Q&A

Deal or no deal?

Filed under: Q&A

Stadium expert weighs in on Twins ballpark

If anything was sorely missing from the recent stadium debates at the Capitol, it was a dutch-uncle figure to bring some much-needed reality to the proceedings. Lawmakers, in fact, would have been wise to consult Neil deMause. In 1998, deMause co-authored Field of Schemes, the authoritative book on stadium boondoggles across the country. Since then, deMause has tracked stadium deals on his web site of the same name, and through various stories on the business and politics of sports in numerous publications.

More recently, deMause contributed to a new book from Baseball Prospectus called Baseball Between the Numbers: Why Everything You Know About the Game Is Wrong, where he dispassionately dispels the many myths surrounding the economics of new ballparks. DeMause watched the Twins deal closely, and did this Q&A with City Pages via e-mail.

City Pages: The projected cost of the newly approved Twins ballpark is $480 million, with another $42 million in financing costs. The Twins will pick up $130 million of that. How does this compare with some of the newer stadiums?

Neil deMause: The three most recent stadiums to open, San Diego's Petco Park, Philadelphia's Citizens Bank Park, and St. Louis' Busch Stadium III, all cost in the $400 to $450 million range. Of those currently in the works, though, Washington, D.C.'s new stadium for the Nationals is somewhere north of $600 million, and the Yankees are looking at one that'd be $930 million even without land and infrastructure, so the Twins stadium will likely miss out on the record for the most expensive open-air park ever built.

Stadium construction costs have been on the rise, in real dollars, for 20 years, thanks largely to the fact that every new stadium needs to have all the bells and whistles (and cavernous concessions malls) of the ones that went before it. On top of that, though, the Katrina Effect--the skyrocketing price of steel and construction labor thanks to the ongoing rebuilding of the Gulf Coast--has added around 20 percent to stadium bills, which is surely having an effect here.

CP: How much more can we expect this stadium to cost, construction-wise, and why?

deMause: Given that Carl Pohlad is on the hook for overruns in stadium
construction, I think they'll find a way to come in under budget, even if it means making fans bring their own armrests. Though when the Seattle Mariners were in a similar situation, they tried to claim that the extra $100 million on Safeco Field's price tag wasn't a "cost overrun" but an "unanticipated capital expenditure," and so the public should pay for it. So anything's possible.

CP: Another hidden fee is land sale prices. The land in question here is owned by four entities: Hennepin County, the state of Minnesota, Burlington Northern Railroad (air rights, too) and a private developer. Hennepin County has earmarked some $90 million for site acquisition, clean up and "development costs" without naming a figure for land purchase. How often does simply buying the land jack up the overall cost?

deMause: In the 21st century real-estate market? How about "always"? This is what almost torpedoed the Nationals stadium last year--after the deal had been signed, the estimated land cost went through the roof, and suddenly the city council balked, before MLB arm-twisted them back into line.

In short, if the total public cost doesn't break $400 million, I'll be very surprised.

CP: You write in the book about the inevitable rise in ticket prices with new stadiums. Explain how and why it works.

deMause: Teams invariably take advantage of the flood of curiosity-seekers generated by a new stadium by raising ticket prices by 20 percent or more; the record was set by the Detroit Tigers, who jacked up prices by an incredible 103 percent when they moved into Comerica Park. It's a trend that's exacerbated by the fact that new stadiums are packed with "premium" club seats and luxury suites to sell to corporate buyers, squeezing the cheap seats into a tiny space up near the rafters.

The revenue opportunities the Twins are looking for here, though, are less about selling tickets than about selling everything else. Stadiums aren't just stadiums anymore, as they were when the Metrodome was built --these days, they're also shopping malls, with cavernous food courts and souvenir stores. And while in the Metrodome the Twins had to share concessions money with their public landlords, in the new place Carl Pohlad will keep every penny.

This is the part of the deal that's been widely overlooked: The Twins will be going from one of the most taxpayer-friendly leases in baseball to one where the public will put up almost all the costs, and get none of the benefits. You could make a case, in fact, that the main reason Pohlad wants a new stadium is to get the sweetheart lease that comes along with it.

CP: Just as inevitably, attendance flat-lines at the new ballparks. How soon can we expect that to happen, and why?

deMause: The "honeymoon period" for new stadiums can last anywhere from about three to eight years, depending mostly on how well the team does on the field. (A shiny new stadium is only a draw for so long before people start actually watching the game and noticing the score.) After that, it does worse than flat-line - it generally regresses quickly to the levels seen in the old park, which in the Twins' case would mean big crowds when the team is winning, acres of empty seats when they're not. They'd better hope that Francisco Liriano and Boof Bonser are the real thing, or else 2012 in the new stadium could look an awful lot like 2000 in the old one.

CP: Now that the deal is done, there's a theory that the Twins don't
necessarily have to put the best product on the field. This season is a disappointment, and trade rumors abound. How real is the possibility that the team may starve the talent to maximize its profit before and after the ballpark opens?

deMause: I'd say low, if only for the reason I just mentioned: The Twins execs know that they need to hit the ground running in the new park, or else risk turning into the Brewers or the Pirates, teams that squandered any excitement from the new stadium by fielding the same old yawn-worthy teams. To go on the cheap now would take incredible short-sighted addiction to the quick buck and ... okay, we are talking Carl Pohlad here, but still.

CP: The normal reasons cited for building a stadium--civic pride, the team will leave, job creation, rejuvenating a part of a city--are refuted by you in the book. Explain.

deMause: All available data show that the economic arguments for building stadiums are just hogwash - they don't generate new tax dollars, they don't "rejuvenate" anything more than a block or two away, and the jobs they create are few and low-paid. And as for the Twins moving, I think we all saw how realistic that was when they played the North Carolina threat card in 1998 - there simply aren't any other available markets close to the size of the Twin Cities, and Pohlad knows it.

The best line on this came from Allen Sanderson, an economist at the
University of Chicago, who said, "If you want to inject money into your local economy, you'd be better off going up in a helicopter and throwing it out the window." They're really just awful, awful economic development projects.

CP: Overall, then, how does this deal look from where you are?

deMause: One of the things that is all too often overlooked in stadium deals is the lease, and I think that's what's happened here as well. If Hennepin County were putting up three-quarters of the stadium cost but getting back rent and a cut of stadium revenues, like at the Metrodome, this wouldn't be such a bad deal--but with Pohlad putting up next to nothing up front and reaping all the rewards, this could go down in history as one of the great taxpayer muggings of all time.

Posted by G.R. Anderson Jr. at May 26, 2006 3:37 PM | Comments (7)

 

Jobs Scam: A Q&A With Greg LeRoy

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Greg LeRoy is the founder of Good Jobs First, a Washington, D.C.-based think tank that works to insure that companies receiving public subsidies create decent jobs. His latest book, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation, was published last month. LeRoy will be in town on Monday for a Labor Day event. I caught up with him by telephone this morning.

Paul Demko: You're going to be here for Labor Day? What's the purpose of the visit?

Greg LeRoy: I'm going to be speaking to the Labor Day rally, which I guess is the big statewide hoo-hah sponsored by the St. Paul Trades and Labor Assembly. And then I'll be giving a workshop the following morning, Tuesday morning, to groups in the Twin Cities area about community benefit agreements.

PD: What are community benefit agreements? Why are they a good thing?

GL: These are project specific contracts between developers and local coalitions, usually composed of both community and labor groups, to make sure that big new development projects really benefit the local neighborhood. They provide for things like local hiring, living wages, maybe affordable housing set asides. There could be environmental cushioning, if you will: traffic management, open spaces, environmental design concessions. Depending very much on what the community identifies as needs there could be set asides for particular kinds of services, like a child care center or a community medical facility or other things that the community may identify as underrepresented in the community. They're quite flexible.

PD: Is there an example of a municipality where these have been effectively implemented that comes to mind?

GL: Los Angeles has done it eight times now. There's a group called the Los Angeles Alliance for a New Economy that really pioneered these things starting several years ago. The two biggest deals they've done involved the expansion of the Staples Center, the big entertainment sports complex where the Lakers play. And more recently the expansion and modernization of LAX International Airport. Two really big projects, one all private sector, one a public authority. But typically it's a deal between a private developer and a community coalition. What happens is the community coalition does not support any economic subsidies for the project until they get their agreement with the developer. Then they publicly support the assistance from the city for the project and the community benefit agreement is actually appended to the redevelopment agreement between the city and the developer so that it becomes legally enforceable. So there's really a triangular relationship here. The trouble is, historically, it's just a bi-lateral relationship. It's just a developer dealing with the city. There's no real formal community input.

PD: You detail at the start of the book 14 different scams by which businesses basically soak the taxpayers in the name of job creation. Number four on the list is "Take the Money and Run," where you highlight the exploits of Sykes Enterprises, which operates call centers across the country. One of those facilities was in Eveleth, Minnesota, where the company got more than $4 million in public assets in 2000 and then turned around and closed the call center two years later. Explain how this scheme works.

GL: They pretty much state publicly that in order to get them to locate a call center you have to give them free land and incentives of at least $2.5 million. The problem is call centers are not capital intensive. You're bringing in switchboards and headsets and linking up a fiber optic phone line. Which makes them incredibly easy to shut down and move. If the community doesn't have a claw-back in place--if there's no safeguard attached to the money saying if you don't stay for X number of years and create X number of jobs for X period of time--then it's all a wing and a prayer, so to speak. It appears to us that that's what's happened over and over again. It just looks like a lot of communities got burnt.

PD: Minnesota Governor Tim Pawlenty has implemented the Job Opportunity Building Zone Program. It's basically an empowerment zone program. Are you familiar with it? What to do you think of that program?

GL: I'm quite critical of it. The main concern we have is that it's pro-sprawl. We did a study called, "Another Way Sprawl Happens," where we chronicled 29 corporate relocations from Minneapolis and other inner-ring suburbs to the very fringe of the metro area in Anoka County. Well now with the JOBZ program why wouldn't a company looking for another sweetheart deal leapfrog yet again to the next county north if that was a JOBZ eligible county?

Enterprise zones, even at their best, if you're being intellectually honest about them, are simply designed to move activity around within a metropolitan area. There's no claim of net new creation of economic activity. You're talking about rural areas that are already hard hit and aren't experiencing a lot of job growth doing something to simply move them around and then reduce their tax liability for moving. It strikes me as a double loser. You could be dislocating workers at existing workplaces and you're reducing your tax base that's there to sustain the pubic goods that you need to attract other employers. To me you want to focus on making the county a more attractive place to do business--to grow your existing job base and to attract new employers--not just shuffle the deck and deplete your tax base at the same time.

PD: You say in your book that in the last three decades in particular we've seen the proliferation of these sweetheart job-creation deals. Is there anything in particular that changed nationally that allowed this to happen?

GL: I think it was a raft of things that came together. It was the beginning of the issuance of business studies, especially coming from Grant Thornton. It was the maturation of the site location consulting industry, with Fantus Company and it's competitors that really had matured by then and were moving hundreds of companies a year by then. I think it was the ramp up activity of the Council on State Taxation, dueling with the Multistate Tax Commission. From the mid-70s through the mid-80s, you had this very heightened debate. Basically Grant Thornton said to states like Minnesota, We will rate you negatively until you get more like the south, until you enact more giveaways and get rid of your labor friendly legislation. I think a lot of damage got done in that period. The number of states with a lot of giveaways on the books really mushroomed in that 10-year period.

PD: We have a Ford plant here in St. Paul that builds Ranger pick-up trucks. Ford generally has had a horrible year, in terms of sales, and the Ranger in particular has suffered. There's a discussion going on about how to keep this manufacturing plant open and talk about what kind of subsidies the state might provide to Ford. What would your advice be heading into this process?

GL: Fuel efficiency, fuel efficiency, fuel efficiency. Long ago I think any incentives granted to any auto plant by any level of government should have been conditioned on development of more fuel-efficient models. It's so predictable watching Ford and GM lose market share now with hybrids. It's like this slow motion train wreck playing out over the last 30 years. I just think supporting a retooling effort that speaks to a more fuel efficient future is huge right now. If you agree with the analysis that we're headed toward permanent price pressure on gasoline because of rising demand in places like China I just don't see how you survive without a more fuel-efficient model.

Posted by Paul Demko at August 29, 2005 5:10 PM | Comments (0)