December 1926, 1996
Little known City Council report says owners should pony up for new stadiums.
By Frank Lewis
Team owners can hint about moving all they want, but there's little risk of Philadelphia losing its professional football and baseball franchises by standing firm against demands for publicly financed new stadiums.
That's the conclusion of an apparently unreleased report prepared earlier this year by City Council's technical staff and obtained by City Paper.
Titled simply "Sports Complexes," the report analyzes not only possible scenarios in Philadelphia, where both the Phillies' and Eagles' owners have made clear their need for new homes, but trends in cities across the nation. The study finds that Philadelphia is in step with other cities in similar binds. These findings are likely to please Mayor Rendell, who has refused to pledge significant financial support to these plans, and to disappoint the hopeful owners.
"Despite government rhetoric to the contrary, the trend in stadium and arena development is slowly becoming more and more private," as it was in the early days of professional sports, the report asserts. "If there is to be a new stadium in Philadelphia for either baseball or football, it should be truly traditional. That is, it should be privately financed, owned and operated."
The report was prepared at the request of City Council President John Street and completed in June, but never circulated among Council members, a source told City Paper. Street could not be reached for comment.
Much of the report supports Rendell's frequently stated position that the teams will have to find private financing to build their dream homes, because the city is in no position to foot the bill.
Lease revenue bonds, for example historically the most common type of public financing of new arenas can be saddled with a low bond rating for many reasons: projected financial viability of the new facility, real versus perceived need for the project, even a lack of political consensus. A lower bond rating typically means higher interest rates and possibly greater difficulty in attracting buyers.
New or increased taxes earmarked for debt payments known as dedicated taxes present even more hurdles to clear.
"Historical performance of the revenue stream" is taken into consideration when assigning a bond rating, as well as the range of the tax (the wider the area and the more goods and services affected, the better); the extent of legislators' control over revenues from the tax; and the underlying economic strength of the area from which the tax money will flow.
The report also downplays the real value of new sports facilities to regional economies.
"Spending by local citizens on a stadium or stadium-related commercial enterprises is not new entertainment spending," the report states, "it is only a shift of spending that would otherwise go to another entertainment option in the area."
"The same principal applies to commercial development...often, development that does take place in the neighborhood surrounding a new stadium is activity that otherwise would have been undertaken somewhere else in the city."
The report also recounts the findings of a 1994 study by Wake Forest College, which charted the economic impact over 10 years of 30 sports facilities across the country. The Wake Forest study found that "27 of the cities experienced no significant per capita income growth associated with a new facility, and the other three actually experienced negative stadium-attributed growth. The negative impact was attributed to the fact that many of the jobs generated by stadium development are seasonal, low-wage and low-skill in nature, and that such investment diverts resources away from industries that produce permanent high-wage, high-skill jobs and by extension, long-term economic growth."
"In reality," the report concludes, "the only 'economic development' that takes place when a publicly funded stadium is built is the revenue that flows from the stadium to its tenants, the owners and millionaire players."
Rendell has not been alone in standing firm against owners' pleas for public financial support. According to the report, "the trend in stadium and arena development is slowly becoming more and more private." Among the examples cited is the Sixers' and Flyers' new home, the $215 million CoreStates Center, for which the city and state kicked in just $20 million.
But a situation much further away may actually offer a more accurate example. The NFL's Carolina Panthers paid for construction of their $160 million home, Carolina Stadium, through private financing and the sale of personal seat licenses (PSLs), the controversial but lucrative innovation of Oakland Raiders owner Al Davis. PSLs, which several teams have sold at prices ranging from $200 to $2,000, entitle the buyer to purchase season tickets at their regular price; it's not unlike buying a house for which you must continue to pay rent or face eviction. The Panthers, an expansion team, sold more than 50,000 PSLs.
Rendell might hold up this financing package as an example to Eagles owner Jeffrey Lurie or Phils owner William Giles. But they'd be quick to remind him that Charlotte, NC, donated and upgraded the land on which the stadium was built a gift valued at $40 million to $45 million.
So even the most frequently suggested compromise help the Phils build a new playground and convert the Vet into a football-only arena could cost Philadelphia as much as $50 million, according to the report.
The report estimates that the cost of acquiring and improving a site for the Phillies would be $20 million to $40 million. No estimate is given for Vet conversion, but the work would hardly be superficial. The report predicts that the Eagles would want to lower the field to improve sightlines for fans in low-level seats, and replace the knee-wrecking AstroTurf with natural grass. And it almost goes without saying that the Eagles would want more luxury suites, those glass-enclosed, well-appointed booths typically leased by major corporations for six figures per season. Unlike television and merchandising revenues, stadium-generated money is not shared with the rest of the league.
But of course all this depends on whether the Eagles would accept such an arrangement. Lurie has said the Eagles cannot play at the Vet indefinitely, renovated or not, and remain competitive. (The ability to offer multimillion-dollar signing bonuses is a huge factor often the key factor in landing big-name free agents. And it's no coincidence, Lurie has said, that the most successful NFL franchise of the '90s, the Dallas Cowboys, also makes more from its stadium deal than any other team.) The Eagles did not respond before press time to City Paper's requests for an interview, and reportedly declined to discuss the issue with the author of the report.
Giles, who did meet with the author, responded to City Paper with a glowing assessment of the potential value of a new baseball-only park to the team, the city and the region.
"A new ballpark could be the centerpiece of a retail, sports and entertainment complex that would draw people from everywhere," Giles said. "It will add greatly to the perceived and real progress and momentum that the region has gained due to the new convention center, new hotels, new restaurants, refurbished airport and renovation of 30th Street Station, the Avenue of the Arts and new office buildings."
Giles admits that league competition is a factor in his quest as well.
"It is very difficult for the Phillies to compete in today's baseball economics due to the extra revenue that a new ballpark creates for a baseball team," he explained. "New parks such as Camden Yards [Baltimore], Jacobs Field [Cleveland] and Coors Field [Denver] provide over $20 million per year more in stadium revenues for their teams than Veterans Stadium does for the Phillies." (Major league baseball free agents are even more expensive than their NFL counterparts.)
Regarding funding, Giles said, "The Phillies are willing to pay their fair share," but he declined to elaborate. Too many unanswered questions remain, particularly over stadium ownership, he explained.
Ownership is an issue the city will have to address as well. As the report points out, the city supplies the operating budget for Veterans Stadium currently about $3.7 million per year. But annual revenues from the teams' leases, concessions, VIP parking and other sources top $12 million, leaving the city with an $8.4 million net profit.
If the Phillies financed their own new home, the city would lose an estimated $6.3 million in annual stadium revenues attributable to the team, but the Vet Stadium operating budget "would stay close to its current level," the report states. The Eagles generate an estimated $2 million. (The per-team figures were determined by adding their rents to 50 percent of the concession stand revenues, but with only about 10 home games each year, including pre-season, the Eagles' share may actually be much less than that.)
Giles pointed out that Cincinnati raised $520 million for new football and baseball stadiums with a half-percent increase in the sales tax. But taxpayers in other parts of the country have adamantly refused to pay for new parks, according to the report.
"On five separate occasions in the late '80s and early '90s, Northern California voters rejected proposals for a new ball park for the San Francisco Giants. If the taxpayers say 'NO' loudly enough, owners can and do find ways to finance ballparks."