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February 28, 2005

Bonehead economics

Just to warn you, with this entry I plan to enter the dark cave of stadium impact. This has been argued so much, and with no clear victor on either side of the argument, that I hesitate to discuss it. It should come as no surprise that I feel stadiums and sports arenas have a significant impact on local economies in both measurable and immeasurable ways. However, proving that, or proving that stadiums don't have a significant is problematic at best.

Let's start out simply. Let's say you've got a city in a medium sized metropolitan area. We can call the city ... hmmm ... let's call it San Paulo. Let's say up until a few years ago, if anyone in that city wanted to rent a video they had to travel to a neighboring city to do so. However, let's say a few years ago a new video store opens in San Paulo. Now, instead of going to the neighboring city to rent a video, San Pauloians stay in San Paulo to rent their videos. In fact, their new video store is so good, residents from the neighboring city start to travel to San Paulo to rent videos. San Paulo is of course thrilled with this development and releases data that says it's new video store draws about 1 million customers a year who all spend on average about $10 a visit.

Now, who in their right mind would argue that this new video store isn't having some kind of positive economic impact on the city? No one, I would wager. I would think your average kindergartner could deduce that San Paulo has more money with this new video store than without. Yet, if we change this scenario to discuss a new stadium or sports arena rather than a video store we have so-called "expert" economists coming out of the woodwork saying these facilities have a negligible impact or no impact at all. Truly, this boggles my mind.

As far as I'm concerned, sports facilities always have an economic impact. That should not be in dispute at all. The question should be: is this impact worth the expense of building the facility?

Take the Xcel Energy Center, for example. The StarTrib had a great guest editorial last weekend from Larry Dowell (president of the St. Paul Area Chamber of Commerce) John Labosky (president of Capital City Partnership), and Karolyn Kirchgesler (president of the St. Paul Convention and Visitors Bureau) where they discussed the economic impact of not having NHL hockey in St. Paul this season. Check this out:

With 44 home games and attendance exceeding 18,000 people per game, Wild fans spend an average of $45 per ticket and another $10 on food, beverages or mementos. At the end of the season the Wild generates an estimated $3 million in state sales tax receipts, of which St. Paul receives approximately $217,000 in revenue from its half-cent sales tax -- tax revenue generated only inside the arena. Moreover, the St. Paul Area Chamber of Commerce economic impact study of Xcel Energy Center completed in 2003 shows that the Wild brings $23 million in spending outside the arena to St. Paul from nonresidents. Clearly, St. Paul is missing significant sales tax revenue, not to mention the state is losing more than $1.5 million in income tax revenues from player salaries.

This doesn't even include one time events like concerts, or Disney on Ice, or the myriad of other events hosted by the X. So, is St. Paul's investment justified? Will St. Paul recoup the money it put into the arena?

The Xcel Energy Center cost $130 million to build. The state gave the City of Saint Paul an interest-free $65 million loan. The remaining $65 million needed to pay for the arena came from bonds sold by the City of Saint Paul to be repaid over 25 years. Repayment of the state loan comes solely from the Wild’s annual rent payment and Payment in Lieu of Taxes (PILOT), which are guaranteed by the team. The Wild are also required to pay for 100% of the costs of operating the facilty.

So, for essentially $65 million, the city of St. Paul has a beautiful new world-class arena. As the guest editorial above discusses, with Wild games alone, the city makes approx. $23 million a year from nonresident spending. And that is just from Wild games! So, after 4 years the Xcel Energy Center and the Wild have accounted for approx. $80 million to the city of St. Paul. It sure seems like $65 million was a good investment.

And again, this is just from Wild games. When you look at all the one time events, like NHL All-Star weekend, all the concerts hosted by the X, hosting the Frozen Four, high school basketball and hockey tournaments, etc. ... well, you've got an investment that has more than paid for itself and one that will continue to reward the city of St. Paul well into the future.

Was the investment of $65 million a good one? Was the initial expense worth the economic impact? I would answer a resounding yes even without NHL hockey this season. The arena has already more than paid for itself and will pay for itself again and again when hockey returns next year (which I have no doubt that it will).

Given the success of the Xcel Energy Center, and given that it is so plainly obvious, it makes me wonder why we continue to fight and argue over the potential impact of a new Twins stadium. The Wild draw almost 800,000 fans for 44 games. The Twins draw over double that for 81 games. Yikes! Do you now understand why both Minneapolis and St. Paul so desperately want to build a new stadium for the team? You can just see the $$ signs in Rybak's and Kelley's eyes.

The deal that built the Xcel Energy Center could work for the Twins (if the state had $250 million to loan out). In fact, Jerry Bell has consistently said that the Twins would take the deal that the Wild got. That would mean an interest free $250 million loan to the city of St. Paul to be paid off by the Twins. The other $250 million would come from bonds sold by the city of St. Paul. The plan that St. Paul is currently pushing is to pay for St. Paul's share with a 3% sales tax at bars and restaurants. But it doesn't have to be like this. We have the TIF plan already endorsed by Pawlenty that could raise some of the needed money. Or if Pawlenty rams his metro casino idea through he has promised a "Community Assets Account" that could help pay for stadiums.

Essentially there are numerous plans that could work. And given the news today concerning an ever shrinking state deficit (and possibly even a surplus by 2008) I would think that smart, intelligent legislators could finally figure something out and put all this mess behind us. It is too bad we live in Minnesota.

Posted by snackeru at February 28, 2005 12:53 PM | Stadiums

Comments

To play Devil's Advocate here:
Your video store analogy is weak. Was the city giving the video store any money to open? I highly doubt it, they had to find some way of getting the $ to build the store and stock it. This came in the forms of loans and their own $. No assistance from the city outside of granting a building permit.

Given that a stadium has no plans to be built as of this time, the anti-stadium people are not only in the lead on the judge's scorecards, but it would take a knockout blow for the stadium people (especially for the Twins) to get the win.

Posted by: Cheesehead Craig at February 28, 2005 2:14 PM

Another question regarding your analogy to the Xcel: would a baseball stadium draw the same number and kind of non-game events that the Xcel does? I'm thinking particularly of concerts, which of course are regularly held in arena-type venues (both the Xcel and the Target Center attract a lot of them -- though I know which venue I'd rather hear a concert in). What kind of events could a baseball stadium expect to attract? I ask out of ignorance -- I really don't know the answer.

Posted by: stacie at February 28, 2005 2:24 PM

Stacie: What other events could a baseball stadium hold? Three words.

Disco Demolition Night

Do a Google on it and have a good laugh.

Shane: I'll have to noodle this entry around for a while before commenting further. I know you'll be on the edge of your seat waiting......

Craig: It's not neighborly to knock a man's prose when he's down. I think you're off the short list for cocktails under the pergola at the Maas'. You've been replaced by SBG.

Posted by: Brian Maas at February 28, 2005 2:37 PM

Craig, good comment. With my video store analogy I am not discussing who paid for what. I am only pointing out a 5 year old would agree that it has an economic impact on the city. I argue that a Twins stadium would also have an impact. And as far as a Twins stadium goes, I want the discussion to change from "is there an economic impact?" to "is the impact worth the expense?" Because there is an impact whether some people want to admit it or not.

Stacie, the most obvious answer is concerts, especially during the summer. And if they put a roof on the ballpark it could be used for sporting events all year long (kid's baseball, soccer, U of M baseball, etc). Without hockey the X probably averages about 7 events per month. Add hockey in and you get about 128 events per year. The Twins would play 81 games and draw twice as many fans. So, to get to the X's total for events the ballpark would have to host about 47 more events in a year's time. I would argue that this would be easy for the ballpark to achieve and more lucrative than the X's take since it would hold more fans/users.

Brian, take your time. I know this topic is controversial and I know you probably have a good argument to refute what I am discussing. Debate is good though. At least there is a discussion.

Posted by: Shane at February 28, 2005 2:46 PM

A quick question: You mention that the Twins have over double the ticket sales of the Wild, implying over twice the revenue. But I assume the average ticket price is different. What is the difference in overall revenue? I think it's quite important since the loan amount you're proposing is 4x that of the XCel center, and it seems unlikely that the Twins have 4x as much ticket revenue.

Posted by: Tim at February 28, 2005 3:29 PM

Tim, the ticket revenue is unimportant. What the people spend outside of the stadium, especially in the host community/county, is what is important. But you are right. $130 million is quite a bit lower than $500 million. Would the extra games and fans make up that amount? Certainly not in one year.

However, according to the Twins own website the total economic impact of the X is $200 million for St. Paul every year (http://minnesota.twins.mlb.com/NASApp/mlb/min/ballpark/new_banter.jsp?content=qa). What would be the impact of a new Twins stadium considering they draw twice as many fans to the area? Even if that total was halved to $100 million per year that is still a significant total.

Now, given that we are only talking about the impact for one year, you would think even getting $100 million per year would make the $250-$300 million investment for the host city worthwhile. That is the way I see it anyway.

Posted by: Shane at February 28, 2005 4:14 PM

Brian,
What? How did I attack Shane when he was down? I simply wanted to point out a perceived flaw in his argument that an anti-stadium advocate would bring up. If you want to take me off the list of partaking in Screaming Viking drinks at your place, that is your perogative. (Bonus points if you get the reference to the drink).

Shane,
I am now done arguing Devil's Advocate.

Posted by: Cheesehead Craig at February 28, 2005 4:47 PM

Craig: You have got to get thicker skin or else I have to start using smiley faces. Or maybe sarcastic smiley faces? Are there sarcastic smiley faces? If a lone smiley face smiles in the forest does anyone see it? Hmm, maybe a smiley face with devil's horns for you and a smart-ass smiley face for me?

Shane: Drop this stadium nonsense and get to work on smiley faces for your Comments area! Priorities, man!

Posted by: Brian Maas at February 28, 2005 5:25 PM

I know you're just kidding Brian. Can't a man feign righteous indignation? True, I could be better at it. I'll work on that for Lent.

Posted by: Cheesehead Craig at February 28, 2005 9:15 PM

Something for Shane to ponder over:

http://www.naplesnews.com/npdn/sp_sp_trng_twins/article/0,2663,NPDN_21016_3584251,00.html

Red Sox got one too, but they are saying the Twins is nicer.

"The Minnesota Twins and Lee County will not take a backseat to any spring-training facility in the game," Bill Smith said. "These are the two pieces that we've been missing. With those in place, there's no better facility in all of baseball."

Posted by: Dianna at March 1, 2005 6:57 AM

I have a couple of issues with this. First, the video store is already in town. They just want a new building from my tax dollar. Second as a home owner that lives in Minneapolis where is my benefit for paying .15 percent more? I'm assuming this will include my utility bills that I can't buy out of county even if I want to. If this is such a great income benefit for my city why am I paying a new long term tax? Shouldn't I be getting tax relief instead? Saying something that costs me money is making me money is truly voodoo economics at best. No, let me vote. I will vote no, let the billionaire video store owner pay for his own store.

Posted by: Jeff at May 17, 2005 10:00 AM

Jeff: And if your billionaire video store owner leaves town, what will you do then? And if you vote no on the stadium and save your 3 cents for every $20, do you think your quality of life will improve? It is three, lousy, stinking cents! And think what you will get in return: continued economic development in your county for years to come, a major cultural resource which millions of people in the Upper Midwest follow, and the continued status of your community as a "major league" town. All for 3 cents!! Most of us put more than this into those "penny jars" at convenience stores on a daily basis! Plus, a fair amount of the tax will be paid by NoDaks like me who descend on Hennepin County in droves on weekends.

Please don't get me wrong; I would love nothing more than for Carl Pohlad to pay for his own stadium. He is an evil, parasitic, snake-like man, whom I completely despise. That being said, I'd rather put my 3 cents toward the stadium than lose the Twins.

Curt in Grand Forks

Posted by: Curt Hanson at May 17, 2005 11:37 AM

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