Field of Schemes

June 30, 2005

Letter to Sports Business Journal on NYC Stadiums

The following letter was sent to the editors of Sports Business Journal in response to Andrew Zimbalist's column on the proposed Yankees, Mets, and Nets stadium and arena deals.

To the editors:

Andrew Zimbalist is entitled to his opinion about New York's latest stadium and arena projects, but his recent "Final Word" column gets the facts wrong in several important instances:

The public "infrastructure" spending for the proposed Yankees stadium would not pay for the "reconstruction and expansion of Macombs Dam Park"; rather, it would pay to demolish the park to make way for the new stadium, and replace it with scattered ballfields elsewhere in the area.
Likewise, the addition of a new Metro-North commuter station is not included in the $240 million taxpayer cost Zimbalist provides for the Yankees project. Yankees execs told the New York Daily News that rail improvements would be an additional public cost of $90 million - bringing the Yankees' total taxpayer bill to $330 million.
The city would indeed save by not having to pay for maintenance on Yankee and Shea Stadiums, but while Zimbalist pegs this number at "$10 million annually at Yankee Stadium in recent years and nearly that high at Shea," Mayor Michael Bloomberg himself gave the Yankee Stadium figure as only $6 million a year. And Zimbalist fails to mention that under the new stadium deals, the city would no longer collect rent from the teams, amounting to a combined loss of at least $10 million a year.
Zimbalist dismisses the estimated $300 million in "payments in lieu of taxes" that the Nets would use to fund their arena as not a subsidy, since other developers would be eligible for tax breaks as well. Yet Nets owner Bruce Ratner's Memorandum of Understanding with the state Metropolitan Transportation Authority requires that the state "must take into account" the team's PILOT costs "prior to the fair market value determination" what Ratner would pay for the arena land. If so, Ratner would be able to deduct his arena expenses from his land payments - effectively making them an additional subsidy.
Zimbalist declares that "the three proposed New York facilities will be funded overwhelmingly with private funds that will constitute new money to the local economy. There will be a net increase in local employment and income." Yet a 1998 study by the city's Independent Budget Office found that two new baseball stadiums for the city's existing teams would add only a combined $5 million to city tax coffers - even accounting for inflation, that would be far less than the carrying costs on the nearly $300 million in city expenses for the twin projects.

In fact, the financing for the Mets, Yankees, and Nets projects is remarkably similar to that of the failed West Side Jets stadium: The state would finance stadium construction via tax-exempt bonds, to be repaid by the teams via PILOTs; meanwhile, the public would cover everything from land to transit to such "infrastructure" costs as the foundations of the stadiums themselves (in the Mets' case, state money would pay for the pilings that the stadium would rest upon in the swampy Queens soil). Counting all of the above costs, New York taxpayers' full bill for the three planned sports facilities could total more than $1 billion. With "good news" like this, who needs train wrecks?

Sincerely,

Neil deMause

Zimbalist's response:

Neil DeMause asserts that my piece in the Sports Business Journal of June 27-July 3 is "rife with factual errors." I stand by my numbers as accurate. Below I respond to the particular points he raises.

DeMause asserts that the public costs associated with the new Yankee Stadium plan are $330 million. Let's take a look. According to the plan, the city will spend $135 million on the new park plus an additional $5 million on infrastructure. The state will spend $70 on a new parking garage plus an additional $5 million infrastructure. The total city and state bill, then, is $215 million. This sum does not include an additional $20 to $30 million that has been in the state's MTA budget since the days of Mario Cuomo to build a Metro North Platform nearby the stadium. Even including the platform, however, the total costs would come to $235 million to $245 million. (I wrote $240 million in my piece.) Moreover, the $70 million that the state will invest in the parking garage yields a positive return to the state. In the plan, the state keeps all the parking revenues and the Yankees get none. The present value of these parking revenues is greater than the investment in the garage.

Further, the city will be able to sell off all the seats above the first level and other memorabilia from the existing Yankee Stadium, lowering its net cost still more. (The field and first level of seats at the existing stadium will stay and be available for local use.) The Yankees' share of the project remains at $800 million, plus any cost overruns on the new stadium.

DeMause also suggests that the new park space will be diminished relative to the existing Macombs Dam Park. But the project plans are to have 30% more land, more ballfields, an upgrade to the existing running track and soccer field, and the addition of new basketball, handball and tennis courts.

The maintenance costs at Yankee Stadium were indeed right around $10 million last year and they are rising rapidly. They will, by a long shot, more than wipe out any rent payments over the coming decades (the Yanks are allowed to deduct ballpark maintenance spending from rent). Indeed, the city estimates that maintenance costs at the existing stadium would be hundreds of millions of dollars over the next thirty years. DeMause's figures apparently do not take account of the adjustments to rent.

I have to wonder whether Neil DeMause would ever meet a stadium deal that he likes. I agree with Neil that typical stadium deals do not directly benefit local economies, but typical deals are financed largely with public funds. The three new facility deals at play in NYC are funded overwhelmingly with private funds.

Andrew Zimbalist
Smith College
Northampton, Ma.

And my reply to Zimbalist:

The $90 million figure for MTA costs - which would include not just the new Metro-North station, but also rebuilding the recently renovated 161st Street subway station - came directly from Yankees execs, who gave it to T.J. Quinn of the New York Daily News. As for parking revenues, yes, those could potentially offset the state's costs; however, additional public subsidies such as exemption from sales taxes on construction materials (worth $22 million, according to research by Charles Bagli of the New York Times), and the loss of future property taxes on the site ($44 million, according to Zimbalist's own figures) would quickly cause the public cost to balloon back up again to the $300 million to $400 million range, even before federal tax subsidies are factored in.
I never said that "the new park space will be diminished relative to the existing Macombs Dam Park." I merely noted that Zimbalist's description of the "reconstruction and expansion of Macombs Dam Park" was a falsehood: the existing park would be demolished, and replaced by new ballfields and a track scattered throughout the neighborhood (visible in the middle photo here).
Where Zimbalist gets his $10 million figure for Yankee Stadium maintenance last year is a mystery. At the Yankee Stadium press conference, Mayor Bloomberg himself said that maintenance costs have totaled just $30 million over the past six years; the NYC Parks Department (which owns Yankee Stadium) told Bagli that it was $23.5 million over the past five years - in either case, roughly $5 million a year. (The Yankees, meanwhile, paid $26.43 million in rent over the past five years, even with a lease regarded as extraordinarily generous to the team.) As for the "hundreds of millions a year" in future maintenance costs, this is one of Bloomberg's assertions that he's so far refused to substantiate; Zimbalist, of all people, should know that both team owners and pro-stadium elected officials have a long history of exaggerating maintenance costs on existing buildings, and so such claims should be treated with skepticism until proven otherwise.

Are Bloomberg's stadium proposals better than those that Rudy Giuliani proposed seven years ago, where the city would have borne all costs? Certainly - though that's an awfully low bar to set. The question should be: Is it worth spending close to $900 million in public money, destroying a historic ballpark, and demolishing the South Bronx's only large recreational green space, just so that the owners of the Yankees and the Mets can make more money?