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January 31, 2006

Amazin' Mail

Mets Stadium Mailbag

by Neil deMause

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My article last week on how the New York Mets are working a 75 percent discount on their "privately funded" stadium unleashed a torrent of questions and comments from the BP readership, so today I've commandeered the BP mailbag to delve deeper into the Son of Shea books. Put on your economic hip-waders, and let's get started...

I support revenue sharing and payroll luxury taxes (and would support a hard cap as well), but also think deducting the cost of new stadiums from the sharing makes lots of sense. That's because I think stadium improvements provide the absolute most fan enjoyment when compared to all the other ways that owners can spend money.

Don't we want to encourage teams to pay for their own stadium improvements or use the money from revenue sharing to make new improvements? If the goal of the baseball tax regime is to maximize fan enjoyment (which is what the goal should be) than providing upgrades to stadiums would go a long way to that goal, I think. As someone who has endured watching the Orioles perform over the last six years, I will tell you that I have frequently taken sollace at about the 7th inning when I've looked around and said 'at least this is a beautiful ballpark.' My colleagues feel the same way--many only go to Camden Yards now because the stadium is appealing.

And its not like teams enjoy a competitive disadvantage as a result of one team spending lots on new stadiums. If a team spends its baseball revenue on free agents and expensive trades (and boasts a payroll 40% higher than its nearest competitor), then a team can win the AL East 8 years and counting. But I would shift the tax burden on to that team and penalize it heavily for every additional dollar that it spends on payroll. However, I have no problem whatsoever if that team wants to use its money to improve its ballpark and facilities--the fans enjoy a better atmosphere and the competition is not affected.

What baseball really needs is not more overall revenue sharing, but revenue sharing based principally on the amount of money that a team spends on payroll. I would say to the owners "spend all you want on ballparks, scouting and player development, but if you fuel this insane baseball salary inflation where a relief pitcher is guaranteed $55 mil, then you are going to pay heavily."

--B.G.

There's definitely an argument to be made for the revenue-sharing stadium deduction, though it is odd that spending on one thing that adds to fan enjoyment (stadiums) can be get deducted whereas spending on another (decent players) cannot. In fact, your proposal--a heavy tax on high payrolls--would make this equation even more inequitable, and encourage the kind of sit-back-and-collect-revenue-sharing-checks behavior that Twins owner Carl Pohlad (among others) has specialized in in recent years.

The bigger problem here, though, is the assumption that new stadiums always amount to improvement of "fan enjoyment." For the Mets, who play in one of the last surviving multipurpose concrete bowls, maybe so. For the Yankees, who'd be moving from a historic ballpark with great sightlines to one with an upper deck about 30 feet further from the action, and where the city itself estimates ticket prices would be $12 higher than in the current park (bleacher seats would go from $10 to a projected $21), not so much. And if revenue-sharing cash were used to tear down Fenway Park and build a cookie-cooker "retro" mallpark, you'd see John Kerry calling for a filibuster.

New stadiums are very good for things like cupholders and having your choice of salsa flavor on the nacho platters. As far as being able to see a ballgame goes, though, they often leave something to be desired.

I am a huge Mets fan, and probably spend a higher precentage of my (meager) disposable income on attending 7 to 10 games a year than is rational. I've been to every major league Stadium on the east coast with the exception of the new park in Philly, and so I feel fairly confident in stating that Shea is the worst place to watch major league baseball in America.

So what is a fan base to do when these owners just dig their heels in and refuse to pony up?

--E.M.

I grew up going to Shea (Sunday plan, 1971-1979, before I contracted Doug Flynn poisoning and fled to the Bronx), so I actually have a soft spot in my heart for it. But yes, it's not the most attractive stadium in the world. On the other hand, a new stadium in the parking lot isn't going to make the outfield view of Flushing any more attractive, and I doubt the affordable seats at the new place will be any closer to the action than at Shea, so I'm not overly optimistic about a new building. Remember, the last stadium pre-sold as being modeled after Ebbets Field was Milwaukee's Miller Park, and look how that turned out.

Philadelphia is actually an interesting comparison--the city and state spent a ton of money on Citizens Bank Park, and they certainly bought themselves a nicer venue than Veterans Stadium. But then, that's an awfully low bar to set. Maybe it would be more cost-effective just for New York City to spring for a paint job at Shea--hey, they could even bring back those blue-and-orange corrugated-metal dealies that used to hang on the exterior--and a pair of binoculars for every fan.

There have been plenty of fans in Boston, Detroit, Chicago, etc., who have argued, with varying degrees of success, for improving fan amenities without tapping the public purse. If Wilpon can't (or won't) consider building a new stadium without public assistance, I'd be interested to see what could be done with a really creative renovation of Shea. Heck, the city wouldn't even need the Mets' permission to do that--they own the place, after all, just like Yankee Stadium.

I'm probably not the first or the last to chime in with this, but I will say it anyway. No way are the Mets actually going to pay $100 million to build the stadium. They are going to sell the naming rights to the stadium for $5 million a year over 20 years and end up paying absolutely nothing for a brand new facility. Then they're going to pass on overpriced free agents because they can't afford it with all the money they are paying out for the new stadium. This underscores a point. Rich people get that way and stay that way by getting very valuable money-making things for free.

--I.B.

You make a good point, and one that I did note in a recent article for the Village Voice website. Spending naming rights money, and so on, on a stadium is still a cost to the team since it does come out of its profits--after all, in an ideal world, wouldn't baseball teams be financing stadiums out of these sorts of private revenue streams? But yes, the Mets are looking at investing about $100 million and getting back tens of millions a year; the public is looking at spending $400 million, and getting back a thin trickle of new tax revenue, which isn't exactly equitable.

I've got a couple questions after reading your 1/23 article 'Amazin' Savings'.

1. One tricky part, depreciation of the ballpark, seems overlooked by most related studies. If a ballpark is built by a team and owned by that team, depreciation should be considered when you look at the longer span of the revenue/cost structure. The reason why this is tricky is that the ownership could change during the course of the existence of the ballpark. For example, the Yankee Stadium was owned by the Yankees when it was built but was sold to the city of New York in 1971. If Steve Swindal decides he's not that much a baseball person without George Steinbrenner looking over his shoulder, same thing could happen to the new Yankee Stadium, too. Could you share some of your thoughts on this scenario (not the special case of the Yankee Stadium, but the situation in general)? What are the consequences of the local revenue and other money issues regarding the selling of a ballpark? Oh, let's not forget the life of a ballpark varies a lot. This can cause some trouble when evaluating the depreciation.

2. The figure you used for the total cost of the new Yankee Stadium is $1.2 billion, which is different from the $800M + $220M used by most people, including Andrew Zimbalist. I understand your logic to count the public expense with the $385M - $475M figure instead of the widely reported $220M, but shouldn't you do the same to the Mets? A penny spent is a penny spent, the money Mets can 'save' from the tax exemption won't reduce the amount of the money they will spend on the construction. To make the logic consistent with that $1.2 billion cost of the new Yankee Stadium, some of the money in your article should be placed on the expense column of the tax payers, not to be deducted from the cost of the Mets. Just my 2 cents.

BTW, love your work. The standard of the baseball business discussion was set pretty high by Doug Pappas, you're doing a great job here.

--C.L.

1) It's really hard to say, because the value of a stadium is owning its revenue streams, not owning the stadium itself, which is just a tax and maintenance burden. I've excluded whatever equity exists in the building itself from my calculations, on the grounds that by the time the 30-year lease is over, the stadium will likely have exceeded its shelf life and have no value remaining.

2) Well, some money is both an expense to taxpayers and a savings to the Mets--if you and I go out to lunch and I pay for your meal, it's both a savings to you and an expense to me. Basically, the money is being shifted from one column on the expense ledger to another.

But in any case, the $1.2 billion doesn't come from $800 million Yankees + $400 million (and change) public, but rather $800 million stadium + $135 million infrastructure + $234 million parking garages, with another $77 million in city tax subsidies going to help keep the sticker price down. The previously unaccounted-for chunk is an additional $164 million in garage money that's to come from the private developer, who's slated to get all garage revenues as a result. (Andrew Zimbalist insists that the state would get this money, but both the New York mayor's office and the official Request For Qualifications for the garage project say otherwise.)

And finally, thanks for the compliment, which is the highest I can possibly imagine. Thanks, and please keep questioning me wherever you think you see gaps in my reasoning--it's the only way I'm going to be able to fill even one toe of Doug's shoes.

Finally, I'd like to clarify something I wrote about the Yankees deal at the very end of my article. As I explained on last week's BP Radio, when I said that the split of the Yankees project was 58% public, 42% private, I meant 58% taxpayers, 42% Yankees--the Yankees being the private partner in the stadium deal. The math, along the lines of what I presented previously for the Mets deal:


PUBLIC COST:

      $135 million city money for land and infrastructure
       $15 million city rent rebates on current stadium
       $70 million state garage subsidies
       $55 million tax-exempt bond subsidies (federal, city and state)
       $44 million future property-tax savings (city)
       $22 million sales-tax breaks on construction materials (city
and state)
      $103 million forgone city rent revenues
     -------------
      $444 million

YANKS COST:

      $800 million bond payments
     -$312 million revenue-sharing deduction
     -$103 million future rent
      -$15 million present rent
      -$44 million property taxes
    --------------
      $326 million
If you count the third parties who are also involved, both shares go down proportionately. For the entire $1.2 billion project, then, it would be more like 36% public, 26% Yankees, 25% MLB, and 13% parking garage developers. The point isn't that the public would be paying for the majority of the overall project--it wouldn't--but rather that taxpayers would be spending more on this "privately funded" stadium than the Yankees.

Probably a better way of putting it would have been: The public will be paying for 37% of the stadium and 30% of the associated parking garages, while George Steinbrenner will be putting up just 32% of the stadium costs, and getting the garages built for free. Meanwhile, the Yankees would get all the new naming-rights money, concessions revenue, and the like; aside from a small amount of sales and income tax money from out-of-town fans, the city would get bupkis. As with the Mets scenario described above, this can hardly be described as equitable.

Thanks to BP's Derek Jacques for pointing out the potential confusion here, and for helping check the above figures. This is what I get for using shorthand like "public vs. private" in an article on how modern stadium funding schemes are too complicated to be easily summarized in pithy phrases.

(And as for Andrew Zimbalist's recent rebuttal to my article, I'll be running a reply shortly to analyze the veracity of his claims. Watch this space.)

Neil deMause is an author of Baseball Prospectus. 
Click here to see Neil's other articles. You can contact Neil by clicking here

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