Moneyball: Stadium Edition

I hate to break it to you, but you’ve been had. Anyone who is a fan of a professional sports team has. The worst part is that this is not a secret. All the data presented here is publicly accessible with relative ease. Athletic venues keep getting built, with each one more extravagant than the last. Costs to house a team are on the rise, and the local economy–read: taxpayers–is often responsible for the lion’s share of the costs. And, with teams being regarded as luxuries by their host cities, the rent paid back to the taxpayers is so little annually that the breakeven kicks out towards infinity. So, the question is: are we simply ignorant to the issue because the numbers get lost in the noise? Or, worse, do we just not care?

Professional football is the most popular and richest sport in this country. Baseball follows closely with the NBA rounding out the podium at third. The three examples I have chosen will focus mainly on the top two sports, but this is just as true for basketball as it is for football and baseball. 

Before I get started, I need to clarify. I will be talking about bonds and debt here. For our purposes, these are interchangeable and should not be thought of like credit card debt. When an issuer raises money with bonds, they sell thousands of bonds to investors at usually $1,000 each. They promise to pay interest to these investors for a specific period of time, and at the end, the bond holder gets their money back. So, when someone ‘issues debt,’ they get millions of dollars now for the promise to pay it back later with interest. I hope that lays enough ground work. 

Anyway, I will be reviewing the stadium deals for the new Yankee Stadium, new Cowboys Stadium, and SunTrust Park for the Braves. Let’s begin.

New Yankee Stadium

 

This monstrous stadium was built across the street from the old stadium. It upgraded every thing imaginable and, much like the Yankees organization, is gaudy and soulless. But, I digress. 

The City of New York actually managed a fairly decent deal–as stadium deals go–out of this one. Still, this remains the most expensive stadium ever built at a final assessed cost of $2.3 Billion (with a B). The Yankees agreed to pick up less than half of the total cost, which is common. Their team contribution clocks in at $1.1 Billion, leaving $1.2 Billion borrowed. 

Now, before I continue, we need to get some context around this amount. Because billion and million rhyme, and because we lose context when the numbers get huge, let’s look at this. This is over 1,000 million dollars, or $1 million per day for over three years. Which amounts to $365 million dollars per year. If you received this in bi-weekly paychecks, it would be $14 million before taxes (a commoner’s wage of $7 million after that) per check. 

Moving on. Using the assumptions mentioned above, coupled with the annual repayment terms of the Yankee Stadium lease for the team of $73 million on average, the Yankees will pay off the amount borrowed in 25 years with a total repayment of $1.82 Billion. Keep in mind, this assumes the best interest rate possible–it is likely a higher repayment amount over a longer period. But, the taxpayers make $618 Million (51%) over 25 years which converts to a yearly return of 2%. This is better than a savings account (maybe); but stocks and bonds, while fluctuating between positive and negative returns, still manage to average much more than that over 25 years. 

AT&T Stadium (Dallas)

 

So, I tried to make this work. This stadium is funded by taxpayer funds ($350 Million) and private funds raised via taxes, fees, and the NFL’s private bridge loan program. We’ll focus on the taxpayers as they are the only ones we care about paying back. The City of Arlington issued what are called general obligation bonds that are backed by the cities ability to levy taxes. Yes, you read that right, the City can raise taxes to pay these bonds off–and they have. Therefore, the money the Cowboys “borrowed” from the taxpayers was not borrowed at all. The citizens of Arlington and the tourists are picking up the tab for the public funding for AT&T stadium. 

In fact, the only repayment the Cowboys have to make is to the NFL, who doles out money to all teams every year as “revenue sharing.” This is like when you’re out at the golf course with your buddies and you lost your wallet–didn’t happen to me, a guy I know, I swear. So,  you ask someone to pay your greens fees and you negotiate a lunch to be named later so you can settle up. Most of the time, you both just forget about it. That’s what Dallas is doing. Jerry Jones asked the people of Arlington to do him a solid and he’s not paying them back, citing that the Cowboys not moving somewhere else is payment enough. 

For those keeping score at home, this delightful form of extortion is called racketeering and people go to jail for this. You know, unless you’re an owner of a professional sports team, then it’s just another day at the office. 

The people of Arlington loaned $350 Million, received no return on their investment, and received a general tax hike on top of it. Solid. 

SunTrust Park (Braves)

 

This is another case where the team’s cash contribution is the only upfront evidence of repayment. The Braves have organized a deal funded by Cobb County that would build a $675 Million stadium complex with the team pitching in $230 Million up front, leaving $445 Million on the County’s plate. 

The Braves have agreed to pick up the tab for any overages that will inevitably result from the least efficient process in America, building stuff–we really ought to fix that. 

The County is raising capital by issuing revenue bonds, which are bonds backed by the revenue-generating capabilities of the occupant of the building. These are common and a great way to accomplish exactly what the Braves are trying to do. The problem with them–and the reason this straightforward method draws umbrage–is because most crybaby owners get new stadiums by extorting the municipality by threatening to move the team. Revenue bonds stick the issuer–Cobb County in this case–with the bill if the team ever moves or closes its doors, as the issuer is the owner of the stadium. 

Bottom line: if the owner and their team are flight risks, revenue bonds are off the table unless the team can be compelled to pay in the event of a move. 

The Braves will pay a higher percentage of the costs up front and overages. Then, the revenue generated by the stadium (taxes, fees, general revenue from sales) will partially go to service the debt issued to raise the money for the stadium. Cobb County estimates that the county–and its citizens by proxy–will net a return of investment of 15% total. Not great given the length of the investment, but it’s something and it’s at least higher than 0. Some are not. 

This helps the county and helps the Braves, but double dips the patrons at the games. If part of the revenue has to flow out, then the Braves will be raising prices on everything to make sure they don’t go broke or destitute (ha!). 

Still, better to screw the people actually using the stadium than all tax paying citizens of Cobb County. So they have that going for them, which is nice. 

Sweetheart deals for sports franchises are common, and almost always result in the city or county falling on the proverbial sword to keep the team happy. Many times the annual return on investment would make today’s savings account rates look like a steal. All in, most teams with new stadiums are paying less than a percent for the privilege of playing in them. It’s absurd, and it’s only going to get worse as time goes on. 

Getting steamrolled by professional sports teams is not a good look. 

*Author’s Note* 

Jeff Loria is the featured photo due to the Marlins stadium funding debacle. It’s not included because it makes me too angry, and because the Securities and Exchange Commission didn’t have anything they could send me from my FOIA request. 

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