Tuesday, September 06, 2011

Greenway Resigning Among Other Items Offers Yet Another Glimpse of Lack of Transparency on Stadium Issue

If you think that the Vikings' extension of Chad Greenway is primarily about winning football games and appeasing fan sentiment to retain the second best linebacker on the team, think again. Greenway's five-year, $40 million deal includes $20 million in guarantees. Prior to negotiating the extension with Greenway, the Vikings were on the hook for $10 million for Greenway's franchise year. That meant that the Vikings had to count $10 million against this year's salary cap of $120 million--a hefty percentage of the payroll for an outside linebacker.

The new deal, depending on how the Vikings structured Greenway's bonus, means that the Vikings are on the hook for a minimum of $8 million against this year's cap and a maximum of $25 million--if the Vikings designated 100% of Greenway's bonus a "roster bonus." Because the Vikings were approximately $12 million under the cap prior to Greenway's extension--a figure that does not take into account allowances under the new CBA to spend over the cap to retain a veteran or to borrow from future caps--the most that the Vikings could put towards this year's cap from Greenway's contract is $12 million. The additional allowances would permit the Vikings to put an extra $5 million or so towards this year's cap, effectively overspending this year's cap by the same value.

All of this is interesting, at least to me. But what is more compelling is the minimum figure noted above. After Saturday's cuts, the Vikings shed approximately $3 million in salary cap space. They have since added at least $8 million for Greenway's contract and $2 million for post-cut pick-ups. That potentially puts them $3 million below where they were prior to extending Greenway and close to the salary cap floor. If the Vikings extend Adrian Peterson this season, we will know for certain that the Vikings had ample room to sign whatever free agents they wished to sign, and that they simply opted out, allowing their minions in the media and at their radio station to parrot the line that the Vikings are "hard against the cap." That's a line the Vikings, themselves, have never offered. But it's also a line that the Vikings have never denied, other than to say that the team was "in better position than many believe."

How much better the Vikings are under the cap, however, is less relevant in the current climate than how well off the Vikings are financially. In the context of number finagling, nothing quite bests the Vikings' constant drum beat of poverty and inequity in its commercialization of its stadium push. Conveniently quiet on the numerous cascades of revenue bestowed upon all NFL teams--and particularly NFL teams in the bottom third of the stadium revenue stream category--the Vikings continue to imply that they need a new stadium to make a go of it in the NFL. League revenues, salary cap ceilings and floors, and the Vikings' recent signing of Greenway clearly argue otherwise, however. Other indicia are even more condemning.

In a recent national posting, one of the architects of the Rams' move to St. Louis recalled team officials asking the City of St. Louis for the stars and the moon and suggesting, behind closed doors, that if the City did not agree they could always say "no." The City, the Rams' official somewhat embarrassingly acknowledged, said no to nothing. Worse, yet, for the City and its taxpayers, however, was the Ram officials' statement that the Rams knew they would get a sweetheart deal no matter the deal because the City was woefully uninformed on revenue streams and team officials were well versed on the subject of their enterprise. The Ram official even noted that the City was so clueless about such negotiations that they agreed to a stipulation that stated that the Rams could break their lease any time in the future should the City fail to maintain the Rams' stadium as a "state of the art" facility. Sixteen years later, the Rams are invoking this clause to get a new stadium on the taxpayer's dime.

As revealing as all of this is, the Rams' story and the Vikings' recent escapades still fail to detail how truly lucrative the NFL is for teams. In addition to all of the various revenue streams--national television, local radio, stadium advertising, naming rights, suite revenue, ticket sales, concessions, merchandise sales, franchise fees, parking, seat licenses, and additional revenue sharing for teams like the Vikings--NFL teams are permitted to deduct their expenses at tax time.

The last item might cause a shrug and a comment that teams ought to be allowed to expense. Yes, that's how our tax code is written and, frankly, that is for the better of businesses and growth.

What most fans almost certainly do not understand, however, is how a contract like Greenway's significantly benefits the Vikings' bottom line. That's because most fans presumably do not know that Greenway's contract can be amortized. Not only are the Vikings allowed to claim Greenway's contract as an operating expense, they also are allowed to claim depreciation on the contract. That leaves the Vikings actually paying a fraction of Greenway's and other players' contracts, rather than his entire contract. That's a pretty good deal for teams, and one absolutely not afforded most employers with respect to their employees. It's also something that the do not reveal when disclosing the team's full revenue streams--at least as a normal person would understand them.

Here's how one sport's economist, courtesy of deadspin.com, described this tremendous tax benefit:

"This can't be emphasized enough: Every year, taxpayers hand the plutocrats who own sports franchises a fat pile of money for no other reason than that one of those plutocrats, many years ago, convinced the IRS that his franchise is basically a herd of cattle. Fort calls it "special-interest legislation." "It's not illegal," he says. "It's just weird."

The rules have changed over the years, but the depreciation shelter remains one of the great graces of owning a sports team. In some ways, it's gotten more fanciful. Between 1977 and 2004, owners could write off half the team's purchase price over five years, thanks to the pretend-loss of player value. One consequence, Fort notes, is that teams would change hands every five or six years, once the exemption had dried up. Now, after tax law revisions in 2004, owners can write off 100 percent of their team's purchase price, albeit over a 15-year span. What they're buying, as far as the RDA is concerned, is a set of players — the brand identity, the right to stage games and charge admission, and everything else are throw-ins. (According to Fort's analysis [pdf], the new RDA rules had the twin effect of increasing both tax payments and team values.)"

Is it any surprise that, after fifteen years in their new stadium, the Rams are seeking a new facility?

In short, as the Vikings continue their pitched wail about poverty and inequity, it is worth reminding them what most in the public ought to, but, unfortunately, probably do not. That is that they already benefit far more greatly than any other business venture in town.

One would think that that reminder would humble the Vikings and quiet their insufferable whining. One also would think that such information would provide considerable leverage--as if any more were needed--to those offering a deal to the Vikings. Alas, that's probably wrong on both counts, but one would think.

Up Next: Options for Peterson. Plus, When you start at $1 billion anything less sounds relatively reasonable or How the Vikings pitched a $300 million deal as a billion dollar necessity.


briano29 said...

Been reading your posts for a whilr now. You are awesome!

vikes geek said...