who are struggling to manage hosting the women’s world cup next year) would be fools to apply. Canada simply cannot handle the Men’s World Cup.

    If the US applies to host the 2026 world cup, it will almost certainly win the hosting rights. And it’s time the WC went back to America, frankly… the game was more or less non-existent at the true professional level when the last WC was in the US. It would be interesting to see how much more support there is for it today.

  8. Chef Joe: Great idea!

    I’ve always thought it was unfair that small markets like NY and Chicago and LA have to compete with attendance juggernauts like Seattle and Kansas City… it would be a more just league if Seattle kept adding teams until their attendance was more or less in step with RBNYs…

  9. If the city finds a way to enhance tourism through sporting events and at least double the anticipated original estimate of tourists/event goers, who needs a degree to understand the benefit?

    So doubling tourism numbers by spending 226 million? Why don’t they just hand out free airplane tickets to Sacramento? I am not opposed to the idea of boosting a city’s tourism prospects, or ability to get convention business, but there are certainly better ways to do that than building a new arena.

    Arena’s simply satisfy city councils edifice complexes, the belief that large, landmark buildings are what drive development and economic benefits, not actually working with local businesses to say assist with regulatory hurdles, permits, or finding assistance through economic development programs. Instead many city councils hire a consultant to come up with a BIG IDEA development master plan and wipe their hands of anything else. It’s laziness wrapped up in an economic development plan.

  10. Sean S.
    Disclaimer: Now I am not an economics professor, but I do carry a load of experience and most of all common sense.

    Your analogy of giving away airline tickets for tourism creates a huge economic hole in reality. How would the city get financing for $226 million dollars of airline tickets or anything resembling your example of magical funds for tourism. You see, there is no bonds without parking. Parking that will undoubtedly increase with not only the promise of an improved downtown, entertainment district, hotel, retail, commercial offices, high end apartments but of course by the event attendees themselves. (Kings now receive 100% of parking at Sleep Train Arena).

    The downtown arena is a done deal. The Kings are dumping millions into Sacramento even before the city has secured their bonds. The additional city parking from the Kings and the soon to be doubling of parking by the MLS will be transformational. It changes the whole dynamic of the parking financing mechanism. It could even garner a better bond rate for the cities contribution to the downtown ESC.

    If MLS chooses Sacramento the long awaited dirt pile known as the Rail yard will have finally received its anchor tenant that will transform the area as it has been anticipated for over 30 years. Who would oppose reducing the cities risk by accepting a gift of doubling the amount of people per year in sports tourism. Buy one get one free appeals to the masses, this time it isn’t shoes being sold. It is jobs and a future for Sacramento.

    The entire scope of this project related to the Downtown ESC has the ability to transform Sacramento. The ESC hasn’t even been built and there has been an estimated $100 million dollars of real estate transactions and developmental planning all said to be sparked by the arena. $100 million dollars unrelated to the agreements set by SBH or the city of Sacramento. Why is this important? This has occurred in a time span of less than 1 year. Hmmm.

  11. The bonds are NOT guaranteed by parking revenues. Those were the terms of the preliminary term sheet that was modified. Parking is identified as one possible revenue source, but unless the more than quadruple rates in the garages, it will never be enough.

    The bonds are general fund bonds to be repaid from the general fund and guaranteed by the general fund.

  12. RA,

    It seems that the city is relying heavily on net parking revenue as the major injector of lease revenue bond repayment.

    General fund bonds? Peruse the agreement. I think you will find it enlightening.

    http://sacramento.granicus.com/MetaViewer.php?view_id=21&event_id=2468&meta_id=417375

  13. If by “relying heavily on” you mean “if the parking revenue doesn’t go through the roof then the whole thing esplodes,” then yes, that’s a good way of putting it.

    The bonds will use whatever parking revenues are available, but if those aren’t enough, then there are a whole series of other bags of money that the city has to throw into the pot, most of which, as RA rightly notes, currently go into the general fund:

    http://www.fieldofschemes.com/2014/05/12/7295/final-kings-arena-plan-sacramento-would-take-roughly-226m-loss-to-keep-team-in-town/

    I could add more, but I’m sure MikeM is champing at the bit to talk about this…

  14. Maybe you should read that document. The city is leasing the property to the Sacramento Public Finance Authority who is then subleasing it to the city who is sub-subleasing it to the kings. And how will the city be paying its lease payments to the Authority?

    “The City covenants to take such action as may be necessary to include all Rental Payments in its annual budgets for the City’s General Fund and to make necessary annual appropriations for all such Rental Payments.”

    “The Authority and the City understand and intend that the City’s obligation to pay Rental Payments constitutes a current expense of the City’s General Fund and is not a debt of the City in contravention of any applicable constitutional or statutory limitation or requirement concerning the City’s creation of indebtedness.”

    As for the parking revenues, the document is very clear:

    “Importantly, net parking revenues are not actually dedicated to debt service.”

    If the six sources of payment identified in the document do not completely cover the lease which covers the lease which covers the bond payment, other general fund sources will be used.

  15. Yes, the entire issue of using parking revenues to repay this bond debt has already been covered. State law restricts the ways in which on-street parking revenue can be used; it can be used solely for traffic-safety and parking-related expenses. What’s more, this part of State law will not be changing.

    They can use off-street parking revenues to pay for expenses not related to traffic, but the problem there is the rates will have to skyrocket to raise any significant revenue. There will be competition in the form of on-street parking and private lots. The City is a large player in terms of off-street parking, but I don’t think it’s large enough; if the City tries to increase the rates to the amount necessary to repay the bonds, no one will park in City lots.

    They are talking about raising on-street parking rates from $1.25/hour up to $3.00/hour. I think they’ll hit a legal wall if they do that; they will have to show that additional money will only go towards parking and traffic expenses, and I don’t think they’ll be able to. Someone will probably have to sue in order to stop it.

    By the way, this argument is quite similar to the argument from Orlando, which figured all kinds of people would pay all kinds of extra money to park in premium lots. Now that this is not happening (people are paying far less, and simply walking an extra 2 blocks), Orlando is in trouble in terms of revenue to repay their bonds. I fully expect the same situation will occur in Sacramento. People WILL figure out a way to not pay $25/event for parking; you’re naive if you think otherwise.

    A story is coming out about how banks are tricking cities into using unconventional financing to fund projects, and that has happened in Sacramento. Great article about this here.

    http://www.salon.com/2014/11/24/wall_streets_taxpayer_scam_how_local_governments_get_fleeced_and_so_do_you

  16. In addition to this funding scheme being a close relative to the failing funding scheme in Orlando, it’s also very closely related to the failing funding scheme in Louisville.

    In Louisville, they set up a TIF district, figuring the arena would be a huge draw, and people would want to eat as close to the arena as possible. But the prices inside stores that decided to be close to the arena were so high, everyone eats outside the TIF district, so revenues are falling short.

    The same thing will happen here. People will figure out ways to avoid the expensive lots near 7th and K. The lot we gave to SBH will not have as much business as anticipated. People are cheap, and they will walk an additional 3 blocks to save $25.

    Hey, parking revenues may even increase for a while, but it won’t be as much as expected, and people will figure out how to park for less money (by, for example, parking east of 15th Street).

  17. I would not consider the city to be a large player in the parking situation. The city has a total off-street inventory of about 7,500 spaces. It is giving or destroying 3,000 as part of the arena deal. The largest garage with 1,000 spaces is located 1 mile from the arena site (as the crow flies).

    The transportation plan identified 16,000 off-street spaces within one-half mile of the project although I doubt a good number of these would be available as they are located in buildings that are closed except during weekday business hours.

  18. Here’s a map, if anyone’s interested:

    http://portal.cityofsacramento.org/Public-Works/Parking-Services/Lots-and-Garages

    The garage marked “DOWNTOWN PLAZA EAST GARAGE” no longer exists.

    Frankly, looking at that map really makes me think the City made a major math error they haven’t figured out yet.

  19. I think it’d be excellent if the RiverCats decided to open their lots on game nights. Charge $5, enough room for several thousand cars, stop and eat at Old Sac on the way in, better ingress/egress. I bet there’s no way to stop it; those are privately-owned parking lots.

  20. The funny part is that arena proponents repeatedly say our downtown is currently dead. Anyone who parks there will be bringing in all-new revenue.

    Hah. Those people clearly don’t get out very often.

  21. How did this discussion go from the a privately financed soccer stadium back to the downtown arena alone?

    So, do you just ignore that the privately funded soccer stadium is exactly the attraction field of screams is pushing all cities to implement?

    Seems a soccer stadium would cushion “that blow” to the city that all you ‘certified economists’ pray will fail.

    Mike M. , wouldn’t you agree that even though revenue from on street parking has to be used for further on street parking expenditures, having more parking in these spaces
    will still benefit the city financially. The extra parking revenue does not disappear as you and others suggest it would.

    Loopholes(?) could even use these funds to create additional city parking structures as I understand. I think many of the suppositions used here on this site are of the stagnant variety. Progress will demand increased parking, transit and bicycle infrastructure.

  22. I don’t know who “field of screams” is, but I think it’s fair to say that this site has never suggested that all cities should be implementing privately funded soccer stadiums. Not that we have any idea whether an MLS owner would offer to privately fund a soccer stadium, though the fact that very few owners have done so previously isn’t an especially good sign.

    If Mr. or Mrs. Unknown MLS Owner came to Sacramento and said, “Hey, we’re building a stadium, you don’t have to do anything except collect some parking revenues,” sure, the city should say yes. But 17 home games a year isn’t going to make a huge difference in terms of economic activity, parking income, or “revitalization.” It’s nice to have (especially if you’re a soccer fan), but it’s not a game changer.

  23. I doubt this soccer stadium will turn out to be privately financed, by the way. There will be some “little” piece that requires public spending, I’d wager.

    Some people are already declaring the arena to be an overwhelming economic success, even though they still haven’t removed all of the old pilings yet. I do accept that this arena will be built, but they will not be able to pay for it using on-street parking revenues. Off-street and parking violations? Sure. On-street price hikes? Nope. They’ll try, but I can’t see how they’d justify it. The law is the law, in this case. If someone tries to change State laws so that on-street parking revenues can be used for anything someone wants, they won’t succeed.

    I’d be interested to know what kind of “loopholes” you envision, Patrick.

  24. The only way to extract “extra parking revenue” from on-street parking is:

    1) To prove that it is necessary to do so, to fund TRAFFIC and PARKING initiatives,

    2) To do this without impacting any of the many, many other downtown visitors with additional parking fees (if you increase parking expenses for someone attending an event at, for example, Music Circus, Sacramento Theater Company, Memorial Theater, restaurants and the Convention Center, then you are forcing people who are not there to attend an arena event to pay for the arena — we were promised this would not happen).

  25. MikeM,

    You are dreaming if you think only those attending arena events will be paying. They are already increasing the monthly, hourly and evening rates at all city garages and lots. They are also changing hours of operation at all city meters and increasing enforcement hours. Everyone who works, lives, or plays downtown will be paying through the nose for the arena.

  26. “Everyone who works, lives, or plays downtown will be paying through the nose for the arena.”

    And still, that won’t be enough. Once they figure out that they’re going to have fewer events than even the conservative estimates, and that attendance will be lower than expected at those events, and that people eat before they get into their car to drive downtown (which means Placer, El Dorado and Yolo will get that tax revenue), and that there will be fewer cars than expected (with a good number of them figuring out ways to avoid paying the City for parking), they’ll need a bailout.

    Oh well, at least it won’t ONLY be those of us who park downtown; they’ll have to aim for a City-wide tax hike to bail out this stupid thing.

  27. Mike M.
    Loophole?

    On street parking revenue could be used for traffic mitigation. If finding a parking spot sooner mitigates traffic then using on street parking revenue for city owned parking structures wouldn’t be too far fetched. The city now has created (through a loophole) a positive net revenue that can be spent on anything the city so wishes.

    Financing source for said parking structures would be largest block to implication of loophole. Federal granting would be key to city affordability.

  28. Nice try, Patrick. Using on-street parking revenue for parking structures and other off-street is already legal – that is not a loophole. The city has stated that they do not intend to build additional structures because they think there are already too many. In fact, it is eliminating off-street parking from its inventory by giving the 3,700 parking places in the Downtown Plaza garages and the two parking lots near the Crocker Art Museum to the kings.

  29. More important than the parking funds will be the renewal of Measure U, as the arena deal couldn’t have happened without that money. It’s possible that the voters who are very angry that the Arena was foisted upon them will join with the “I hate taxes” voters to stop the renewal of Measure U.. Then the City will be in very bad trouble.

  30. RA, I haven’t heard a whisper from the city regarding an off street parking structure moratorium. As a matter of fact the final failed Maloof term sheet proposed a parking structure in the railyard.

    While the city is losing all parking under the arena the Kings will only retain 1000 spots of that total city number to construction and building footprint.

    Crocker lots? This is the first I have heard of any other parking lots given to the Kings and would like to see some thing in print.

    I don’t think you understand the positive net revenue that benefits the city on my traffic mitigation theory. If it is “legal” as you say, it opens a door for further parking structures in and on the existing lots in town and the railyard. City progress will demand it. Federal assistance could also be an opportunity that presents itself.
    ……………………………………………………………………………………
    Measure U funds,

    If measure U funds could be found to have supported the arena instead of the intended financial targets voted upon, I imagine legal ramifications would be of such it would kill any prospects of future political aspirations.

    An example of Measure U funds being allocated outside the normal budgetary plan:

    http://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=3447&meta_id=418039

  31. Patrick, I thought you said you had read all of the documents regarding the agreement. Go back and read them again. Pay particular attention to the Property Conveyance Agreement and the Arena Parking Management Agreement. The former describes the properties being given to the kings; the latter describes how the kings will get all of the revenue from the Downtown Plaza lots that remain after construction.

    I don’t think you understand the parking situation downtown. Both of the consultants hired by the city stated that the parking inventory was sufficient for the long term, even with the development of the rail yard. as the apartments and other housing are expected to provide its own parking and there will be additional on-street spaces. They recommended the city focus on improving public transportation as that is where they saw more growth needed.
    —–
    As for Measure U: They can use the money for ANYTHING that they want that is paid out of the general fund. That includes the lease payments to the Sacramento Public Finance Authority which the Sacramento Public Finance Authority will return to the city as lease payments which will then pay for the bonds.

    If you don’t believe me read the full text of Measure U. Note, I said to read the FULL TEXT, not the question to the voters or the summary or the argument for or the argument against. (Wait, skip the last one, KJ missed the deadline to submit it so there was none.) Within the full text, the only reference you will find to how the funds will be used is the following sentence: “The proceeds resulting from this transactions and use tax shall be deposited into the city’s general fund and become subject to the same independent annual audit requirements as other general fund revenue.”

    Yes, they “promised” it would be used for specific purposes, but the measure does not require it. There is an old business maxim that applies: If it ain’t in writing, it doesn’t exist.

  32. Measure U funds can’t be “earmarked” for specific projects or budget items, as doing so would have required a two-thirds majority, rather than a majority vote. The City Council noted that they would spend the money on specific things, but they aren’t required to do so. And it’s unlikely to do so until Measure U is renewed (or not renewed) as the City borrowed funds for the first eight years of payments and part of the bond sale.

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