Stadium Repayment Pledge About 20 Of Real Public Outlay
Written by Michael Lewis on April 4, 2013
By Michael Lewis
Almost daily, Dolphins owners toss a bone for stadium funds.
If you support public stadium funding, the deal gets better and better. Even opponents must admit it’s less and less bad.
But how much have economics really shifted and how far must they go to satisfy those who are neither die-hard stadium supporters nor implacable foes?
As plans stand, a tourist tax subsidy requires a state OK, then a deal with the mayor’s office, next a county commission OK and finally an election.
If the Dolphins are to persuade voters, they’ll have to go after the ones who can be swayed – the uncommitted.
"This is, at the end of the day, really about economics," Dolphins CEO Mike Dee was quoted last week.
He’s right: economics, not football glory, is the basis on which to debate the Dolphins’ deal.
In a nutshell, what the Dolphins now want is $120 million from the county and $90 million from the state.
If they get the added state subsidy for 30 years and county money upfront they pledge to stay here 30 years. If law allows, they’ve also agreed to pay for a referendum on the county funding; to lure premium events or pay penalties in 30 years; and in 30 years to repay the county in full and the state $47 million of its $90 million.
Each step advances the ball. Touchdown is a better stadium.
Better stadiums truly are vital – to team owners.
A stadium raised the Miami Marlins’ value $70 million this year, from $450 million to $520 million, Forbes reports.
So while the team lost a Forbes-estimated $7.1 million on $195 million revenue in 2012, owners gained ten times the loss in value. Don’t cry for Jeffrey Loria – it’s costing taxpayers $3 billion, but he’s doing OK.
An upgrade should do even more for the popular Dolphins, a far more valuable franchise. In September, Forbes valued the Dolphins at $1.06 billion, up 5% from 2011, with $265 in revenues and $14.5 million in operating income.
A 16% value rise from a stadium upgrade would be a $170 million value gain in one year. If the Dolphins’ Steve Ross put that much into his stadium to add to an interest-free league loan, he could regain it all in one year. No tears there either.
As Mr. Dee explained, it’s all about economics.
The state has subsidized the Dolphins more than $39 million since 1994, $2 million a year. They want a second helping, $3 million a year plus the $2 million. Just economics.
So is this corporate welfare or a public investment that added spending would repay by a sum that’s harder to pin down than a scrambling quarterback?
Set aside the certainty that we will have better uses for tax money over the next 30 years than a stadium and that taxing tourists more would alter retail, hotel and other income.
Today’s question is simple: what would Dolphins repayments really mean?
Look first at 30 years of inflation or deflation.
Imagine an economy like Japan’s, hit by two decades of deflation. That would mean money the Dolphins repaid us would be worth more than it is today – a good investment, but an economic death spiral.
More likely is inflation. In the 1920s it got so bad in Europe that it took baskets of money to buy a loaf of bread – if you could find bread. That scenario would make a Dolphins repayment worthless.
As recently as 1980, US inflation ran 13.5%. That kind of inflation over 30 years would make the Dolphins’ 2043 repayment of the county’s $120 million worth just over $1 million in today’s dollars.
Inflation recently has neared historic lows. Even so, 58% of the value of money has melted away in the past 30 years. If you wanted the real value of a $100 investment you made 30 years ago you’d need $238 today.
But the big gap in this deal is interest, which is greater over 30 years than the base investment – and the Dolphins aren’t pledging interest.
How much would the county pay to borrow $120 million for the Dolphins? Florida municipal A-rated bonds last week were at 4%. A year ago it was 5.1%.
At 4%, taxpayers would repay $264 million on $120 million in bonds the county issued for a stadium upgrade. Assuming the low inflation of the past 30 years, to recoup our interest and inflationary leakage the Dolphins would need to repay the county $580 million in 2043 to equal what taxpayers would spend.
If the Dolphins repaid $120 million in 2043 as pledged, we’d get just over 20% of our outlay’s true value, leaving the county short $460 million – more if interest and inflation rose.
As for the state, it would give the team $3 million a year for 30 years, $90 million total, and in 2043 get $47 million back, without interest or compensation for inflation. The state would be short about $100 million in real value.
By the way, current state legislation would continue to pay the team long after the stadium was paid off. Later the state would pay $3 million a year to operate and maintain the stadium.
The bottom line: the Dolphins would repay at best 20% of taxpayers’ money after inflation.
Had the Marlins pledged the same scheme, in 2043 the county would get back about $150 million in 2013 dollars from its $3 billion baseball expenditure.
So Marlins spending would be $150 million less bad – but still the county’s worst giveaway.
Oh, and that penalty of up to $100 million if the Dolphins in 30 years can’t lure big games? For inflation, cut it to $42 million tops in today’s dollars.
Yes, the Dolphins deal is getting better – or less bad. But it’s still a half-billion-dollar inflationary and interest public loss.
Owner Steve Ross – for whom the business school I attended is now named – knows this well.