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When I sat down last month to write an article exposing what I thought was
an interesting wrinkle in one of the latest new ballpark plans–that the
Mets and Yankees can recoup the lion’s share of their “privately funded”
stadium costs from the public and from their rival clubs–I didn’t plan
on getting into a public war of words with Smith College economist Andrew
Zimbalist.

Now that Zimbalist has issued his rebuttal,
though, I’m glad for the opportunity to get to the bottom of the question
of just who’d be paying the $1.8 billion tab to replace Yankee and Shea
Stadiums. As I’ve been stressing for months now, it’s not as
straightforward a question as it sounds
, what with the current craze
for financing agreements that are more complex than the
save rule
.

As Zimbalist correctly observed on BP Radio, I’m a journalist, not an
economist–though I do consult with economists and other sports business
experts on a regular basis, to check both my reasoning and my Excel
skills. That said, he’s an economist, not a journalist, and may not have
all the information on the nuances of the New York stadium deals. So I’ve
spent the last couple of weeks digging through the public record, and the
not-so-public record, to clear up the facts of the matter. The result is
going to take a bit to explain and will delve in places into economic
minutiae, but try to keep your eyes from glazing over for just the next
few minutes–this is worth getting right, not just for the sake of New
York taxpayers, but because it’s an excellent lesson in the difficulties
of ferreting out the true costs of modern stadium deals.

Though my original article was about the Mets, I had called out Zimbalist
for an op-ed he wrote in the New York Times praising the similar Yankees
deal, and that’s what he focused on in his response. Let’s examine
Zimbalist’s arguments one by one.

In fact, because the state’s contribution of $70 million
for parking garages would be repaid from the parking receipts (or
indirectly via a subcontracting deal), the public outlay would be
lower.

Yankees president Randy Levine has been going around saying this, which
may be where Zimbalist got it from–but that doesn’t make it true. Last
November, New York City parks department spokesperson Warner Johnston told
me point blank in an e-mail: “The State will not be receiving any garage
revenue.” Other city officials have since
confirmed this
to Patrick Arden of New York Metro.

That’s just the state, though. It’s been known since November that the
city would collect “ground rent” from the private developers who
would actually build and operate the new garages. (The total construction
cost would be $234 million–that’s right, nearly a quarter-billion
dollars just to give suburban fans a place to park.) Only in the last few
weeks has that figure been revealed: $3.2 million a year, with annual
increases pegged to the Consumer Price Index. If we assume a 3% inflation
rate, over 30 years the city would collect enough rent to defray about $61
million worth of stadium costs.

There’s an additional wrinkle, however: To make room for the new garages,
the city would be losing 1,350 existing parking spaces, on which it
currently collects 60% of the gross revenues. (A private parking operator,
Central Parking, gets the rest.) The city hasn’t divulged its net income
from these spaces, but with parking at $12 a car, over 81 games, plus a
handful of postseason games plus whatever drivers happen by during the
off-season, $1 million a year seems like a reasonable guesstimate. Scale
that up for inflation–nobody thinks Yankee fans will still be paying $12
to park in the year 2036–and the lost parking spaces would have
generated about $19 million in present value.

Total net return to the city, then: $42 million. We’ll toss that into the
hopper as a plus for city taxpayers, along with the state’s $70 million in
red ink.

Furthermore, the city will be able to sell off memorabilia
from the present Yankee Stadium, which will lower its net
costs.

The latest team to abandon its old digs, the St. Louis Cardinals, sold 12,000
pairs of Busch Stadium seats for $470 apiece
, bringing in about $5.6
million, though some of that went to pay shipping and sales costs;
assorted lockers,
bases, and urinals
brought in another $889,000. Given that we’re
talking souvenir chunks of the House That Ruth Built here, let’s be
generous and assume a $10 million payday from the auction house.

Since the average amount of public funding for new stadiums
over the last 15 years hovers around 70 percent, the Yankees’ plan to pay
75 percent themselves is prima facie fair. Moreover, if one compares the
present plan to the deals offered by former mayor Rudy Giuliani in 1996
(for 100 percent public funding) or 2002 (for 50 percent public funding)
for a new stadium, the Yankees seem to have taken a major step
forward.

It’s certainly a step forward from the public having to shell out for the
whole shebang, though it’s worth noting that the current plan has just
about the same taxpayer cost–$400 million–as the last Giuliani plan,
if for a more expensive project overall.

In any case, though, “cheaper” doesn’t equate to fair. I’d rather get
mugged for $20 than for $100, but I’d ideally prefer not to be mugged at
all. The question shouldn’t be whether the Yankees’ plan is better than
the average stadium ripoff, but whether it’s a good deal for city
residents and taxpayers.

DeMause deducts each of these “hidden subsidies” from the
$800 million and concludes that the Yankees are spending just $326
million. Therefore, the Yankees’ share is 326/800 and the public share is
474/800. If so, the public share would actually be 59 percent, not the 58
percent reported by DeMause (and for some reason DeMause is leaving
infrastructural spending out of this equation.)

If this is how I’d calculated the costs, Zimbalist would be right to
suspect me of smoking
the wacky weed
. It’s not, though. As I explained in my BP Radio
appearance the weekend before Zimbalist’s article appeared, and again in
my mailbag
a few days later, I was comparing the Yankees’ share with the public
share, while excluding the two other parties who would be stuck with
large chunks of the construction bill: The other 29 MLB teams, and the
garage developers. Using the figures I had at the time, this came to: 36%
public, 26% Yankees, 25% MLB, and 13% parking garage developers. (I’ll be
updating these numbers at the end of this article.) Taking only the split
between the Yankees and the public, then, it came to 58/42, with taxpayers
getting the short end of the stick.

My bad, though, for being unclear here. This is one reason why we need to
get away from this notion of “public/private split” as the best way of
evaluating fairness in stadium deals. If some private developer agrees to
tack on a $500 million convention-center-and-professional-velodrome next
door to your stadium-to-be, does that make it a better deal just because
the public’s “share” of the total looks smaller by comparison?

We’ll return to this issue a bit later as well. For now, on to Zimbalist’s
next point, which was a bit of a head-scratcher and is the main reason
this article was so long in coming.

Under MLB’s revenue sharing system, the contribution made
by each team is based upon its net local revenues. To arrive at net local
revenues a team is allowed to subtract stadium expenses. If the team owns
the stadium, it is permitted to amortize its investment in the stadium
over ten years. If it does not own the stadium, there is some dispute
whether the investment should be amortized over ten years or over the
period of the lease (40 years), where the investment is treated as a form
of prepaid rent. In all likelihood, the Yankees lease will be considered
an operating, not a capital, lease, and the team will amortize its
investment over 40 years.

What Zimbalist is arguing is that the Yankees can’t deduct their actual
payments, but rather only the original cost of the stadium, spread out
over 10 to 40 years–that the stadium revenue-sharing deduction, in
accounting terms, needs to be amortized rather than expensed. This would
come as a bit of a surprise, given that every single media
report
on the revenue-sharing deduction has assumed that for each
dollar spent paying off stadium costs, teams can deduct one dollar from
their declared income for revenue-sharing purposes. In fact, it’s what
Andrew Zimbalist himself told me, when I asked him for clarification after
this deduction first
came to light two summers ago
.

Moreover, Zimbalist ignores one important detail: The Yankees would not
be making any up-front investment in the new stadium. Rather, a city development agency would
be selling $800 million in bonds, and the Yankees would pay them off via
both payments in lieu of taxes (PILOTs) and “rent” payments. (I put “rent”
in quotes here because it’s not a rent that the landlord, the New York
City Parks Department, will ever collect.) As for what those annual
payments would be, the city ain’t saying, but assuming an interest rate of
6%–not unreasonable for a mix of taxable and tax-exempt bonds–we come
up with an annual payment of $58.1 million. Deducting $58.1 million
annually would (according to Zimbalist’s
own formulas
) save a top-revenue team $22.6 million a year, for a
present-value savings of $311 million.

(Contrary to what Zimbalist alleged, for all my figures I have used
present value–a way of totaling up future spending that takes into
account that it’s better to be paid for a hamburger today than next
Tuesday. I’ve used a 6% discount rate rather than Zimbalist’s rather high
7%, but the difference in the final numbers should be negligible.)

Is it possible, though, that baseball has some internal rule that forces
terms to amortize stadium costs, even when they’re paid out as annual
expenses? The Basic Agreement is silent on this matter, and none of the
sports economists or baseball business experts I contacted could say for
sure. The best we can say, then, is that the value of the Yankees’
revenue-sharing break would be somewhere between $117 million (if a
40-year amortization), $230 million (if a ten-year amortization), and $311
million (if deducted as annual expenses).

That’s a huge difference, and it’s incredible that no one, outside of the
handful of men who make up baseball’s internal cabal, seems to know how
one of baseball’s basic stadium finance tools works. (One renowned sports
economist actually replied, “I don’t know, but if you find out, can you
tell me?”) But then, the very existence of the stadium-finance deduction
remained a secret for almost two years after it was put in place in the
2002 CBA; if baseball does one thing well, it’s hide information.

The Yankees’ lease stipulates that the team can deduct from
rent payments its expenses for the maintenance and operation of the
ballpark. These expenses have been growing by leaps and bounds and will
continue to do so if the Yanks stay in the current facility. Indeed, the
amount of the team’s rental payments has dropped markedly in the last four
years due to these expenses. If the Yankees stayed put, the team’s rent
five years from now would more likely be zero than remain in the $7.5
million range.

According to official figures from the city parks department, here are the
Yankees’ rent payments from 2000-04, and during the five years previous:

                                      1995-99       2000-04
Gross rent                        $32,400,000   $60,900,000
Maintenance deduction             $21,000,000   $23,500,000
"Stadium planning" deduction               $0   $10,970,000
Net rent                          $11,400,000   $26,430,000
 

In other words, the city’s rent receipts from the Yankees are going
up, not down. While maintenance costs have edged slightly upwards,
the Yankees’ gross rent has nearly doubled, thanks to a formula that
charges the team more when it’s doing well at the box office. With the
Yankees drawing 3-million-plus
fans a year
–and charging them $25 a head for the privilege–the
city has been cleaning up.

Clearly, the Yankees’ attendance can’t keep going up forever. But unless
George Steinbrenner goes all Huizenga on us and plunges the Yanks into a
decade-long rebuilding program, it’s more likely that future rents will go
up than abruptly plummet to zero, especially once the Giuliani-era
“stadium planning” deduction comes off the books. If anything, my
estimates–$7.5 million a year in lost rent, without even an adjustment
for future ticket-price inflation, amounting to a total of $103 million in
present value–are on the conservative side.

The only way city rent revenue would drop, then, would be if Yankee
Stadium suddenly started throwing rods like an out-of-warranty Chevy.
Which brings us to Zimbalist’s next assertion…

But still more important is that the Yankees’ lease also
stipulates that the city is responsible for all major capital expenses on
the stadium. Thus, when a piece of the stadium roof fell a few years ago
due to a loose bolt, the city had to spend millions of dollars to repair
it. Mayor Bloomberg has estimated that if the Yankees were to continue in
the ballpark, it would cost the city more than $100 million in capital
expenses.

Actually, it was a chunk of metal called an “expansion joint” that fell,
not from the roof but from the underside of the stadium’s upper deck. And
I’ve been unable to confirm that the city spent “millions of dollars” on
repair; according to press reports at the time, while the event was scary,
the resulting damage was superficial (some busted ceiling panels and a
crushed loge seat) and easily repaired.

In any case, though, the issue here is the future maintenance costs, which
Mayor Bloomberg actually said would run $350 million over the next 30
years; the city’s environmental impact statement says $574 million. When I
asked the city for an itemized breakdown of Bloomberg’s projected
maintenance costs, though, Parks Department spokesperson Johnston replied
that “both stadiums are getting very old and as with any aging building
require a lot of upkeep and maintenance,” then added that “in our
discussions with both the Mets and Yankees, team representatives made it
clear that they desired facilities on par with other first class major
league baseball facilities located around the country. The cost of such
work would represent a major cost to the City of New York.”

Follow that? The mayor’s projected “maintenance” costs, in other words,
include not only maintenance, but also upgrades to put the stadium “on par
with other first class major league baseball facilities.” Around these
parts, that’s what we call “renovation,” which would clearly cost a
bundle, though still likely nowhere near the $1.2 billion price tag on the
current plan. Moreover, since the Yankees would be reaping the benefits of
the improvements, there’s no reason they couldn’t be asked to pay all or
part of the costs.

His next deduction is $15 million in “present rent.” It is
not clear what he is referring to here. If it is to Mayor Bloomberg’s
two-year extension of the $5 million annually for five years from Mayor
Giuliani, then the figure should be $10 million, not $15 million. This
money is to be spent on planning for the new stadium.

The rent rebate–which has let the Yankees deduct up to $5 million a
year in “stadium planning” costs, a parting gift from Rudy Giuliani during
his last week in City Hall–would indeed only be extended from 2006 to
2008 under the new stadium plan. However, there’s an additional $5 million
that Zimbalist overlooked: According to the city’s Memorandum of
Understanding
with the Yanks, the team would also be allowed to
convert $5 million in deferred rent into a rent credit for 2006. Two years
of $5 million rebates, plus a $5 million rent credit, equals $15
million.

I did previously neglect to translate that into present value, though.
Doing so now gets us a net transfer from city taxpayers to the Yankees in
the amount of $13 million.

There may be other worthy objections to the plan and in a
perfect world the financing may be different. I am not arguing those
points. I am only observing that in the current world, given the recent
experience of stadium financing plans, the Yankees have made a fair
proposal to New York City and New York State.

So, how fair is this proposal? Let’s add up everything we’ve gone over so
far, and see who’s left holding the bill.

Below I’ve itemized every cost of the proposed Yankees stadium complex
that I’ve been able to document. Some of these will be familiar from my previous
article
on the Mets’ stadium finances. Others are drawn from a report issued last
week by the government-watch group Good Jobs New York, which identified a
whole list of previously unreported public costs ranging from relocating
water mains to rebates on mortgage-recording taxes.

Before I get to the calculations, I should note two potentially
controversial items: the sales-tax exemption on construction materials,
which I’ve mentioned before, and that mortgage-recording tax break
unearthed by the Good Jobs report. Whether the Yankees would benefit from
these, to the tune of $44 million, isn’t in question. However, Yankees
officials have argued that, thanks to a federal “empowerment zone” that
was expanded from Harlem to include the Yankee Stadium area in the 1990s,
these are “as-of-right” subsidies that the team would get anyway.

This is somewhat of a grey area, but I’ve decided to include these as part
of the public stadium costs–while the empowerment zone indeed makes the
Yankees eligible for tax breaks, they’re still approved on a
case-by-case basis
, and would need to be specially authorized for the
stadium. If you feel differently, though, trim $44 million from the public
cost figures below.

So with that out of the way, drumroll, please:

PUBLIC COST:

      $136 million city money for land and infrastructure
       $13 million city rent rebates on current stadium
       $70 million state garage subsidies
        $5 million operational fund (city)
        $5 million operational fund (state)
      -$62 million city garage ground lease
       $19 million lost city garage revenue
      -$10 million memorabilia sales (city)
       $55 million tax-exempt bond subsidies (federal, city and state)
       $44 million future property-tax savings (city)
       $11 million sales-tax breaks on construction materials (city)
       $11 million sales-tax breaks on construction materials (state)
      $103 million forgone city rent revenues
        $8 million forgone city mortgage recording tax
       $14 million forgone state mortgage recording tax
        $1 million present value of additional reserve fund in year 2039
     -------------
      $423 million

YANKEES COST:

      $800 million bond payments
     -$117-311 million revenue-sharing deduction
     -$103 million forgone future rent
      -$13 million present rent rebates
      -$44 million future property-tax savings
    --------------
      $329-523 million

GARAGE OPERATORS COST:

      $164 million garage construction
       $62 million ground lease
    --------------
      $226 million

MLB COST:

      $117-311 million revenue-sharing deduction
    --------------
      $117-311 million
 

Calculating stadium costs isn’t like calculating on-base percentage; tweak
any of those numbers up or down by 10%, and you’ll get no argument from
me. But the overall picture should be clear: The public would be putting
up roughly 33% of the cost of a plan that has been sold as being
“privately funded.” And at the end of the day, George Steinbrenner’s share
of the tab could end up being less than that of New York taxpayers.

Still, though, that’s better than the bad old days, right? Kicking in a
third of the cost of a baseball stadium may lighten the public purse a
bit, but it’s still preferable to when cities were expected to pay the
whole load, and team owners would just sit back and light their stogies
with the proceeds. And besides, aren’t stadiums supposed to be
public-private partnerships?

That’s the standard argument made by stadium-building moderates, and I’m
becoming more and more convinced that it’s a load of crap. Instead of
comparing today’s stadium flavor-of-the-month to the lousy deal
the guy down the block got
, or going halfsies with the local
billionaire and calling that fairness, we need to be looking at
investor equity. It shouldn’t matter whether the public is putting
in 75%, or 33%, or 10%–what should matter is that if we the people are
putting in the same share of the cost as the team, we should be reaping
roughly the same share of the benefits.

On those grounds, the Yankees deal–and the Mets one I discussed last
month–are absolutely dismal. In both cases, the public is putting in
about as much, if not more than, the private ballclubs. Yet the private
teams are getting all the new revenue streams: the naming rights, the
luxury suites, the concession stands in the cavernous new food courts,
which when added up should more than pay back their investment, with a
tidy profit left over. Taxpayers, meanwhile, would only get whatever
additional tax revenue resulted from the new digs–not much, since the
teams would literally only be moving across the street. Even the optimistic
projections
of the city’s own economic consultants have the city and
state pulling in a present value of just $225 million in new tax revenues,
not nearly enough to pay back the public’s costs.

That, in my book, is not a fair deal. So while the notion of teams putting
up their own money for stadium construction may look like a step in the
right direction, once all the back-loaded subsidies are accounted for,
these deals still aren’t good ones for taxpayers. And that’s before
getting into the “other worthy objections,” like the disruption of heavily
used public parks, or the loss of one of New York’s most popular and
historic tourist attractions, or the construction of thousands of extra
parking spaces in a neighborhood where asthma is epidemic, just so that
the most lucrative team in baseball can afford another six-pack of
Jaret Wrights.

Reasonable people can disagree, of course, and I wouldn’t be at all
surprised to see future revelations make the above numbers change yet
again. But if you think that taxpayers will come out ahead from Mayor
Bloomberg’s offer to George Steinbrenner, I’ve got a bridge to sell ya.