Indianapolis to lose money on Super Bowl

Every so often, I get a call from a journalist asking what I think the economic benefits are to a city of hosting a Super Bowl. To which I can now answer with a link to this Indianapolis Business Journal story:

Scores of businesses in and around Indianapolis are licking their chops in hopes of scoring a windfall from the city’s hosting of the Super Bowl on Feb. 5.

But the city entity that manages Lucas Oil Stadium, where the game will be played, expects to lose money.

The Capital Improvement Board of Marion County is budgeting for total Super Bowl expenses of $8 million and revenue of nearly $7.2 million, leaving a loss of $810,000.

The main added costs are for extra police time and hiring of additional temporary workers. That’s partly made up for new tax revenues from the estimated $200 million in spending that will go on in the city during Super Bowl week,

But that tax money is limited, in part because, notes the IBJ:

  • The NFL is using its tax-exempt status (yes, the NFL is tax-exempt, and yes, lots of other people also think this is ridiculous) to get its wmployees out of paying hotel and restaurant taxes.
  • Food and beverage taxes collected inside Lucas Oil Stadium also won’t be going to the CIB, but will be diverted to the NFL.

However, Indianapolitans will at least get the thrill of watching the Super Bowl on TV and knowing that they could be there, if only they had tickets. Plus the free publicity that comes from the world learning what it’s like in Indianapolis in January. With benefits like these, who needs tax revenues?

Rusty pipes need replacing at three-year-old Colts stadium

In sports-page lingo, every old stadium is “crumbling” and every new one is “sparkling,” so it’s always amusing when the new buildings immediately break:

Lucas Oil Stadium will partially close to events for four months to replace rusted and corroded steel piping in the 3-year-old structure….

John Klipsch, the authority’s executive director, said the cause of the rust and corrosion on galvanized steel pipes hasn’t been determined.

Now, the total cost of the repair is expected to cost less than $2 million, and Indianapolis officials insist that it won’t cost taxpayers anything. (Though they say it will instead be covered by “bonding, warranties and insurance,” which is slightly worrisome unless they mean bonds that have already been sold and aren’t being used for anything else. [UPDATE: One reader suggests that the reference is to this kind of bonding, not this kind; if so, that’s less worrisome.]) Still, you know that if this sort of thing had happened at the Hoosier Dome, the Colts would have been screaming that this showed it was time for a new stadium.

Indy Biz Journal: NFL playoff games rule!

It’s playoff season, which means it must be time for another article touting the economic benefits of your team making the playoffs. Today’s entry comes courtesy of the Indianapolis Business Journal, which, typical of these articles, doesn’t actually attempt to quantify the impact of the Colts’ Super Bowl run, but throws out lots of anecdotal evidence like “Sales [of Colts caps and shirts] were so strong, the stadium shop stayed open until 11 p.m., about five hours after the game ended”!

Of course, money spent on Peyton Manning shirts is money not spent on something else — unless Colts fans have set aside money in special team merchandise accounts — so a lot of that money is just being redirected from somewhere else in the regional economy. (Hotel spending, which is also up, is a bit more of a legit gain, since typically hotel-room stays in the dead of winter in Indianapolis are pretty minimal.) Indianapolis Convention & Visitors Association CEO Don Welsh exulted to the Business Journal: “You can’t overemphasize how good something like this Colts run is for the city, not only in terms of direct visitor spending but exposure.” Well, sure you can. That’s why we’re supposed to have journalists, to evaluate just how much emphasis is warranted, according to the actual numbers. Remember journalists?

Two economists, no waiting

The San Francisco Chronicle:

While the new [49ers] field [in Santa Clara] promises intangibles such as a national profile and civic pride, observers say it includes hidden costs, lost opportunities and unanswered questions, making it unclear how good a bargain it truly is.

“This is a very low price tag for the city, but it is not a good deal because they are passing up other things they could do there and vastly overplaying the value of non-football events [at the stadium], most of which are highly speculative,” said Roger Noll, a Stanford economist who has conducted exhaustive research on professional sports stadiums.

And from the Indianapolis Star:

“In this economy, to be honest, I think [the Indianapolis Colts‘] Lucas [Oil Stadium] is doing an amazing job,” said the University of Michigan’s Mark Rosentraub, an expert in the economics of sports. He recently wrote a book on how cities have used sports facilities as economic tools. “But that does not mean it’s not going to lose money.”…

Rosentraub said people need to keep in mind the big-picture reason behind the stadium and the deal to keep the Colts in Indianapolis.

“This was an investment in human capital,” he said, “to use the downtown as a linchpin to attract highly skilled workers for Eli Lilly, banks, insurance companies, the kinds of workers we will need in the 21st century.”

Guess which one has worked as a paid consultant to sports leagues, and is touting a new book repenting his stadium critic past?

Indianapolis cuts arts funds to subsidize stadiums

The Indianapolis Capital Improvement Board voted yesterday to start plugging its $47 million a year operating deficit by suspending all grants to arts and tourism groups. The CIB also voted to look at renegotiating its union contracts and selling some of its assets.

The budget gap, you’ll recall, was created in the first place by the city’s sweetheart lease deals for the Colts and Pacers, compounded when the CIB agreed to let the Pacers stop paying $15 million a year in operations costs, either out of the goodness of their hearts or a sudden fear that the team would move to Kansas City otherwise. Next time someone tries to argue that stadium costs don’t cut into the money available for other public spending, remember this moment.

Indiana to stadium board: Drop dead

What if they built a stadium and nobody maintained it? The Indiana general assembly failed to agree on a bailout plan for the Indianapolis Capital Improvement Board yesterday, leaving the board that runs the Colts‘ Lucas Oil Stadium and the Pacers‘ Conseco Fieldhouse with a $47 million a year budget hole and no way to fill it.

The CIB has called an emergency board meeting for tomorrow, at which it will consider … well, no one seems to have much in the way of ideas. Indianapolis Mayor Greg Ballard “said they must do something,” according to WISH-TV, adding that the city could turn the stadium board over to the state, but he doesn’t like that idea; it’s hard to see where the state would like it either, since they already said they don’t want to be stuck with the board’s debts. Then there’s the suggestion, also from Ballard’s office, that Colts owner Jim Irsay might want to make a donation to the arts in lieu of paying rent; three guesses what Irsay’s reaction will be to that one.

The underlying problem remains the teams’ leases, which grant them pretty much all revenues from their buildings and ask them to pay next to nothing in rent ($250,000 a year for the Colts, $1 a year for the Pacers); it’s hard to find money to pay maintenance and operations when you don’t have any income. Nobody really thinks that the CIB will go ahead with its threat to close the buildings if it doesn’t get a cash infusion, it’s hard to imagine what they’ll do to get out of this one.

Colts: We won’t help with stadium losses

Indianapolis Colts owner Jim Irsay has made clear that he’s not willing to pay more rent or ticket taxes to help bail out the city’s stadium board, despite dire warnings that it might have to close his new stadium if it can’t fill its $47-million-a-year budget gap. Said Irsay:

“I’m not going to renegotiate. That’s the bottom line. All we did was negotiate in good faith. We’ve done everything we can to have a great organization. We’ve lived up to our part. We’ve exceeded our part.”

Irsay’s part, you’ll recall, was to kick in all of $100 million toward a nearly $700 million stadium project — $48 million of which he got back via a “lease termination fee” from the city. Meanwhile, Irsay is getting $6 million a year in naming-rights money from Lucas Oil, while paying all of $250,000 a year in rent. I wouldn’t want to renegotiate either.

Legislators weigh Indy stadium bailout

WRTV News reports, somewhat dramatically, that Lucas Oil Stadium could close if a state bailout deal is not reached for the Indianapolis Capital Improvement Board. The CIB, which operates the Indianapolis Colts‘ one-season-old stadium along with Conseco Fieldhouse, home to the Indiana Pacers, is facing a $47.4 million operating deficit, after failing to budget properly for $26 million in annual operating costs for Lucas Oil Stadium.

The consequences of financial failure for the CIB remain unclear. CIB President Bob Grand sounded pessimistic, if vague, saying, “If you want me to give you worst-cases, I mean the worst-case scenario is we could be out of money and the facilities would be, arguably, closed.”

The bailout plan includes annual $5 million payments from both the Colts and Pacers, which neither team has agreed to as yet (UPDATE: Since the Pacers would be absolved of about $15 million a year in operating costs, this would actually save the team $10 million a year. -ND), as well as tax increases on alcohol, restaurant meals, hotel stays, and sports tickets.

Politicians are not yet on board with the plan, either. NWI reports that Thomas McDermott Jr., Mayor of Hammond in northwest Indiana, is incensed that a similar finance plan for flood protection levees in his district was blocked in December. “It seems to me that it’s more important to build football stadiums than it is flood walls,” he said on Thursday.

Colts leaving good for Baltimore?

I’ve read a bunch of good reporting from Baltimore Sun writer Childs Walker, and even been interviewed by him, so I’m not happy to have to nominate him for dumbest observation of the day on the 25th anniversary of the Baltimore Colts moving to Indianapolis:

With 25 years of perspective, however, it’s possible to argue that March 29, 1984, was actually a good day for Baltimore sports. It allowed the city to cut ties with a desperately flawed franchise and a deeply unpopular owner. It spurred elected officials to get serious about plans that would keep the Orioles in Baltimore and attract a new NFL team. Those plans bore fruit in Camden Yards and M&T Bank Stadium, beloved facilities that are now as intrinsic to downtown as the Inner Harbor. The Ravens arrived in 1996 and won a Super Bowl six years before the Colts brought Indianapolis its first Lombardi Trophy.

Uhhhh, so let me get this straight: It’s good that the Colts moved and left the city without an NFL team for a decade because it ended up forcing the state to spend $330 million on two new stadiums? Isn’t that a bit like saying the economic crash was good because it forced the government to increase unemployment insurance?

Also nowhere to be found in Walker’s article: Any mention of the fact that the Ravens, after all, “arrived” from 50 years of being the Cleveland Browns, a move that forced that city to pony up $283 million for a new stadium to get football back. Though I guess when the thesis of your article is “Hey, it worked out okay, we ended up with a better team and all it cost us was $330 million!” there’s no room to worry about how things worked out for the next guy.

Ticket tax in works for Indy?

With Indiana facing a $43 million a year operating deficit on its sports facilities, there’s increasing talk of a ticket tax hike on sporting events to help close the gap. “Of all the potential funding sources, the ticket tax makes the most sense to me,” said City-County Councilwoman Joanne Sanders told the Indianapolis Business Journal. “I think true users of the facility should have to pay. The direct use is an important thing to look at.”

Both the Indianapolis Colts and minor-league baseball Indianapolis Indians have come out against the tax, and little wonder: Most economists agree that ticket tax money mostly ends up coming out of team owners’ pockets, as they’re forced to scale back their ticket prices to keep the ticket-plus-tax price within the bounds of what consumers will pay. The Colts, for example, just hiked their cheapest ticket price by 42% – if there were a ticket surcharge in there as well, they’d have to be more concerned about driving fans away. (Though not all that much more concerned, given that at most, we’d be talking about a 3% tax hike from the existing 6% ticket tax.)

Of course, there’s also the problem that even a 3% ticket surcharge would bring in only about $2 million a year – and, as noted, the state stadium authority is facing a $43 million a year deficit. Somehow I don’t think a 60% ticket tax is going to fly, no matter how fair the “users should pay” argument may be.