February 8th, 2008

Braves Stadium Deal Taxes Fiscal Realities

By J.C. Bradbury
Atlanta Journal-Constitution

Like many baseball fans living in metropolitan Atlanta, I was delighted to hear that the Braves would be moving their Triple A franchise to Gwinnett County. However, since learning the financial terms of the deal, my enthusiasm has waned. The arrangement essentially transfers Gwinnett residents’ hard-earned tax dollars to the Braves’ corporate owner, Liberty Media. It is inexcusable that the Gwinnett County Commission would approve such an agreement without vetting the proposal publicly.

The county projects that the stadium will cost $45 million. Twelve million dollars will come from existing tax revenue earmarked for recreation — funds that could otherwise be used to support other local projects and services. The remaining $33 million will be borrowed via bonds. At an interest rate of 5.5 percent, paying off the loan will require annual debt service payments of approximately $2.25 million for 30 years.

Gwinnett County administrator Jock Connell stated that the facility would be “paying for itself from day one.” This claim is difficult to believe, because the county awarded the Braves the rights to nearly all the stadium’s future revenue streams, including tickets, concessions, sponsorship, advertising and broadcasting. The county even agreed to the absurd provision of handing over the concessions revenue from its own non-Braves events.

Using even the most optimistic estimates from the county’s feasibility study, revenue from the stadium will fall far short of paying off the debt. The annual revenue will come from rent ($250,000), a $1 fee per ticket sold ($479,000), a 50 percent share of net parking receipts ($284,000) and a share of naming rights ($500,000). The total comes to just over $1.5 million per year — $750,000 short of the annual debt service. The only way that the county can meet its obligation to bondholders is by reaching into Gwinnett’s public coffers, which will result in higher taxes and/or spending cuts for other programs. But this understates the deficit: While most of the county’s revenue estimates are reasonable, the naming-rights projection is wishful thinking.

The first $350,000 of any naming-rights deal, in which a corporation pays to have the stadium named for its company, must be remitted to the Braves every year — another plum for Liberty shareholders. Thus the stadium must garner $850,000 annually for the county to net its projected $500,000. For a Triple A team, such a price would be second only to the naming-rights fee paid in Fresno, Calif., and it would be significantly higher than the next-highest deals in Sacramento, Calif., and Portland, Ore. All these cities are major metropolitan areas without major-league baseball teams — hardly comparable to the Braves’ new home of Buford.

The most recent naming-rights deal for a Triple A stadium brings in $367,000 a year to the Scranton/Wilkes-Barre, Penn., Yankees — a mere $17,000 more than the fee owed to the Braves.

The average annual naming-rights deal for a Triple A stadium is $338,000; yet Gwinnett County expects more than twice this amount, which would be $100,000 more than its own feasibility study’s high-end estimate. A more realistic, but still optimistic, assessment of net naming-rights revenue is $100,000 — one-fifth of the anticipated revenue — which leaves taxpayers responsible for half the debt service. It is possible that the new stadium may defy current naming-rights trends, but it is not prudent to operate under the assumption that it will.

To cover the shortfall in revenues, the county has implemented a 3 percent tax on vehicle rentals to raise $600,000, and the Gwinnett Convention and Visitors Bureau will kick in another $400,000. Gwinnett commissioners imposed the rental car tax with the intention of making outsiders foot the bill; however, it will not succeed in doing so. Air travelers rent cars at Hartsfield-Jackson airport, which is not in the county, and out-of-town drivers have no need to rent cars. The only people left to pay the tax are Gwinnett residents with car trouble.

Income from the Arena at Gwinnett Center will provide most of the GCVB’s contribution to the stadium. This subsidy represents more losses to Gwinnett taxpayers because the funds could be used instead to service the arena’s own $25 million debt or to fund other projects.

And what about the supposed economic benefits from new economic activity produced by the stadium? It is common for proponents of publicly funded stadiums to tout a boost to the local economy. However, in reality the purported stimulus is a myth. Numerous academic studies have analyzed the economic impact of sports facilities, and the evidence is overwhelming that such projects have little to no positive fiscal impact. The reason for this is that spending associated with a new sports facility represents a transfer of existing expenditures from other local activities, not new economic activity.

After examining the details, it is easy to see why government officials were so eager to keep this deal behind closed doors until it was too late. It may be a sweetheart deal for Liberty’s corporate shareholders, but it is fiscally irresponsible and morally reprehensible.

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