Posted by John Vrooman on Monday, March 5, 2018 in Major League Soccer.

Interview with Austin Biz Journal.

MLS Stadium Deals

Does the $400 million ‘community benefit’ impact over the club’s first 25 years seem plausible given other MLS stadium impacts? What supplemental information from the team/MLS would be needed to determine an economic impact?

This is impossible to tell without seeing the numbers. Impact studies usually if not always ignore the negative costs and usually exaggerate the positive gains. This is because of the reasons outlined in my previous answer. First, the impact only statements ignore the negative drain on the other sectors of the private economy, and so both the public spending and the direct private spending at the soccer venue come at the expense of other sectors in the Austin regional economy.

Second, the impact studies promote spending in one part of the economy and minimize the losses in other sectors. This is called the crowding out effect of public subsidization of private business.

Third, the indirect spinoffs are almost zero because regional economies leak like a sieve and the secondary spending occurs out in the hills of West Lake, down in San Marcos and over at a BBQ joint in Lockhart. Almost all of the secondary spending (impact) leaks outside the jurisdiction of the stadium funding authority that has to pay the public cost.

Fourth, any direct economic gains are captured immediately by the venue management company, team owner or league (possibly even in a relocation fee). So this is what I meant when I suggested that the $400 million impact figure should be optimistically reduced to $40 million net impact at the very most.

In stadium finance the most important number on the revenue side is the present value of the positive cash flow which is weighed against the initial capital outlay. When a stadium promoter touts a $400 million impact over 25 years, they are simply multiplying their bogus annual revenue estimate by 25 to justify a mega bang for the public buck.

In the real world of venue finance the relevant comparison determining whether to go or not to go is the net present value of the venue, where NPV=PV-Capital Outlay. The PV for $400 million over 25 years at 10% is about $40 million, which is the actual worth right now of an already sketchy $400 million spread out into the uncertain 25 year future.

How big of a role will the stadium’s lease and private financing play in determining the economic impact?

In any stadium deal the devil is in the details of the lease, because the lease along with the initial cash outlay determines the private contribution and ultimately the public share. A common stadium scam is the use of publically issued tax exempt municipal bonds to be repaid by the private revenues of the soccer club. Very often the public authority retains ownership of the venue/parkland and allows the club to repay the bonds in lieu of paying property taxes. These are called PILOTS (payments in lieu of taxes). This scam shifts the burden to the general tax payers (income and property) in Travis County.

For example when the NY Yankees ostensibly paid for all of the cost of the $1.2 billion New Yankee Stadium they received a PILOT break of about $600 million which effectively created a 50/50 public/private split in the real world.

What type of wage and worker impact could be expected from a MLS-specific stadium in the downtown core of a city like Austin?

Very often the engineers, architects and even construction workers to build the venue will come from outside the local area (central Texas) and so the wage impacts will immediately leak outside of Travis County. This is why the indirect spending effects are basically a joke. In order for the impact to justify public funding the economic area of the impact must be contained in the political jurisdiction of the government that pays the subsidy. This is why stadium funding authorities are usually formed by multicounty regions including most of Central Texas, the Hill Country and possibly as far South as San Antonio and Bexar County.

“Additionally, we have engaged and hired a team of experts to help bring an Austin team to life, including: JP Morgan for financial expertise; Armbrust & Brown for legal and real estate counsel; CAA/ICON for project management oversight and feasibility; Gensler for sports architecture and design; Elizabeth Christian Public Relations for local media relations; two local branding and advertising agencies; local political advisors and consultants; among others.”–Precourt

The actual jobs for the MLS matches are mostly low-wage seasonal jobs that are not exactly the best drivers for economic development. The players at the MLS level are not paid the big bucks and are usually bouncing around and just passing through. The owners (Precourt bought the Columbus Crew from the Hunts in 2012) usually live out of town (SFO) and so even the big bottom line bucks will blow out of town with them to the Coast. There is nothing left for the City of Austin but the congestion, lost parkland and the bill.

In the real world of venue finance the basic rule is simple: The guys that benefit should be the same guys that pay in a symmetric proportion: nothing more and nothing less. This usually reduces to an even simpler rule: a private sports business (Precourt) should pay for its own private gain without public subsidy derived from artificial monopoly power and venue funding extortion (Columbus v. Austin).

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Follow up.

The PV for $400 million over 25 years at 10% is about $40 million, which is the actual worth right now of an already sketchy $400 million spread out into the uncertain 25 year future.

Should read:

The PV for $400 million over 25 years at 10% is really about $173 million, which is the actual worth right now of an already sketchy $400 million spread out into the uncertain 25 year future.

This is the number Precourt will put on the table first in his negotiations for public subsidy. The appropriate real world number would probably be closer to $17.3 million. This would be just about the infrastructure cost of connecting a projected $200 million stadium to the Austin grid. (I notice he is projecting a $200 million stadium…The actual cost should probably be in the $250 million – $300 million range. The responsibility for cost over-runs is another devil hidden in the details of the lease.

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