When the Pohlads Sell the Twins the Taxpayers should get part of their profits

 

There's excitement in the air as the Pohlads announce plans to sell the Minnesota Twins baseball team after purchasing the team for $44 million in 1984.  Estimates are that the team is now worth $1.5 billion, and the sale will net the Pohlads a lot of money.

The state of Minnesota, Hennepin County, and Minneapolis taxpayers who subsidized the team should tax the profits to get back their investment in the Twins.

Professional sports are big business and very profitable. Profitability is largely due to the public subsidies it receives. Professional sports play on fan loyalties and threats to move as ways to extract corporate welfare from taxpayers. Many justify the subsidies by contending that sports stadiums provide. major economic stimuli for communities.  Yet no major, credible study supports this.  Viewed from an opportunity cost perspective, public investments in sports yield lower returns for the community than investments in museums, schools, or other public amenities. Yes, sports may contribute to the quality of life in an area, but they are not good economic investments for taxpayers.

Among the tactics sports owners use to increase their profitability is getting taxpayers to pay for the stadiums. Studies indicate that public investment in a new sports facility is one of the prime ways that teams and their owners increase profitability.  The Pohlads have benefited twice from the taxpayers in Minnesota.

 First prior to Pohlads purchase of the Twins in 1984, taxpayers provided subsidies to build the Metrodome. There was $155 million in bonds for the facility and $30 million in bonds for surrounding infrastructure.

Years later in 2006, the Pohlads successfully convinced the state of Minnesota, Hennepin County, and in Minneapolis to subsidize Target Field. This came after they threatened in 1999 to leave the state of Minnesota if Saint Paul taxpayers did not build them a stadium.  While St Paul voters rejected the tax and the team did not leave, just seven years later Minneapolis, Hennepin County and the State of Minnesota came up to bat and hit a home run for him.  They provided $90 million in bonds for infrastructure, $ 260 million in bonds for the facility, and Hennepin County enacted a 0.15% sales tax.

Thus, twice taxpayers have subsidized the Twins, a private business operating for private gain. As a result, the Pohlads original $44 million investment now will produce an estimated 1.5 billion sale. Such a gain is way beyond the inflation rate.  The $ 44 million in 1984 today would be worth $133 million.  The $1.5 billion far exceeds the rate of inflation and cannot be explained simply by increased valuation the Pohlads have added to the Twins unless one also includes the public subsidies.

While no one begrudges Poland's making money, they did so significantly at taxpayer support.  What they have now is an unrealized capital gain on their investment produced largely in part by public investment in their private business.  Their sale will be a realized capital gain.

Taxpayers are entitled to a part of that gain and the value of the team when it is sold. Exactly how much is not clear.  But nonetheless, the public made the Twins so profitable and valuable, and they are entitled to its fair share of the return on their investments.

Minnesota Vikings and Pulltab Revenues Should We be Shocked?

Are we to be shocked and surprised that the estimates for the pulltab revenues for the Vikings

stadium were essentially made up by gambling interests and not verified by the governor and legislature?  Perhaps we should be no more so than was Captain Renault in the movie Casblanca when he declared that: “I'm shocked, shocked to find that gambling is going on in here!”  The story of the Vikings pulltab debacle unfortunately is a common occurrence, the result of pressure politics, money and politics, and the often lack of capacity or will of public officials to analyze and digest complex information.

            The Vikings deal was the proverbial effort to place lipstick on a pig.  It was a bad deal for Minnesota no matter how you cut it.  As I point out in my recent book American Politics in the Age of Ignorance: Why Lawmakers Choose Belief Over Research, the evidence is practically incontrovertible–public investments and subsidies for professional sports is perhaps the single worst economic development investment that can be made by the government.  Passing aside the arguments about such subsidies being no more than welfare for sports owners or public gifts to a private and heavily profitable private business, study after study demonstrates that no matter how you measure it–number of jobs, cost per job, or overall economic impact–public investments in professional sports is a terrible return on investment.

            So why did Minnesota do it, especially when surveys were clear that the public overwhelming opposed the use of tax dollars for the Vikings (as it did for the Twins just a few years before)?  A cluster of reasons explain it.  First, the Zygi Wilf’s of the world deploy scarcity of teams, the threat of leaving a market, and the emotional tugging of fan loyalty to pressure politicians to support such deals.  That was definitely the case with the Vikings.  It has to explain in part Governor Dayton’s nearly inexplicable choice to make doing the stadium deal a top priority for him.  As a business person he should have known better that this was a bad economic deal for the state but he still pushed hard for it.

            But second, the Vikings stadium deal demonstrates the power of pressure of politics.  Since 2002, the Vikings have directly spent more than $6 million lobbying the state legislature for a new stadium.  Wilf alone since he took over at the owner has spent nearly $4.3 million lobbying.  Add to that political contributions and then money spent by other groups such as the Chamber of Commerce, the hospitality industry, and the buildings and trade unions, totally expenditures to lobby for a new Vikings stadium would easily top the ten million mark in the last decade if not since Wilf took over.

            The legislature, especially the DFL last year, was under enormous pressure to do a Vikings deal because the governor wanted it and his party wished to support him.   But the public was insistent that no public dollars be spent, so how to make both the governor and the public happy?  Find another source of revenue.  Enter pulltabs.  One can only suspect that the legislature and the Gambling Control Board was under enormous pressure to make the pulltab numbers work no matter what.  Explicitly or implicitly the understanding was this.  Yes solely consulting with the gaming interests was stupid and a conflict of interest, but that stupidity was compounded along the way.  At some point someone in the governor’s office should have asked how the numbers were generated, or the same should have occurred in the many legislative hearings.  But it did not.  Why?

            First, no one really wanted to know.  The deal was more important.  Second, One can see a scenario of bureaucracy where everyone thought that someone else had checked the numbers and thus by the time they got to them they just assumed the numbers had already been vetted. 

            But third, there is the capacity question.  By that, most of the people looking at these numbers lacked the skills or knowledge to read them or make estimates regarding the pulltab revenue stream.  Yet there were many red flags that should have given one reasons to question them.  We were in the middle of a recession with less disposable income for gaming, especially among the poor who were already the biggest gamblers and among the most exploited by casinos and gambling already.  Minnesota already had a robust and extensive lottery and charitable gaming industry–what evidence is there that there was an untapped market that could be expanded?  Finally, what evidence was there that there were many organizations that wanted to do these pulltabs, again given how well developed  the existing gaming industry was already? 

            These are just some of the questions that should have been asked by legislators.  That is there job.  Maybe some did know better but they remained silent, especially among the DFL who felt they had to support the governor.  Overall, DFLers produced 55% of the votes for the stadium.  Additionally, of the 90 Democrats voting on the stadium 62 or 69% voted for it, while 50 of 109 or 46% of the Republicans supported it.  Given that a DFL governor pushed the bill, the DFL produced the majority of the votes for the stadium, and over two-thirds of them supported the Vikings proposal, the Democrats own the stadium.  Yet the Republicans should not be let off the hook–many of them voted for it and Senator Julie Rosen and Maury Lanning–Republicans, sponsored the bill in the Senate and House.

            Government can do better than it did here.  The bigger issue is how do we increase the capacity of public officials to make good decisions.  But here the Vikings pulltab story points to a huge bipartisan public fiasco due to a pressure politics, negligent or willful blindness to the facts, and simply bad decision making.  Given that, we should be no more shocked about the Vikings deal than Captain Renault was about gambling in Casablanca.

Bad Ideas Never Die: How to Stop the Vikings Arden Hills Stadium Proposal

Bad ideas never seem to die. Proof of that is the continued folly of Ramsey County, Tony Bennett, Governor Dayton, and some in legislature to continue to press for public funding for a new Vikings stadium. Two events this week pushed this folly into the news again. The first was refusal by the Ramsey County Charter Commission (RCCC) to place a proposal on the ballot in 2012 that would require voter ascent on any public funding for the Vikings. The second is a Met Council feasibility study on construction of the stadium in Arden Hills. While opponents were wrongheaded in putting their faith in the RCCC option to halt the stadium, the feasibility study really offers the best arguments and tactics for them to stop the project in Ramsey County.

The Folly of Public Subsidies for Sports

Public subsidies for professional sports teams are economic follies. Back in a February 10, 2011 MinnPost piece; I outlined the economic argument against them. Simply put, such economic subsidies are economically inefficient, are horrible economic development tools, and they fail to produce the returns on investment to the public that they tout. Overall, studies are conclusive in terms of their bad economic value compared to other investments that governments can make.

Yet these bad ideas do not seem to die. Politicians get sports fever, they chum up with team owners, take their political contributions, or get captured by the “a major sports teams makes us a first class city” syndrome and therefore want to build a new stadium in their community. They get gripped by the “if you build it they will come” mentality,” and they also get Pharaoh envy–they see a stadium as their form of a pyramid that they can point to as a final legacy of their time in office. Overall, even in the best of times public subsidies are economic sinkholes for communities but in bad economic times the argument is about priorities. Money for greedy billionaires ahead of highways, schools, and heath care? Money for the Vikings and not to help tornado victims in Minneapolis (yet I know this is another country)? What statement are we making when we say money for sports is more important than K-12 education?

Finally, remember, professional sports is a business and this is supposed to be America, the land of capitalism. Since we are we supposed to subsidize businesses, especially ones that are profitable? What part of this do politicians not understand?

How not to stop the stadium?

Ramsey County Charter Commission

Asking the RCCC to place on the 2012 ballot a proposal to require voter ascent for public funding for a Vikings stadium would have been closing the barn door after the cows ran out. The Vikings and Ramsey County could have done the deal before that vote. The vote, even if successful, might have come too late and the damage would have already been done. Opponents confused the RCCC with the Ramsey County Commissioners (RCC). The RCCC is not a policy body–it defines the structure of government for how policy is made. The pressure needs to be directed on the RCC to stop the project but that seems unsuccessful. Thus, option two.

How to stop the stadium?

Met Council “Stadium Proposal Risk Analysis”

The best read of the week was the Met Council’s “Stadium Proposal Risk Analysis” documenting the costs and problems associated with the Arden Hills site. In summary, the report correctly states that the potential pollution, site remediation, and infrastructure costs associated with the project may be far greater than anticipated. Moreover, because an environmental impact statement (EIS) and state and federal permits may be required for the site, completion of the project within the time frame anticipated is also doubted. What does all this mean?

The proposed Vikings site is polluted and perhaps more so than anticipated. The real costs cold balloon and one may never know the full bill until the project is begun. At that point one is faced with a sinkhole problem. By that, hundreds of millions are already committed and to finish the project more will be required.

First, the project could have significant cost overruns.

Second, the pollution and remediation efforts expose the public to potential lawsuits from the cleanup and it is unclear what insurance is available to cover the county.

Third, the infrastructure repairs are extensive and may again be far more extensive than stadium supporters are describing.

Fourth, all of the above will require government environmental permits to begin the work, but only at the EIS is completed. The EIS an permitting process could take years, delaying the project well beyond the Vikings deadline and what are now given as estimates for project completion.

In short–the Arden Hills project is potentially more expensive and complicated than its advocates claim. Here is where opponent have leverage. Over the years I have seen more projects delayed or killed than I can count because of shoddy EIS. In a rush to complete a project an EIS is rushed and done poorly, risks are ignored, and estimates of remediation downplayed. What happens then is either permits are not issued or lawsuits are filed in federal court holding up projects for years because of a rush to sneak projects through. Think of the replacement for the Stillwater Lift Bridge and I have said enough.

Thus, if opponents really want to kill the Arden Hills project the RCC and Dayton may be their best friend. In their rush to get the project done they will do a bad EIS and risk assessment, setting up the real ability of opponents to challenge the EIS in court, thereby delaying the project for years and driving up the costs of doing the project beyond the underestimated price tag that is already being touted for this folly.