Wednesday, January 7, 2009

New Yankee Stadium, same old greedy sports teams.

(Note: I know this is old news, but the Texiera press conference put this back fresh in my mind)

Sports teams are run like any other business.

We’re given this refrain time and time again, whether it’s when a NFL team cuts a player because he got hurt, or a baseball team raising ticket prices for another year. Teams have a bottom line to watch, and winning may only be a means to help support that bottom line. We follow player contracts, salary cap rules, and even know the names of sports agents, as the business side of sports interests us so greatly.

In several important ways, however, sports are quite different from any other business, thanks to a variety of legal exceptions.


You’ll notice you don’t see Cedars-Sinai, Mass General and the Mayo Clinic lining up in an orderly fashion to select the highest rated med-school grads from Harvard, Yale and Johns Hopkins, then paying them a set salary based on how early they were selected, with no bargaining power in the hands of the doctor-to-be.

Sports have been granted some big exemptions to certain antitrust laws to allow them to operate the way they do now, allowing leagues to restrict entrance into their league based on otherwise discriminatory practices, trade players against their will, like machines if not slaves, and, until 1972, never allow a player to leave the team that drafted them unless the team consented. Baseball has the biggest of these antitrust exceptions.


Despite these government granted advantages, sports teams still crave more ways to pad their bank accounts. That's where lobbying comes into play. Not just reserved for the Pfizers and Exxon Mobil's of the world, once teams are done milking their local area financing half their stadium, sports teams beg for tax advantages from big brother at the federal government.

This is where the city and state of New York and the NY Yankees come into the picture. Currently there are three projects for major stadiums in the city, between the new Yankee Stadium, CitiField (Mets), and the basketball arena in Brooklyn for the Nets. Accordingly, upwards of $500,000 of taxpayer money was spent to encourage the IRS to create tax loopholes for stadium bond issues.

In October, their wish came true as the IRS passed regulations tightening up tax-free financing of private stadiums, but making exceptions for the three New York projects.

A Yankee Windfall

This comes just in time for the Yankees, who at the time claimed to be running out of cash from their original $942 million bond issue and need $366 million more to finish the project. By comparison, the new $1.318 billion price tag is more than twice the $612 million for Citi Field.

While the new Yankee Stadium will be more complex and thereby more expensive than Citi Field, a large chunk of this excess value disappears with some scrutiny. The assigned value of the land on which the stadium is built is an important piece of the total amount that can be borrowed tax-free. Originally, the city assessed a value to the 17+ acre plot of $26.8 million, or $36 per square foot, similar to recent assessments of surrounding plots of land.

The Yankees weren't happy, so they got the city to change it. By over 650%. The city revised its assessment to $204 million, or $275 per square foot.

The area of the Bronx where the stadium sits is far from prime property. When there isn't a game going on, there really isn't much going for the area. (Even when there are games, no permanent jobs are really created) So an assessment of $275 per square foot then seems especially outrageous when compared to the implied $87 per square foot value of the Hudson Railyards, sitting in a prime position at 30th & 11th in Manhattan, according to a proposed deal.

It's next to impossible to defend this kind of a value for the land beneath the stadium, but the city had no problem jacking up the value to help the Steinbrenners. They've even got emails to prove it.

As icing on the cake, the timing of these IRS exceptions saves the Yankees $247 million in interest costs on their borrowings, or a little more than the combined contracts of CC Sabathia and AJ Burnett. Should be a nice condolence to the New York taxpayers who can't afford admission to any of the home games that they can at least watch these two big additions.

That is, if they can still afford cable, including the YES network, owned by the team.

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