Field of Schemes

by Neil deMause

  “The lease is like the Energizer bunny,” county commissioner Phil Heimlich told the Cincinnati Enquirer. “You know how it keeps going and going? Well, we keep paying and paying.”

  Of Carrots and Kitchen Sinks

  State-of-the-art clauses are just one of the new twists that sports-team owners have added to the tried-and-true tactics in the stadium playbook. Others have ranged from the desperate—as when the Florida Marlins signed star third baseman Mike Lowell to a contract extension that would make him a free agent if the team didn’t get a new stadium, hoping fans would back their funding plan to keep their favorite player in town—to the bizarre, as when Marlins president David Samson sent a letter to Florida’s house speaker claiming that Wayne Huizenga, the former Marlins owner who was now the team’s landlord, “has informed us that it will not, under any circumstances, extend or renew the current lease; thereby, giving the Marlins no place to play in South Florida after that time.” (This gambit backfired when state senate president Tom Lee promptly declared, “I don’t negotiate with terrorists,” and collapsed when Huizenga himself publicly insisted that he had no intention of evicting the team: “Let’s say for some reason or another they didn’t get their thing done and they wanted to stay. Okay, fine. That’s not the end of the world.”)

  For those without Samson’s creativity, there were still a few new cards to be played. One popular carrot to dangle in front of cities has been the promise that they will be eligible to play host to a Super Bowl if they build new NFL stadiums. (For baseball stadiums, the All-Star Game is typically the lure.) In recent years, NFL commissioner Paul Tagliabue made the same promise to San Diego, Minneapolis, Indianapolis, Kansas City, and New York, in each case portraying the NFL’s big game as the source of a flood of new tourists and a multimillion-dollar boon to local economies.

  Yet the numbers tell a different story. When University of South Florida economist Philip Porter studied tourism figures for cities that had held the Super Bowl, he found no discernible uptick during the week of the game. Especially in warm-weather cities, it seems, Super Bowl tourists merely displace visitors who would ordinarily be taking up hotel space, because anyone not interested in football steers clear during game week. In fact, explained Porter, Super Bowl tourists can ultimately be less beneficial to a local economy than the regular kind because hotels often require booking weeklong hotel stays even if fans are flying in only for the weekend. The result is windfalls for the national hotel chains that jack up prices for the event, but not much for local merchants who miss out on lost sales during much of the week.

  While it’s increasingly tough to convince voters of the need to subsidize sports-only projects, if it’s a “ballpark village” with housing and retail space, well, that’s a fuzzier issue. Attach a bunch of other development to your stadium plans, and you can hope to muddy the waters enough that no one can understand the finances, even if you’re asking for dozens of acres of free land.

  Rod Fort traces the origins of these everything-but-the-kitchen-sink plans to what he calls “Huizengaland,” a massive development project that then-Marlins owner Wayne Huizenga proposed to build in the late 1990s, with baseball and football stadiums as its centerpiece. While Florida officials rejected Huizenga’s plan—along with what Fort recalls would have been a “staggering” public subsidy—the idea soon spread to other cities. The San Diego Chargers promised to build their own football stadium if they were granted sixty acres of free downtown land for an accompanying residential development; the St. Louis Cardinals accompanied their new stadium with a “Ballpark Village.” Oakland A’s owner Lew Wolff, a real estate developer who was part of a group of partners who’d bought the team from Steve Schott in 2005, presented an even more audacious offer: He’d build a baseball stadium with his own money, and a new neighborhood of condos and restaurants, too—all he wanted was free land and lucrative development rights.

  While these deals are often just as costly to the public as standard stadium-subsidy projects, they have a big advantage for team owners: If anyone tries the counterargument that stadiums are bad economic deals, they can respond truthfully that “this isn’t just a stadium”—and point to the economic benefits of the attached project as an excuse for demanding public aid for the sports facility. “If folks don’t go for the stadium part of it, they have a hard time rejecting the other development aspect,” says Fort. “And I think politicians know that as well as team owners.”

  TIFs: The “But-For” Problem

  If kitchen-sink plans are hard for the general public to understand, what could be the most significant addition to the stadium playbook takes the cake for the most obfuscatory gambit of recent years—and one of the most popular, as well.

  This latest trick debuted in the stadium world in 1999, when the state of Pennsylvania was wrangling over demands by four of its major sports teams—the Pittsburgh Pirates and Steelers, and the Philadelphia Phillies and Eagles—for government aid in building new stadiums. State officials had agreed to a formula where the cities, the state, and the teams would each pay for one third of stadium costs but not on how to fund it.

  The solution, which was approved by more than two-thirds votes in both the state house and senate, was described in the newspapers as an “interest-free loan,” but it was nothing of the sort. Under the plan, the state would determine how much sales tax revenue the state was currently getting from the four sports teams; if sales tax receipts at the new stadiums exceeded this, any increase would be kicked back to the teams to repay their stadium costs. It was this self-proclaimed “hybrid” of a loan and a grant that led Pittsburgh state representative Thomas Petrone to quip, “It’s not a grant. It’s not a loan. It’s a groan.”

  What it was, in economic development terms, was a TIF, short for “tax-increment financing.” (The “increment” being the slice of additional tax revenues that gets funneled back into the project.) Though new to sports stadium deals, this mechanism had been growing more popular among state development officials—too popular, according to its many critics. First developed in California in the 1950s, TIFs took off in the ’80s as local governments sought ways to find money to entice developers. By the mid-1990s, Minnesota was handing out $750 million a year in TIFs. (The Mall of America, built atop the ruins of the Twins’ old Bloomington Stadium, got $105 million.) Since Proposition 13 curtailed property-tax hikes in California, TIF has become “an industry unto itself,” reports Howard Greenwich of California’s East Bay Alliance for a Sustainable Economy, with TIF projects soaking up 8 percent of all property taxes in the state.

  It wasn’t long before TIFs caught on in sports as well—the Phoenix Coyotes, Dallas Cowboys, Minnesota Twins, New Jersey Nets, and backers of Louisville and Kansas City basketball arenas and a Norfolk baseball stadium, among others, would all subsequently issue TIF plans after seeing Pennsylvania’s plan in place. By using only “new” revenues, the argument went, TIFs answered a prime criticism of stadium subsidies: This wasn’t money that could be spent on other services because it wouldn’t exist without the sports project.

  But there’s a pitfall to TIFs, and it’s a doozy. It’s what development experts call the “but-for” problem. While TIF subsidies are provided under the assumption that no new development would happen “but for” the TIFs, developers often strain the limits of that concept. In Minnesota, subsidy expert Greg LeRoy notes, city officials were recently found to be handing out TIF money for projects that otherwise would still occur, just on a different block.

  In recent years, Chicago has become the poster child for a city whose tax base has been reduced to Swiss cheese by runaway TIFs. Concerned that the city’s 121 separate TIF districts were draining off tax dollars to subsidize projects in pricey neighborhoods that would have been built anyway, the grassroots Neighborhood Capital Budget Group (NCBG) in Chicago studied thirty-six districts’ property-tax growth rates before and after TIF. Their findings: Of the $1.6 billion in “incremental taxes” redirected to TIF proj
ects, $1.3 billion would have gone into city coffers even without the special tax districts. As a result of this, the NCBG calculated, Chicago public schools had lost more than $600 million. “They sell it as ‘cost free,’” complained the NCBG’s Patricia Nolan. “But there’s always a tradeoff.”

  “TIFs are among the most problematic kinds of subsidies in America today,” in part because of their speculative nature, says LeRoy. “Real estate markets are cyclical. During the crash in real estate values in the early ’90s, some places got caught in the downdraft, and the increment evaporated. And you’ve got a situation where a liability that was supposed to be taken care of by the TIF is now eating the lunch of the general fund.” In Washington DC when $73.6 million in TIF financing for the Gallery Place mall ran into a brick wall after bond buyers balked at the revenue projections, the district was forced to expand the TIF to cover nearly half of its downtown core. A California study of thirty-eight TIF districts found that only four had generated enough property-value growth to justify their tax subsidies. Then there’s the doomsday scenario: St. Petersburg, Florida, according to a report by the New York City Independent Budget Office, saw property-tax revenues actually fall in one TIF district, leaving the city to bail out the project with existing taxes.

  As St. Paul Pioneer Press columnist Edward Lotterman wrote on the absurdities of TIFs: “My wife and I have often talked about a small addition that would extend the back porch the full width of the house.… It would be nice if the government would give us the money to do this. The value of the house would increase and so would our taxes. The higher taxes would pay the government back eventually, so it wouldn’t cost taxpayers anything.… It seems like a great idea, but for some reason the government is not willing to step up to our plate. We threatened to move to Portland or Charlotte if we don’t get help, but officials just laughed.”

  How Much Is That Stadium in the Window?

  TIFs are just one example of the types of hidden subsidies that are becoming more popular as citizen resistance grows to direct outlays from the public treasury on stadiums. Instead of cash, the thinking goes, you ask for operating subsidies, free rent, or tax breaks—all lease items that can help subsidize stadium costs on the back end.

  The prevalence of hidden subsidies was revealed by Princeton urban planner Judith Grant Long, when she set out to study whether or not cities were learning from past mistakes in cutting lease deals with their pro sports franchises. Long quickly realized that she’d need to compile accurate data to make the comparison—and so she spent years poring over team leases and stadium-finance documents, trying to discover who was ultimately paying for what.

  What she found was that large amounts of public subsidy were obscured because they were contained not in the stadium-construction deal but in the accompanying lease terms. Modern leases, explains Long, are “very different animals” than were their predecessors from previous decades: “The leases that were in effect in the ’60s and ’70s were very favorable to the public sector because they were traditional leases where the teams had very little control over any of their revenues. They paid a substantial amount of rent, they paid a substantial amount of the share of concessions, they didn’t get revenue from non-major-league events, there were no luxury suites, there were no naming rights.” These days, by contrast, public stadium owners get little to no rent, as “the major-league franchise is often siphoning off revenues from other events in the facility, even if the facility is publicly owned. They’re also taking the ice-show revenue, they’re taking the monster-truck-show revenue.” On average, Long discovered, sports stadiums were costing their host cities 40 percent more than was being publicly reported—and that figure was on the rise.

  Perhaps the most notable of all the new stadium gambits, though, was the one concocted in Major League Baseball offices in preparation for the league’s showdown with its players union in 2002. This was “contraction,” the threat to wipe two teams off the baseball map unless cities and the union agreed to concessions—and as to which teams, those wouldn’t be identified until all the stadium cards were on the table. It was a logical extension of the move threat: If you could only get cities to literally bid against each other for a scarce resource, like in an eBay auction writ large, you could potentially see your price skyrocket as local officials feared being outbid.

  Of course, you can’t really sell a sports team on eBay. But as Bud Selig was to prove, you can do the next best thing.

  14

  Youppi! Come Home

  Nobody is better equipped to show people how to fleece the taxpayers into building them a new stadium than Allan H. [Bud] Selig. He could write a textbook on how he committed the taxpayers of Wisconsin to build a stadium at no cost whatsoever to the Seligs. —Wisconsin state senator Michael Ellis

  On August 12, 1994, according to Quebecois legend, baseball was put to death in Montreal. That was the day that major league baseball players went on strike for the third time in fourteen years, in a stalemate over owner demands to impose a salary cap. Two months later, MLB commissioner Bud Selig would cancel the World Series, and fans of the Montreal Expos, who were sitting in first place in the National League East with baseball’s best record at the time of the strike, had their dreams of a championship crushed. By the next spring, when baseball resumed play, the Expos had sold off two thirds of its starting outfield, and its top reliever, and fans began deserting the team in droves, never to return.

  That’s the legend, anyway. And who’s going to nitpick that some of the details aren’t exactly true? The Expos made another run at a pennant in 1996, for example, behind a kid named Pedro Martinez that they’d picked up in an earlier salary-dump deal. And the fans stuck around for a while, as well: While Montreal was never a hotbed of baseball diehards, attendance hovered around the 1.5 million mark through 1997, with the Expos managing to outdraw the big-market New York Mets in two of the three years following the strike.

  Eventually, though, Martinez was dealt as well—one week after being awarded the 1997 Cy Young Award as the league’s best pitcher—along with most of the team’s other talent, and attendance suffered. New team ownership arrived in 2001 and promptly demanded a more lucrative TV deal; when their cable carrier balked, the Expos played the entire season with no English-language TV broadcasts. It didn’t escape attention that the new revenue-sharing plan that baseball had put in place in 2002 increased the incentive for teams to cut payroll to the bone then turn a profit by receiving checks from their more successful competitors; it also didn’t hurt that an unsuccessful team could help ownership make the case for needing a new stadium.

  Montreal’s Olympic Stadium, admittedly, wasn’t anybody’s idea of a baseball jewel. A stark concrete doughnut resting uncomfortably across the street from the city’s botanic gardens, the building became known locally as “The Big Owe” for the $1 billion price tag it racked up when rush-built for the 1976 Olympics. From the start, the stadium was plagued by a balky retractable roof; when this was finally replaced by a $37 million permanent Teflon roof in 1998, the new lid promptly collapsed under the weight of snow during an auto show and had to be replaced yet again. Quebec cabinet minister Louise Harel went so far as to submit that the dome was afflicted by a “divine curse.”

  In what was to become an annual ritual, Montreal Gazette columnist Jack Todd—the Sid Hartman of Quebec—grumbled in March 1999 that “it is all but inevitable now: the Expos will be sold and moved. This will be their final season in Montreal.” Jeffrey Loria, the New York art dealer who’d wrested control of the Expos in 2000, announced that he’d break ground soon on a privately funded stadium in downtown Montreal, to be called Labatt Park (the beer company had pre-purchased naming rights), but then demanded that either the government or his minority partners pitch in to help pay for it. When the partners balked, Loria seized control of their shares of the team instead, leading to a lawsuit that would drag on for half a decade. But when it came to government help, Loria soon found that Canada w
as not the United States. “We’re not in the business of helping sports teams,” Canadian prime minister Jean Chrétien had declared in 1999, a sentiment that was echoed by municipal and provincial elected officials. The Expos owner hinted at the usual move threats, but nothing came of it.

  At this point, a new word entered the baseball lexicon. In the summer of 1999, Colorado Rockies owner Jerry McMorris first leaked word to Sports Illustrated that baseball owners were considering something called “contraction.” In a reverse of the usual expansion cycle, in which leagues open their doors to new cities in exchange for hefty entry fees, under contraction the league would buy out the owners of between two and four underperforming franchises and reallocate their players—and their share of national TV revenues—to the remaining teams. It was a gambit that had been tried just once before, when the National League reduced itself from twelve teams to eight—following the 1899 season.

  The Expos, by then the lowest-revenue team in baseball, were assumed to be one of the targets. But baseball czar Bud Selig refused to name names, leading to speculation that contraction was just a ploy to put pressure on every rumored target city in hopes of shaking loose public stadium money. It also served as a threat against the players union: Give in to a salary cap, or we’ll wipe out fifty big-league jobs.

  As threats go, it was one that baseball owners were extremely unlikely to pull the trigger on. Tulane sports-law professor Gary Roberts called the proposal “a legal nightmare,” “a public-relations disaster,” and “economically stupid,” while economist Rod Fort insisted that the recouped TV and other revenues would pale in comparison to the estimated $500 million cost of buying out two owners. And that was just for starters. “Whatever long-term leases these two have, even just with popcorn vendors, those are all going to have to be bought out,” explained Fort. “So the cost mounts, and the cost mounts.” Florida’s attorney general declared that he’d file an antitrust suit against MLB to stop any attempted liquidation of the Marlins or Devil Rays, and a Minnesota county judge issued a temporary restraining order against baseball eliminating the Twins; Minnesota governor Jesse Ventura, a staunch stadium-subsidy opponent, proclaimed: “If they eliminate the Twins, I say we eliminate their antitrust status.”