Category: Cleveland Cavaliers

The controversy continues over the city of Cleveland and Cuyahoga County having to cover more than $400 million in upcoming repair costs for the Guardians stadium and Cavaliers arena despite having no money to do it with. And according to Cleveland.com, there’s nothing the local governments can do about it:

Under its lease agreements with the Cleveland Cavaliers and Cleveland Guardians, Gateway Economic Development Corporation of Greater Cleveland is responsible for paying for capital repairs over $500,000 at Rocket Arena and all repairs — big or small — at Progressive Field.

Worse yet, it’s not just genuine repairs that taxpayers are on the hook for; the Guardians leases also contains one of those dreaded state-of-the-art clauses that requires publicly funded upgrades if the Cleveland stadium has fallen behind three-quarters of other MLB ballparks, “as well as any changes required by television networks, the league, insurers or government regulations.” Most recently, this required the city and county to spend $1.3 million to install padded seats behind home place in 2023, on the grounds that all the other kids had them.

Gateway officials have responded by trying to stall on approving the payments, with one board member telling a Guardians official, “We are required to fund it. We are not required to fund it on the schedule that you’re asking.” But ultimately, according to the lease extensions approved by lawmakers in 2004 and extended in 2021, the leases require the city and county to cover these costs in exchange for the Cavs and Guardians staying put through 2034 and 2036, respectively.

The city and county do have a doomsday option, though. As I wrote last December:

The leases say the teams can sue Gateway for damages if they don’t get their repair money on time. However, if Gateway runs out of money — which it would if the city and county stopped giving it more cash — it doesn’t appear that the Guardians and Cavs owners can sue the city and county, so it’s within the governments’ power to shut off the money spigot and dare the teams to break their leases and try to find better ones elsewhere, if they wanted.

That doesn’t seem to be the plan so far: Gateway officials are griping to the city and county that they need a bailout — another bailout, following one for $20 million last year that raided funds for a minority business program and other projects — and Mayor Justin Bibb is muttering about creating tax surcharges in the stadium district to help cover costs. This all seems destined to end with the team owners negotiating another round of lease extensions in exchange for a lot more public cash, like how it’s been done one state to the west; you’d like to think that Ohio legislators could be better negotiators than Indiana ones, but if city and county officials had shown any ability before this to write leases that would protect taxpayers, they wouldn’t need the talcum powder.

This week’s candidate for weirdest headline, from yesterday at Cleveland.com:

Bibb to Cavs and Guardians: No more bailouts until there’s a new game plan to fund stadium repairs

So once the Cavaliers and Guardians owners agree to a new way to fund stadium repairs, then Mayor Justin Bibb will agree to bailouts? Wha? Let’s read further:

Bibb told reporters at a recent news conference that he wants to create a special financing district that could collect small fees on parking, dining and entertainment in the Gateway District. The mayor said it’s a “practical, pragmatic” way to generate revenue to help maintain Progressive Field and Rocket Arena.

“Fees” on parking, dining, and entertainment are more commonly known as “sales tax surcharges,” and applying these to the entirety of the Gateway District — which includes not just the Cavs arena and Guardians stadium, but a bunch of malls and restaurants and other attractions — would represent additional tax money that locals and tourists alike would have to pay toward maintaining and upgrading the teams’ venues. That’s in one way better than the city having to scrounge around every couple of years for more cash to spend on upkeep, but in another way worse in that the city would be implementing a new tax to funnel upgrade money to the team owners ad infinitum, presumably even after the expiration of the current leases (2034 for the Cavs, 2036 for the Guardians) during which the city took over major capital repairs for the teams in exchange for them agreeing to stay put a few more years.

If the Cavs and Guardians aren’t ready to pursue new revenue streams, Bibb said City Hall won’t approve another bailout.

“I made it clear to the teams,” Bibb said. “I’m not tapping the general revenue fund until we look at these other concepts.”

“Take my tax money or I won’t give you any more tax money” is a novel approach, I’ll grant you that. Bibb says using surcharges in a New Community Authority, or NCA, would “shift the cost of stadium repairs away from residents and toward visitors who attend games and dine nearby,” but 1) residents go to see Cavs and Guardians games, that’s exactly who Cavs and Guardians fans are, and 2) even if this were all tourist money, it’s still tax money that the city could choose to collect and keep, but would instead be turning over to the team owners. (Cleveland currently has a similar taxing district on the lakefront, but that’s designated for building public spaces, at least, not for upgrades to privately controlled sports venues.)

One weird twist about Ohio NCAs is that property owners have to opt in to them, so it’s entirely possible all the landholders whose restaurants and malls would get newly tax-surcharged could tell the city to pound sand and there would be no new revenue at all. (The stadium and arena are co-owned by the city and the county; it’s an interesting question if the Cavs and Guardians, as tenants, could opt out of being taxed to fund their own upgrades.) Cleveland.com theorizes that “business owners would support it because the Cavs and Guardians drive foot traffic that keeps the Gateway District lively,” but that presupposes that 1) business owners will assume the Cavs and Guardians will leave without new taxes, despite those leases being in place for another decade and 2) they think game-day foot traffic is valuable enough to be worth getting saddled with as much as a 5% tax hike.

All this is coming to a head because the cigarette and alcohol taxes that were originally used to pay for the Gateway venues and later extended to pay for upgrades are coming up short of what the teams want, and local voters are currently so steamed by the Browns moving to suburban Brook Park that they may not approve a renewal of those taxes anyway. Mayor Bibb is also famously steamed about the Browns moving, or at least was until Browns owner Jimmy Haslam agreed to make $80 million worth of payments to his city, but he’s stuck with those leases for the near future, and would rather raise taxes just in the sports district than on all of Cleveland.

Even if it’s public money either way, you can kind of see where Bibb is coming from. Or you could point out that the whole Gateway complex was pitched as economic development that would pay for itself but instead is requiring ever-higher levels of public subsidies, and there’s a time to stop throwing good money after bad. At this point it would probably require breaching the teams’ leases and letting them walk if they want, but since neither has any great immediate options for relocation (Brook Park isn’t going to build two stadiums) and they can walk in another 9-to-11 years anyway, there’s an argument to be made for calling their bluff now and seeing what their owners do once the subsidy faucet is shut off.

One day after the Cleveland city council approved an additional $20 million in Cavaliers arena spending and Guardians stadium spending because the team’s leases say the public has to pay for it and the public repair fund had run dry, the Cuyahoga County council followed suit last night, approving $17.35 million in county money to buy the Cavs new elevators and a broadcast control room and buy the Guardians new HVAC units and repairs to a “subroof,” whatever that is:

Cuyahoga County will borrow $14.5 million to help Gateway Economic Development Corp. pay the repair bills at Rocket Mortgage FieldHouse and Progressive Field.

On top of that, the county is giving $2.85 million in General Fund dollars to Gateway, the nonprofit that owns the ballpark and arena and oversees repairs.

Those with advanced degrees in how money works will recognize that “borrowing $14.5 million” is not actually a way of explaining how one plans to pay for something, but it fills Gateway’s budget hole for the moment. Future generations of county officials will get to figure out how to pay it off, though one got a head start by explaining that really, at least paying for constant upgrades is better than build a whole new stadium, amirite?

County Council Member Dale Miller, in a committee hearing on the proposal in November, argued that spending on repairs was preferable to building new stadiums.

“The key to our continuing to be a big-league sports town is that we maintain facilities in good condition, so that we don’t have to replace facilities every 25 years or so,” he said. “I know they’re doing that in some other cities, but we don’t have that kind of resources here.”

(Ed. note: Cuyahoga County is currently considering whether to replace a Browns stadium that is exactly 25 years old.)

Yesterday I wondered aloud why Cleveland and Cuyahoga County are paying for constant upgrades, and today I have a partial answer to that: Former Gateway chair Ken Silliman kindly provided copies of the Guardians and Cavs leases, and it turns out they each have slightly different definitions of what the public is on the hook for:

This, needless to say, raises a lot of questions, some of which Silliman was able to shed some light on:

How come Gateway pays for all routine maintenance, capital repairs, and major capital repairs for the Guardians, but only major capital repairs for the Cavs? Both teams, Silliman explains, were on the hook for maintenance and minor repairs as of 2021. That was when the city and county approved spending $17 million a year on stadium upgrades in exchange for Guardians owners Larry and Paul Dolan extending their team’s lease through 2036; as Silliman puts it, “the Guardians were successful in assigning ALL ballpark capital repairs to Gateway as a byproduct of the lease extension.” So a blank check got considerably blanker, in exchange for the Guardians owners agreeing to stay put for an extra 13 years.

Why does anything over $500,000 count as a major capital repair? Doesn’t this 1) incentivize the Cavs to bundle repair items into bigger projects, in hopes of making them the public’s responsibility, and 2) mean that as inflation kicks in over time, more and more repair items would be expected to fall under “major capital repairs”? The $500,000 threshold dates back to the teams’ 2004 leases, and Silliman says he doesn’t know how that distinction between major and minor repairs was decided on. He says the team cheating by piling up small repair projects hasn’t been an issue — Gateway’s engineering consultant has to approve expenses — but inflation absolutely is.

Silliman also forwarded a memo he wrote last fall to the Gateway board in which he said:

This “elephant in the room” is the unprecedented post-pandemic two year spike in construction cost inflation which unfortunately coincided with Gateway’s obligations to fund two of its costliest capital repairs (Cavaliers’ vertical transportation/video production room and Guardians’ lower and upper bowl seat replacements). This perfect storm of events is a major contributor to Gateway’s present cash needs.

That’s potentially good news in that the post-pandemic inflation spike is now over. However, construction costs continue to rise, and sin tax revenues continue to fall, and that $500,000 threshold for which Cavs expenses the public is on the hook for is going to be a lower and lower hurdle, so, it’s not all that good news.

Finally, the leases say the teams can sue Gateway for damages if they don’t get their repair money on time. However, if Gateway runs out of money — which it would if the city and county stopped giving it more cash — it doesn’t appear that the Guardians and Cavs owners can sue the city and county, so it’s within the governments’ power to shut off the money spigot and dare the teams to break their leases and try to find better ones elsewhere, if they wanted.

Tl;dr: Cleveland and Cuyahoga taxpayers aren’t on the hook for all upgrades to the Cavs arena and Guardians stadium, but they are responsible for paying for an unlimited amount of a limited number of items. (Think of it like different infinities.) The city officials who first set this up back in 2004 are mostly no longer around, though the ones in 2021 who took on “ALL ballpark capital repairs” for the Guardians should be getting questioned about that, early and often.

The Cleveland city council voted 13-3 last night to provide $20 million in extra funding to the Gateway Economic Development Corporation for upgrades to the Guardians stadium and Cavaliers arena. Council president Blaine Griffin said that the cash will come from projects “in which we have already borrowed and do not need the money this year” — and if your ears perked up at that “this year,” you’re not alone. The money, which will be used for such things as upgrading elevators and broadcast equipment, replacing seats, and upgrading HVAC and video systems, will come from three sources:

• $5 million in federal American Rescue Plan Act funding that was slated for a minority business program but not allocated yet.
• $10 million from other bond proceeds that was intended for other projects that the council didn’t specify.
• $5 million from Cleveland’s general fund, which one would think the city could have found something to spend it on.

The new spending is needed because the city of Cleveland and Cuyahoga County agreed in 2017 to give Cavs owner Dan Gilbert $70 million for arena upgrades and in 2021 to give Guardians owners Larry and Paul Dolan $285 million for stadium upgrades, both in exchange for lease extensions. While the money is coming from a ton of different sources, one slice is from the extension of cigarette and alcohol taxes (aka “sin taxes”) that were used to build the venues in the first place, and sin tax revenues are falling while construction costs are rising, resulting in a budget gap for Gateway that the city and county are left to fill.

Going by news coverage, it’s been unclear for some time now what exactly the team leases require the public to pay for — I’m digging around for the exact language and will report back here once I’ve located it. Crain’s Cleveland Business previously reported that if Gateway runs out of money and stops paying for required upgrades, however those are defined, “the teams could stop paying the $2 million in annual rent to Gateway or sue the city for breach of contract,” according to Gateway’s lawyer. (Again, it would help to see the actual lease language.) Griffin called the added $20 million in city spending approved last night “responsible” in order to avoid “having to pony up for expensive litigation” and ending up “with a stadium and trying to figure out an end user,” implying that the teams could leave if Gateway defaulted — though given the current Oakland A’s and Tampa Bay Rays situations, “leave for where?” is a worthy question.

The Cuyahoga County Council is set to vote today on more than $17 million of new spending of its own on Guardians and Cavs capital expenses. And this isn’t likely to be the end of it: There’s another ask for another $30 million in potential Gateway spending around the corner, and unless construction costs come down (ha!) or Clevelanders start smoking more, likely more budget gaps to fill beyond that.

City councilmember Jenny Spencer, one of the three “no” votes last night, put it this way at the council’s previous meeting last week:

“From the residents’ perspective, it always seems that when it comes to stadium funding, money just comes like a magic rabbit out of a hat. It just appears magically. Magically, we have $20 million in general funds available. But when it comes to other things the residents need, we don’t have the money.”

To which Griffin replied:

“Somehow, several years ago, this city made a commitment that they wanted teams as part of the economic engine in the central business district. There are some legal obligations that this city has with this lease.”

That “somehow” is doing a lot of work, huh? Griffin has been on the council since 2017, so presumably he knows at least a little something about how this sausage got made; instead, he’s staying focused on how Cleveland taxpayers will have to choke it down.