(Editor’s Note. Issues related to the financing of sports franchise operations have a reach that extends well beyond the world of sports. Many local and state governments are being forced to cut services so that budgets can be balanced while at the same time spending millions of dollars to help subsidize professional sports franchises. Many people feel that this is an unacceptable use of public funds in the current economic climate. Evan Weiner’s article is good reading for anyone interested in sports finance issues).
Public spending for sports arenas and stadiums has been for the most part a failed policy for a quarter of a century. Who thought of this incredible spending as an economic engine and why did taxpayers go along with the notion that spending billions in this particular urban renewal venture would create jobs and revitalize a city or county?
The evidence of failure includes Hamilton County, Ohio, where the local government built a Cincinnati Reds ballpark and a Cincinnati Bengals football stadium which turned out to be economic boondoggles for an area where apparently the local population likes smaller government and smaller government spending.
The county officials looking for the solution felt that selling off a county hospital would be a good idea to pay down the debt. In Sacramento, city leaders are presently giving thought to selling the city’s parking space collections to a private vendor and using the proceeds from the sale to build an arena for the National Basketball Association’s Kings Franchise. No word on how elected officials will deal with the loss of parking space revenues which go into the city’s general fund to pay for things like fire and police services.
The 1986 tax code reform included a great provision for sports owners which turned out terribly for taxpayers. A sports owner signing a lease with a municipality that would put up money for a facility could capture as much as 92 cents for his or her pockets of every dollar generated in the building. The municipality would get as little as eight cents per dollar to pay down the enormous debt load on a building that costs hundreds of millions of dollars.
Some areas did see a bit of development. In Baltimore a baseball stadium and a football field came after much of the components for the Inner Harbor were in place. But for the most part, cities built facilities that didn’t deliver the economic benefits promised. An example is Cleveland where opening a casino is the latest gambit to revitalize the downtown.
The New York Mets franchise is the poster child for everything that could go wrong with the notion that a stadium is an economic hub that can revitalize an area. Sometime in the late 1990s or early 2000s, Mets owners Fred Wilpon, Saul Katz and Jeff Wilpon decided Shea Stadium was a less than ideal venue for the team. They were not able to wrangle municipal funding from New York City Mayor Rudolph Giuliani or Governor George Pataki but eventually they cut a deal with Mayor Michael Bloomberg and state officials to “privately” build a new ballpark in the Shea Stadium parking lot in Flushing. The Wilpons and Katz did get money for other things like “infrastructure” at the site and probably a slew of tax breaks and tax incentives.
Then revitalizing the area in Flushing was not going to happen. Shea Stadium was surrounded by highways, the National Tennis center and Flushing Meadows Park to the north, west and south. To the east of the property there are junkyards. The junkyards remain despite the new structure, and attempts to revitalize that parcel of land continue to fail although Bloomberg wants the junkyards out and something else there.
Wilpon got the plot of land he needed for the stadium and decided to fund it “privately” although there is a huge amount of New York State and New York City money that has been thrown into the mix.
In 2006, the Wilpons and Katz projected the stadium would cost $444.4 million and the ballpark would be financed by tax-exempt and taxable bonds to be issued by the city’s Industrial Development Agency. The Bloomberg administration would contribute approximately $85 million in fiscal 2006 capital budget funds for necessary infrastructure improvements and an additional $4.7 million in capital reserve for the new stadium. New York State’s Empire State Development Corporation would contribute $70 million for the construction of the infrastructure improvements and $4.7 million in capital reserve for the stadium from bond proceeds. The total infrastructure improvement costs are estimated at $177.2 million. The stadium would be heavily subsidized although the actual structure’s bills would be paid off by the Wilpons and Katz under the spending plan.
On November 13, 2006, the Wilpons-Katz group announced that they had struck a deal with Citibank to be the stadium’s naming rights partner and the ballpark would be called Citi Field. The bank would give the franchise $20 million annually between the stadium’s opening which was slated for 2009 until 2028. Bloomberg hailed the deal pointing out that someone had to help the Wilpons and Katz with financing.
After the financial meltdown of September 15, 2008, Citibank was on the verge of insolvency and United States taxpayers threw a $45 billion lifeline to the bank. The Wilpons-Katz group insisted they had a deal with Citibank and the bank’s name is still on the building despite the taxpayers’ bailout and calls for the government to nullify the deal between the two sides. Citibank has insisted that no TARP or Troubled Asset Relief Plan monies went into the sponsorship.
The Wilpons-Katz group also got caught in the Bernard Madoff Ponzi scheme and the Mets ownership seems to be in financial straits. What makes the financial strain seem even worse is that the Wilpons and Katz have a partial ownership in a regional sports cable TV network with Time Warner and Comcast that makes the Mets franchise even more valuable and gives the owners access to cable TV monies that should be helping alleviate the financial situation with the team.
The franchise has been run into the ground despite a new stadium with a lot of public subsidizes and the keys to a cable TV network. The Los Angeles Angels of Anaheim have a $160 million annual deal with Rupert Murdoch’s Fox Sports network in Southern California. There is money in regional cable TV networks for sports teams but not for Wilpon-Katz-Wilpon to use for the Mets.
Should New York Governor Andrew Cuomo and Bloomberg look into the Mets situation? Normally the answer should be no. It is a private business and the business should succeed and fail based on normal business practices. But considering the subsidies involved and no one knows just how much taxpayer money is going into the franchise, along with the cable TV law which benefits sports teams, the public should be informed of the Wilpon-Katz-Wilpon/government partnerships and what went wrong sith the public’s investment.
New York State’s comptroller Thomas DiNapoli said in 2010 there has been really no study ever conducted by a government to see whether or not municipal spending on sports facilities is worth the effort.
Municipal spending on sports facilities helps sports owners who jack up prices for customers and in the process has segregated consumers by class with “the haves” buying club seats and luxury boxes and the “have nots” being able to afford a game or two a year in person and relegated to paying to watch games on cable TV.
One-time George W. Bush White House spokesman Ari Fleischer was working as a consultant for Major League Baseball a few years back and in 2008, Fleischer justified the segregation policy. He said sports needed more and more money and that the big rollers had to shell out more money for luxury seating so that the average fan could witness a live game once in a while.
“At the new Yankee Stadium for example, they have seats that are very reasonably priced and then they have seats that are ridiculously overpriced. Well it is the people who are paying for those overpriced seats that are making the way for the $25 seats,” said Fleischer in the 2008 interview. “So there are ways that people bring balance to the game and they do. Nobody is going to get a ringside seat, a front row seat at a cheap price anymore. That is the way sports have gone with the salaries being paid and the way commercial rates go. But there are plenty of other seats that are and that’s the balance that every city has to reach.”
The Wilpon-Katz-Wilpon ownership group insists that the Mets will remain in the Wilpon family although there is some evidence that the group cannot go on with the status quo any longer. The trio is looking for angel investors to help them out. For $20 million, an angel investor could buy into the Mets and get a lot of perks including a luxury box at the stadium, a chance to hang out with Mr. Met–the team’s mascot–and other perks that only a well-heeled super Mets fan would want to enjoy
Wilpon-Katz-Wilpon allegedly lost $70 million last year on the baseball operations despite the relatively new stadium and the partial ownership of a cable TV regional sports network. The team still owns Major League Baseball $25 million and has to pay off a $40 million loan from Bank of America. It seems almost inconceivable that a New York baseball team with enormous revenue stream potential can be in dire financial straits.
Last week, Wilpon-Katz-Wilpon released a simple statement. “Mets Limited Partnership engaged CRG Partners to provide services in connection with financial reporting and budgeting processes,” it read.
CRG has been involved with a Major League Baseball franchise before. The CRG was hired by Texas Rangers owner Tom Hicks in an attempt to straight out Hicks’s financial difficulties. Hicks eventually went bankrupt and his Texas Rangers franchise was sold off in a pre-auction.
It is doubtful that Bloomberg wants to take a closer look at what happened to the Mets. Bloomberg applauded the stadium development and the Citibank deal and that is probably something he does not want revisited particularly by Occupy Wall Street protestors who can seize the issue. It is also not Cuomo’s problem or even New Jersey Governor’s Chris Christie issue even though New Jersey cable TV subscribers who have no interest in the Mets are subsidizing the teams’ cable TV channel.
Evan Weiner, the winner of the United States Sports Academy’s 2010 Ronald Reagan Media Award, is an author, radio-TV commentator and speaker on “The Politics of Sports Business.” His book, “The Business and Politics of Sports, Second Edition” is available at www.bickley.com and Amazon. Mr. Weiner is a long-time supporter of the mission of the United States Sports Academy. For information on Academy programs that deal with sports finance issues go to http://ussa.edu.