Wednesday, April 29, 2009

What the market will bear---Part 2

I’d originally planned this for part 3 but here goes….

The story of Lucas Oil Stadium. And stadiums in general.

Like many places in this country, Indianapolis is hurting for money. Funding is hard to come by, whether it is to improve the school system or for shoring up roads, bridges and general infrastructure or for providing unemployment and medical benefits or…...you get the picture. Times are tough everywhere. It is hard to find a extra dollar to put toward the public good.

But we certainly can find dollars for our big league teams.

Here’s a breakdown of the financing of the new Lucas Oil Stadium, home of the Colts. Two points before I go further:

(1) The blame game for this mess is a good one. The Colts don't take any responsibility because they didn’t press for a new stadium but the city wanted one for a SuperBowl bid etc. Generally the blame falls at the feet of the elected officials who unsurprisingly sold out the taxpayer. But I don’t care---the point I want to make is that regardless of how it all came to be, this magnitude of ripoff would never happen if not for the people’s infatuation with, and addiction to, big league sports.

(2) Do stick with me till the end of this piece---the story only keeps getting better.

OK. So here are the numbers: (Two primary sources---The official Lucas Oil Stadium website and this article from Forbes.com)

Cost of building Lucas Oil Stadium: $715-720 million

Funds provided by the Colts: $100 million

(Actually, there is some creative accounting here. Some estimate that the Colts may have contributed only ~$40 mil in cash. Apparently approx $45 mil was credited to the Colts as ‘compensation for lease breaking or something like that. The way I understood it, since the city tore up the RCA dome---and moved the Colts to a brand new facility--- the city owes the Colts compensation for breaking the lease on the RCA dome. Yeah, you can’t make up shit like this. Anyway, since I don’t have any documentation handy, let’s just credit the Colts with chipping in a 100 mil. It doesn’t make the entire story any less ridiculous)

Remaining ~ $615 -620 million paid/borne by State of Indiana and City of Indianapolis i.e. the taxpayer.

Estimated annual total football related revenue : ~ $30 mil/year (The Colts get to keep this money).

Revenue from naming rights to the stadium by Lucas Oil: $122 million over 20 years (Colts get to keep this money too)

Annual rent paid to the city by the Colts for Lucas Oil Stadium: $ 0.25 million.

Summary: So the taxpayer shells out $615 million and is guaranteed a return of ~$0.25 million per year. The Colts shell out $100 million and are guaranteed a return of ~$36 million per year.

What was the justification for this wonderful investment by the Indiana taxpayer? Well, you see, the stadium isn’t all there is to the story. We are also updating/expanding/getting a brand new convention center adjacent to the stadium (same set up as was before with the RCA dome and the convention center). The convention center will require another estimated $275 million dollars. So the total cost of the stadium+convention center is close to $1 billion.

But there’s economic benefit to be had! According to the Lucas Oil Stadium website, the new complex is expected to provide about $2.25 billion in economic benefit over the next ten years, and create about 4200 permanent jobs. This is laughable on so many levels---where do I start? Let’s start with the phrase ‘economic benefit’. Notice they don’t even promise revenue, certainly not profit…..economic benefit…a catchall bullshit phrase that politicians can use to show returns that the taxpayer will be hard-pressed to find. Even if it is $2.25 billion in tangible revenue, this works out to (being generous) a 1.25-1.5X return after ten years---who thinks this is a good return for that kind of money?? If I’m not mistaken, historical stock market data predicts that a billion dollars should turn into two billion every eight years if invested conservatively. And let’s look at the job creation---something that you’ll hear a lot about from politicians---4.2 permanent jobs per every million dollars invested? Are you freaking kidding me? If I applied to the state for funding and said that I could turn $1 million into $2.25 million of ‘economic benefit’ after 10 years and create 4 permanent jobs over that period they’d (1) Throw me out of the window (2) Sue me for property damage caused by my being thrown out of the window and (3) Sue me for personal injury caused to the review panel on account of their laughing so hard at my proposal.

But that kinda math is good enough when a sports franchise is involved.

The story gets a bit better: The Capital Improvement Board (CIB; a newspeak-ian moniker if there ever was one) ---the board that runs the stadium and convention center (as well as the Conseco Fieldhouse, home of the Indiana Pacers basketball team) apparently didn’t do their budgets so well. So there is a small shortfall in the monies planned for the upkeep and operations of these stadia---totalling about $47 million! About $30 million of this is for the Colts stadium---so the taxpayers spent $615 million on a new stadium for which they now have to shell out another $30 million in maintenance costs!

That’s pretty rich, isn’t it? But fear not dear reader, we are not quite done yet. There is one last tasty morsel I saved for the end---a superb end to this bountiful repast that we’ve served up. Indeed, before you say “Fuck off, I cannot eat another bite” I hasten to add that this last treat is ‘ a waffferrrre thinnn….’ Enjoy the story of the RCA Dome.

The RCA dome was, amongst other things, the home of the Colts. (The complex also included the Indiana Convention Center--- I don’t know whether the costs I’m about to list cover the ICC but I’ll include the center anyway, even if gratis, in any economic benefit the ICC has brought to the people). It was completed in 1984, and the estimated cost of building it was ~$80 million. Almost half of these costs were covered by donations from the Lilly Foundation and the Krannert Trust; the taxpayer bore about $47 million of the burden. In 1999, the taxpayer bore another $26 million in debt for changes/renovations/upgrades to the complex. So the total burden to the taxpayer was $73 million. Now, the RCA dome and the convention center have hosted a plethora of revenue-generating events. Conventions of every kind, monster truck rallies, NCAA tournaments and Final Fours....basically, over its 24 year life the RCA dome must have generated a ton of revenue. In December 2008, the RCA dome was torn down (demolition cost of about $3.5 million).

Where am I going with all that?

Well, even after 24 years of ‘economic benefit’, it turns out that the taxpayer still owes $69 million on the now non-existent building.

Hey, it’s what the market will bear!

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5 comments:

Dr. Jekyll and Mrs. Hyde said...

Beautiful. Way to put it all together.

scribbler50 said...

Wow, truly an amazing post, my friend. You've paraded the bandits front and center and there's nothing anyone can do about it. Why? Because as you point out so thoroughly and well, people will pay and do anything to keep their addiction to sports ongoing. Or they just don't know any better about what you've laid out. It's simply "what the market will bear" as far as they are concerned.What a time to own a franchise, eh? Years ago they used to say no one really makes money owning a team, that owner's just do it for the love of the sport and for the enjoyment of the people in their cities. And maybe that was true in a few cases. Today's owners have the goose that laid the golden egg and the fans have the honor of paying for the fucking goose! What a deal!
Again, terrific post, Stache.

Anonymoustache said...

Thanks Dr.J, Scrib50.
It is indeed a great time to be an owner. The Pacers have reportedly lost money for 24 of 26 years of their existence here. On the books of course. The Simons bought the Pacers for $11 million in the early '80s....lost money on the books for 24 of 26 years....the franchise is valued by Forbes.com at over $300 million. Isn't that great? Own a team, live the VIP life, pay yourself a pretty decent penny, then...player salaries and all told show a loss every year, .......and still own a business worth 30X what you paid for it. Where can I get a gig like that?

Suzan said...

Thanks for your terrific investigative reporting. You're on my blogroll!

Since this was taxpayer constructed (or maintained) in part, shouldn't these figures be available to the public so they/you/we can find out how the "losses" were generated and written off for so long? Nothing like paying for this cesspool twice.

basically, over its 24 year life the RCA dome must have generated a ton of revenueS

Anonymoustache said...

Thanks Suzan.
The info is out there I'm sure. But the details dont matter in a way---my point is that 'economic benefit' is limited to the few and the taxpayer keeps holding the bag.
Also, the stuff I put together wasn't really investigative, sad to say. The stuff is out there in plain view. People just don't care, or prefer to look the other way when it comes to big-time sports.