The end of 2016 marked the final $18 million debt payment that San Francisco Giants had to make on their $170 million loan they took out 20 years ago to help pay for building AT&T Park (then Pacific Bell Park), and there was much rejoicing:
“We had people suggesting we have a loan document burning party, a controlled burn on Mount Tam,” CEO Larry Baer quipped in an interview with The Chronicle. “We decided against that for lots of reasons.”…
Over the years, especially in the early years of the loan, Giants officials pointed to the debt service as a reason the payroll wasn’t as high as it might have been. That wasn’t necessarily the case in recent years, as both revenues and payroll soared.
There is good reason for that not to be the case, and it has to do with sunk costs. When sports team owners consider spending money on a new player contract, they should rationally be thinking of it in terms of whether it will generate a positive return on investment: If I spend $100 million on a new outfielder, is it likely to mean enough new ticket sales, bonuses for playoff appearances, etc., that I’ll come out ahead in the end? On that basis, having an extra $18 million a year stadium mortgage payment — or a bunch of extra debt because you got snookered by a con man — shouldn’t make any difference, since a worthwhile contract is still a worthwhile contract regardless.
Now, there’s plenty of evidence that team owners don’t think rationally about this much of the time — that they instead look in their pockets, see how money is there, and then think, “Time to go shopping!” But it’s also possible that some team owners, like the Giants’, can on occasion get beyond the sunk cost fallacy, which would explain why having to make stadium payments didn’t affect their payroll spending, and why being freed from them won’t affect it now. It’s something to remember the next time a team owner claims that they can’t pay towards their new building because then they wouldn’t have enough left over to field a team — if they truly think that way, it’s because they’re dumb, and if they don’t truly think that way, they’re hoping taxpayers are dumb.
Too bad about the bonfire, though, as that would have been a fun way to celebrate the completion of possibly the fairest all-around stadium deal in recent sports history. Instead Baer had to celebrate with some kind of creepy fist-pumping white guy dance, which just isn’t the same.