March 30, 2008
Bond crisis costs stadium projects millions
The auction-rate bond crisis - surely you've been following the auction-rate bond crisis? - is beginning to take its toll on some stadium and arena projects that used the little-known financial instruments to pay for construction costs. In some cases, reports the Bloomberg wire service, monthly costs have more than tripled, leaving both teams and taxpayers in a massive hole.
The idea behind auction-rate bonds was that they were supposed to save money: Instead of a fixed interest rate, rates are set at auction every few weeks, which at one point was cheaper than fixed-rate borrowing. Not anymore, reports Bloomberg:
An index from the Securities Financial Markets Association shows the average weekly rate climbed to 6.56 percent on March 19 from 3.68 percent for the 12 months through January as investors retreated and the banks managing auctions refused to make their own offers. The average fixed-rate municipal bond maturing in 20 years yielded 4.28 percent the past 12 months, according to the Bond Buyer.
Among the projects facing skyrocketing bond payments: The state of Louisiana saw its monthly payments for refurbishing the New Orleans Saints' Superdome jump from $500,000 in January to $1.8 in February; the new New York Jets and Giants stadium saw part of its $650 million in auction-rate debt hit a staggering 22% interest rate last week; the city of Cleveland paid 12% on debt for the Cleveland Browns' stadium in February, up from 4% the month before; and the state of Indiana saw rates on its $611 million for a new Indianapolis Colts stadium leap to 15% in mid-February, before dropping back to 5% last week.
The biggest problems come when no one bids on the bonds at auction, causing interest to jump to the maximum "penalty rate." To prevent this, Louisiana is now considering bidding on the bonds itself, in a last-ditch attempt to bail them out and avoid junk-bond status. If the bond markets calm down, the rates should, too; if not, a bunch of states and teams could be looking at ten, if not hundreds of millions of dollars in added costs.
NRO interview now online
As promised, my National Review Online interview is now available for your listening pleasure. Bon appetit.
March 29, 2008
Cablevision announces MSG renovation (again)
One month after the New York Times reported that Cablevision was ready to give up on the faltering plan for a new Madison Square Garden and instead renovate the old one, the owners of the New York Knicks and Rangers did exactly that on Thursday, announcing that they would move ahead with a renovation plan first announced back in 2004. Cablevision didn't provide a whole lot of details back then, aside from giving an overall price tag ($300 million, raised to $350 million this time around), saying they hoped to add more luxury suites, meeting and restaurant space, and a museum and hall of fame, and naming an architect (Brisbin Brook Beynon).
Some observers felt that Thursday's announcement was just a bluff to push state and city officials to revive plans for a new arena in the historic Farley post office building across the street. If so, it worked on one official, as New York City deputy mayor for economic development Robert Lieber declared yesterday, "We need to convince [Cablevision] we can get this thing done" so they'll reconsider their decision. State officials didn't comment, being otherwise occupied passing a budget and remaining unindicted.
March 24, 2008
Yanks, Mets look to cash in on seats coming and going
The New York Yankees released some ticket prices for their new stadium opening in 2009, and to say the best seats are gold-plated would be an understatement: Front-row seats, now redubbed "Legends Suites," will go for a staggering $2,500 a pop - meaning a full season ticket will set you back a mere $202,500. (Similar seats at Yankee Stadium go for $1,000 apiece.) For the less well-heeled, seats in the back of the Legends section will be buyable for a mere $500 each.
As for the cheap seats, Yanks COO Lonn Trost said that of the stadium's "nonpremium" seats - i.e., not counting the 4,000 or so reserved for high rollers - 88% will be priced at less than $100, and 55% at less than $45. (If you're thinking what I'm thinking, this means expect a heck of a lot of $44 seats.) He added that, as the New York Times put it, the most expensive nonpremium box seats "would not cost significantly more in the new stadium and would not be priced nearly as high as the cheapest Legends seat. But they could be farther back to accommodate the Legends seats." In other words: "Don't worry, box seat holders, your ticket prices aren't going up - we've just redefined 'box seat' to mean the back row."
That was yesterday's news. Today, in an "exclusive" front-page report, the New York Post says that both the Yankees and the Mets are in negotiations to buy the remains of Yankee and Shea Stadiums to sell them as souvenirs. One memorabilia expert estimated that for Yankee Stadium "I doubt we'd have any trouble selling every seat in the house for as much as $1,000," which even discounting the bleachers (which are bench seats) and the typical one seat in three that gets destroyed in removing the rest could bring in $30 million, though in past auctions removal costs have eaten up a huge chunk of the take.
In any case, most of this isn't news - the city has included an estimate of $10 million in revenue from selling bits of Yankee Stadium in its financial plan for at least two years now. The only real revelation is how it plans to do the sale - it might actually make sense to cut the teams in on the process, since they can market to fans better than the city Parks Department (which owns the two ballparks) can. Of course, it all depends on what deal is struck; if, say, the teams don't end up making all the money and the city, say, pays the removal costs, then we'll need to update the subsidy chart yet again.
March 21, 2008
Economic crash could doom Atlantic Yards
The growing Wall Street meltdown may have just claimed another victim: New Jersey Nets owner Bruce Ratner tells the New York Times' Charles Bagli today that construction of the office tower and apartment buildings in his proposed Atlantic Yards project in Brooklyn could be put off for years thanks to a fizzling market for office space and tightening credit. A basketball arena for the Nets, Ratner insists, is still slated to begin construction by the end of the year - albeit now with a staggering $950 million price tag.
As Bagli notes, though, New York's history is littered with ambitious construction projects that never got off the ground thanks to economic slumps:
The Riverwalk project, a plan to build five residential towers on a 30-acre platform over the East River, surfaced in 1980 but collapsed a decade later after the economy slowed. A developer for the redevelopment of Times Square was selected in 1984, but work did not begin for 12 years - with a different developer - largely because of a recession, as well as 47 lawsuits.
There's also the fact that the Nets arena is the one piece of the project that would require the taking of private land by eminent domain (thanks to being too wide to fit on a single block), and that newly elevated governor David Paterson called for a statewide moratorium on eminent domain as a state senator in 2005. It's too soon to call Atlantic Yards dead or even dying, but the odds on the Newark Nets just got significantly better.
March 20, 2008
NYC throws another $47m on the Yanks barbie
The New York City Parks Department and Economic Development Corporation yesterday released new figures for the expected costs of replacement parks and "infrastructure" around the new Yankees stadium project. The upshot: The city's outlay is now $242 million, up from $195 million a year ago and $135 million a year and a half before that. The total construction cost of the project is now an unreal $1.885 billion, with $833 million of that covered by taxpayers.
More details in my post for the Village Voice website, or via the latest iteration of the spreadsheet (which discounts future expenses by 6% a year, if you're wondering why the figures don't quite match up with those in the Voice piece).
I want the airwaves
As part of the media onslaught surrounding the expanded edition of the book, I'll be on the radio show Sports ByLine USA tonight starting at approximately 7:55 pm Eastern* to talk about various stadium shenanigans. (If you don't get the show locally or via Sirius, you can listen live via their website.) I also recorded a segment this morning for National Review Online, which should go live next week; I'll post a link when I have one.
*UPDATE: The Sports ByLine USA interview actually airs at 11:10 pm Eastern tonight. Tune in if you can.
Sonics madness
The Seattle Sonics' Oklahoma City move threat is getting crazier and crazier. Over the last few days:
- Oklahoma state legislators announced they're working on a proposed lease for the team that would offer tax breaks to the team, on top of the $122 million in arena upgrades (to an almost brand-new arena) they'd already be getting. The Sonics would pay $1.7 million a year in rent, but the city would pay arena operating costs, which could easily eat up that entire amount. And the team could opt out of the lease entirely if attendance fell below certain thresholds - but with a huge metropolitan arena like OKC and a successful team like the Sonics, that could never happen.
- The Washington state legislature said it won't consider a $300 million KeyArena renovation plan until next year, whereupon the local billionaires who proposed the deal (and pay for half of it if the state and city pay the other half) declared that if it isn't approved by April 10, the deal is off the table.
- NBA commissioner David Stern called the plan to renovate Seattle's KeyArena "a late PR stunt," and blamed local elected officials who supported a ban on public sports subsidies for the team leaving: "When Seattle does move, whether it's the end of this season or two more seasons, what the mayor has managed to do was have a building that's still going to have $26 million of bonding left without a major tenant. It's a terrible situation. It's not very fair for the fans of Seattle, but that's the situation we got put in."
- Oklahoma City councilmember Pete White questioned whether the $20,000 a year the city has set aside for maintenance to a new team practice facility would be enough. Yeah, you read that right, $20,000 a year. I think we can guess what their intended capital improvements look like.
Illinois legislators cool to Wrigley sale
The Chicago Cubs plan to sell Wrigley Field to the state of Illinois and make it pay to renovate it isn't going so swimmingly, if interviews with state legislators last week are any indication. Among the comments:
"There should be no taxes involved in it. Plus, [team owner Sam] Zell has lots of money. So let him pay for it."
"Nobody, I don't believe, could convince me this is a good thing for the state of Illinois to do at this time."
"If the idea is state taxpayers should help renovate Wrigley Field so Sam Zell can make more money when he sells the team, I just don't see what the public benefit would be."
"Whatever [Zell] wants, I'm opposed to."
No word yet on when or if Zell or Illinois Gov. Rod Blagojevich will make a formal proposal to the legislature, but if comments like these are any indication, they should accompany it with some nice chocolates or something.
March 11, 2008
Sonics saviors to Seattle: Deliver $150m in two weeks, or we walk
The billionaires offering to buy the Seattle Sonics and keep them in town have issued a threat of their own: If the state legislature doesn't agree to a $300 million plan to renovate KeyArena within two weeks, they say, they'll withdraw their offer to pay half the cost. "If we miss out on this opportunity, the cards are stacked up too much against us. Somebody else can pick it up," developer Matt Griffin told the Seattle Post-Intelligencer.
Since the Washington state legislature isn't set to debate arena legislation until next year, Gov. Chris Gregoire and state house speaker Frank Chopp dashed off a letter to the city of Seattle, asking it to agree to sell $150 million worth of bonds immediately, and the state would consider paying half of it back. Seattle deputy mayor Tim Ceis rejected that idea: "Without some commitment from the governor and the Legislature, it would appear that the city would be at some risk. ... A letter is [Ed. Note: presumably Ceis meant "isn't"] really a guarantee of future action - all it is is a statement of, I guess, their good intentions."
March 09, 2008
Spitzer proposes another $1.2B in public money for MSG, Penn Station
With plans for a new Madison Square Garden and Penn Station faltering, the New York Times' Charles Bagli reports, Gov. Eliot Spitzer has come up with a new plan to save the multi-billion-dollar project. Spitzer's plan would require an additional $600 million apiece in city and state funds, while private developers Related Companies and Vornado Realty would put up "more than" the $550 million they had promised (Bagli doesn't say how much more) - but get back additional development rights to erect office towers in the area.
Even then, it would leave an estimated funding of $650 million, which would presumably be filled by the Port Authority of New York and New Jersey, which would take over control of the project from the state of New York. New York assemblymember Richard Brodsky, who heads the assembly's committee on authorities, condemned the move, saying it would be allowing developers to "cherry pick" the agency offering the best deal.
If the Spitzer plan doesn't go anywhere, MSG's owners are moving ahead with a $350 million plan to renovate the 40-year-old arena, writes Bagli, adding luxury suites and restaurants and rebuilding "the arena's seating bowel." That would certainly explain the Knicks' play this season...
Billionaires float Seattle arena plan
Add Microsoft CEO Steve Ballmer and Western Wireless founder John Stanton to the list of rich guys (most prominently, Costco CEO Jim Sinegal) who are offering to buy the Seattle Sonics and keep them in town if the government goes halfsies with them on a $300 million renovation of KeyArena.
Washington state legislative leaders say they'll consider allowing King County to raise $75 million for the plan by extending car-rental and sales tax surcharges that were used to fund the Mariners' Safeco Field; the city of Seattle would then need to come up with another $75 million. (No word on whether the billionaires' cabal would agree to share increased arena revenues with the city and county to help repay the public's cost.) A funding bill wouldn't be considered until the next legislative session, but some NBA owners have said that even the possibility of a local solution could keep them from approving the Sonics' proposed relocation to Oklahoma City at next month's NBA Board of Governors meeting.
Sacramento arena running in place
In case you've been wondering what's up with the latest Sacramento Kings arena plans, the answer is not much. The Sacramento Bee reports that negotiations between the NBA and Cal Expo, where the arena would be built, are moving slowly; furthermore, the slumping real estate market has endangered the funding plan, which would finance arena construction by using proceeds from development of Cal Expo's land. Continues the Bee:
A big hurdle is figuring out how to finance the arena and the fairground improvements upfront, when profits from building might be deferred for years.
Participants in the discussions said ideas include using Cal Expo's authority to float bonds and paying them back with revenue from the development. A surcharge on food, beverages and parking within the Cal Expo borders could be used as a revenue stream.
In other words, Cal Expo, which is a state-run agency, would use its own revenues to build the arena, and would gamble on enough development occurring over the next couple of decades to break even. With ideas like these, no wonder negotiations are going slowly.
March 05, 2008
Illinois floats Wrigley reno plan to be paid for by ... hey, look over there!
The head of the sports authority that wants to buy Wrigley Field from the Chicago Cubs says renovating the 94-year-old ballpark would cost - hang onto your hats - as much as $400 million, but could be accomplished "at no cost" to taxpayers. How would this be accomplished? Let authority chair Jim Thompson count the ways:
- Team lease payments to pay off several hundred million dollars in tax-exempt bonds that would be floated by the state. To meet IRS rules, these would likely have to be crafted as "payments in lieu of property taxes," or PILOTs.
- The sale of naming rights to the ballpark, though Thompson admitted, "My guess is that whoever wanted to pay for naming rights would have to keep the name Wrigley Field as part of it, which could reduce the value."
- A special taxing district around the stadium in which sales-tax money going to the state would be frozen at current rates, with any new revenues being siphoned off and used for renovation costs.
If you're scoring at home, that's two sources of revenue that actually come from taxpayers (albeit one mostly from federal taxpayers) and one that even Thompson doesn't think will raise much money. It will perhaps come as no surprise that Thompson was the Illinois governor who masterminded the Chicago White Sox' stadium deal in the late '80s, which ended up being paid for entirely by state taxpayers.
March 04, 2008
OKC approves arena tax; Sonics move next?
The polls have closed, and the Oklahoma City referendum to spend $122 million in sales tax money to upgrade the five-year-old Ford Center has passed.
It now seems very likely that the Seattle Sonics will move to Oklahoma City, though when that will happen depends on the outcome of the city's lawsuit to hold the team to its lease through 2010. Though there is talk of Seattle business leaders putting together a last-ditch proposal to buy the team and go halfsies with the city on a renovation of KeyArena.
More likely is that Seattle, despite David Stern's threats, instantly becomes the preferred move target of other NBA teams no longer smitten with their current cities. (The Seattle Hornets?) King County Executive Ron Sims said last week that he's already spoken with wannabe ownership groups, adding, "What we should do is what I would call the Cleveland Browns strategy, which is to keep the name of the team here so if a new team comes here, they would become the Sonics.
March 03, 2008
Hot off the presses!
The newly expanded edition of Field of Schemes doesn't officially hit store shelves until April 1, but you can buy it now from the Bison Books website. For those who haven't been following, this is is a mammoth upgrade to the original edition, clocking in at more than 400 pages - four new chapters cover recent changes in the sports subsidy game like tax increment financing and "state-of-the-art" clauses, as well as in-depth coverage of stadium battles in Washington, D.C., New York City, and Boston. And the original material has been updated with annotations on subsequent events, so if you were wondering how those Baltimore and Cleveland stadium deals look a decade on, here's your answer.
If all you have is the original edition, in other words, you're missing out. On a really heavy brick of a book to throw at your opponents during arguments, if nothing else.
Aside to journalists, radio producers, and potential book reviewers: Please e-mail me with your contact info, and I'll have Bison's publicist get in touch with you.
Bloomberg gets Yanks, Mets numbers wrong
New York Mayor Michael Bloomberg declared on his radio show last Friday that "the city and the state, to my recollection, each put in $75 million" for each of the new Mets and Yankees stadiums. As regular readers of this site should recall, the actual city/state cost is about triple the mayor's estimate, with the federal government getting hit up for a share as well.
More details in my op-ed today in Metro NY, or at the newly updated Yanks/Mets stadium cost spreadsheet.
