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Why details matter: A Rays Stadium explainer

Why we are scrutinizing minor financial details the media has reported (incorrectly), and more!

As the December 31, 2018 deadline for the Rays to commit to a Hillsborough stadium location approaches, there is likely to be discussion about stadium plans and in particular stadium financing plans.

We saw some evidence of this in the November 16 announcement by Tampa Bay Rays 2020, the business organization encouraging private sector support for the stadium, regarding the pledged financial commitments they’ve gathered.

Their fumbled announcement led to some confusion about the support raised thus far, which DRaysBay covered in detail.

You can read the story in full here: Financial support for new Rays stadium in better shape than previously announced

Since we ran that story, there has been continued discussion about the status of new stadium finances, so some of our DRaysBay writers and editors have put our heads together to gather some questions Rays fans might have, and provided our best efforts to answer them.

1. “Tampa Bay Rays 2020 announced business commitments of $16 million a year for 10 years. Is that a lot?”

The Rays currently have corporate sponsors supporting the team as it plays its game in Tropicana Field. For the $16 million a year announced last week to have real significance to fundraising efforts it would need to come on top of support already in place.

Noah Pransky, the WTSP investigative reporter who doggedly seeks to uncover stadium shenanigans, has implied in a series of tweets that the $16 million is not new money at all:

But in fact there is so little transparency about the TBR2020 commitments that we have no idea how the $16 million a year compares to current sponsorship levels.

We don’t know whether current sponsors will remain sponsors (many are regional businesses, and could well remain engaged when the team plays in Tampa). We don’t know whether returning sponsors are counted among the 2020 $16 million a year.

The 2020 group won’t say who they are counting as contributors so it’s not possible to check with the donors either, although if we were full-time investigative reporters, we might call every regional business and ask them if they are willing to say publicly that they are one of the companies making commitments.

2. “Whether 2020 announces $16M in support or $16M/yr in support, it doesn’t matter. It’s a meaningless number designed to curry favorable headlines.”

Before we get to the question, let’s consider this statement.

Nobody is claiming the Rays or a local support group aren’t pushing a narrative. It would be naive to think they, or anybody else holding press conferences, isn’t trying to push the narrative they want.

We are seeking clarity in the publicly presented information.

The 2020 group, which has the backing and bears the name of the Tampa Bay Rays, wants to push the idea that the Rays have support on the Hillsborough side of the bay. They also want the city and/or county to help finance some portion of that stadium. The odds of succeeding are low if they can’t show that local businesses are supportive, and indeed check-writing supportive and not just head-nodding supportive.

Some publicly-funded stadium deals, like Raymond James Stadium, have been disasters, placing a long-term burden on the local government budget that continues to cost the community in opportunity costs.

It’s important to avoid that outcome, which is why financing details matter. Expected future revenue figures, which is what this announcement is about, is a part of what will go into the interest rates on private loans that the Rays are able to secure, which will impact how much they are willing to spend, and how much the public is asked to provide.

We expect that a lot of the financing is going to come from public bonds, though, which are much cheaper than private loans in the end, and have little to do with the business support figures announced in November.

3. “So, are these numbers meaningless?”

The $16 million annual figure is a number announced while the fundraising campaign is ongoing, and is mainly for public relations and fundraising purposes, because this is how campaigns work.

The 2020 group likely has a fundraising goal in terms of these financial pledges, and we don’t know what that goal is. Generally, no totals are announced until the campaign is already well on the way to meeting its goal, because the purpose of the announcement is to create excitement and pull in further support.

Our expectations are that the group likely would not announce any financial support pledges until they were within 60-70% of their goal and looking to close that remaining gap. But the December 31 deadline for a decision from the Rays on whether to choose to leave or to stay in St. Pete complicates the equation, so it’s possible that they’re hand is forced, and they’re announcing before they reach that two-thirds mark.

Either way, the purpose of the announcement is to impress (which is why the initial confusion is a mind-bending gaffe), to get the public on board, to get more businesses on board, and to signal to local government that at least some of their constituents think this is a priority.

4. “Wait, is the number really $160 million?”

Well, no!

First there’s the stadium naming rights to consider, which the 2020 group is projecting to bring in $8-10 million annually, per Fox 13 News:

Christaldi said his organization has secured promises of at least $16 million a year. He said the team is also negotiating stadium naming rights with two unnamed companies to the tune of $8-to-10 million.

By comparison, the Mariners recently sold the naming rights for their stadium to T-Mobile for somewhere between $3-6 million annually.

Second, $16 million times 10 years is a smaller amount than $160 million up front in today’s money. Exactly how much smaller it comes out to be has everything to do with the type of lending, with what specific interest rates, the Rays are able to secure, while also, to some extent, impacting those interest rates.

So no, you can’t just plug this number into the stadium cost.

Third, as we’ve already touched on, the important question is how much that $16 million annual amount exceeds what the Rays currently have in their St. Pete location. Which we don’t know, but sure would like to.

5. “What does a financing package for a stadium look like, anyway? Who pays what and who gets what?”

From the simplest perspective, building a stadium isn’t all that different from building a house. You have some equity that you put in as a down payment, but most of the construction costs are borrowed and paid back over a longer period (twenty or thirty years, typically).

To borrow you need to identify income streams that will cover those debt payments over the set time period.

While there are some stadiums that rely entirely on private financing and some paid entirely with public money (for example, what is now called Tropicana Field), most in recent years have included both public and private money, where the team invests its funds and goes to private financing markets as well. The public sector can tap general revenues, or more restrictive revenue sources like tourist taxes or anticipated property tax increases, to pay off its borrowing.

Such public-private deals usually involve negotiations over some stadium-associated revenue streams to determine whether the team or the public sector can tap them to pay off debt.

For Tropicana Field, St. Pete has a “use agreement” in which they Rays pays the city an annual “use” payment, which is basically rent but with a lot more legal jargon. In other cases, cities might control parking revenues or place a surcharge on tickets or concessions to help pay off debt they may have incurred to finance the stadium. Washington D.C., for example, has a surcharge on both Nationals tickets and concessions (Washington also taxes businesses to help pay down stadium debt).

There are some critics who contend that there is no legitimate reason for the public to provide any support at all to stadiums and arenas that will house teams that are run as profit-making ventures by very wealthy people. We understand this perspective, but we also acknowledge that economic impact is not the only, nor potentially the best way to approach the question.

Baseball teams, like other cultural institutions, provide points of communal identification and pride, that help shape cities and peoples. As with museums, theaters, orchestras, local investment can have value beyond the expected return.

Given the monopoly position of professional baseball, and the potential for relocation to another city, local government is in the position of determining how much the Rays are worth to the area, and negotiating as best they can with that in mind.

For this reason, our goal is to consider potential deals for public support for a stadium in terms of both the potential risks and benefits for the public.

There are a lot of really bad stadium deals out there where the public sector has taken on a great deal of risk and reaps little guaranteed benefit. Marlins Stadium is often seen as one such example, but our prize for “how not to negotiate with a professional sports team” goes to the big wet kiss the state of Louisiana planted on the late Saints/Pelicans owner Tom Benson, whose teams play in facilities built by the public, pay no rent, are exempt from state sales tax for all transactions, and pocket the millions in naming rights from Mercedes Benz and Smoothie King.

We don’t have insight into the Rays’ (or any other team’s) financial status; we aren’t experts in construction finance or bonding or investment pro formas. But we do understand the bigger picture: stadiums cost money; those who borrow to build them need to make sure the project will generate the funds to pay off the debt.

6. “Y’all must really be in the pocket of ownership to be talking about this so much! Are y’all suckers?”

This sentiment has been thrown around a lot lately behind the scenes and on Twitter, so to conclude, let’s be upfront about our potential biases and consider what purpose DRaysBay is looking to serve in discussing the new stadium at all.

None of us is an expert on stadium development and finance; we are not privy to any ongoing negotiations. Moreover, as a privately held corporation the Rays have no obligation to disclose much about their assets, liabilities, income, or expenses. But we all read widely on the topic and, despite our limitations, seek to share what we know.

People may be making assumptions that we are wanting a deal to happen, no matter how it happens. That is not true. All that we’ve ever discussed is what has been reported, and as a body of writers we are neither pro- nor anti-stadium. This brings us back to the biggest criticism we are looking to dispel.

We like the Rays as a baseball team. We also like our home in Tampa Bay, where some of us are Pinellas and/or Hillsborough County taxpayers, and we certainly don’t want to see our community get ripped off.

We do not seek to sway the public one way or another. We seek clarity of information, and will therefore discuss and/or scrutinize all information as presented by the Rays or their supporters groups, and hope you the reader will do the same regardless of what we publish.

The Rays have 35 days, as of publishing, to decide whether they will leave Tropicana Field, and in this instance, we can only meaningfully discuss what we know.

Thanks for reading DRaysBay. You can find our previous reporting on the Rays Stadium Saga here.