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January 23, 2006
How the Mets Plan to Pass the Buck on Their New Park
A few weeks back I outlined some of the reasons why stadium cost numbers aren't always what they appear. Today, let's take a look at a case study, one that's been largely flying below media radar: the New York Mets' plan to knock down the House that Marv Throneberry Built and replace it with a new, modern facility in what's currently the parking lot beyond the Shea Stadium outfield wall.
The Mets revealed the expected price tag on their dream home last week, and it was surprisingly modest: a mere $444.4 million for the stadium itself, $600 million counting land and infrastructure. (By comparison, Boss Steinbrenner's Yankee Stadium Mark III carries a sticker price of $1.2 billion.) And as the press release from the state's Empire State Development Corporation proudly proclaimed, the "Shea Stadium Area Revitalization Plan" will have all stadium construction costs paid for by the Mets' owners.
Let's just see about that, shall we?
The first discount the Mets will be getting on their stadium costs is the revenue-sharing deduction that I've previously written about in this space. One can debate whether this is a clever dodge of baseball's attempts to level the playing field for low-revenue teams, or a way to reclaim money that's rightfully theirs--judging from some of my e-mail, it seems a fair number of folks consider revenue-sharing to be an evil on a par with the diabolical progressive income tax--but the fact remains that by building a stadium, the Mets will get a discount on their revenue-sharing payments. Fair or foul, it reduces their effective costs.
For high-revenue teams like the Mets, the revenue-sharing rate is about 39%, so deducting $444.4 million--actually deducting annual bond payments over the next 30 years, but it comes to the same thing--will recoup Fred Wilpon $173.3 million.
$444.4 million -$173.3 million --------------- $271.1 millionOn top of this, while the Mets may not be getting up-front stadium cash from the public, they will be getting plenty of help on the back end to defray their expenses. For starters, the team currently pays about $3.9 million a year to the city in rent; those payments would be waived under the new stadium plan, for a net present value of $54 million for the team.
(If the idea that "not paying rent on a privately owned stadium" can be considered a subsidy seems odd to you, let's try a little thought experiment. Say I went to my landlord with an offer: I'd like to tear down the house he owns, and build a new one myself in the backyard--and instead of paying him monthly rent, I'd pay him nothing for the privilege. Anyone care to guess his response? Bonus points for incorporating colorful Guyanese curse words.)
Wilpon & Co. would also collect rent rebates of $5 million a year for the next three years, to ease the pain of playing in Shea Stadium while the new building is going up next door. And while most development projects in New York's outer boroughs get off-the-rack 15-year property tax breaks, the Mets would pay no property taxes on their new Queens home for twice that long, for a present-value bonus of about $39 million.
$271.1 million -$54 million -$15 million -$39 million --------------- $163.1 millionFinally, one last item. One of the advantages of building the new stadium next door to the old one is you can still use the same parking lots. (The spaces newly occupied by the stadium would be replaced with new acreage opened up by the demolition of Shea.) The revenue from these lots, however, would be dealt with differently: The Mets would get to keep the first $7 million a year in parking revenues, money that currently goes to the city. After revenue-sharing, this would leave the ballclub with an extra $4.3 million a year, for a present value of $58.6 million.
$163.1 million -$58.6 million --------------- $104.5 millionSuddenly, what looked like a $444.4 million expense for the Mets--which would have been a larger private contribution than any prior stadium in baseball history--has become a far more manageable $104.5 million, right in line with what other teams have paid of late. The public, even by the state's own optimistic economic projections, would be left with a minimum of $178 million in red ink after paying for land and infrastructure, plus all those tax and rent breaks.
I think we can officially call this a trend. Back in the bad old days of the 1990s, spending public money on stadium construction was relatively uncontroversial, with debates limited mostly to who exactly would get stuck with the tax bill. (Cigarette smokers and car renters were two popular targets, mostly because it's hard to tax child molesters and puppy-kickers.) But more recently, as the general public has started picking up on the "stadiums are bad investments" meme, sports team owners and their political allies have increasingly started looking for ways to, if nothing else, make the transmogrification of public dollars into private profit less obvious. In the latest example (non-baseball division), the New York Times' Charles Bagli revealed last week that the two local teams in that other sport with the pointy ball are expecting windfall profits from their new "privately built" stadium in New Jersey; the state, meanwhile, will be giving up 20 acres of free land and getting shut out of parking, luxury suite and ad revenues.
The obvious exception is the stadium melodrama currently enveloping Washington, D.C., but there Bud Selig has his own reasons for wanting a traditional city-pays-the-full-bill deal--among other things, there's not much benefit to sticking the other 29 teams with stadium costs when you are the other 29 teams. Even while holding out for the jackpot in the Nats deal, though, Selig hasn't hesitated to play hide-the-subsidy games at the margins: MLB's only concession so far has been to kick in $20 million toward D.C.'s ballooning stadium bill--in exchange for future revenues from non-game-day parking.
With the dawn of the back-loaded lease deal, we clearly need to start subjecting stadium figures to greater scrutiny before determining winners and losers. Unfortunately, that's going to be a tough task given the current state of sports business journalism. Very few papers today have a Bagli, who's spent years unearthing the details of city development deals, sports-related and otherwise; mostly, the task will fall to beat reporters who will be dumped into the stadium story cold, and will have little patience to do more than dutifully report the news release handed to them by the team PR flack or mayor's press secretary.
And it's not only wet-behind-the-ears sportswriters who are getting snookered, either. Just turn to yesterday's New York Times op-ed page, where renowned sports economist Andy Zimbalist lauded the Yankees deal as "a winner for the Bronx and all of New York" because "the public share is only about 21 percent." The actual figure, after accounting for all the Yanks' hidden lease subsidies: about 58 percent public, 42 percent private.
If PECOTA had an error rate like that, Nate Silver would be out of a job. Let's hope the next generation of saberconomists can figure out a better way of evaluating--and explaining--the true winners and losers of stadium deals.