Gonna be a bit of a weird roundup today, gang, because the Kansas City Star dropped this bombshell last night:
A new Royals ballpark in downtown Kansas City would cost Jackson County taxpayers far more than its $1 billion sticker price.
It’ll be more like $4.4 billion to $6.4 billion, if the stadium sales tax and other payments required by the current lease agreement extended 40 years beyond its expiration date in 2031, as the Royals have suggested.
6.4 what now? Is this one of those stress dreams where I’m going to laugh about how I could ever have found it believable once I finally wake up?
If you don’t feel like reading the whole Star article, or just can’t see it through all the pop-up ads, here are some of the main points:
- The 0.375% sales tax surcharge that funded the most recent Royals and Chiefs renovations currently generates about $53.4 million a year. [CORRECTION: The $53.4 million includes the parks tax and other payments listed below. I’ve adjusted the rest of the calculations that follow — the overall math doesn’t change much.] If that is extended by 40 years like Royals owner John Sherman wants, and sales tax receipts rise as expected, that would generate between $1.3 billion and $2 billion for the Royals alone according to a financial analysis that County Administrator Troy Schulte conducted last week and which someone “associated with the Legislature” leaked to the Star.
- The Royals would get another $170 million, again over 40 years, from its half of a county parks tax and other payments from the city and state.
- “What shocked Schulte,” writes the Star, was that Jackson County would face a projected $2.9 billion in increased insurance payments over the next 40 years if a new Royals stadium were built. The Royals’ current stadium comes with an annual insurance bill of $800,000; for a new stadium that would start at an estimated $4.5 million, then rise by a staggering 10% a year.
Some immediate caveats: None of the numbers above are in present value, meaning spending in the year 2070 is counted the same as spending now, which is not really kosher at all. And that 10% a year insurance hike sounds crazy on the face of it, plus also wouldn’t that imply that insurance on the Royals’ current stadium would rise as well, making the incremental cost less?
Still, even if it’s not $6.4 billion, we’re talking about a shit-ton of taxpayer money here. Using my best back-of-the-envelope scribbling and this present value calculator, it looks like the future tax surcharge diversion would be worth something in the range of $500-700 million in present value. The insurance bill, depending on your assumptions, could be up to $500 million. So it’s very likely well over $1 billion worth of taxpayer costs here, and that’s without any public infrastructure spending or property tax breaks or anything else that might eventually get rolled in as well.
If nothing else, this certainly explains why County Administrator Frank White sees $300 million paid out over 20 years as a preferable counteroffer: It very much is. It’s still maybe not a great counteroffer, since that’s almost $200 million in present value, but it beats $1-billion-plus all to hell.
So, yeah, that happened. And other things happened this week too, so let’s get to them as well:
- Tampa Bay Rays execs presented their $600 million-ish stadium subsidy demand to the St. Petersburg city council yesterday, with city consultant David Abrams beaming that “You only have to look to the Battery in Atlanta to see how there was nothing there, the amount of economic impact that has happened in Cobb County for the Atlanta Braves has been nothing short of astounding.” Sorry, that is incorrect, but we have some lovely parting gifts. Rays exec Brian Auld also told the council that it has to approve a stadium deal by next spring in order for the stadium to be open in 2028 because “if we miss that opening date, this entire endeavor becomes impossible,” an assertion he backed up with I’m sorry, my time has expired.
- Meanwhile, the Tampa Bay Times editorial board wrote an editorial this week that praised the city of St. Petersburg for its “transparency” by getting the Rays to share economic projections for their new stadium project with the city council by promising not to let the public see them, which is a new twist on the meaning of that word. “This marks a good start in what could be a beneficial new era for area residents and the Rays alike,” wrote the board; it will be left as an exercise for readers to determine what innovative definition the Times is using for “beneficial.”
- The African-American Sports and Entertainment Group, which was announced with great fanfare a couple of years back as the city of Oakland’s choice to redevelop the Oakland Coliseum site, isn’t doing too well, with two of its eight owners suing the others for something about unfairly diluting their shares by creating multiple LLCs in Delaware. The group has already seen its plans for a WNBA team in Oakland get derailed by the league granting an expansion franchise to San Francisco instead, and getting a new NFL team for Oakland has always seemed kind of pipe-dreamy, so yeah, definitely not doing too well.
- It’s been a couple of years since we’ve heard about the Minnesota Timberwolves owners — yes, A-Rod and that other guy — and their desire for a new arena to replace their renovated-in-2017 old one, but somebody asked Minnesota city council candidates what they think of paying for one, and they’re not crazy about the idea. “Subsidizing billionaires’ hobby investments is not a responsible use of taxpayer dollars — especially when there is no evidence that these tax outlays provide a return on investment,” said councilmember Elliott Payne.
- Add Country Club Hills to the list of Chicago suburbs interested in being home to a new Bears stadium if the team’s owners want to pay to build one themselves, which they don’t.
- The Arizona Diamondbacks are in the World Series, which means it’s time for more articles about why their owners think they need a new stadium. Also pitcher Merrill Kelly cast aspersions on Chase Field’s air-conditioning, saying, “I’m definitely sweating more here than I am other places”; there might just be other reasons for that, Merrill.
Councilman Payne with the line to end all debate for giving money for stadiums!
Sure. But then, they did quite recently give money to both the Twins and the Vikings… and not small money either, so????
Perhaps Payne is and always has been against this sort of thing, or perhaps he wasn’t even in office when those decisions were made… I don’t know… but it sure seems a little off message to make a declaration like that for a basketball team when you have already funnelled more than $1Bn to other billionaire hobby investments…
I am not saying they “should”, obviously, but this seems a bit like deciding to quit heroin after you have lost your family, your job, your house, your dog and any semblance of personal dignity. If you were capable of quitting, you perhaps should have considered it sooner.
The Twins and Vikings money was all state and county, I’m pretty sure. So Payne is off the hook for hypocrisy at least for the moment.
Is there any evidence – I guess it would be anecdotal – that once a city/state/county gives away a bunch of money to one or two teams, that they are less willing to give money to the next team in their area that comes asking?
Not that I can think of. That’s happened in a couple of cities like Seattle, but then you have someplace like Indianapolis where the giveaways just continue endlessly. If there’s a correlation, I haven’t seen it.
I think that the local populace eventually catches on after they got a bad deal, but it has proven difficult to translate that knowledge into votes that actually changes future policy.
Well the city of Atlanta chose to take care of the Falcons and the Braves moved to the suburbs.
I think there’s a limit, but it’s different for every metro area/state.
0.375% to line the pockets of Royals and Chiefs owners? Maricopa County has a 0.500% tax that pays for a big chunk of new freeways, arterial improvements and most of the public transportation operations and maintenance. Kansas City is crazy.
“…open in 2028 because “if we miss that opening date, this entire endeavor becomes impossible…”
Perhaps this has been answered somewhere in the fine print (that I did not read… the overall plan to make these kinds of agreements so outrageous & annoying that ordinary citizens don’t read them seems to be working… at least on me), but doesn’t Auld and his tiny and freakishly strange boss need this to happen in order to cash in on the site redevelopment rights that Small Stu would otherwise miss out on?
I recall that any redevelopment revenue generated by the site before the Rays existing lease expires (end 2027) has to be shared (I believe 50-50) with the cartpetbaggers (who did not pay to build the stadium and do not own the land it sits on, naturally) themselves.
Unless that clause has been voided or otherwise substituted as part of the new agreement, perhaps this is why Auld is so adamant about the pre 2028 opening…
That’s undoubtedly what he’s talking about. But “We need you to hurry up and approve this before we have to give valuable development rights back to you!” is a bizarre argument. (Which I guess is why Ault is couching it in vague passive-voice terms.)
Well, insurance (and especially reinsurance) companies have started to price in climate change costs into their calculations. Of course greed has nothing to do with it ha ha.
That is if you can get coverage at all. So that price increase on a new contract is not surprising at all…..
Wouldn’t Kauffman see huge rate hikes then, too, though? Or is the idea that the best course of action is to own a cheap building, because at least then you don’t have to worry about replacing it once the sharknados destroy it?
I wonder if the difference is the location. The new proposed sites are closer to the river and other buildings while Kauffman isn’t near anything.
It would be nice if the Star would just post the damn report.
I too wish the Star had posted the report.
The insurance thing is interesting; I hadn’t thought about it before. I can understand having to pay big premiums during construction and the first years of operation. But at a certain point, doesn’t a stadium become essentially worthless? Take Arrowhead, for instance. If it fell into a sinkhole, the Chiefs would have to move their games, which would mean less money for the team and the county in the short term. But beyond that, where’s the pain? The Chiefs are already imagining relocating or building new onsite.
I wouldn’t say a stadium becomes “worthless”, David. It may have a fair market value of close to zero (or even a negative number) as facilities built specifically for one user tend to be unsaleable.
But as the lessee, the Chiefs organization can certainly sue the lessor if the facility they lease becomes unfit for the purpose they are leasing it for. They could also withhold rent (I’ll pause there to allow the laughter to die down) etc.
When you lease something to someone, you are making an express guarantee that it is both available for and fit for it’s intended use. Legitimate Force Majeure issues notwithstanding, the lessor does have responsibilities to the tenant (even one who is paying an order of magnitude or more below market value). The Chiefs could move their games (in the example you cited), but they could also sue their landlord for any and all monetary losses resulting.
What kind of operating/liability insurance a facility like this might carry is a good question. Certainly the owner and tenant will expect to be saved harmless from any and all claims relating to things they do not control, so some form of liability and perhaps ‘loss of use’ insurance is likely.
I have trouble imagining that any sports facility would be insured for full replacement cost, particularly if (as you suggest) it is an older stadium. No-one wants a new Three Rivers or Municipal stadium… so how would the asset be protected?
Years ago I looked into “fixed price” or limited benefit insurance for my home (essentially, given that I would not rebuild exactly what I have, why pay for full replacement cost and then not get it?). What I discovered was disappointing… that basically you can’t insure for a value that represents a reasonable ‘sale’ price for your home and not rebuild in the case of total loss… all you can do is agree to be partially insured, which means you would be on the hook for anything over and above the ‘fixed price’ you had negotiated and could not rebuild unless you found the difference.
At some point, what is insurance even for (besides the shareholders, naturally)?
Yes, the insurance is essentially lease insurance. It would be interesting to compare insurance costs for Arrowhead/Kauffman versus the arena in downtown Kansas City, which does not have an anchor tenant.
I still don’t understand what Sternburg gets out of this new Rays deal. He doesn’t own the current stadium, and he won’t own the new one, so property taxes aren’t the benefit. He can’t think that fans will suddenly start lining up to sit in a new, smaller dome, compared to the older, slightly larger dome. The new dome won’t change his TV revenue. Maybe he can shift some maintenance costs around? Is he looking to squeeze a little more revenue out of upgraded suites? The current stadium has 57 suites, which seems like a lot to me. And the local pols have extracted two of the new suites for their exclusive use.
I always figured he wanted to move somewhere with a more active fanbase to boost his local revenue, and used St Pete as a stalking horse to try and get concessions from a new city. But it sure looks like he’s staying here in St. Pete.
What am I missing?
He can sell the team for more before the stadium new car smell wears off?
Yes, forgot about the River proximity. That would increase risk…..