Five-day financing crash course. Day 2: What the team's paying for

Day 2: What the team’s paying for
The second in a five-day examination of the finances surrounding a new stadium, this section addresses the financial offer the Rays are making to build a new stadium. For previous coverage, see here.

Background: The Tampa Bay Rays plan to commit $150-million toward the construction of a $450-million waterfront stadium. Initially, the Rays said they would make roughly $10-million a year lease payments to the city, that when bonded, would generate the cash up front. Now the Rays say they will make the upfront commitment themselves.

Potential problem: What are the Rays actually contributing? If the money is “rent,” aren’t we just further subsidizing the team for a new stadium?

Analysis: To understand the terms of a new deal, it’s important to know the terms at Tropicana Field.

Currently, the Rays rent is tied to ticket sales at Tropicana Field. The city receives $0.63 for each ticket sold (the dollar figure escalates each year based on the average increase of ticket prices across Major League Baseball; in theory it would decrease if baseball ticket prices decreased as well). The first $250,000 generated by that agreement is returned to a capital reserve account for Tropicana Field capital repairs.

The next $100,000 is technically considered the Rays’ rent for tax purposes.

Everything over $350,000 is paid to the city to reimburse city expenditures.

Based on last year’s attendance, the city will receive about $874,000 this year – or $624,000 excluding the capital reserve funds.

The city also receives a small portion of the naming rights deal with Tropicana. In 2008, the city estimates it will receive about $358,000, with $250,000 again redirected to the capital reserve fund.

Prior to this year, the city also received $1.02 for each car that parked in a Tropicana Field lot. The money was to offset costs related to an air conditioning replacement, and was paid in 2006 and 2007, even when the Rays did not charge for parking.

Using that framework, the Rays’ current rent payments to the city total about $750,000 (not including the money redirected to the capital fund). The city’s costs related to Tropicana Field this year are roughly $2.5-million.

Rays’ response: Though the Rays initially said their $150-million contribution would constitute rent payments, team officials say now that does not mean they won’t contribute money to the city in other ways. Also, the Rays said they may be willing to take on more of the city costs than contemplated in the team’s original lease.

For discussion: What’s a fair rent for the Rays? Is it the approximately $750,000 the team pays now? Should it be tied to ticket sales? Value of the franchise? $15,000 a win?

Coming tomorrow: The redevelopment of Tropicana Field.

Comments

[Jay]

Who receives the proceeds from television rights? Does that go exclusively to the team via MLB? And if the city gets a portion of the parking money, how does it enforce it or audit it? What about parking violations? Additional police presence in those areas during the game? Even fire protection? What about water, sewage, and electricity? Basically, what's included in the rent?

[Aaron Sharockman]

Jay. Answers to your questions.

The team.

Yes.

The city use to get a portion of the parking revenues, based on how many cars parked in the Rays' lots (But that expired this year).

Parking violations aren't in play -- that money would go to the city as usual.

City pays for all the police you see directing traffic and the like around the Trop.

Any fire protection would be on the city.

Team pays water sewage and electricity, I believe.

Lots of things are included in the rent. But as far as things the city subsidizes, I'm pretty sure it's just property insurance and traffic control.

[Don Mott]

Aaron, you didn't break down the $2.5 million the city spent as I'm sure that would be quite an extensive list and probably involves a lot of minute details. Not being a CPA nor a landlord I will say this. When a landowner rents a property I would suspect that they at the least want to get their yearly expenses returned in the form of the rent payments. Their profit is most likely made in the rising equity of the property for the most part. Bearing in mind a sports stadium is different than a house rental I would still think that a more equitable and fair rent fee, at least for the city and taxpayers would be the estimated yearly costs to the city. As your numbers indicate the rent received was only about half of the costs if you include the capital reserve fund. This is a perfect example of government failing in the business world, while subsidizing a for profit company. Just my opinion.

[Jon McPhee]

Some folks posting here have analogized what currently appears to be on the table to the latest San Francisco stadium deal (AT&T, where the Giants play.)

AT&T Park in San Francisco was built with private funds (save a $10 million tax abatement and $80 million in infrastructure improvements like stations on the Bay Area Rapid Transit and other public transit lines.) I would guess this was done by the folks in that corn-dog, larger, much wealthier (even in 2000) city, who thought they might gain from having the sport and venue there. It's in an "industrial waterfront" area, not the heart of the city center. Published reports say it cost some $319 million (in 2000 dollars.) The people who invested were big players who had and could generate a lot of private wealth, and actually understood how to evaluate risk and benefit.

So if the St. Pete business community, including the Tampa Bay Rays which is one of the bigger players, wants to pool its resources because it finds some value in having the Rays in town and some likelihood that there will be a payoff for business from all the "revitalization," let them put up the risk capital. Let them acknowledge the 20/20 plan and find a more copacetic site that doesn't eat up the downtown. They have the kind of business acumen and motivation to properly analyze the ups, downs and risks of such a deal and vote with their dollars on whether it makes sense.

It's pretty clear that the "boosters" in City government are likely not capable of that kind of analysis. Because they get to tap (or maybe tap out) the tax pot that all the rest of us are compelled by law to chip into, and the borrowing capacity of a government that can float loans on "tax anticipation" (in a real estate market and economy that every day looks lousier,) they don't have much incentive (or the skill) to cut a sharp deal. And of course by the time the plucked chickens come home to roost, those "leaders" will be over-the-horizon gone.

One of these things is not like the other...

[Thomas]

My understanding is that the Rays are bound by an iron-clad lease that runs through 2027. Since there is no possible way for the team to relocate, why is there such a rush to the ballot?

Seems to me that fast tracking this plan would serve the interest of those that don't want too many details to be published prior to voting on the issue. I applaud this blog for really breaking down the proposal - or at least the parts of the proposal that the Rays will actually commit to.

Sometimes lost due to the focus on redeveloping the Trop is the fact that the Al Lang site is owned by the city of St. Petersburg. So the Rays are effectively asking to develop two publicly owned parcels, the Trop site and Al Lang, and keep the proceeds for themselves.

The team advertises this under the guise of "no taxes" but when you push aside the semantics, it's a massive public subsidy for the Rays. The same Rays that are bound to the Trop lease through 2027.

I would imagine the Rays are not too keen on talking about the math. But here's how it looks based on Times reports:
- The Nov 30, 2007 special feature indicates the new park has a $450M price tag.
- Aaron published a story on Nov 14, 2007 that indicates the land under the Trop could be worth as much as $200M.
- The team throws in a $150M "lump rent" contribution.

That's $350M for a $450M building...

- Plus there would be the concern of $69M in debt remaining on the Trop.

So now you've got bills totaling $519M but you only have $350M in funding and that's IF you give the Rays ALL the money from redeveloping the land under the Trop. Land that the team DOES NOT even own.

So for $150M the Rays get all the proceeds from redevloping the Trop site, plus they get the Al Lang site! What a deal.

That iron-clad Trop lease looks beautiful about now.

[Jon McPhee]

I would bet that there is no such thing as an "iron-clad lease," and that if the Rays owners want to waltz out of town, they will find an elegant and inexpensive way around every beam, plate and rivet.

Take a look at the reporting, in the next thread over, of an esoteric financial magazine, "Total Securitization," which I bet was on the ebony credenza of every office at Bear Stearns. One guesses it's about making questionable "assets" into something a business can buy and sell to "well qualified" (i.e., very rich) investors as non-regulated securites. Kind of like the "derivatives" that were made out of the Emperor's new clothes and sold to UBS and Chase and all the other buyers of "sub-prime" mortgage-backed securites, and are now being bailed out by the taxpayers of many nations.

Anyone know what "illiquid assets" the Rays are planning to "securitize?" What, if anything, other than a very profitable franchise, do the Rays Boys own that's not readily converted to cash? Maybe they view the Trop and the land it's on, or even Al Lang, as an "illiquid asset," and can sell shares in that, even though it's actually owned by the public.

Afer our recent national collapse and bailout of "derivative investments" based on so astutely named "sub-prime loans," we should be a little shy about any "investment" we don't totally understand. The really big banks full of CPAs and MBAs, and a bunch of accounting firms and auditors, bought "progress" as a near-prelude to bankruptcy -- before the Ponzi swindle collapsed and us taxpayers bailed them out.

Where is the City, as our proxy, going to find a "loan shark" who can swim with the cold, sharp-toothed fish the Rays are lining up? Anyone remember the last time the phrase "irrational exuberance" got used, and what happened next?

Is all change "progress" and therefore good? Hey, too often, helpess doctors get to watch the "progress" of an aggressive metastatic cancer.

[Faith Andrews Bedford]

Aaron, You said "The Rays’ current rent payments to the city total about $750,000. . . The city’s costs related to Tropicana Field this year are roughly $2.5-million.

And the Ray's are trying to tell us that a new stadium will bring money into city coffers? The old one sure doesn't. Way I look at it, just having the Rays around is costing us a great deal of money. Three decades of research has shown that sports teams do NOT make money for their cities and, in many cases - like ours, it would seem - are a net drain.

Face it, if building and running stadiums was a good investment then the owners would build them themselves. But they don't. They want us to - so they can keep the profits.

As Michael Lynch said, "Publicly funded sports stadiums are like crack cocaine to local politicians and business bigwigs. These folks are just like addicts: They deceive everyone around them for the sake of a fix and rarely take no for an answer when voters decline to subsidize their schemes."

Wake up, St. Pete. There's nothing in this for us.

[Aaron Sharockman]

Some good posts everyone.

Measuring the value or worth of Major League Baseball is difficult, if not impossible. City officials will tell you that the decision to build the dome helped kickstart some of the major developments downtown. However, they admit it wasn't the only factor. And that's not to say if the city spent $100-million or whatever building a really nice park that it wouldn't produce the same results.

But what I think is really interesting, is that there is some personal utility gained by many people by having a Major League Baseball in their city. And that, too, has value. Obviously, Faith, gains little utility from baseball while Thor, I assume, gains a lot. It's the same way that some people fight tooth and nail to make sure the city bailed out the Florida International Museum or gave land to the Museum of Fine Arts while others (Dr. McKalip and others) don't want their tax dollars going to those private entities. You can't measure those values, but they do exist.

I read a study somewhere that suggested people would pay something like $71 to turn a rainy day into a sunny day.

Now, there's no similar study for baseball, but I would think people on average would be willing to pay something to have a Major League team. Determining what that number is, is what this debate is all about.

[and...]

And what's the personal utility gained from living in a place with a low crime rate and good schools and good streets and...well, you get my point.

And no, the average person would not. Studies show only about half the population cares at all about baseball.

See, that's why people didn't want the stadium to begin with.

[get-smart]

AAron - You are missing the point. We have a team and we have a stadium. The line in the sand is - do you want to destroy the downtown. Also do you want to further enrich these greedy NY Goldman Sacks investment bankers who became wealthy by aiding and abetting the outsourcing of our American jobs to China. If the deal goes through they will sell off the team. These people are un-American. They don't care about the country or St. Pete.

[Getting-Dumber]

why is it that every time I read something written by "get-smart" that I just feel my IQ dipping by 10 points at a clip?
at this rate I'm going to be somewhere down in Jon McPhee land within the next 2-3 weeks