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February 23, 2006

Over and Out

Digging Deeper into the New Yankee Stadium

by Andrew Zimbalist

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I am heartened to see that Neil deMause has modified some of his numbers in response to my article, and I applaud Neil's effort to try to unveil hidden subsidies. However, Neil continues to distort the reality of the Yankees' proposal. Let me just cite a few problems with Neil's latest volley, and then bid farewell to this convoluted debate.

First, it is somehow so shocking to Neil that the city's capital obligations include upgrading the stadium that he has completely omitted the hundreds of millions of dollars of prospective capital cost savings from his final tally. The stadium lease includes the city's obligation to maintain the stadium in "state of the art" condition. This omission produces considerably more than the 10 percent tweak that Neil says he would allow to his estimate.

Second, the Yankees' current lease dates back to 1972. Its term ended in 2005, but the Yankees have five one-year options that are currently in effect. The lease provides for the Yankees to not only share gate revenue with the city, but also cable television revenue. It is largely due to the latter that the rent has grown to the range of $5 million plus per annum in recent years, as I acknowledged in my BP piece. However, the Yankees' lease payments are well in excess of the norm in MLB, and it is unlikely in the extreme if the team were to stay in the existing stadium that it would agree to do so under the current terms. Thus, his estimate of $103 million in forgone rent revenues is hard to take seriously.

Third, my understanding of the parking numbers is very different than Neil's, but I am going to spare BP readers the arcane details on this one.

Fourth, Neil both adds to the public cost side of the ledger and subtracts from the Yankees side of the ledger several items totaling $160 million. This constitutes double counting, and is illegitimate even if the concepts were right.

Fifth, many of Neil's supposed costs to the city/state and benefits to the Yankees are "as-of-right," meaning that they are available under the law to all builders in the Bronx (and many to all builders in the state under IDA). Others, such as the tax-exempt bond subsidies, are not out-of-pocket costs to the public sector, and moreover affect the federal government treasury much more heavily than the city or state treasuries. In any event, if the new stadium were not built, there would be no bonds, no interest income, and no tax income to any of these entities.

Sixth, regarding the Yankees' benefit under baseball's revenue-sharing system, I don't know which experts Neil is talking to, but I hold by my analysis. In any event, these monies are private, not public. As I have always said, the Yankees do get a benefit here. It is an indirect subsidy from other MLB clubs. Similarly, the Yankees have indirectly subsidized other teams' stadium construction in the past, and will continue to do so in the future.

Seventh, Neil alludes to the city's projections of an additional $225 million (present value) in additional tax revenues being generated from the stadium project, but he omits this number from his final financial tally. While he may be right that this figure is optimistic, it would seem to belong somewhere, even in diminished form, in his reckoning.

In my view, the bottom line continues to be that the Yankees' plan, relative to other stadium deals in baseball and to the proposals offered the team by Rudy Giuliani, is financially attractive to the city and state.

Andrew Zimbalist is the Robert A. Woods Professor of Economics at Smith College in Northampton, Massachusetts. His next book, In the Best Interests of Baseball? The Revolutionary Reign of Bud Selig, will be published by Wiley next week. He can be reached here.

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2006-02-23 - Premium Article Over and Out
2006-01-30 - Premium Article Financing A New Yankee Stadium