St. Pete council calls Rays’ bluff, rejects lease buyout unless team coughs up development rights

If yesterday’s news had you thinking that city councils were just mindless automatons who would inevitably rubber-stamp any stadium deal set before them, then the St. Petersburg city council had a surprise for you: That body voted 5-3 yesterday afternoon to reject the proposed deal in which the Tampa Bay Rays could buy their way out of their Tropicana Field lease to move to a new stadium elsewhere in the bay area for a payment of at most $42 million.

Given that as recently as a week ago, all signs were that the council was going to approve the plan that Mayor Rick Kriseman had worked out with Rays owner Stuart Sternberg, this was a bit of a shocker. But according to the Tampa Bay Times, Rays execs shot themselves in the foot with their answer to questions about whether the team would agree to forgo a split of profits from development of land on the 85-acre Tropicana Field site if they were in the process of leaving anyway:

Council member Darden Rice, who voted for the agreement, said the Rays blew the deal with their presentation.

“I think at one point we had five votes,” Rice said. “But I was very disappointed by Auld’s response to Karl Nurse’s question about development rights. It was either tone deafness or arrogance.”…

Nurse had asked Kriseman earlier in the week to change the agreement so the city could retain all development rights in that situation. But the Rays declined to make any substantive changes to Kriseman’s deal.

Nurse still voted for the deal in the end, but this did not go over well with several other members of the council:

[Councilmember Bill] Dudley said he felt like the Rays were making ultimatums. “I don’t like arrogance,” he said.

“The deal breaker for me was the idea that they want us to abide by the use agreement for redevelopment purposes, where they can benefit,” [councilmember Amy] Foster said, “but they didn’t want to abide by the use agreement” by staying at the Trop.

“This is a common strategy,” she said. “They use their mobility in order to threaten cities in order to get more.”

Yep, that they do. But in most cases they don’t have an ironclad lease like the one that the Rays are locked into in St. Pete, which currently doesn’t allow the team owners to buy their way out, or even talk about leaving, until 2027. That’s a hefty piece of leverage that the council has at its disposal, and they just used it.

For Sternberg, the logical next step in this situation is to haggle: If the council wants a bigger share of development rights, throw them a bigger share of development rights. Or kick in an extra million or two a year in lease-breaking payments. But it seems like the council isn’t opposed to the principle of the deal, just the specifics, so the usual strategy would be to pick off a couple of councilmembers and find out what their price is.

Sternberg, however, has already declared that he won’t negotiate any more changes to the lease buyout, saying last week, “If it doesn’t pass, we’re doomed to leave.” This kind of paints him into a corner, with his only obvious options being:

  • Try to pretend he never said anything about no further negotiations, and quietly resume talks in a few months. This would not only require swallowing a lot of pride at this point, but also leave him with a weakened negotiating position, since clearly his ultimatums wouldn’t be worth squat.
  • Sit tight and wait — if not 13 years, then at least for a new city council to be elected next fall. And then hope like crazy that the new folks are more willing to give you anything you want.
  • Sell the team and make it someone else’s problem. Forbes, which tends to underestimate team values, has the Rays worth $485 million, which would be a nifty 142% profit on what Sternberg bought them for in 2002. But presumably the Rays would be worth an awful lot more if they had a shiny new stadium to play in (especially if the shiny new stadium debt could be fobbed off on taxpayers), so Sternberg would be leaving a lot of hypothetical money on the hypothetical table if he took this route.
  • Call Bud Selig and ask him to threaten to blow up the team on his way out the door, and hope that the courts will protect them from the inevitable antitrust lawsuit that would result.

So far, the Rays have just responded with a generic “You’re a bunch of poopyheads” statement:

There’s still plenty of time — until 2027, really — for a deal to be worked out, so there’s no reason to start freaking out about the Rays moving to Montréal (unless you’re the Tampa Bay Times editorial board). The St. Peterburg council did send a message, though, that they’re at least aware that, as Jonah Keri puts it:

Public officials trying to negotiate better deals in the public interest. What’ll they think of next?

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12 comments on “St. Pete council calls Rays’ bluff, rejects lease buyout unless team coughs up development rights

  1. If everybody in the Tampa Bay area that has an opinion on this on-going soap opera would just attend games at the TROP, the attendance problem would be solved.

  2. Wait, what?

    If the deal that would allow Sternberg to buy his way out of the lease that holds him in Tampa until 2027 “doesn’t pass, we’re doomed to leave…”

    And here I thought it was the lease that was keeping them there (at least if you believe the Rays own propaganda on the matter). What an interesting world franchise owners must live in… ever the victim these billionaires…

    I’m pretty sure the Rays are staying unless Stu puts more cash on the table. If he has somewhere else to play (in the region or elsewhere), all he needs to do is put $75m on the table and this would be done.

  3. On a different note (yet strangely kinda the same…) I want to give credit to the city/county councils and leadership. They are proving that you can stand up to billionaires and defend the interests of the taxpayers. There is obviously a long way to go in this and, who knows, the end result may be no MLB in the district. But given the number of people who attend the games and/or watch on tv, I doubt the general public will mind all that much even if it does work out that way.

    Maybe TSP won’t even have to close schools, hospitals and fire stations to fund professional sports obligations like Cincinatti, Glendale et al are doing.

  4. I’m actually optimistic that the Rays will stay in Tampa Bay long-term. Even if they were to end up waiting out the end of the lease and then be free to go anywhere, “anywhere” is a pretty short list. Especially if MLB decides to add an expansion team or two by then, and it has to be super-tempting to do so, what with what franchises are going for these days.

  5. It seems a bit ridiculous that relinquishing a bigger chunk of the development rights wasn’t part of the deal in the first place.

  6. In my opinion, the Rays’ proposed Memorandum of Understanding was not in the City’s best interest. Here is my letter to the City Council for the City of St. Petersburg, FL:

    RE: Proposed Memorandum of Understanding between the City of St. Petersburg and the Tampa Bay Rays

    Honorable Council:

    I have the following concerns about the proposed Memorandum of Understanding between the City and The Tampa Bay Rays (“the Club”).

    You have a very important decision that should recognize the City’s investment in this stadium, the partial return on the City’s investment thus far, the annual operating costs for this stadium (especially those not offset by ticket and/or parking revenues), capital costs (those covered by naming rights revenue and those projected that exceed that revenue stream, especially if this revenue stream is stopped while the stadium stands), termination costs and future development costs of the stadium site. That is your fiduciary duty as a Council Member for the City of St. Petersburg, Florida.

    As you may know, I had the privilege of representing the City of St. Petersburg in 1992 (as outside counsel) defending the City in Homer Oxendine’s lawsuit against the City relating to Dome site contamination. I also sat where you are sitting today, as a Council Member, from 1996 to 2000 to consider the Stadium Use Agreement, the Club’s breaches of the Stadium Use Agreement, Amendments to the Stadium Use Agreement and settlement of the lawsuit related to the construction build out of the Dome for the newly awarded MLB franchise.

    I have learned about our City’s significant investment of hundreds of millions of dollars in this expensive asset. You should understand that investment before considering altering the City’s well written agreement that protects the citizens of St. Petersburg. I attach a copy of Administration’s estimate, as of March 5, 1998 of Public Development Costs of $209,634,000. See Exhibit “1”. This estimate does not include the additional baseball construction bonds reissue costs. You should obtain updated information so you can really state how much the City of St. Petersburg, Pinellas County and the State of Florida have invested in the stadium.

    Also, you should know the City’s annual operating costs and annual debt service remaining on this stadium. What is the City’s obligation on its bonds which will not be paid off until 2027? What are the City’s annual insurance costs, outside police and fire/EMS rescue, etc. costs related to Tropicana Field (hereinafter “the Trop”)? The Club pays most of the operating costs for the stadium today. What would these costs be for the City if the Rays leave? For how long? City Attorney John Wolfe told me it would probably rain inside the Trop if the air conditioning was turned off. So, the City probably could not just “mothball” it until the City repurposes or demolishes it. How much would it cost the City to minimally maintain, secure and insure the Trop in the event the Rays leave (water, sewer, solid waste collection, electric, cable, etc.)?

    The Club was paid $4.1 million dollars to manage the Dome for the entire term of the agreement. Where is the City’s pro rata reimbursement for that management fee described or referenced anywhere in the Memorandum of Understanding?

    What revenues does the City currently receive from the Trop’s use by the Club? The agreement used to provide that the City would receive a portion of ticket revenues (has anyone audited this) and parking revenues (there was a kerfluffle when the Rays offered “free parking” that the Council did not approve). I attach a copy of a memorandum from Mr. Musset’s office summarizing Trop issues at the time when the new ownership group was contemplating using all of the proceeds from the redevelopment of the Trop parking lots to build a new waterfront stadium. Exhibit “2”. How much does the City receive today? Project the impact of these lost revenues while the stadium sits empty.

    Also, you should review the Trop Field Capital Account. Have you compared invoices with approved allocations to confirm that the funds from both the Club and the City in the Tropicana Field Capital Account were spent as approved by City Council? Has a portion of the capital replacement account been reserved for future roof replacement? Over $300,000 was allocated and spent recently for roof repairs yet I continue to hear that it needs to be replaced. What is that cost? I attach a copy of some correspondence describing past approved Trop Field Capital Improvements. Exhibit “3”. As you can see, the new ownership group used Dome Capital Account dollars to build out the Rays TAMPA Sales Center ($57,356) and, unbelievably, the City approved it! You should know how that money was spent and how future capital needs have been budgeted for the remainder of the term under the use agreement. What is the fiscal impact to the City’s budget if there is no Trop Field Capital Account?

    I also recommend the City inventory all of its assets at the Trop. How did a circular staircase from the Trop end up at Green Bench Brewery? An independent inventory and accounting of the City’s assets would provide a fuller picture of the City’s assets and how these will be disposed of upon termination (and how the Rays are disposing of them now), if at all.

    If the Rays move to Tampa, I suspect the funding source for the Trop Field Capital Account (naming rights revenue-see enclosed chart, Exhibit “4”) will disappear. Nonetheless, until a decision is made regarding the empty stadium, the City will incur some capital maintenance and replacement costs. What are those projected capital costs? Where will the money come from to cover those costs?

    Finally, there is excitement about the possibility of redeveloping the vast parking lot east of the Trop. Remember, under the existing Stadium Use Agreement, the City has the right to develop the air rights of this area today (subject to the Club’s approval which cannot be unreasonably withheld) so long as replacement parking is addressed. I repeat. If the City wanted to develop the parking lot today, it could do so under the existing agreement. If this area were redeveloped, then the City and the Rays would share in the proceeds of developing the parking lot. This would also mean, however, that the City and the Rays would share in remediating the contamination of this parcel which would be required if the City wanted to redevelop those lots. You should know what limits have been placed on redeveloping this lot, if any.

    I am providing you copies of reports detailing the pollution at the Trop and a copy of the most recent environmental pollution monitoring report I have from 2007. Exhibit “5”, “6”, “7” and “8”. You should request the most recent results of the environmental monitoring and an estimate on how much it would cost to remediate the site. As I understand it, the City “capped” the pollution with the parking lot and if this “cap” is removed (to redevelop the parcel) then this pollution will have to be remediated. You should request a proposal on how much it will cost to remediate the Trop site pollution so you truly understand how much it will cost to redevelop the site at this time. (Some contaminants deteriorate over time making it less expensive to remediate later. I do not know whether that is the case here.) Attached are copies of Contamination Assessment Reports from Environmental Science and Engineering from August 1987 (I was not provided with Section 5), January 1988 and June 1988 regarding this contamination and a copy of Environmental Consulting and Technology, Inc.’s 2007 letter to the Florida Department of Environmental Protection with the testing results.

    Also, there was discussion in 2007 about mixed office/residential redevelopment for the Trop parking lot area. It was my understanding that the City had already achieved full residential development under the Development of Regional Impact (DRI) order issued for this area and that people would not be allowed to construct homes on the Trop’s contaminated site. The Northeast Reclamation plant is being decommissioned and the waste is being directed to other plants. Is the infrastructure in place to provide sufficient water, sewer, electric, cable, etc. roadway for any redevelopment? Do either of the DRI or the DEP allow residential development of the Trop parking lot or is it limited to commercial or industrial? How does that impact surrounding districts?

    You are at a significant disadvantage because you do not have your own attorney to advise you. I recommend you obtain your own counsel. The City’s attorneys have crafted this Memorandum for Mr. Kriseman. And, Mr. Kriseman has already threatened you that this is non-negotiable. Baloney. Everything is negotiable. You just need to know and understand the City’s significant asset, the City’s current significant bargaining position and how this Memorandum changes all that. This is why you need your own attorney to advise you. Inexplicably, the City Attorney has changed his mind.

    First, the City loses its most valuable defense, “wrongful termination” and the ability to recover those damages by agreeing to this “Memorandum of Understanding”. I am not surprised that the Club would seek this. I am surprised, however, that Mr. Kriseman would agree to termination because he has a fiduciary obligation to the citizens of St. Petersburg to protect our assets. And, this Memorandum of Understanding, in my opinion, is not in the best interests of the City. You also need to understand who you are dealing with. The Rays organization met secretly for over 6 months hiding from public their plan to sell us back our own land (developed) to fund a new waterfront stadium. The proposed payoff is woefully (and embarrassingly) inadequate. If the Rays leave early (as would be allowed for the first time under the MOU) how will the City ever recover its investment? Agreeing to “termination” destroys the City’s strongest cause of action.

    Second, the Annual Monetary Compensation is inadequate. The Rays don’t even offer to pay for every year they leave early, ending payments in 2026 not 2027. The City weakens its position by agreeing to waive this last year and by agreeing that these amounts are adequate compensation. These sums are pathetic compensation.

    Third, in kind compensation. Do the Rays really think $1 million dollars will impact the negative image from their seemingly non-stop bashing of our City? Unfortunately, the Club has a sketchy history of compliance with promises to promote the City through advertising. Almost from the beginning, the Club violated the spirit and intent (and actual term) of the agreement. I remember bringing to a council meeting photographs I took of Trop billboards that failed to have the City’s name on it. So much for that promise to advertise the City of St. Petersburg…now I think this requirement may have been dropped altogether. And, we know the name of the team- Tampa Bay Rays. I’m not fooled, are you? I predict that the “in-kind compensation” promised by Rays will be offset by legal fees incurred trying to recover it. Ditto for the “$ 1 million compensation” in the event the parties do not agree.

    Fourth, indemnification for Bonds. Why would you weaken the City’s position by agreeing to this? The Club should be required to pay these off and reimburse the City for the negative economic impact of leaving early. Period.

    Fifth, the Stadium Use Agreement was enforceable in Pinellas County courts. Why agree to move this to Manatee County, Florida away from Pinellas County, Florida?

    Finally, it is my understanding that the entire Major League Baseball organization had to agree to the Stadium Use Agreement. Thus, all of the MLB owners were at risk if the Rays materially breached this agreement by leaving St. Petersburg early. I noticed that MLB was not required to sign off on this MOU. It appears the City has lost a potential source for recovery of damages-the rest of the league-if the Rays leave early.

    In my opinion, Mr. Kriseman is not looking out for the best interests of the citizens of St. Petersburg. Do not breach your fiduciary duty to the citizens of St. Petersburg by agreeing to this wholly inadequate Memorandum of Understanding. At the very least, you should obtain all of the financial data described above so that you fully appreciate the impact of your decision.

    Kathleen Ford

  7. Wow! According to Kathleen Ford’s letter, the development rights issue may be the least of the city’s problems with this agreement. I hope the Tampa Bay Times and other local media can take some time away from promoting the Rays’ position to publish her letter and thereby inform the public.

  8. I’m with Neil 100% on this: Unless you have a) A free stadium and B) the market of Montréal, NY team 3, or Mexico City, given the way baseball teams are valued there is no location that will provide the market-size and stadium revenue necessary to raise the values of the other franchises or better Tampa Bay.

    San Antonio, Portland, and Omaha aren’t filling 20k+ a night for the visiting White Sox or Astros, even with a free stadium.

  9. @Kathleen: Does the city have a fiduciary obligation to citizens? I’m a lawyer in Ontario, and our Courts have basically applied the concept everywhere, but we’ve never gotten to the point of giving it to cities, despite the obvious benefits that would entail (my favourite professor once said it would be the glorious end of the party whip if applied Federally).

  10. This could be an extraordinary phenomenon in evolutionary biology, random city officials possibly developing a backbone.

    Kudos to Ms. Ford, that’s the kind of thinking needed when dealing with these gangsters.

  11. Florida has a sovereign immunity statute where the sovereign ( in this case the City) waives immunity if there is a common law duty of care. Here, the argument would be that the city council members owe the public the common law fiduciaries duty of care and loyalty when deciding on the public’s property. Here, the public trust is the property owned by the City and used by the Rays pursuant to the Stadium Use Agreement. Some courts have found liability where there is a willful disregard of the property. Florida Statute Sec. 768.28.
    A former city attorney summarized issues in sovereign immunity in the article below:
    Another attorney addressed the fiduciaries responsibilities here:!OpenDocument&Highlight=0,*

  12. Of course, there are limits and defenses, etc. but arguably this would be the basis for a complaint….against a governing body that willfully disregarded the City’s property.

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