Sunday, March 24, 2013

Minnesota Stadium Deal: Bait-and-Switch or Ponzi Scheme?

First, there was the stimulus plan that put workers to work to build the Vikings a $1 billion stadium.  That plan won't go into effect until later this year, but spending on the plan is well under way.  Under the stadium stimulus plan, a relative handful of workers will have jobs for a few years to produce an edifice that will continue to be subsidized by the public mostly to maintain a very small number of part-time jobs.

The big catches on this deal, of course, are purportedly the tax revenue that the State of Minnesota reaps from NFL players playing in the state and the game day revenue streams.  Then there are labeling, branding, and marketing values purportedly associated with having an NFL team in the market.

Virtually every economic impact study ever done on the matter has found that, at best--not at worst, not on average, but at best--public financing of NFL stadiums is a wash for the funding municipality.  All of the previous studies have considered joint ventures in which the public subsidy for construction of a new stadium was no more than $150 million and all of the previous studies have considered joint ventures for which bonding was the primary source of public funding and realistic measures were in place to pay off bonds.

Minneapolis and Minnesota will be funding over half of the Vikings' new stadium, contributing $498 million to construction and paving the way for downtown land space.  Minneapolis will pay off its $150 million portion of the stadium debt by raising hospitality taxes beyond their already exorbitant levels.  Ultimately, Minneapolis will pay at least $678 million on the stadium deal.  In exchange, the City will host two exhibition games that nobody attends and eight regular season home games--seven in the years that the Wilfs elect to sell a home game to the NFL to be played in London.

The State is on the hook for an even larger chunk of debt on the stadium, having committed to principal in the amount of $348 million.  The State will pay close to $2 billion to retire the $348 million debt.  That almost makes the State's quarter-on-the dollar sale of the tobacco settlement deal wondrously wise in comparison.

As if sensing that paying nearly $2 billion on a $348 million debt were not enough, however, those pulling the levers in Minnesota went one better, opting for electronic pull-tabs as the funding mechanism for the state's portion of the debt.  That might have worked except for the fact that it was clear from the beginning that electronic pull-tabs--a novelty at best--could not do what supporters claimed they could do.

Now we know, because now, after everyone with a vested interest received their piece of the pie, those with the vested interested are acknowledging what it no longer serves anyone to keep secret.  Like the fact that there not only are not two stadium plans for the LA area but not even one, like the fact that the NFL has zero interest in allowing any NFL team to relocate to LA, like the fact that the sun rises in the East and sets in the West, we now know--beyond even the doubt of nearly the most myopic of fans--that the electronic pull-tabs were the canard that they appeared to be.  And now, everyone in Minnesota is on notice that they will be the poorer for it--at least everyone without a hand already in a velvet-lined pocket.

Soon, we will hear of more stimulus, the stimulus that will be necessary to move the stadium deal ahead.  Perhaps we can borrow, yet again, from the school fund or delay repairs of roads, or ramp up property taxes or offer more of the same at a far higher cost.

And while all of this is going on--when the honest residents of the State, who refuse to shut their eyes and pretend that this is not one large con with but a few well-connected individuals benefitting therefrom, decide that shaking their heads is the best that they can do, believing that at least all of the proverbial cards are now on the table--there will be yet another shoe falling.  And nobody will hear the shoe fall in the din of distraction about pull-tabs.

That shoe, of course, will be the final lease agreement between the Stadium Authority and the Vikings. The agreement ostensibly has no certain outcome.  The stadium legislation authorizes the authority to grant anywhere from none to all of the stadium revenue streams to the Vikings and to otherwise work out a lease agreement with the team.

You will hear little about the lease negotiations until they are completed.  Then, and only then, will there be any demonstration of angst in the local media about the possibility that neither Minnesotans nor Minneapolis residents are getting anything short of conned on the stadium deal.  By then, unfortunately, it certainly will be too late to do anything about a decision that has already been undermined by deceit at most every level and a willingness to pawn off the consequences of that deceit on those already deceived.


KernelReefer said...

While I agree that the state was short-sighted when developing a revenue plan (extremely, and obviously), I take exception to the universal claim that studies conclude that stadiums are revenue/economic losers. I wrote about this a bit back, before any plans had been decided:

vikes geek said...


I did not argue that it was universal or that the conclusion was that stadiums are revenue losers. See argument.

Unfortunately, what the available, credible studies do not cover are deals as awful as this one portends to be--a result that easily could land this deal on the far end of the loss column. Without such a potentially lop-sided deal swaying studies toward a negative conclusion, the best that any credible study has concluded is that publicly financed stadiums are a wash for the municipality. That means that the municipality was no better off for building the stadium than they would have been without a stadium or a team. These are real economists doing credible analysis and considering all factors.

Can this stadium deal be saved for the taxpayer? Yes, assuming that the relevant municipalities receive substantial revenue streams from the stadium. Will the Stadium Authority ensure that this happens? Probably not.

Assuming none of this, however, I am increasingly alarmed by the fact that few fans/non-fans are even the least bit concerned that the real issue is not whether a stadium will be built or how much the relevant municipality will pay, but whether the relevant municipality receives a due financial return on the investment. The issues that will determine this return are still before the Stadium Authority. Apparently, that's not news in Minnesota--or at least it likely will not be until the deal is already struck and there is no possibility of meaningful revision. If you have angst over anything, it should not be over anyone's interpretation of studies pertaining to publicly financed stadiums, but over the quiet on this matter.