Cost Overruns Make Stadium a Money PitOur political leaders hope to "cap" taxpayer liability for new stadium costs. But we remember how the Big Dig was supposedly "on time and on budget" just a few months -- and a few billion dollars -- ago. Like the Big Dig, this project is a money pit -- once there's a hole in the ground, it's too late to turn back and we're stuck throwing good money after bad as the cost keeps going up, up, up.
The Sox owners have low-balled the cost of buying land for the stadium, perhaps to get the city on the hook for any overruns. The Mayor says he will "only" pay so much for the land, but what will he do if a jury orders him to pay more? That's how land compensation is determined in eminent domain (government land-taking) cases.
Sox execs assure us they will pay for overruns associated with the stadium itself, but at the same time they assert that they don't have a dime to spare above the base estimate of $352 million. Yet, cost overruns of 30% are typical for stadiums, while interest rates and steel prices are both going up. If they come up short, isn't it inevitable that they'll soon be back on Beacon Hill asking for whatever it takes to "finish" the project?
Not too long ago, the owner of the Mariners (a multi-billionaire) told the people of Seattle he would pay for any cost overruns on the new stadium they were paying for. But when the stadium came in $100 million over budget, he demanded taxpayers pay for his "unanticipated capital expenditures."
More than a year into this process, Sox execs have yet to produce a credible financing plan for stadium construction. If the Sox owners can't get the loans they need from private financiers that should tell us something. If this was a sure thing, the money would be there; but the bankers don't think the project is worth the risk.
So the Sox are looking for public partners -- to share the risk, if not the rewards. If the bankers see taxpayers are on the hook to bail out their loans as well, then the money will flow and the deal gets done...at our expense...again.
Subsidies Leave Public "Partners" Holding The Bag
"Many leagues talk of 'public-private' partnerships between the professional sports team and the host municipality. To date, such relationships have consisted of the municipality assuming the burdens of expensive, long-term debt while receiving no stake in the exponential increase of the value of the team ..."Speaker Finneran before the U.S. Senate [1] Pressed to come up with more private money for his new stadium, Sox CEO John Harrington worries about the interests of his limited partners:. "It's very difficult to find partners who would be willing to invest significant money in a deal when they know they will not get a reasonable return on their investment," he laments.
He seems much less worried about the impact of his project on his "public partners" --his neighbors and the taxpayers. He keeps referring to taxpayer subsidies for a new stadium as an "investment," even though no new baseball stadium project has ever returned its public subsidy, much less a profit, to the taxpayers. The Mayor is asking for "100% payback" -- that is, to "break even" over 30 years. That's not a "reasonable return" and this isn't an "investment."
Mr. Harrington believes that a taxpayer subsidized stadium will increase the franchise's value from $284 million (Forbes 6-12-2000) [2] to somewhere between $377-566 million (based on his statements in the Boston Globe, 6/18/2000) [3,4]. Now that's an investment with a fine return! But not to us. When they sell, we'll be left carrying the debt, and the risk, for decades. And so will the team they leave behind.
Why should we -- the so-called "public partners" take on the risk while Mr. Harrington and his private partners walk away with a windfall? The most reasonable return for us is to return this deal -- unsigned.
Charity should be its own reward
As Red Sox owners see it, the Yawkey Trust, which owns 53% of the franchise, has given a lot of charity, and the Red Sox have "never asked for anything" before, so that makes it OK to ask the government to grant them up to 14 acres of other people's land and hundreds of millions in subsidies -- other people's money -- so they can go into the real estate business.
When you do a good deed do you ask the government to pay you back by taking from your neighbor? The government has no business forcing us to give to the Yawkey Trust. And what about the other 47% ownership that isn't in the Trust? How do the Red Sox rationalize asking government to force us to give them a huge windfall?
Sources:
- Speaker Finneran's testimony before the US Senate Judiciary Committee on the Stadium Financing & Relocation Act of 1999. Full text can be found at: http://judiciary.senate.gov/61599tmf.htm.
- What's Your Team Worth? from " Too Much to Lose." by Micheal Ozanian, Forbes, 6/12/2000
- "Sox CEO sees gains on land for new Fenway," Boston Globe, pg. A01, 6/18/2000
- Calculating the Red Sox sale price, CASS worksheet
cass_mass@yahoo.com Front Page | Taxpayer Squeeze Play | Screwball Economics
Voodoo Financing | The Real Estate Deal