NY Times: Public Financing of Stadium Deals Not Working Out

[Midtowner]

CINCINNATI — Years after a wave of construction brought publicly financed stadiums costing billions of dollars to cities across the country, taxpayers are once again being asked to reach into their pockets.

From New Jersey to Ohio to Arizona, the stadiums were sold as a key to redevelopment and as the only way to retain sports franchises. But the deals that were used to persuade taxpayers to finance their construction have in many cases backfired, the result of overly optimistic revenue assumptions and the recession.

http://www.nytimes.com/2009/12/25/sp...cinnati&st=nyt

So perhaps there's another side to this whole public financing debate after all? This article presents a pretty grizzly picture as to the effects of public financing of sports arenas, particularly when a lopsided lease agreement is part of the deal.

[betts]

The root of this problem is one thing: player salaries and the cost of buying a team these days. No one entity can really afford or at least expect to break even on a sports team, not a city or an owner, because of the massive amount of money spent on player salaries. Owners cannot afford to build arenas and stadiums that cost hundreds of millions of dollars when they've already spent hundreds of millions to buy a team. NBA teams, if they're lucky, make $10 to $20 million dollars profit for their owners. It takes years to make up the cost of purchase. Add a $300 to $500 million stadium into the picture and it becomes unaffordable even for the wealthiest.

So, when owners pay that much, I don't think it's unreasonable for the city to provide the venue. As long as new cities want teams, they're going to be offering that for the chance to get them. However, if there are no cities who want or can afford a team, at some point there will be a problem. Owners will go bankrupt, facilites will decay and there may be contraction in the leagues. Only the biggest cities will be able to afford professional teams with those kinds of price tags. The only other option is for players to take massive cuts in pay. If the league contracts, that may happen, with only the very elite playing for the biggest cities, and perhaps a CBA type picture existing again, with the lesser players playing for a lesser league with lesser salaries in the smaller cities. Who knows?

[LakeEffect]

Back in grad school, a professor made us study public financing for stadiums (and sports in general) as part of our economic development planning class. It was very interesting to read the different sides. It basically seemed to boil down to 2 opposing parties:

1. The public makes money back in the indirect area of national publicity and all of the related services that go along with having a team and hosting all of the visitors. These financial results can never be measured, even if an economist says they can. (Maybe we should just call this the Optimist approach).

2. The public will always lose money on a stadium, it will destroy existing neighborhoods (not in our case, thankfully), the teams are always able to move anyway, and the City will own an empty stadium. (This is what I would call the Pessimist/Cynic approach).

I think it really does boil down to whether or not a person believes the indirect, incalculable benefits outweigh the real cost.

[betts]

The way I actually look at it is that a professional team is a leisure time activity for most citizens, and should be viewed just like a park, or the Civic Center or other things that we enjoy in our leisure time. All of those things take in money from us as taxpayers, and we only get amusement in return. But, we spend a large amount of our personal budgets on amusements, including cars (necessary, but most people don't buy the cheapest car that will get them from point A to point B, and when you don't, the difference in price qualifies as an amusement cost), motorcycles, boats, vacation homes, computers, cigarettes and alcohol, vacations, etc. People like being amused. So, it's silly to expect to receive dollar for dollar compensation from a professional team, when we don't from any of these items either.

But all of those things together also provide an incalculable value, similarly to what cafe de boeuf was saying above. There is definitely some income made from people spending money in OKC who wouldn't ordinarily. When I was handing out MAPS material at the Ford Center prior to the vote, I was astounded at how many people coming to the games were from elsewhere. There were an incredible amount from Norman, but multiple families from Kansas as well, and a few scattered people from other states. I met these people standing at only one entrance to the Ford Center. Many of them most likely ate dinner in OKC, and some of them probably spent the night. All of them paid the seat tax and sales tax on the tickets. And, I will continue to maintain that all of the improvements Oklahoma City has made, including getting a professional team, make this a more desirable place to live and visit. Those rewards are incalculable, IMO.

[Kerry]

The biggest problem is the way in which cities finance their stadiums. Most sell bonds or other instruments that take 20 to 30 years to pay back. Interest on the loans usually cost as much as the stadium does.

Paying cash, ala MAPS, is by far the best way to go. Just look at OKC and Seattle. Seattle is still paying on Key Arena from a renovation 12 years ago. OKC built the Ford Center, and upgraded it, all debt free in 7 years. When the Sonics left Seattle the left Seattle holding a crappy stadium and a lot of debt. If the Thunder left OKC this afternoon we would be stuck with a really nice arena and no debt.

The other part of the problem is the plan by which cities market and develop themeselves. You can really see that here in Jacksonville. When Jacksonville got the Jaguars everyone in this city though things would take off and good times were going to roll. The city put all their effort in to landing the Jags with the expectation that related development would just happen, if for no other reason than the NFL was here. Well guess what, it didn't happen.

Jackonville didn't have plan to improve the city, they only had a plan to land the NFL. OKC on the other hand took a different route. Their plan wasn't to land the NBA or NHL. Getting a team was just a by-product of a much larger plan to remake the city.

[Steve]

Pssssttt.... can you keep a secret???
Promise?
(Ford Center has been a money maker for the city)

[Larry OKC]

Pssssttt.... can you keep a secret???
Promise?
(Ford Center has been a money maker for the city)

Steve, you are talking from an operations standpoint, correct?

[Steve]

Yep. At least through last year, it was netting the city a couple hundred grand. Now, if there were debt servicing on it, that might be a different story.

[Spartan]

Pssssttt.... can you keep a secret???
Promise?
(Ford Center has been a money maker for the city)

Woah woah. We can not let this get out. If so, we're ruined.

[dismayed]

Actually I think Steve has hit at the core of the issue. If we're talking about profit to individual owners of the team, the citizens at large, etc. we will be debating this ad infinitum. I think it really comes down to: 1. what did the city spend to attract the NBA? 2. what effect has this had on city tax revenues?

I think it's possible to get at #2 above by measuring sales tax collection for the downtown areas on days a game was held vs. not and making some percentile comparison. And regardless of whether or not Bennet and camp is making money, I think that a study such as the above would show that the city is experiencing a net positive revenue flow because of the NBA.

[Steve]

Anytime a city can build things on a cash basis (which is rare), it's always going to be cheaper. And that was part of the magic of the original MAPS. Now the question is, will the mayor and council show the same restraint and patience with MAPS 3 by pacing projects out to correspond with sales tax collections or will they try to bond it out (take out debt) to speed up work?

[bluedogok]

Arenas are really a more multipurpose facility than a stadium and therefore has more potential of being profitable, location pays a big part in that, the ones built out in the burbs (like Detroit did) probably have a lower chance at being profitable than a centrally located facility. Having been to events in some of the newer arenas I have found the Ford Center to be much more functional at all levels than many of the much more expensive facilities. The AAC in Dallas is pretty good in the expensive seats, everything about the upper bowl seats is horrible. The Pepsi Center in Denver is in between. I think a big part of the difference is the "cheap seats" seemed to be an afterthought in most of the high end oriented facilities.

The last "owner financed" stadium that I could find was Gillette Stadium in Foxboro, more than 3/4 of the cost of JerryWorld is the responsibility of Jerry Jones, seems to be less city responsibility than most of them have been.

[Spartan]

Anytime a city can build things on a cash basis (which is rare), it's always going to be cheaper. And that was part of the magic of the original MAPS. Now the question is, will the mayor and council show the same restraint and patience with MAPS 3 by pacing projects out to correspond with sales tax collections or will they try to bond it out (take out debt) to speed up work?

A: They will make every mistake with this that is possible.

[Larry OKC]

Anytime a city can build things on a cash basis (which is rare), it's always going to be cheaper. And that was part of the magic of the original MAPS. Now the question is, will the mayor and council show the same restraint and patience with MAPS 3 by pacing projects out to correspond with sales tax collections or will they try to bond it out (take out debt) to speed up work?

Steve, I know that with every MAPS, bonds and other forms of indebtedness have been authorized. In the ballot/ordinance language think they said for "cash flow purposes" (but that can mean anything from there just being a time lag between revenue and out right shortages). But were they ever utilized?

I ran across a couple of MAPS articles that said due to the substantial cost over runs, bonds were going to be used

EPA challenge gets OKC council eye (Journal Record, 9/9/1997)

....won't cover the already known $7.4 million shortfall in the budget for the Civic Center Music Hall and $10 million in costs for the Library/Learning Center now to be paid for with bond money instead of MAPS sales taxes, saddling the city with about $1 million in annual debt service for 20 years, according to the city's finance director.

and $13M in an article you and Jack Money co-wrote (Extension Vote Forces Lesson in MAPS History, 11/15/98). This amount was for the budget over runs of the Convention Center and the Ballpark. There was an indication in your article that with the tax extension they probably wouldn't need to, but was that ever definite (projects continued to go over budget)?

If long term bond debt was used as indicated in the Journal Record article, we are STILL paying for the original MAPS (and will be until 2017)?

Also, does anyone know the bond term of the 2007 General Obligation bond issue that the City has already used close to $6M to buy property for MAPS 3 projects?

Thanks in advance!

[Larry OKC]

Yep. At least through last year, it was netting the city a couple hundred grand. Now, if there were debt servicing on it, that might be a different story.

Thanks for the clarification, I thought that was the case. The mistake some have made with that is saying that the Ford has paid for itself (that we got back the original $87M). Obviously, only netting $200K a year operational profit will take quite a while to get back the $87M spent (not to mention the $120M in improvements).

But this is a much better situaution than the reported $3M a year operating loss the Cox experiences or the operational loss that the Civic Center most likely experiences.

[betts]

Thanks for the clarification, I thought that was the case. The mistake some have made with that is saying that the Ford has paid for itself (that we got back the original $87M). Obviously, only netting $200K a year operational profit will take quite a while to get back the $87M spent (not to mention the $120M in improvements).

Why should the Ford pay for itself? Nothing else we build for our citizens for leisure time entertainment does. Speaking of leisure time entertainment....a great time was had by the fans at the Ford Center tonight. The Thunder won their 15th game.

[Doug Loudenback]

Pretty amazing paid attendance when people are supposed to be staying home, too. 17,961 (out of a possible 18,203) against a team without that much attraction.

[Larry OKC]

Why should the Ford pay for itself? Nothing else we build for our citizens for leisure time entertainment does. Speaking of leisure time entertainment....a great time was had by the fans at the Ford Center tonight. The Thunder won their 15th game.

Congrats to the Thunder for winning.

Won't even get into the semantics game you are playing with "leisure time entertainment" (we have covered this before and won't go into it again).

Why? Because City leadership (the Mayor and City Manager BOTH talked about "breaking even" on the lease agreement), when they boast of the economic benefits to be obtained, when venues are intended to be revenue generators for the City, when they talk about it being an "investment" (investment implies an eventual positive monetary return)....

Interesting that the Mayor thinks the MAPS 3 Senior Aquatic Centers should be self-sustaining (as opposed to the $25 year fee the Arkansas model). By the way, found it interesting that the City expected the Fairgrounds promoter to absorb the costs of the electrical upgrades for the Grandstand (he is just renting after all) when they didn't require the same of the Thunder for the Ford $120M improvements or the owners of the alleged new hockey team to pay for the $4M improvements of the Cox. Just saying...

[Larry OKC]

Pretty amazing paid attendance when people are supposed to be staying home, too. 17,961 (out of a possible 18,203) against a team without that much attraction.

i agree, that is impressive, but as an article at the end of the season last year pointed out, how many butts were in the seats? That article said an average of 4,000+ were paid no shows. With weather like this, would imagine that number was higher...

[Doug Loudenback]

I gave my tickets to my grandson and his friend so I don't know about butts. From the TV, it looked good and the crowd sounded loud. Betts, you were there. What # of butts would you estimate?

[betts]

I was shocked at how many people were there. It felt like a regular game. I always look at the ends in Loud City to see if it it a sellout, as if they're looking full, it usually is. They were definitely only about half full. There were scattered empty seats....probably a few more than usual, but it was pretty full. I really expected about 5,000 people to come to the game, because of the weather and roads, so it was a pleasant surprise.

Also, despite the fact that we were playing the Bobcats, only a fair team, and one without a lot of cachet, the majority of people stayed the entire game and were reasonably loud.

And, having watched a lot of NBA games on television, despite the moans of our local journalists, if we've got 4,000 tickets sold that don't have butts in seats to go along with them, we're doing a lot better than most of the teams. At least the ticket prices have been collected on them as well. Currently, we're ranked 10th in paid attendance, which isn't bad at all for the third smallest city in the league.

[rcjunkie]

Congrats to the Thunder for winning.

Won't even get into the semantics game you are playing with "leisure time entertainment" (we have covered this before and won't go into it again).

Why? Because City leadership (the Mayor and City Manager BOTH talked about "breaking even" on the lease agreement), when they boast of the economic benefits to be obtained, when venues are intended to be revenue generators for the City, when they talk about it being an "investment" (investment implies an eventual positive monetary return)....

Interesting that the Mayor thinks the MAPS 3 Senior Aquatic Centers should be self-sustaining (as opposed to the $25 year fee the Arkansas model). By the way, found it interesting that the City expected the Fairgrounds promoter to absorb the costs of the electrical upgrades for the Grandstand (he is just renting after all) when they didn't require the same of the Thunder for the Ford $120M improvements or the owners of the alleged new hockey team to pay for the $4M improvements of the Cox. Just saying...

I knew it was just a matter of time before someone started the "Maps3, but the Mayor said" BULLCRAP, man will you ever be able to let it go. It was a vote by the people, and it passed, let it go brother, the anger will kill you from the inside out.

[Larry OKC]

I knew it was just a matter of time before someone started the "Maps3, but the Mayor said" BULLCRAP, man will you ever be able to let it go. It was a vote by the people, and it passed, let it go brother, the anger will kill you from the inside out.

You are the one that keeps talking about everyone else's anger. Can't speak for the others, but no anger here. I was answering a question. If you want to refute what the Mayor said, go ahead. If you think what the Mayor has said about MAPS 3 is "BULLCRAP", we may be in agreement. LOL. Peace

[Larry OKC]

Anytime a city can build things on a cash basis (which is rare), it's always going to be cheaper. And that was part of the magic of the original MAPS. Now the question is, will the mayor and council show the same restraint and patience with MAPS 3 by pacing projects out to correspond with sales tax collections or will they try to bond it out (take out debt) to speed up work?

It is a valid question considering the following...

MAPS 3 proposal contains details you may not know | OKG Scene.com

MAPS 3 proposal contains details you may not know (Gazette, 11/18/09)

The [hotel/motel] tax has brought in more than $23 million. Not content with waiting several years for enough money to flow in from the tax for much needed improvements, the fairgrounds issued bonds totaling more than $72 million, backed by the tax funds. ... The city will be paying off the bonds for the next 15 to 20 years. Cornett said to improve other areas of the fairgrounds, another steam of funds has to be found.

[Larry OKC]

I was shocked at how many people were there. It felt like a regular game. I always look at the ends in Loud City to see if it it a sellout, as if they're looking full, it usually is. They were definitely only about half full. There were scattered empty seats....probably a few more than usual, but it was pretty full. I really expected about 5,000 people to come to the game, because of the weather and roads, so it was a pleasant surprise.

...

Good to hear and agree with everything you said.