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.

Florida’s sports teams drop 2,000-plus pages of subsidy requests on state

Apparently alongside filling out the cracktastic application form, contenders for Florida’s new process for doling out sales-tax kickbacks for sports projects are allowed to submit additional material. And oh, what additional material:

Based upon sheer paper volume, Orlando and Jacksonville would be the front-runners in the new funding process.

The application from Jacksonville, supported by the Jacksonville Jaguars, stands at 954 pages.

Orlando, working to assist the Major League Soccer expansion Orlando City Soccer Club with a new 18,000-seat stadium, submitted a 1,144-page application.

Less bulky, Daytona International Speedway LLC filed a 110-page application. South Florida Stadium LLC, filing for the Miami Dolphins’ home, submitted 219 pages of material.

Included in these 2,000-plus pages are promises of new jobs, and new tourists, and new new new new! Also most of the work is already underway, so wouldn’t actually be new in the sense of “wouldn’t happen without the subsidies.” But, you know, details! Details that staffers at the state Department of Economic Opportunity will now have to dig through and analyze, which hopefully will mean more than just checking off which boxes the various applicants have provided screwy justifications for, but I’m not exactly holding my breath.

D.C. mayor-elect nixes United land swap, wants new public subsidy plan by year’s end

I’d been wondering if it was worth noting the report from over the weekend that D.C. councilmembers were considering reworking the D.C. United stadium deal to eliminate the controversial land swap portion, when late yesterday this happened:

That’s D.C. councilmember and mayor-elect Muriel Bowser, so it’s a pretty big deal that she’s throwing her weight behind this plan. Though “plan” is probably overstating it: The swap of the city-owned Reeves Center government office building to developer Akridge for part of the required stadium land is a key piece of the deal as concocted by outgoing mayor Vincent Gray, and won’t be unraveled so easily.

First off, Akridge would have to agree to take cash for its land instead of the valuable Reeves Center property. And second, D.C. would then have to come up with not just the bonding capacity to pay Akridge (which some councilmembers think they can now manage) but the cash to pay off those bonds — $10-15 million a year, according to the Post, though that sounds high for an estimated land purchase price of $94 million. Either way, though, it’s a significant chunk of change, and eliminating the land shuffle makes it way harder to hide the fact that D.C. would be shelling out a bunch of guaranteed money now for the promise of an economic benefit on Tuesday.

That part, though, doesn’t seem to bother Bowser. In her address to the Federal City Council, a local group of top business and political leaders, she made clear that her opposition to the Reeves Center swap doesn’t extend to the rest of the deal:

“I want to be very clear about this,” she told her audience, which included two former mayors and several of the key players in the stadium deal. “I support building a soccer stadium in the District of Columbia, and I support investing public dollars to get it done.”

And she supports doing it in the next seven weeks, while reworking a deal that was already hazy even after years of negotiations. There’s no possible way this can go wrong.

NE Revolution could seek South Boston soccer stadium, or not

The owners of the New England Revolution (and Patriots) are reportedly looking at a site in South Boston for a new soccer-only stadium, which would be paid for … nope, that’s not in the Boston Globe article. Okay, which would cost … nope, not that either:

At this stage, it is unclear how the stadium would be financed and whether any public funding would be needed to support the project or its infrastructure.

So we’re left with: The Kraft family may be looking at a city-owned site for a stadium, which would be paid for somehow, and somebody decided to leak that to the Globe, for reasons we do not know. That’s not much, but if vague rumors of the reports of rumors are you thing, now you have one. And if you’re wondering how the Globe art department would illustrate how a stadium there would look if built entirely out of red Legos, now you have that too:

D.C. consultant: Oops, two-thirds of benefits from United stadium aren’t benefits at all

I’ve said a lot of nasty things about Convention, Sports & Leisure, the consultancy firm owned by the New York Yankees and Dallas Cowboys that has gotten flak for its outrageously high estimates of benefits, for doing economic impact reports for teams its concessions arm is already doing business with, and for being owned by the Yankees and Cowboys. But I’ve never accused them of being so grossly incompetent that they can’t even get the math right on their own 400-page reports.

Until now.

According to the Washington Post’s Jonathan O’Connell, CSL has sent a letter to D.C. council president Phil Mendelson, explaining that two-thirds or more of the promised $109 million in benefits from a $300 million D.C. United soccer stadium weren’t actually benefits at all, they were, in effect, a typo. O’Connell hasn’t written this up for the paper as of yet, but did take to Twitter to report it:

In case you’re having trouble following here: A big part of the District’s $180 million in subsidies for the stadium would involve selling public land and using the proceeds to buy other land that would be used for the United stadium. (This is both to get around the city’s bond cap, and to get around United’s desire not to have to put in much capital of its own, because jeez, they’re not even billionaires. Quite. Probably.) D.C. would be left with $71.4 million in extra cash at the end of the deal — but would be out $71.4 million worth of land. So this is effectively a wash, and shouldn’t be counted as a benefit of the stadium.

O’Connell also tweeted out the relevant section of the report where CSL just flat-out threw in this $71.4 million to make the benefit numbers look much, much bigger:

To its credit, CSL subsequently sent out a letter “clarifying” its numbers (very small scan of it here); less to its credit, it spent all summer and half the fall coming up with a 400-page report that completely botched the one number that anyone would care about, artificially inflating the projected benefits from $17.6-38.0 million up to $89.0-$109.4 million. Yes, the report still projects that the stadium would provide a small net profit to D.C. over 32 years, but given that this is based on questionable assumptions that are completely undocumented in the CSL report, it wouldn’t take much in the way of overoptimistic assumptions to put the District back in the red on the deal.

Of course, that might well have been the intent here: Throw in unrelated dollar figures and call it “profit” and hope nobody noticed until after the deal was already approved. (Or, more likely, give your employees the sense that looking too hard at where the positive numbers in your report come from is not the best way of earning future contracts, or job security.) Except that now it’s apparently backfired, with D.C. council members, who were already not real psyched to rush into a deal just because the mayor is getting kicked out of office and wants it done before year’s end, openly questioning whether this financing plan is a load of crap.

This doesn’t mean that a United stadium deal won’t ever get done — there’s plenty of haggling left to do, and the D.C. council has proven itself willing and eager to do so in the past — but it does mean it may not be in this round of negotations. Also, it means you should never ever take anything CSL says seriously. Not that you should have before, but now when you see their reports, there’s only one acceptable response.

WashPost says press on with D.C. United deal, top reporter says not so fast

I have a particular interest in the internal politics of the Washington Post’s editorial hierarchy when it comes to stadium economics, so it’s been fascinating for me to watch the last couple of days, in which the Post editorial board gave an only slightly qualified endorsement to the D.C. United stadium plan, only to have their own stadium reporter point out a laundry list of reasons to be worried about the potential risks involved.

First the editorial: On Sunday, the Post editors showed that they’d skimmed the executive summary of the Convention, Sports & Leisure report on the stadium deal, writing that “a major league soccer stadium in the District would bring revenue, jobs and economic development to the city” (true, if you accept CSL’s never-explained-in-the-report methodology at face value) but that D.C. might not be getting the best price in the land swap that is at the heart of the deal — which was the one qualm that CSL highlighted as well. Wrote the Post: “Why not separate the transactions in a way that ensures fair market value for both properties and dispels any suggestion of a sweetheart deal?”

That’s perfectly reasonable, and something that could be agreed upon by all parties, and if this were the only thing that suggested a sweetheart deal, the Post editors would be doing a fine job. Except that the next day their stadium reporter, Jonathan O’Connell, who actually went to last week’s council hearing on the stadium plan, proceeded to run down a list of eight risks that the city would be running with the United plan, none of which were spelled out in the CSL report but any of which could be figured out by 1) reading it thoroughly and 2) using your brain:

  • Akridge, the developer carrying out the land swap, can terminate it unilaterally if D.C. makes any changes that “materially impact” it, which would leave the district on the hook for any money already shelled out.
  • There’s no cap on cleanup costs for the two sites in the land swap, which could push district costs beyond the $150 million projection.
  • If the district buys the land, then D.C. United later decides that building a stadium is too rich for its blood, D.C. would be, in technical financing terms, screwed.
  • D.C. has to spend its money by the end of 2016, while United can back out anytime before March 2018.
  • The most that D.C. can get in damages if United backs out is $5 million.
  • This is a potentially huge one: Part of the plan is for the government employees at the Reeves Center, which would be traded away in the land swap, to move to a new building in Anacostia — which not only hasn’t been built yet, but which hasn’t even begun planning. If that ends up being delayed, D.C. could be forced to throw in additional money to house its workers somewhere in the interim.
  • The United plan doesn’t specify who will pay for maintenance and upgrades of the stadium.
  • As former city administrator Robert Bobb testified at the hearing, “there is a high probability that at some point [the team] would seek a permanent property tax exemption” on the stadium. According to the CSL report (see chart on page 14), this would cost the District an additional $40.4 million in lost future property tax income.

These are all pretty significant concerns, though it’s always possible that United’s owners (or D.C. officials) have answers for some of them. If nothing else, it’s something that points up the need for the District to take their time on this, and not rush into a deal without fully vetting all of the possible risks involved with — sorry, what’s that, last paragraph of Sunday’s Post editorial?

The District can’t afford to dawdle. Monies need to be allocated this year. D.C. United, playing in a stadium that is ill-suited to its needs, won’t wait forever. And the team is willing to pay for its own stadium, which should make it attractive to other jurisdictions — including neighboring Maryland, which just elected a Republican governor who promised to be more competitive in going after business.

Oh, right, I forgot: The team could move to a stadium in Maryland that doesn’t exist yet and hasn’t even begun being planned for OMG OMG OMG. When it comes to making decisions based on fear, we always have been susceptible to focusing on all the wrong threats.

D.C. CFO director says United can fund own stadium without tax breaks

While I was finishing reading Conventions, Sports, and Leisure’s 406-page economic impact study of the proposed D.C. United stadium that was commissioned by the city council, the Washington Post was posting a late-morning report on the council hearing that took place on Wednesday, just a couple of hours after the study was released. And apparently at least one city staffer had had time to digest the study in that time, and issued some not-entirely glowing reviews:

In his testimony at the hearing,  John P. Ross, the director of the city’s office of the chief financial officer, raised two concerns. First he said the administration had not identified where it would get the money to fill financial gaps in the deal, including an estimated $75.6 million needed this fiscal year.

The second, and potentially more serious issue, is that the CFO determined the tax breaks requested by the team weren’t needed to finance construction of the stadium. Although D.C. United — like other MLS teams — loses money on an operating basis, its value doubled between 2007 and 2012, according to estimates by Forbes.

Last year the team’s principal owner, Indonesian businessman Erick Thohir, bought a 70 percent stake in the Italian club Inter Milan for an estimated $340 million. Ross said the team didn’t need tax breaks to finance the stadium.

“I don’t want to sound real negative. All I want to say is this is what we’re getting into,” Ross told the council.

We’re back to parsing the meaning of “need” again: The CSL report makes clear that D.C. United would likely lose money on the stadium without the tax breaks, but of course Thohir & Co. have plenty of money to lose. If D.C. refused to provide tax breaks — or, for that matter, the rest of the $180 million in city subsidies — then the United owners would have no financial incentive to do the deal; but then, if the only way a new stadium would benefit United would be if it came with a $180 million check, this raises the question of why a new stadium is considered a boon to the franchise in the first place.

The bigger question, of course, involves not so much finances as politics: Mayor Vincent Gray, who concocted the D.C. United deal, was voted out of office on Tuesday (he actually lost months ago in the primary) and councilmember Muriel Bowser was voted in. Bowser is more lukewarm on the stadium, so the council could push to get it done before the mayoral changeover to avoid having to renegotiate it, or could push to delay it until afterwards to allow time to renegotiate it, or could even push to get it done now just so that Bowser doesn’t have to have it on her plate when she takes office. But while D.C. news outlets usually eat this “who’s on which side?” stuff up with a spoon, the head counting among councilmembers has been pretty meager, aside from a handful of knowns on each side (council president Phil Mendelson, David Grosso, Kenyan McDuffie, lame ducks Tommy Wells and Jim Graham: against quick approval; Jack Evans: just get it done already).

Of course, Mendelson specifically delayed releasing the stadium report until Wednesday so no one would have a position on it, so there’s some explanation for that. Still, it would be nice if somebody had at least assigned an intern to look around the room on Wednesday and see who was nodding their heads and who was gritting their teeth. Though given D.C. councilmembers’ historic propensity for sudden about-faces, maybe the local press corps has just given up on trying to figure out how anyone will vote before all the backroom negotiations are completed.

D.C. United report says city would make money on priciest MLS stadium ever, because [CALCULATIONS NOT INCLUDED]

As noted yesterday, now that the elections are safely over, the D.C. council has finally issued its report on the D.C. United stadium plan, and man, oh man, is it long. The report totals 406 pages, which I have done my best to look through and pull out the main takeaways. So, bullet points ahoy:

  • The first item of importance to note is the big logo at the top of page one, which belongs to Conventions, Sports & Leisure, one of the consultancy firms that specializes in these kind of economic impact studies. And when I say “specializes,” I mean that they do a lot of them, not that they necessarily do them well — CSL has a track record of crazy-high impact estimates, landed in hot water for conducting a stadium impact statement for the Los Angeles Angels when their parent company had recently signed a deal to run the Angels’ concessions, and is owned by the Dallas Cowboys and New York Yankees, which kind of puts a crimp in their claims to objectivity. But let’s not prejudge their work entirely based on past results — so, soldiering on…
  • Still on page 1: “All information provided to us by others was not audited or verified, and was assumed to be correct.” Given that those “others” mostly consist of D.C. United itself and the city officials who are backing the stadium plan, should we really read the other 405 pages?
  • At $286.7 million, this would be the most expensive MLS stadium ever. D.C. would  be on the hook for $131.1 million of that, plus $50 million in sales and property tax breaks, which jibes pretty well with my $178.5 million subsidy estimate from earlier this year.
  • The district would be overpaying for stadium land by $19.4 million and getting $11.2 million less for the city-owned Reeves Center than it’s worth. That’s not so much an added cost as a potential savings left on the table, but duly noted.
  • The stadium would create 1,683 full-time equivalent jobs, which would be right around the typical craptacular $100,000-per-job-created cost for most stadium projects. If the job projections are correct, of course — they appear to come not from any estimate of how many people would actually work at the stadium, but rather by plugging the total projected economic activity into a formula and calculating it that way, which is awfully dubious.
  • The stadium is expected to generate $109.4 million more over a 32-year period (why 32 years? why not?) in city revenues than it costs the city. This claims to account for both leakage (new spending that is generated outside D.C., such as when fans stay at hotels in Virginia) and substitution (spending that is just cannibalized from other local spending, say, if fans cut back on Nationals or Wizards tickets to go to more United games).
  • There are other problems, though: First off, the report doesn’t compare spending at a new stadium with current spending at RFK Stadium, instead counting all spending as new — on the grounds that “it is likely that D.C. United would relocate to another market if a new stadium is not developed in the District,” though really then you should be deducting the amount of old spending that would get redirected to other things (Nats, Wizards, whatever) in D.C. if the team were to leave.
  • Second, the report estimates that 73% of fan spending would be new to D.C. — and says this figure accounts for leakage and substitution — but doesn’t indicate where that figure comes from. If, as I suspect, it’s from D.C. United’s own figures on how many fans come from out of town, then there’s a huge problem here: Many people from out of town are already in town for other reasons and just choose to go to a sporting event while they’re already there. (I know the last time I went to a Nationals game, it was as a side trip for going to the Smithsonian and such, not the main course.) And while, as I discussed in the Nationals case, D.C. is a bit less susceptible to substitution thanks to so many people living outside the city limits in the Maryland and Virginia suburbs, they tend to come into D.C. for a night out anyway, so it’s dicey to assume that if they weren’t in town for a soccer game, they’d otherwise be spending all their hard-earned cash out beyond the Beltway.
  • D.C. will need to lay out its money before D.C. United even puts together the financing for its part of the deal, which raises “the potential risk of non-performance   by the developer.”
  • The subsidies are the only thing keeping United in the black on the deal: Even just without the tax breaks, “team/stadium operating revenue is not expected to cover debt payments until year 19 (2035).” In other words, United wouldn’t be making money on the stadium, they’d be making money on the subsidies.

There’s more — it’s 406 pages, how could there not be more? — but those appear to be the major points. The upshot is: The industry usual suspects say, using figures provided to them by the team and not otherwise checked, that D.C. should earn back a small profit on the stadium, provided all their assumptions about who’s spending what where are correct. That’s a lot more questions than answers raised, which makes it all the more unfortunate that the D.C. council has now left itself with only a month or two to make a decision on the stadium plan — unless, of course, they decide to kick it back to after January 1, with a new mayor and a new council. We shall see.

Council releases D.C. United stadium report a whole three hours before hearing

As noted last week, the D.C. city council is holding a hearing today on the proposed D.C. United soccer stadium, and as of yesterday, council chair Phil Mendelson was still refusing to release the council’s report to people who might want to read it before testifying, or before listening to testimony, or to be in any way informed about what’s going on. Like, say, Washington Post development reporter Jonathan O’Connell:

It’s morning, Mendelson was reelected (along with three new councilmembers, none of whose positions on the stadium we know), and here’s the report! It’s 406 pages and the hearing starts at noon, so read fast!

 

Florida to use standardized ranking to pick which sports projects to throw money at for no good reason

The state of Florida accepted its first applications for its new official state-vetted sports tax kickbacks process yesterday, and the finalists are:

  • The Miami Dolphins, seeking $3 million a year in sales tax rebates.
  • Daytona International Speedway, likewise seeking $3 million a year.
  • Orlando City SC, seeking $2 million a year.
  • The Jacksonville Jaguars, out for a piddly $1 million per annum.

The state Department of Economic Opportunity will now spend the next 60 days ranking the applications by “economic viability,” to evaluate each application within 60 days and by Feb. 1 provide the Legislature with a list that ranks the applications based on economic viability. According to the application form, the list of criteria runs from the sort-of-reasonable (jobs created, though there’s no indication of how to calculate this or whether they’re full-time-equivalent jobs) to the completely cracktastic (“amount of positive advertising or media coverage the facility generates”), with seemingly random thresholds for whether a project gets awarded 1, 2, or 3 points per item.

The worst of it, though, is that the applications all appear to be for projects that are already underway, meaning the number of new jobs and Super Bowls and “positive advertising” that will be generated if the teams get the subsidies vs. if they don’t is precisely zero. Yet the state legislature will now have no opportunity to discuss how stupid this is, nor will citizens have the chance to testify about this, because instead it’s all outsourced to a bunch of state workers with a checklist — all to reduce the amount of lobbying pressure on the legislature over sports projects. Florida continues to be the worst.