While I was spending yesterday morning fiddling with Patreon — big thanks to everyone who signed up for that already, btw, it was a big enough success that I had to reorder more fridge magnets — the Knoxville News Sentinel did what I am constantly clamoring for news outlets to do, which is to ask the tough questions about a stadium deal and consult with some experts to provide context and analysis. And the News Sentinel brought in two excellent ones, asking University of Colorado economist Geoffrey Propheter and University of Chicago public finance professor Justin Marlowe to vet the projections that a new $74.5 million Tennessee Smokies stadium would actually cost the state and city less than $5 million total, thanks to rising sales tax revenues that would lift all boats by the 10th year of the project.
Unfortunately, the math is pretty involved here, and the News Sentinel’s report isn’t entirely clear about mixing fiscal apples and oranges. So here’s my best attempt at an explainer of their explainer, with an assist from Propheter (who is not responsible for what I am writing below, I just checked in with him on some of the underlying numbers):
How is that $74.5 million stadium price tag supposed to be paid off? As discussed here previously, Tennessee Gov. Mike Lee has allocated $13.5 million in state funds, leaving a $61 million gap. The News Sentinel says that this will cost $3.2 million a year for the city and county to pay off, which would be about a 3.25% interest rate, which, sure, that’s conceivable in this day and age, though not worth betting the farm on.
To make those annual payments, the city and county would get to use $1 million a year in rent payments from Smokies owner Randy Boyd, plus an estimated (more on this in a minute) annual payment in lieu of property taxes of $750,000. That gets us down to about $1.5 million a year remaining. But more than $1 million a year is expected to be paid off by kickbacks of city and county sales taxes from both the stadium itself and a stadium district around it, bringing the total remaining cost to about $480,000 a year. And as sales tax receipts rise, Boyd’s numbers project, that figure will dwindle away to nothing by year 10 of the project.
What do the economics experts say about this? There are a bunch of problems. First off, Boyd’s projected 3% annual rise in sales tax receipts is just a guess — Propheter says a 2.1% annual increase is more reasonable (and even then would require a sizable hike in ticket prices, since the stadium itself isn’t going to grow to include more seats). Marlowe says he’d be more comfortable not assuming any increase in future sales at all.
The bigger issue, though, is that “We won’t have to use tax dollars to pay off the stadium because we can pay it off using sales tax revenues” is, um, kind of insane. Boyd’s argument, no doubt, would be that nobody would be spending money in and around the stadium if the stadium isn’t built, so it’s all free money; both Propheter and Marlowe warn that if Smokies-district spending just ends up substituting for (or “displacing,” as Marlowe calls it) other money that people would have spent elsewhere in the absence of a new stadium, then you just end up cannibalizing sales-tax revenue that the city would otherwise have in its pockets to spend on other things.
Then, there’s that $750,000 annual PILOT payment: Propheter noted (to me, it doesn’t seem to have made it into the News Sentinel article) that since nothing has been built yet on the site let alone assessed, the PILOT could end up being less than what’s projected, leaving a bigger bill for the city and county to pay off.
So what’s the total public cost? Pffft, damned if I can say. If the only guaranteed payment from Boyd is $1 million a year in rent, then that leaves the city and county potentially on the hook for about $2.2 million a year in bond payments, whether that’s from new taxes or old taxes or what. That would come to about $42 million worth of bonds being paid off by the city and county, which is a lot more than less than $5 million. Add in the $13.5 million from the state, and you have as much as $55.5 million in public costs, though the possibility of getting some sales tax money that isn’t cannibalized, plus some PILOT money, should bring it down somewhat below that.
Is that a terrible deal? It all depends on what you mean by “terrible.” It’s less than, say, spending $700 million on an NFL stadium, but on the other hand you’re getting a minor-league baseball team, which isn’t quite as exciting to most sports fans as an NFL franchise. Plus you’re not actually “getting” anything: Knoxville would just be building a stadium so Boyd could move the Smokies a few miles from the next town over, so it’s not like local baseball fans would be getting a new team, or would be missing out if the team didn’t move.
But the point of all the numbers, really, beyond clear plastic binderism, is to cast a haze over the project: If you’re a sports team owner, the next best thing to convincing people that a stadium is a good deal is confusing them about what “a good deal” actually is by making their eyes glaze over at all the math. In that light, I’m not so sure how productive articles like the News Sentinel’s really are — or how productive this post is, even. Maybe I should just stick with a meme of a guy labeled “Knoxville officials” eyeing a woman labeled “stadium spending,” with another woman labeled “other public needs” looking at him in outrage?
As we are repeatedly reminded that “old” stadia do not generate revenue the way new stadia do, shouldn’t we assume that the demand for tickets and thus ticket prices and associated taxes will decrease significantly over time?
Haven’t essentially all new baseball facilities built for professional teams seen a general decline in revenue after the “new” wears off (which for the Marlins was a matter of weeks, while for the Cardinals does not seem to have happened much if at all)?
I would put this deal in the “terrible for taxpayers” category. But then, if it wasn’t a deal designed to take tax dollars from the poor and low to middle income earners and put it in the pocket of a multimillionaire/billionaire, the team owner wouldn’t have agreed to it would he?
*it* them, sorry.
I went to a Brooklyn Cyclones game last weekend, and there couldn’t have been 1,000 people there, despite great weather and postgame fireworks. I can’t find annual attendance figures, but anecdotally it certainly seems like attendance has plummeted since the new-car smell wore off.
On the bright side, there was an eight-minute delay while a drone hovered over the field, which was new and exciting.
That’s consistent with what I’ve seen at minor league games. There are a couple of teams I’ve followed who can get 4-6k per game on a good night, but most of them are under 2k on average and lots top out around 1,000 fans. Those with new or heavily upgraded facilities might double attendance for a year or thereabouts, but after that they tend to go back down to traditional numbers.
Was the drone part of the in game entertainment or are the cyclones on homeland security’s radar?
No explanation given. I spotted it hovering over center field, then a couple of seconds later the base ump spotted it, then he alerted the plate ump, who waved everyone off the field until it had left the stadium airspace.
On the other hand, given that the Cyclones scored zero runs and hit maybe two balls out of the infield, maybe the drone was the in-game entertainment after all?
I suspect concerns about C19 and the general bad feeling about minor league baseball created by The Purge has damaged attendance. Also, people found something else to do last summer and those new habits have lasted.
At least that’s how it is for me. I used to go to many Spikes and Curve game, but since Manfred took away the NYPL and replaced it with a glorified high school league, I just have a very bad feeling toward the sport.
I’m sure I’m not alone in that.
I like the meme idea…..
Am I wrong in thinking that the most visited stadia (stadiums?) are Fenway and Wrigley no matter how the teams are doing?
And to think that Yankee Stadium was torn down…
When I did a half-assed correlation study years back, one strong signal was that older ballparks have a lot less volatility in attendance — in other words, new stadiums may draw more when teams are doing well, but they are more likely to empty out as soon as the wins stop coming.
Isn’t Dodger Stadium the 3rd oldest stadium nows a days??