Teams have upper hand in stadium negotiations - The Buffalo News
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Teams have upper hand in stadium negotiations

ALBANY – The trend of professional sports team owners holding the upper hand over state and local politicians with new stadium construction demands is a long one, stretching across all sports in large, medium and small markets.

And the power comes from one handy threat almost all team owners pull out: We will simply move.

It’s a story line seen from Baltimore to Minneapolis to Jacksonville.

The late Ralph C. Wilson Jr. used it in 1971, when he threatened to take the Buffalo Bills to Seattle if a new stadium wasn’t built locally. With then-Gov. Nelson Rockefeller saying the state would do all it could, Wilson got his way.

Whether Buffalo will face such a threat again depends on one factor: who buys the team.

The team’s financial books are now being studied by potential bidders,

Just last year, Gov. Andrew M. Cuomo, echoing the same sorts of Rockefeller-era pledges, cut his deal to keep the team in Buffalo for 10 years – with a wide-open exit clause in year seven – with the help of $95 million in state and county money for Bills’ stadium renovations and tens of millions of dollars more in other incentives.

Now state and county officials could find themselves in a tricky spot if a new Bills’ owner – whoever that turns out to be in the coming weeks or months – arrives with a demand for a new stadium. How can the state and county justify spending taxpayer money for a new stadium when tax dollars pay for 75 percent of the $130 million renovation project that’s been underway at Ralph Wilson Stadium?

But a larger question looms first: Do taxpayers get their money’s worth by public dollars helping to build sports stadiums?

Teams, politicians, boosters and local media outlets across the country often say yes, pointing to associated tax revenues, jobs and other economic benefits from a stadium.

But to many economists, urban planners and others who study stadium construction deals, the financial claims are, at best, dubious. Study after study has shown that, especially when hidden subsidies are factored in, stadium deals are net financial losers for taxpayers.

Brad Humphreys, an economist at West Virginia University who has studied stadium deals for years, found no evidence to suggest there would be an impact on job creation, other than short-term construction jobs, or growth in tax revenues or income levels in the region by building a new Buffalo Bills stadium or most any other stadiums that rely heavily on public dollars.

So, how do team owners do it? How do they, from city to city to city, convince politicians to spend public dollars for new stadiums or their teams will leave?

It works because some have carried through on the threat.

But Humphreys also blames, in part, the antitrust-like protections afforded professional sports franchises that he said gives team owners far more leverage to get their money than, say, an auto company that pits states against each other for a new plant.

“We grant sports leagues monopolies. They control the number and location of teams. They exploit that to play one city against another to extract even more concessions. What happened with the Vikings in Minneapolis is a very similar story to what can happen in Buffalo,” Humphreys said of a threat by the Vikings to move to Los Angeles. In the end, public money totaling some $500 million is being spent on a new stadium under construction.

Indeed, Humphreys said, it’s no accident the NFL did not long ago locate a new team in Los Angeles after the Raiders’ 13th and final season there in 1994, when the team returned to its original home in Oakland.

Why? Leverage.

“It benefits the league to keep Los Angeles open so every owner can have a credible threat to move his team there when they want a new stadium. If professional sports didn’t enjoy special antitrust protections, a new team would have been in LA immediately in 1994,” Humphreys said.

Public dollars for stadiums take different routes, starting with lucrative tax breaks for team owners from the federal government on municipal bonds they secure to help build stadiums. Then, states and localities step in, and give everything from cash to payments-in-lieu-of-taxes deals, new roads, water lines and other infrastructure improvements, as well as help paying for new practice facilities or mass transit facilities, like the train station taxpayers built for the new Yankee Stadium.

In Texas, Arlington voters approved a $325 million bond to help fund the $1.1 billion Cowboys’ stadium, and also raised the city sales tax by a half cent along with other taxes. In Atlanta, there was great hope to keep baseball’s Braves in the city, but government officials could not meet the team’s money demands, especially with the city already on the hook to help finance the Atlanta Falcons’ stadium. The baseball team, with $392 million in public funds, is now building a new stadium in an Atlanta suburb to replace its city facility that opened just 17 years ago.

In Cincinnati, the poster child for critics of public financing of stadiums, bold promises of tax cuts for citizens from a more than $500 million bond they approved to build stadiums for the Reds and Bengals a generation ago have gone by the wayside. Even a county-owned hospital had to be sold to help pay the debt load.

In Indianapolis, the Colts’ owners did not take kindly to criticism of cost overruns – to be paid for by taxpayers. In a rare letter to fans, the team said it contributed $100 million for the stadium that opened in 2009 and agreed to a 30-year lease.

“The Colts never asked for a new stadium,” the letter stated.

About that $100 million the Colts put in? Bloomberg News noted in 2012 that the team financed two-thirds of it through local-government issuers and paid $250,000 a year to use the stadium – “about two-thirds of the league minimum for rookies,” the article said.

A U.S. House of Representatives subcommittee on domestic policy in 2007 looked into public costs for stadium projects. Its chairman, then-Rep. Dennis Kucinich, had a succinct conclusion: “no additional value” for a region’s public investment in a stadium.

“While taxpayer-financed stadiums do not seem to add to the wealth of the public who pay for them, they do add to the wealth of team owners,” the Democrat from Cleveland said at the time. He noted the Detroit Tigers’ value rose from $83 million in 1995 to $209 million in 2001 – the year the team moved into a new stadium, while the Lions’ value rose to $839 million after it started playing in a new stadium from $150 million in 1996.

Dennis Coates, an economist at the University at Maryland Baltimore County, said teams are increasingly getting money from taxpayers to directly help with operating costs – something the Bills received in a 1998 deal with then-Gov. George Pataki to keep the team in Buffalo. Buried in the state budget every year after that Pataki deal was a $3 million line item for the Bills to use as operating capital money – though the line item did not specifically say the words “Buffalo Bills.”

Putting aside dollars and cents, one of the intangible arguments is that a new stadium, if it keeps the Bills in Buffalo, is good for the community’s sense of pride and being part of the “big leagues” by having an NFL franchise.

Coates recalled growing up in Western New York when basketball’s Buffalo Braves left in 1978. “I don’t think anybody cared much. But the Bills? People would care.”

Coates lived in the Baltimore area when the Colts football team left for Indianapolis.

“I saw firsthand how that made people here feel. … That sort of thing was like losing a loved one.”

But, he cautioned, taxpayers should not think a new Bills’ stadium would be an economic boost for the region. In fact, studies have shown that the stadium deals cost more each year to taxpayers – when all the subsidies are factored in – than they return on any sort of dollar basis.

Anticipating opposition, politicians and teams increasingly talk of stadium plans with “mixed uses,” and “year-round” activities and bold talk of restoring blighted areas. Cuomo months ago said any talk of a new Bills’ stadium would need to include other development to offer more than just a one-sport stadium.

Cuomo has a law firm and sports stadium consulting group preparing a report – due out in the next couple of weeks or so – that will include the pluses and minuses of building a new stadium in up to four area locations, which likely includes at least one downtown Buffalo option, one in Niagara Falls and a suburban location. The report will also examine the options for a massive renovation of the existing stadium or replacing it on adjacent land.

Cuomo more recently has said he is “not convinced” a new stadium is needed. Still, no one knows who is going to own the team and whether the new owner will want to keep the current stadium as-is, renovate it, build a new stadium in Western New York – or try to move out of the area.

In a 2012 book, urban planner Judith Grant Long found taxpayers footed the bill for 78 percent of the costs of the 121 professional stadiums in operation during 2010, significantly higher than what teams estimate because they often don’t include such things as lost property taxes – most stadiums do not pay property taxes – and the land governments often give for stadium projects.

In an appearance before a 2007 congressional panel, Long estimated the federal government alone loses $2 million per stadium from tax-exempt bond deals used to finance stadiums. In all, she estimated back then the public spends about $10 million per stadium annually.

New American pro stadium development is now starting to trail off and will start to enter a more busy period of renovation instead of new construction, said Adam Jones, the Tampa-based director and leader of the sports practice group with PricewaterhouseCoopers, whose work includes advising team owners and governments on stadium projects.

Since 2005, he said, there have been 18 new sports stadium projects completed or under development, with price tags running from just over $250 million for the Charlotte Hornets’ arena to $1.6 billion for the MetLife Stadium that is home to the NFL’s Giants and Jets.

Jones said the direct public costs for the 18 projects ranged from zero percent to 90 percent, with the average being about 40 percent. He said that is down from the 60 percent average in the 1990s and early 2000s. The change hasn’t come from some major public pushback, but is in large part due to most of the 18 stadiums are in larger markets where owners are able to generate higher levels of income, such as through personal seat license deals with fans. The figures from Jones do not include funds that some scholars, including Long, count as public contributions.

Jones said projects are now taking longer to develop in large part because public entities are engaged in “more diligence” and public scrutiny before committing to taxpayer funds for a project. “There’s a greater emphasis on return on investment and how government defines return on investments. It’s a healthy discussion for all stakeholders,” said Jones, who spoke on condition of not discussing any specific team project.

Another growing trend, he said, is for governments to try to shift the public sector costs of a stadium away from a single local community, and onto, say, visitors through a hotel or car rental tax hike. But some scholars say those plans don’t always work, especially for smaller markets like Buffalo.

Can an argument be made that the flow of public dollars into new sports stadiums are worth it just for the civic pride boost?

Consider what Humphreys, the West Virginia economist, calls the “contingent valuation method,” which is basically a way economists try to put a dollar value on something intangible.

Humphreys said that typically, in the case of sports franchises, a team might be worth $40 million to $60 million in such a contingent valuation – no where near the public investments in building a stadium.

Humphreys questioned why the state and county cut a deal with the Bills that has a relatively cheap exit clause for one year – the seventh year – of the 10-year contract signed last year by the state and team. It might have been a smart deal when Wilson was alive, but such a clause could play into the hands of the next owner if a new stadium is desired, he suggested.

In the Bills case, there is another economic factor that favors the next owners: loss aversion. It is the theory that people attach more value to not losing something they cherish than gaining something new.

“Loss aversion is important. Politicians know if they lose a team on their watch, that’s it for them. Their political career is over,” Humphreys said. “Leagues know that, as well, and they can use that leverage.”


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