The Stadium Problem Problem
The Unintended Consequence of a 1986 Federal Law
By Peter Jessen, September 7, 2001
Exerpts from and Commentary On: The DOW of Professional Sports, by Craig Lambert
in the September-October 2001 issue of Harvard Magazine for Alumni: Article is at http://www.harvard-magazine.com/on-line/09014.html
(Copy sent to MN legislature, House Speaker, Steve Sviggum and Senate President Roger Moe and others: Roy Terwilliger, Larry Fitzgerald, John Marty, David Jennings, Sarah Psick, Victor Moore, Tom Hanson)
This referenced article provides more understanding regarding the the stadium problem problem. The new problem is working together to make it happen despite the problem caused by the federal law. The problem problem is the interference of the feds with their 1986 law.. Nonetheless, it is still possible to craft a solution to the stadium problem and the stadium problem problem.
1. The stadium problem problem is the unintended consequence of a federal law passed to eliminate public spending (micromanaging through laws in a market economy with political liberty often yields such unintended consequences).
2. In The DOW of Professional Sports (Harvard Magazine for Alumni, September-October 2001), we learn that Before 1986, these municipal investments produced dividends, because public authorities received all stadium revenues except ticket sales (which included concessions and parking fees). But a new tax law that year changed this, by requiring that team owners garner 90 percent of all stadium revenues.
3. In other words, and lets be clear, THE PROBLEM WAS CAUSED BY FEDERAL LAW MAKERS trying to micromanage cities, NOT by owners trying to micromanage cities or states. Because building a stadium with public tax exempt bonds was cheaper than using taxable private bonds, federal taxpayers, via these tax-exempt bonds, had been subsidizing about a third of stadium construction costs. Note: it was the same 1986 tax law that opened the same door to the S&L fiasco, another license to take advantage of the feds, as they pledged to cover any gambles that didn't pay off (again, lawmakers who were not businessmen or bankers, but merely attoneys who didn't understand either, came up with this unintended consequence fiasco).
4. The false beef was that States without franchises, like the Dakotas, objected to paying for stadiums elsewhere. Here again is where narrow thinking missed the big picture. T.V. enabled every citizen of states without franchises, including the Dakotas, to still see their favorite teams. The Cowboys used to be considered America's team. Now it is the Vikings, giving even more positive exposure for Minnesota.
5. Please note: The Dakotas are now free riders, because they still get to watch their favorite teams, at their teams expense solely.
6. Interestingly enough, one of the sponsors of that bill was an ex-pro sports person who did it: Senator Bill Bradley (former New York Knicks player). That law declared that, for bonds to be tax-exempt, no more than 10 percent of stadium revenue could go to municipalities. This is what happens when people who don't understand taxes or how the tax game in played in this country (going on ever since the Boston Tea Party: learn the rules and then use them in your favor to reduce your taxes; it's the #1 universal American sport every April).
7. Bradley mistakenly believed this would be a disincentive for cities to underwrite stadium construction. But Bradley (and most of the congressional staffers who wrote the bill) never had city experience or even state experience. He ran for Senator as a celebrity and won. That is not to knock his celebrity-hood, which he earned, but to point out that being an expert in one area doesn't make him automatically an expert in other areas where he has had no experience. His false assumption was that no city would then use public funds to build stadiums.
8. Please note: the Feds were trying to tell the cities what they could and could not spend their money on. The blame today is laid at the doorstep of owners and players when, if everyone clued in on the same page, the blame is the nosy feds.
9. The mystery is this: how a guy who made his fame and fortune being a sports idol didn't understand that no city wanted to lose its idols. The unintended consequence revealed what a mistake this law was and still is! The unintended consequence was to divert the public investment from the public coffers into private hands. Why? Because owners, quite correctly, said to mayors and governors, because of the new law, We've got to get 90 percent of the stadium revenues to make bonds tax exempt. And once that interpretation was made, the incentive was there to turn stadiums into gold minds with skyboxes, club seats, naming rights, arena advertising, etc. Add to that the great economic expansion of the post 1986 period and you have this distortion of the private-public partnership.
10. FIRST: it is OK for stadiums to be gold mines. SECONDLY, it is OK for states and cities to now negotiate their revenues with the teams, so that the monies can be shared to enable funding the stadium and provide income for the team. This is why they mixed use concept is viewed as best, as it provides for year around revenues.
11. Government guys without business experience often don't understand the concept or power of incentives nor the folly of passing laws to disincentives. Stadiums could be self-paying, for in their current forms, they are cash cows. So, to solve this, owners and states/cities need to sit down and work out the finances with this law in mind (until it is changed), in order to use the tax laws and local incentives and negotiate for the benefit of the golden triangle: (1) fans/tax payers, (2) law makers running for re-election, and (3) owners understandably wanting to have their business be profitable and competitive (when Jerry Jones took over the Dallas Cowboys, they were losing $1 million a month; but he had vision, the previous owners did not, just as the Vikings current non-Minnesotan owner Red McCombs has vision whereas the local ownership group before him that sold it to him did not). By taking all of these complicated factors into play, and working with experts in these areas, the problem can be solved.
12. It is important to understand what sports-law specialist and Harvard Law School professor Paul Weiler underscores (see his book Leveling the Playing Field: How the Law Can Makes Sports Better for Fans, Harvard University Press, 2000), that big paychecks do not drive up ticket prices (the average professional baseball player's career is 4 years, and only 3.4 for professional football players plus they work with a salary cap). The seats in the stands dwarf the number of people in seats before TV sets at home and in Sports Bars. What causes salaries to rise, says Weiler, is when revenues go up. As any business man would say: Duh! Don' unions and workers say this all the time: as their companies are making more money they want to be paid more money. Very simple. Same thing with teams. Therefore the law needs to be changed which will enable some of the revenues to be used in the payment of the stadiums. As it is, with TV revenues in ascendancy, as it is watched more and more worldwide, Team revenues, especially NFL shared revenues, will only greatly increase. There is a moral and economic imperative for teams and communities to work out the sharing of revenue to the benefit of both.
13. Now, lets finish with WHY the legislature, business community, and team must cooperate FOR THE PEOPLE: because Professional sports will not go away. As the Harvard alumni magazine article states, each of these sports is a game worth playing. As financial priorities shape more and more of daily life, one motive for watching athletes is to escape momentarily the tyranny of the dollar. Once the game begins, money, agents, publicists, endorsement contracts, corporate advertising, and media coverage become largely irrelevant. Indeed, sports may be the last refuge of pure meritocracy. The athletes are after perfection, and only perfection, in what they do, says Peter Carfagna. And that's what makes us want to watch them. And that is why fans will suffer if their teams leave, as will the politicians which let them.
14. The solution: any mix and match of the 10 models outlined in my August
10, 2001 letter to
you, with 6 attachments (or any other models you discover; my model is #4 of the 10). Will Mn accept the challenge to save the people's team, when options
that don't require new taxes are readily available?
15. And so, a final word about models:according to the current
Forbes, the models range from the tax payers paying almost all of the stadium costs, as eith the Baltimore Ravens, Cleveland Browns,
and Tennessee Titans, who paid almost nothing for their stadiums,
as taxpayers agreed to foot the bill, to tax payers paying little, as
with the New England Patriots and Philadelphia Eagles, scheduled
to move into new stadiums in the next two years, are paying most of
their real estate costs themselves. [see and related links]
16. SO: can it be
done? Of course. The real question is: will
you take the steps necessary to make the Vikings feel welcome and dance
together for the good of the people AND for the good of the MN tax coffers
as well as for the profitability of the Vikings?