New MLB CBA should help spark new A’s stadium, but maybe not why you think

Of all the small changes in the new MLB collective bargaining agreement agreed on last week (which include the end of our long national World Series home-field nightmare), one that’s getting a bunch of attention is the decision to phase out the Oakland A’s exemption that’s allowed them to be the only team to collect revenue-sharing checks despite playing in a big market. The upshot, according to most sportswriters, is that this should turn up the heat on the A’s to build a new stadium:

Q. Sure, losing $35 million is one thing, but spending $800 million or likely much more to build a privately financed stadium is in a whole other category. Why does this force the A’s hands?

A. In absolute terms, it can’t. But the A’s want and need a new stadium and its revenue generating potential, so this is a strong push in this direction. Both executive vice president Billy Beane and general manager David Forst have talked about a future in which they can dial up the payroll to fit a new stadium.

That’s … not wrong, but wrongish. The implication here is that now that the A’s won’t be cashing annual revenue-sharing checks from the rest of the league no matter how crappy their balance sheet is, they’ll have to turn a profit some other way, so time to finally get cracking on that new stadium that’ll open up the money taps!

But that’s not how sports team owners think, or at least not how they should think if they’re remotely rational economic actors. (Which they probably aren’t entirely, but let’s overlook that for the moment.) If a new stadium is going to bring in more money than it costs to build, then you’re going to do it regardless of how much money you’re currently getting from other sources; and if a new stadium is going to be a money-loser, it’s not going to help you either way.

Where the new revenue-sharing rules can change the game is in how they effect marginal tax rates. Think about it this way: If you’re considering making an investment — moving to a new city, buying a car that allows you to commute to a new job, getting an advanced degree — and trying to figure out if the extra income it will allow you is worth it, the first thing you need to know is how much your net income will change after taxes, deductions, etc. So if you’ll be earning an extra $10,000 a year, but your bank balance will only change by $6,000, that’s a 40% marginal tax rate. (We can call it this regardless of whether it’s actual extra taxes you’re paying, or, say, credits you’re no longer eligible for.)

So back to the A’s. In past years, as an exempted “small market” team under MLB’s two-tier revenue sharing system, they’ve been subject to the leaguewide 34% tax on each new dollar earned, plus a 14% “performance factor” tax where both the size of the tax and the size of the benefit is based on how much money your team brings in (or fails to). (the effective marginal tax rate impact of this is largely the same regardless of whether you’re a high-revenue team or a low-revenue team, since either you’re paying out more and more into revenue sharing as your revenue rises, or you’re receiving less and less in checks, or both.) The new system eliminates the performance factor sliding-scale tax and replaces it with more flat tax — while the math is complicated, it won’t change things drastically in terms of how much of each new dollar the A’s get to keep.

What will have a significant effect is eliminating the huge penalty the A’s were previously going to face for building a new stadium. Before, a new stadium was going to make the team ineligible for any revenue-sharing checks at all, since it would kick them into the “big market” bracket; now, with the checks already shutting off, there’s no disincentive to go ahead and build. Getting rid of this penalty — a “benefit cliff,” in economic terms — should make building a new stadium a lot more alluring to the A’s owners, which is no doubt a big reason why MLB took this measure. (Though also probably because some owners were just sick of giving the A’s any money when they weren’t spending it — though that remains a problem with some other teams that remain designated “small market.”)

In other words, while losing that $35 million a year should be a huge incentive for building a new stadium, it’s not actually the loss of the money that matters, but rather taking away the threat of losing the money if they built a new stadium. MLB could just as easily have incentivized Lew Wolff and Co. by saying, “Hey, you’re small market either way, go ahead and replicate the Miami Marlins if you feel like it,” and it would have done largely the same thing.

If all that is too much math to swallow on a Monday morning — it’s almost too much for me — just hold on to the takeaway that the A’s might be building a new stadium soon with largely private money, though there’s still concerns they may try to make a grab for public land. Just also remember that revenue sharing works in mysterious ways, so what’s sauce for the A’s may not be sauce for, say, the Arizona Diamondbacks.

Oakland mayor announces that Raiders stadium plan framework concept is mumble mumble something

Oakland Mayor Libby Schaaf announced a thing yesterday:

The mayor of Oakland announced that the city has reached a framework agreement with the Ronnie Lott group for a new stadium, with the hopes of keeping the Raiders in Oakland.

“It is exciting that we have reached a conceptual framework agreement with the Lott group,” said Mayor Libby Schaaf.

So what exactly would that be, a “framework agreement” with a developer to build a stadium for a football team that isn’t actually party to the agreement? Schaaf’s office hasn’t actually announced anything — and her press spokesperson didn’t respond to my queries — but NBC Bay Area’s Ray Ratto sums up the state of things as follows:

That stadium is considered by most experts, including Oakland mayor Libby Schaaf, to run in the neighborhood of $1 billion, with the city and county’s contribution limited to infrastructure improvements that are loosely estimated now at around $190 million, to be generated by some new tax or taxes as opposed to access to the general fund.

So: The city and county will put in maybe $190 million for infrastructure, which it will get from somewhere, while the developers will put in $1 billion, which it will earn back by charging the Raiders something. Or maybe getting an equity stake in the team. None of which has been worked out yet with team owner Mark Davis.

Maybe someone on the board of supervisors or city council, who would have to vote on this, can shed some light?

Alameda supervisors discussed the proposed deal behind closed doors Tuesday morning, but Supervisor Scott Haggerty, the president of the board, downplayed Schaaf’s comments that the county was close to voting on Lott’s proposal. Haggerty said the city has not released information supervisors have requested. He would not say what that information was.

Well, then. Maybe Schaaf and Lott have actually agreed on something, but if so, they aren’t saying what it is, and even then, it may not matter unless Davis agrees to have the Raiders play there. She got her name in the paper under “getting things done” headlines, though, so I suppose that’s a short holiday work week well spent if you’re a mayor.

Trump plan could create huge incentive for governors to rebrand stadiums as “infrastructure”

I followed up on Monday’s quick take on what Donald Trump’s infrastructure tax-break plan could mean for stadium subsidies with a longer investigation for Vice Sports, and after speaking to a half-dozen experts in the field, the conclusion is: This is mostly a plan to coerce states into outsourcing roads and other big public projects to private companies, but if it means funneling money to things like stadiums and calling it “infrastructure,” they’ll probably take that too.

While some [public-private partnerships] have worked out well, the failures have been of epic proportions. A few years ago, Texas contracted out State Highway 130 to a private developer, which skimped on construction costs by installing cheaper asphalt rather than sturdier concrete, resulting in what the Austin Statesman described as “a rumbling, dangerous washboard effect that tends to last for a couple of seconds each time.” Despite a much-ballyhooed 85-mile-per-hour speed limit, the road’s builders filed for bankruptcy earlier this year, sticking the federal government with a half-billion-dollar tab for its piece of the P3.

Under Trump’s proposal, more for-profit companies getting involved in building public roads would probably be the best-case scenario. Without strict limits on what qualifies for the Trump tax breaks, all sorts of projects for private benefit could end up being rebranded as “infrastructure.” We’ve already seen mayors and business leaders propose everything from affordable housing (this from the mayor of D.C.) to “Internet of Things technology” (this from the CEO of IBM, which makes—you guessed it—said technology) as infrastructure projects…

You can probably see where this is going. John Q. Governor decides that he wants a slice of that sweet, sweet Trump money so he can show voters that he can get benefits for his state. He doesn’t need another toll road, and no private investors are looking to build a new sewage system because sewage doesn’t pay the bills (and also, ick). However, the local arena shuffleboard team is asking for a new stadium, and shuffleboard arenas are infrastructure, right? Like, the kids can use them to practice for pro shuffleboard careers? Plus, jobs. Jobs are totally infrastructure!

Do I think that Trump is definitely going to unleash billions of dollars of federal sports subsidies on top of the couple billion a year currently being spent by local governments? No. Do I think that he’s set to open a giant loophole that every sports team owner is going to try to figure out how to drive a stadium through? Yeah, that one.

Trump’s “infrastructure” plan could unleash a flood of new sports stadium subsidies

Ever since election day, there’s been talk that one Donald Trump policy proposal swiped from the Democratic playbook would be a massive program of federal spending to, as his website says, “pursue an ‘America’s Infrastructure First’ policy that supports investments in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs.” Some local officials have responded enthusiastically, with New York Gov. Andrew Cuomo saying he hoped this would lead to increased funding for long-planned public transportation projects like bridges and airports.

According to an op-ed in Friday’s Washington Post, though, Trump’s actual plan wouldn’t actually involve any increased funding to public construction projects. Former Obama stimulus-spending czar Ronald Klain, citing a report by two Trump policy advisors, writes:

The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.

If you’re a regular reader of this site, this should be sounding familiar: Tax kickbacks to projects that might take place anyway are the M.O. that has helped create the $2-billion-a-year sports stadium and arena subsidy industry — not to mention a slew of other subsidies to businesses from auto plants to airplane factories, plus the innumerable construction projects that receive tax increment financing even though they’d still be built without it.

What would be new under the Trump plan would be a massive federal outlay for these kinds of privately built projects. (Right now the main way the federal government subsidizes local private construction projects like stadiums is via tax-exempt bonds, which amounts to a whole bunch of money, but not nearly as much as if the feds were subsidizing projects directly.) The Trump policy paper, by leveraged buyout king Wilbur Ross and UC-Irvine economist Peter Navarro, is maddeningly unspecific about what projects would qualify for Trump income tax credits. But given that the rebates would be limited to projects that private-sector builders were interested in building — and that it’s likely to be left up to local governments to determine what to use the tax credits for, as the Trump policy report promises to “provide maximum flexibility to the states” — don’t expect to see a whole lot of new bridges when there are for-profit housing developments and, yes, sports stadiums to be built that would be far more lucrative for their builders.

At minimum, the Trump plan would be a way to coerce state and local governments to deal in private developers on otherwise public projects, with the private contractors getting to extract a “10% pretax profit margin” (it’s unclear whether that’s a guarantee or just an estimate). But if it ends up just being a way to subsidize private construction projects by rebranding them as “infrastructure” — something that has already been used to justify local-level stadium subsidies in the past — then we could easily see a whole lot of sports team owners lining up with their hands out. If the Trump plan moves forward, we’re going to need to keep a super-close eye on the arcane details of how the eligibility rules are written; it’s either that or trust state and local government officials to decide what to use the federal tax rebates for, and we’ve seen how well that’s worked before.

Field of Schemes live talk, Tues 11/15, UConn campus bookstore in Storrs, CT

Today’s decision day for the Texas Rangers owners’ stadium subsidy proposal, and the San Diego Chargers owners’ stadium subsidy proposal, and probably some other stuff people are voting on nationwide, I haven’t really been paying attention. I’ll be up late to report in as returns are available.

Meanwhile, if you’d like to talk to me directly about these and other matters of sports venues and who pays for them, and will for some reason be in the vicinity of Storrs, Connecticut next Tuesday, I’ll be giving a talk at the University of Connecticut campus bookstore at 4 pm, and generally hanging around campus all day to drop some stadium science upon the undergraduate masses. (Do college students still say “drop some science”? Probably should check on that before next week.) It’s free, and I’ll be signing copies of Field of Schemes if you don’t have one or need to do any early holiday shopping, so come on down!

Soccer exec: West Ham’s four-year-old stadium sucks, tear it down and build a new one

And finally this morning, former English soccer star and stadium consultant Paul Fletcher had this to say about West Ham‘s new home in London’s Olympic Stadium:

“Either we go on as we are for the next 30 or 40 years or we knock it down and start again,” Fletcher told the BBC.

“Something has to give. If you want to satisfy spectators the only way to get those spectators near that pitch is to knock it down and start again,” added the former Burnley striker turned chief executive.

Which, given all the complaints about the crappy views at the stadium, plus scenes of West Ham fans throwing coins and bottles at opposing fans and even fighting among themselves, isn’t an entirely unreasonable response from a guy who figures he could have done it better. Still, calling for a four-year-old stadium to be torn down and rebuilt has to be some kind of record, no?

(You could actually make an even better case for knocking down West Ham’s roster and starting again, but pointing that out would be cruel. So I’ll only do it in parentheses.)

Unapproved Braves vendors will still face arrest but maybe not jail, now quit your griping

The Cobb County Commission, having somewhat walked back plans to arrest anyone near the new Atlanta Braves stadium who offers parking spaces to Braves fans, is now backing away from restrictions on unapproved vendors around the stadium, too, saying they won’t necessarily face jail time:

Earlier this year, the county amended its anti-peddling ordinance to essentially grant an exemption for the Braves to control vending at the stadium and The Battery, a mixed-use development under construction next to SunTrust Park. It included what the county described as “standard misdemeanor language,” including fines and jail time for violators.

Following pushback, the county suspended the ordinance to remove references to specific penalties, effectively leaving the matter in the hands of the magistrate court.

Braves fans who want to buy peanuts for less than eight dollars, rejoice! Vendors will now be free to sell them to you and maybe escape jail time if they can talk a judge into a lesser penalty! That’ll be something to celebrate while running across the highway next year to watch the National League’s best last-place team.

Louisville arena bleeding even more public money than before, could go bankrupt

When we checked in on Louisville’s KFC Yum! Center three years ago, the University of Louisville was turning an annual $26.9 million profit on the arena, while the city of Louisville was losing $9.8 million a year. According to two researchers who testified before a state legislative committee last week, that’s changed now — in that the city is doing much, much worse:

Louisville entrepreneur Denis Frankenberger and J. Bruce Miller, senior partner in J. Bruce Miller Law Group of Louisville, told the Kentucky General Assembly’s joint Capital Projects and Bond Oversight Committee on Tuesday that the center lost more than $17 million in 2015 and is losing $1.4 million a month…

[Frankenberger] cited an initial [tax increment financing] revenue stream projected at about $4.5 million the facility opened actually came in at about $615,000. A second-year TIF revenue projection of $6.6 million came in at about $2.1 million…

“The University of Louisville makes $20 million a year on events,” Frankenberger told the committee. “It’s a taxpayer scam.”

A bit of context here: When the city built the arena for the state university for $339 million in 2010, the bonds were supposed to be paid off roughly evenly from city general fund money, luxury suites and arena advertising, and cash from that TIF district (i.e., any increased property taxes collected in the area right around the arena). The university, meanwhile, would collect almost all other revenues from the arena. With the TIF revenue falling short, the city now needs to come up with another way to pay off its share of the bonds (about $13 million a year) plus operating costs, or else let the place go bankrupt.

The good news is that this is mostly just a bookkeeping problem: The city vastly overestimated its future TIF revenue, so now needs to dip into one of its other pockets if it wants to keep up with its arena bond payments. The bad news is that this was going to be city money either way — since even according to the city’s own figures the TIF district was just cannibalizing property taxes that otherwise would have been paid elsewhere in the city, taxpayers were going to be on the hook for more than $200 million worth of bonds regardless. So now it’s just a question of how else to pay off the debt.

State legislators are now demanding that the city renegotiate its lease with the U of L, which sounds great except it’s not clear the city has any leverage to do so, which could result in the university saying, “Yeah, tough break about those TIFs, but we have a contract.” This was a horrible, horrible deal for Louisville residents in the first place, and the TIF shortfall is making that more obvious. But unless the threat of arena bankruptcy somehow gets the U of L to the bargaining table, it’s hard to see how this is much more than posturing.

Vegas needs the NFL or else tourists will go to Dallas, and other Raiders stadium arguments

The Nevada state legislature’s special session to discuss a $750-million-plus stadium subsidy to bring the Oakland Raiders to town kicks off today, which means it’s time for boosters of the plan to pull out all the stops in arguing that this not only is a reasonable amount of money to throw at two rich guys, but an absolute no-brainer. What do you got, stadium proponents?

Sisolak apparently said this back in early September (unless he said it again this weekend, which is possible), but the Las Vegas Review-Journal is reporting it as new news. Which is fine enough, because the notion that Las Vegas needs to be put on the tourist map is hilarious enough that it’s worth repeating as often as possible.

  • Brookings Mountain West (a joint project of the Brookings Institution and UNLV, which would get to use the new stadium for football games) directors Robert Lang and William Brown: “More than 42 million annual visitors also will notice what action Nevada’s leadership takes. Our core economy and the region’s standing as a global tourist and convention destination are in play.”

This seems to be a twist on Sisolak’s remarks, only implying that if Nevada doesn’t spend $750 million on a football stadium, tourists will stop visiting Vegas because they’ll think the state has bad leadership. Still reasonably hilarious!

Okay, starting to sense an agreed-upon message here: Sure, people are flocking to Las Vegas now, but if we don’t have a football stadium, they’ll have no reason not to go to Dallas instead! Why this would suddenly start happening now after decades of Dallas having a football stadium and Vegas not is anyone’s guess, but as “cold Omaha” statements go, it’s a vivid enough image, I suppose.

This is another common on-message point — McMillan makes it as well — so long as you don’t actually do the math on whether increased visitor spending on those things would be worth more than $750 million. (Spoiler: It wouldn’t.)

Anybody else?

This would give the members of my union more jobs while construction was underway — it’s narrow self-interest, but at least it’s true! We have a winner!

Not that any of these arguments are really expected to win the day on the basis of pure logic, economic or otherwise — rather, they’re intended to provide political cover for the state legislators who are going to have to explain in a few days why they approved giving three-quarters of a billion dollars in tax money to a wealthy casino owner and a not-quite-as-wealthy NFL team owner so they could build a stadium for private use. In modern political discourse, you don’t need to actually prove that the emperor has new clothes — you just need to make the case that reasonable people can disagree over the definition of nakedness.

Chargers “study” finds that spending money causes money to be spent, calls this success

The San Diego Chargers announced yesterday that a study by two local economists found that construction of their “convadium” plan, which would cost $1.15 billion in public money, would “increase regional output by a total of $2.1 billion, increase labor income by more than $800 million, and will have a value-added impact of $1.2 billion.” The study was paid for by the Chargers, but its authors insist (according to the Chargers) that they had “complete freedom to do our research over the summer months and to come to whatever conclusions we believed were warranted.”

Okay, so with at least one eyebrow raised, let’s click on that “Read a complete copy of the economic impact study” link, and we find … oh, look it’s a whole 13 pages of report! Two of which are renderings of the convadium, and the rest of which are, from what I can tell, just the result of plugging the cost of building the convadium into the Commerce Department’s RIMS II formula, and reading the numbers that were spit out. Nice work if you can get it!

A bit of explanation: RIMS II is mostly a set of multipliers, which take a certain kind of spending — construction, in this case, then operations of a football stadium after that — and tell you how much of an effect that’s ultimately likely to have as the money filters out into the local economy. So it could tell you that if a company spent another $1 million on hiring, that would increase to, say, $1.5 million worth of impact as those new hires went out and spent their paychecks at local stores, which would hire new employees in turn, etc.

What RIMS doesn’t tell you is what would happen if you didn’t spend the money. In this case, the city would still have a 4% lower hotel tax rate, which would presumably boost hotel stays somewhat by making San Diego more competitive against other places to go on vacation — or, if you want to look at it another way, the city would have the option of raising hotel taxes 4% to spend on something else that could then be plugged into the RIMS model. RIMS also can’t tell you what would happen to Chargers fan spending if the team were to leave (would they all drive up the coast to see them in L.A.? buy more Padres tickets instead? spend it on big-screen TVs?), so you’re comparing apples to a box of oranges that you haven’t even opened to count yet.

In short: Studies like these are almost entirely worthless for telling you whether a project is worth doing. Developers love RIMS II and its ilk, though, because if you put big enough numbers into them, they’ll spit out even bigger numbers, and big numbers look good! In the end, though, all it says is that if the public spends a billion dollars on a new football stadium and convention center expansion, that’s a billion dollars that somebody else will earn. You don’t need an advanced degree in economics to figure that out — though it sure helps when you’re trying to get hired to write a 13-page report that a sports developer can tout on its website.