The business of sports

(originally posted on 11/26. I’m just catching up with my post-vacation e-mail deluge..)

This is mostly off-topic, but I’m bringing it up because we’ve had
discussions about business issues before, especially things like the Arena
lease and other aspects of the business side of sports, and while this isn’t
hockey-related, I think it brings some hard data into the arguments over the
business of sports, and public funding for buildings and the like.

Over in baseball-land, the fight over contraction continues. The Minnesota
government is currently in the not-fun position of simultaneously having to
argue that:

1) the Twins are a private concern, and therefore, no public funding for any
new stadium.

2) the Twins are a major economic and civic resource, and therefore, the
owner of the Twins (Carl Pohlad) isn’t to be allowed to shut them down.

Doesn’t this sound a bit like talking both sides of the fence? If the Twins
are a private concern, why does the government have the right to tell the
owner he can’t do what he wants? If they’re important to the area, why won’t
the government invest some money into making sure the team is economically
viable? (FWIW, goverments have no trouble investing in other industries,
whether it’s dairy subsidies or tax breaks….)

Jesse Ventura (Da Guv) campaigned on a “no money, no how” platform on the
stadium. He’s now waffling, having moved to a “well, maybe, if it doesn’t
affect the budget” position. If there are user fees or “things that don’t
affect the general fund” that can be taxed, he’s willing to consider it. The
problem: most of those things are already taxed, and those taxes already go
into the general fund. He hasn’t commented on being willing to redirect any
existing taxes….

Evidently someone clued him into the numbers. Here are some:

Payroll taxes on the Twins players paid just under a million dollars into
the general fund.

Payroll taxes on visiting players (who are taxed by most cities on the money
earned while playing in the local city) added another $2.2 million.

Sales tax on concessions was worth $800K, based on an average purchase of $7
per fan.

There is also a sales tax on ticket sales.

This means the Minnesota Twins directly adds $4-5million a season into the
general fund. If the Twins go away, that number goes to zero. And this
doesn’t include a lot of things: lease payments to the stadium, payroll
taxes for non-player staffers, jobs created at the stadium or indirectly,
moneys spent by the twins in the community or by the visiting teams (hotels,
meals, etc), moneys spent by fans in the area, etc, etc, etc.

If you just look at the taxes generated by the twins, it’s about $5 mil a
year. How many companies in Minnesota generate that much directly into the
general fund?

I’m not going to take a hard position on all of this, but I’m curious what
people think.

I think a government has every right to refuse to build a stadium. But I
also think that if they don’t, the owner has every right to go somewhere
that will. Many governments want it both ways: no investment, but wanting to
define how things are done. If you don’t buy into the program, stand on the
sidelines and shut up.

My position has been, and continues to be, that a sports franchise isn’t
“just a private business” — the area and fans have an emotional investment
and commitment in a team (except in Montreal), in a way you don’t with a
dairy farm or a chip-fab facility. But emotional investments don’t pay the
bills. There has to be a financial commitment as well.

Cities that blindly built stadiums and paid the bills to “save the team” are
just as stupid as cities that blindly refuse to get involved at all. I’m not
saying “build it” — I believe that the involved governments should invest
only to the point that it makes economic sense to get involved, and no more.
How much is that $5 mil in tax revenues worth to Minnesota? How much would
it be worth to double that (which wouldn’t be unreasonable in a new stadium
with new revenues, an increased payroll and improved attendance).

One problem, of course, is that both sides of this fight politically come up
with their own definitions of ‘worth’. The anti-stadium people define most
revenues as “not really attached to the team”, while the pro-stadium side
tend to toss in money that is trivially attached (at best). There is rarely
an attempt to come up with a rational economic value to a team, the two
sides are too busy demonizing each other.

That’s why I find the Twins numbers fascinating. You can ignore the
intrinsics: just look at the $4-5 million of general fund money a year, and
ask yourself what it’s worth to save that money.

If the Twins leave, or shut down, that goes to zero. You lose it. If you
shift that money into paying off bonds that partially fund a new stadium, it
STILL goes to zero, but the Twins stay, and you keep getting all of that
indirect revenue, civic pride, etc. Eventually the building is paid off and
that money starts flowing back to the general fund again.

Turn this back to the Sharks a bit: the Sharks probably generate $2mil in
direct taxes on a local or state basis a year, on top of the indirect
economic revenues. If the Sharks went to the city and said “we need $10
million to fund improvements to the arena” with the inevitably implied “or
else”, just how involved should the city get?

The answer, of course, is “it depends”, depending on many features. But
knowing that there are tax revenues that will disappear if you don’t, I
think you have to look and see what makes sense. The problem is how to
de-demonize the argument and make a good deal that’s financially reasonable
to all sides.

If you look back in history, prior to the 1950s, cities didn’t build
stadiums, people did. But teams moved around and folded a lot, too. It was
the move of the Dodgers and Giants that really changed this, convincing
cities that they had to invest in a team to keep it. And that’s led, in most
cases, to decades of relatively stable franchises, where movement has been
rare and folding (thanks mostly to the teat of mamma-TV) pretty much
non-existant. Of course, as cycles go, some cities were stupid and built
financial white-elephants, and those abuses have caused things to start
cycling back.

San Francisco is a rare case, where they ended up with their cake and eating
it too — but we shouldn’t think that’s a reasonable model in most cities,
either. Don’t forget they REALLY WERE the Tampa Bay Giants for a while, and
if not for some serious backroom politics and Peter Magowan, they’d still
be.

The future of all this has to be the partnership model. Minnesota is finding
this out the hard way, and hopefully everyone on both sides (government AND
ownership) will notice. Sports teams DO generate economic benefits to a
city. They also generate ‘non-revenue’ benefits, too (and defining a value
to those is a b-tch, which is more or less how this whole morass got this
bad).

I guess the question I have is this: what do you consider reasonable to
consider as part of that “economic benefit” when it comes to defining the
value of a franchise to an area? And what does that translate to into having
the affected governments invest in guaranteeing those benefits? Does a
governemnt “go into the red” to protect those non-revenue benefits? If so,
how far?

Montreal, I think, did it pretty much the right way — they looked at it,
decided the Expos just weren’t that important, and now they’re moving on
into whatever comes next. Sometimes, it DOESN’T work (anyone else miss the
Vancouver Grizzlies?), or maybe it could work but isn’t worth the fight.

Minnesota tried to have it both ways — no investment, but all the benefits.
They’re now finding out the hard way what that means.

I think the real road, is down the middle somewhere: everyone gets involved,
to the level it makes sense. If you don’t get involved, you don’t get a say.
Seems pretty simple, no? But the fun is in the details. When millions and
millions of dollars are involved, nothing’s simple. (but, I note for the
record that while the city of SF was doing the “not a penny” schitck against
the Giants, millions of dollars of subsidies and building-improvement money
was stuffed into the SF Symphony and Davies Hall; it wasn’t okay to invest
in keeping the Giants, who now draw 3+mil fans a year, but it was okay to
heavily subsidize the symphony. So much for consistency…)

What do you think?

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