Wednesday, November 25, 2009

Beware the Pitchman

In their quest for a new, publicly funded stadium, the Minnesota Vikings are in the midst of a full-court press of the Minnesota State Legislature and an assault on the public's collective sensibilities. Given how willing Minnesotans were to support a constitutional amendment to require funding for cultural and outdoors activities and events, it's highly probable that the Vikings ultimately will prevail in this endeavor.

The pertinent issue is not whether the Vikings ought to have a new stadium nor even whether that stadium should come wrapped in a public bow. Rather, the issue is whether the Vikings and the many media members who are beholden to the team are accurately portraying the pertinent financial data that the Vikings argue ought to be considered in discussions regarding the funding of a new stadium.

A fact that ought not be lost in the entire debate about if, when, and how to fund a new Vikings' stadium is that, despite owner Zygi Wilf's increasing lament, the Vikings are not without recourse or ability to circumvent the state funding process entirely. As the Patriots, Cowboys, and others did before them, the Vikings are perfectly free to build their own stadium. To that end, they can spend one trillion dollars or $250 million, or any other figure above, below, or between. In short, the decision is entirely theirs for the making.

That, of course, is not the Vikings' preference. What they want is a $1 billion, mostly publicly funded, retractable roof stadium; they contend that they are fine without the retractable roof, but that's merely a ploy to have any would-be public-funding entity weigh for itself the costs and benefits of paying $250 million less for a facility that will have far more limited use than the Metrodome currently offers.

In framing the conversation, the Vikings have either directly, or through their media surrogates, floated the following themes: (1) the Vikings are cash strapped as the result of playing in the Metrodome; (2) the Vikings' ownership group has committed to the team despite being cash-strapped, spending far more than most to put together a championship-caliber team; and (3) the Vikings have options should local, public entities not support the team's stadium-building efforts.

To a large extent, each of these contentions is largely exaggerated, true only to the extent that one views them in highly relative terms and relative only to the wealthiest of the wealthy.

I've discussed, before, the Vikings' cash situation. Because of revenue-sharing, a league-mandated salary cap, and the most lucrative television contract in all of professional sports, the Vikings are flush with cash. The Vikings, of course, paint a different picture.

The Vikings note that they are 31st in the league in revenues and contend that this is the result of playing in the Metrodome. Of course, that largely misdirects the relevant conversation, which, one suspects, is precisely the Vikings' intent.

In 2008, the Vikings were 31st in the league in team revenue with $209 million generated. Only the Detroit Lions, playing in their nearly new stadium, generated less team revenue, with $208 million. The Vikings also were 30th in the league in operating income, with $8.2 million. Only Seattle and Oakland had lower operating incomes, with Dallas within one million of Minnesota.

A review of team operating incomes reflects several things. Most significant, however, is that team operating income factors in team obligations or debt. For the Cowboys, that debt includes self-funding of a new $1 billion stadium. For the Raiders, it factors in Al Davis. For the Vikings, it factors in the recent purchase price of the team.

What Minnesotans ought to be asking in this discussion, at least at a preliminary level, is what effect playing in the Metrodome has had on the Vikings' bottom line.

Although the Vikings are 31st in team revenue at $209 million, they are within $30 million per year of being in the top ten each year in team revenue. Viewed in this context, the Vikings' "financial woes" seem less onerous.

The team's reported financial difficulties are even less convincing, however, when one considers why the Vikings appear near the bottom of the league in operating revenue. The primary reason is not that the Vikings play in an old stadium, but that the Wilfs opted to leverage their purchase of the Vikings. While numerous other teams in the league have been owned by the same ownership group for decades or were purchased with substantial cash out of pocket, the Wilfs financed their purchase largely through loans. Hence, they owe more for the Vikings than most other ownership groups owe for their teams and, as a consequence, they have lower operating revenue than do most other teams.

That's not the fault of the Minnesota public. Rather, it is the consequence of a business decision made by the Wilfs that, despite its purported downside, has numerous tax advantages and still returns a healthy profit.

The Vikings have now gone beyond insinuating that the Minnesota public owes them for buying the Vikings with debt, arguing that they are the vanguard of a Minnesota cultural icon. To this end, they have allowed the notion to circulate that they are spending to the salary cap limit to put the best team on the field.

Although the Vikings have spent above the salary cap floor since the Wilfs arrived, this spending has been done almost entirely in current-year cap dollars. Even bringing forward payments to the current season in this fashion, the Vikings rank 22nd in cap dollars spent in 2009. That's not Cleveland-like, but neither is it what the Vikings' have led the public to believe.

These are just some of the financial realities that ought to be weighed in determining whether and to what extent the public ought to provide funding for a new Vikings' stadium. And they are realities that suggest a much different picture than that offered by the Vikings' ownership and their numerous, paid minions.

If the goal is to ensure the Vikings prosper in Minnesota, a cogent argument can be made that the Vikings already are among the most prosperous of NFL teams and that that goal has been met. If the goal simply is to ensure that the Vikings are even more prosperous, however, there are surer and far less expensive ways to do so than to fund a new stadium.

One way, of course, is simply to gift the Vikings $30 million or so per year. That would allow the Vikings to maintain their currently high debt level and still place the team in the top ten, or higher, of league operating revenues. Another option, in addition to giving the team free rent, as the Metropolitan Sports Facilities Commission, and, thereby, the taxpayer, currently does to the tune of $4 million per year, or to gift the Vikings naming rights to the Metrodome, is to allow the Vikings to sell seat licenses at the dome.

All of this presumes, of course, that the Vikings' true goal is to get a return on their investment rather than a return on the public's investment. That assumption, however, almost assuredly misses the mark.

While the Vikings plead poverty as a result of playing in the Metrodome, what they really mean is that, they could be filthy rich, with limited investment, if they had the equity of a new stadium. It is not just, or, likely, even primarily, the revenue streams of a new stadium that the Vikings seek--revenue streams that could be made available or otherwise accounted for by lesser public investment on an annual basis--but the equity that derives from a new, publicly funded stadium.

Assuming a league contribution of $250 million (the Vikings' commitment to the proposed new stadium), a $1 billion stadium would increase the Vikings' net value by a minimum of $750 million. That not only buys a lot of credit on the market, but credit on very good terms. It also greatly enhances the resale value of the team, placing the Vikings behind only Dallas in team value. That's a far better return for the owners than the peanuts that they are leading the public to believe only a new, publicly funded stadium can confer.

Up Next: A Season of Washington Generals?


Chris said...

Thank your for your thorough examination of the Vikings stadium debate.

I am against public funded welfare such as the Twins and Vikings stadium issues. This brings into light why we need to step away from the discussion and examine this with a more critical eye.

Anonymous said...

I may not be keeping up, but according to numerous sources the Cowboys had their stadium paid for by numerous Arlington tax increases including 0.5 percent to the city's sales tax, the hotel occupancy tax by 2 percent, and car rental tax by 5 percent. All approved by the voters in a referendum, too. This is not to say that I don't get your point, but besides the Patriot's stadium maybe you were referring to another privately financed one? Cowboys Stadium definitely is not it.