Can a Portland MLB stadium pay for itself with “no impact” to Oregon? Ha, ha, it is to laugh

With the Oregon senate moving forward with plans to approve up to $800 million in stadium bonds for a potential MLB expansion team, to be funded with player income taxes — it just passed its last committee vote and is headed for the full senate — the Portland Business Journal asked a “Portland economist” to explain it. And while ECONorthwest’s Michael Wilkerson is indeed an actual economist, Ph.D. and everything, I only got as far as this sentence before I had to stop reading:

“The state is not looking at how they could spend this known, certain new income that would be generated. They’re saying this revenue will only happen if the state and PDP is successful in getting a team, and if PDP is successful in getting a team, you will then have the player income to fund the stadium. But if the team doesn’t come, that revenue goes away, and there’s no impact to the state.”

That is indeed the argument being made by wannabe MLB owner Craig Cheek: Without a baseball team, those income taxes — not a special “tax on players,” as some news outlets are reporting, but their regular Oregon state income tax that tops out at 9.9% — would not exist, so it’s free money. But is it true?

I’ve spent years beating my head against that wall — here I am doing it ten years ago regarding the Milwaukee Bucks owners plan to use a similar financing scheme — and frankly I’m tired of saying the same thing over and over again. So I asked some other actual economists who will be attending this week’s second annual sports economics conference at the University of Maryland-Baltimore County (yes, you’ll be seeing at least one more liveblog, likely on Friday’s session), and Geoffrey Propheter, who will be presenting his paper on “Determinants of Lawmaker Support for Sports Facility Subsidies: Inching Towards a Predictive Model?”, replied like so:

Player (and non-player staff too presumably) salaries come from, in part, residents spending money on tickets, concessions, parking, etc. In order for people to buy tickets, concessions, parking etc, they stop spending money on other goods and services. The businesses that would have received that consumer spending now don’t, and it instead accrues to the team owner as revenue and to players/staff as wages. This includes media revenue from things like TV rights — you used to go to the movies once a month but now you buy a monthly local TV subscription for the team, that sort of thing.

The part of the income tax stream that is new is the chunk paid by non-residents via MLB revenue sharing agreements.

So basically: No, when a Portland resident goes to an Orcas game instead of a Trail Blazers game, that doesn’t create new income taxes for the state. Yes, when a resident of South Carolina watches an Orcas game on Fox and part of the proceeds go to Portland ballplayers, that results in new income tax revenue for Oregon. But that’s not what the Senate bill does: Rather, it just adds up all the income tax revenue that was ever touched by baseball team employees, declare it an isosceles triangle, and sells $800 million in bonds on the proceeds.

And how did the state senate and Cheek come up with that $800 million number, anyway? J.C. Bradbury, whose conference paper is on “Franchise Relocation and Stadium Subsidies: Credible Threats or Cheap Talk,” chimed in that it’s worth looking at the projected Portland income tax revenues needed to pay off the bonds, which are, he said, “bananas.” but let’s go with “optimistic, to say the least.” The projections used a variety of scenarios, but mostly assumed average MLB payrolls would keep rising by 3% a year, as they have on average since 1989:

(Yes, that chart was put together by ECONorthwest, the company that employs Michael Wilkerson, the economist consulted by Portland Business Journal for his unbiased analysis back at the beginning of his post, who have actually been paid by Cheek’s prospective ownership group to work on its analysis, something the Journal didn’t divulge in its article.)

If you look closely at that chart, average player payroll relative to inflation has actually fallen since about 2017. That could be a temporary dip, or it could be an indicator of things like the popping of the cable bubble that could cause MLB revenues to flatten or decline.

And how you project future baseball revenues, it turns out, matters a lot to the $800 million stadium bond plan. The average MLB payroll right now is about $180 million a year, and the bill assumes that non-player payroll is about the same.* The Oregon bill assumes that players would pay 8.62% of their salaries in state income taxes and non-players 6.36%, which comes to $27 million a year — only enough to cover around $400 million in bonds. If baseball salaries rise by 3% a year, meaning the average player would be earning $14 million a year by the 2050s, then you could pay off around $600 million in bonds, by my back-of-the-envelope math — but if salaries are flat or fall, the state of Oregon could end up hundreds of millions of dollars in the hole. And when you take into account that much of those “new” income tax revenues wouldn’t actually be new, this looks like a guaranteed money loser for taxpayers in at least the half-a-billion-dollar range.

All of which any economist not in the employ of the Portland Diamond Project could have explained to Oregon readers, if they’d had the chance. This should make for some lively dinner conversation in Maryland this week, I expect.

*UPDATE: This bothered me when I read it, and bothered Bradbury even more, so I’ve spent a bit of time trying to track down where it came from, and … I still have no idea. My best guess is that it’s based on a bunch of figures showing that when you subtract out profits from income to get expenses, about half of that is player payroll, so then the other half has to be non-player payroll … which isn’t how “expenses” work at all, I know, but could ECONorthwest be that dumb? Don’t answer that.