Yes, Arlington would pay for more than 50% of Rangers stadium, but not because of ticket tax

So I was sitting around yesterday, waiting for NHL commissioner Gary Bettman to go on TV and announce the new Las Vegas expansion franchise, when this story from WFAA-TV in Dallas about the new $1 billion Texas Rangers stadium plans suddenly blew up all over the Twitterverse:

City of Arlington officials have touted a “50-50” private-public partnership to build a proposed $1 billion retractable roof stadium for the Texas Rangers.

A WFAA-TV investigation, however, has found taxpayers may instead pick up to 80 percent of the tab, which amounts to hundreds of millions of dollars more than initially promised by city leaders…

Tucked in the agreement is a clause called the “admissions and parking tax” that allows for a 10 percent surcharge on event tickets and up to $3 additional surcharge on parking. State law allows cities to collect and use the taxes to build their stadiums. Arlington’s agreement, however, allows the Rangers to use the admissions and parking tax revenues to help pay their half of the construction costs.

“If it really is a tax and could be used by the municipality, then in essence it’s just transferring revenue from the public sector to the private sector,” said Rick Eckstein, a Villanova University professor who studies sports stadium economics.

“There’s a sleight of hand here. There’s verbal gymnastics going on,” Eckstein added. “It’s relatively unprecedented in terms of stadiums I’ve studied over the last 20 years.”

Not to disagree too strongly with Eckstein (co-author of one of the best stadium books out there), especially since he’s right that tax money is fungible and shifting it from public to private pockets amounts to siphoning it off from the public treasury. But these particular tax surcharges are kind of special, to the point where we arguably shouldn’t consider them an additional public subsidy.

What it comes down to is the difference between existing taxes and tax surcharges, especially on items that are under the monopoly control of team owners. Think of it this way: When a sports team owner sets ticket prices, they do so with an eye toward maximizing the amount of total revenue they’ll bring in — basically, they set prices as high as the market will bear without driving fans to stay home and watch on TV. (Technically we’re talking net revenue rather than gross revenue here, but since the marginal cost of selling an additional ticket is close to zero — you might have to hire an additional tiny fraction of a hot dog vendor, but the players are all being paid to play regardless — we can ignore it for our purposes.) That means if that break point is $50, they’ll charge $50 — regardless of whether that’s $50 they get to put in their pocket or $45 in actual ticket value plus a $5 surcharge.

A similar effect is at work regarding parking, which is why most economists consider surcharges like these to come out of the owners’ pockets, even though they’re technically taxes. The owners could accomplish the same thing just by “taxing” themselves, in other words, though there are likely some tax benefits they get from paying this via the tax system rather than voluntarily out of their own pockets.

There are additional problems with the WFAA analysis, starting with the fact that the station’s reporters estimated $300 million in admissions and parking surcharges over 30 years, and added that on to the city’s existing $500 million obligation — but $300 million over 30 years doesn’t cost $300 million now, but rather more like half that in present value. (It’s like figuring a house mortgage: You count how much you need to borrow from the bank now, you don’t add up all your mortgage payments into the future.) So we’re already down to $650 million, and much of that $150 million added cost would really come out of the Rangers owners’ pockets, so really this is much ado about not all that much.

Which isn’t to say that the proposed Rangers stadium doesn’t have hidden costs: It has tons of them, from about $15 million in future rent rebates to free land and property tax breaks for parking lots to the city being on the hook for any of the Rangers’ share of bonds if team revenues fell short of covering them. Whether this gets the public share up as high as 80%, I couldn’t tell you, but it’s worth investigating. Get to it, WFAA investigative team!

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10 comments on “Yes, Arlington would pay for more than 50% of Rangers stadium, but not because of ticket tax

  1. I think get some of what you’re saying–the owners are going to charge the same total price for parking, so it’s kind of beside the point which part of that is a surcharge–but if that’s money Arlington could hypothetically keep, isn’t it a big deal that they’re giving it up? I think I am missing something?

  2. It’s only money Arlington could keep if you’re comparing it to a scenario where the city would raise ticket and parking taxes and not build a stadium. Which maybe it could do, but now we’re into hypotheticals like “Arlington is losing money by not imposing a $1 million a year levy on income taxes for people named Rougned.”

    To think of it yet another way: If Arlington were using this money to pay off their own share, we wouldn’t be counting it as a subsidy. So giving it to the Rangers instead isn’t an extra subsidy, it just means the same $500m in cash is all coming out of Arlington’s pocket. To say otherwise would be double-counting.

    1. Let me get this one right:

      Instead of the Rangers picking up 50% of the cost (because barring other events being held and revenue splits on those worked out otherwise)…they expect[nee: demand via other means] that Arlington residents pick up 80% of the cost? Someone had too much loco weed in their feed?

      This being the case, something says when this palace loses it’s luster…and the ‘keeping up with joneses’ stadium improvement clauses have run out, this will happen again. And again….and again. By then, some Einstein will figure out how to get the public on the hook for 120% of the stadium cost (like something out of ‘The Producers’).

    2. You should probably read this post again, because it says Arlington *won’t* be picking up 80% of the cost. Probably.

      1. Neil,

        In rereading under better light…you are correct. Although…..the skeptic in me is thinking the residents may still be on the hook for more than what they ‘bargained’ for.

  3. I believe that the Cowflops already get 100% of a parking tax collected by Arlington. I can’t swear that’s still the case but I do recall when the DeathStar opened that was the deal.

      1. Mortgage analogy is dumb, even if you’re trying to figure out the present value of future revenue streams. The revenue streams from the parking tax have nothing to do with the capital expenditures necessary to fund the stadium. But they are a perk alright, and it’s a little bit a slight of hand to conceal the true cost/benefit of Arlington’s investment in the stadium. It is an interesting question how this rebate of surcharges to the Rangers is treated from a tax perspective. Do the Rangers report it as ordinary income or is it a way to get $2 of every $20 tax free simply by labeling it as a gov tax that is than rebated as something else.

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