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September 08, 2010
Times fumbles ball on Giants Stadium debt
I've beaten up on New York Times sportswriter Ken Belson plenty before in this space, in large part because of his failure to fully investigate the rosy economic claims of stadium boosters. So you'd think it'd be good news that today Belson tackles the troublesome fiscal legacy of New York-area sports stadiums:
It's the gift that keeps on taking. The old Giants Stadium, demolished to make way for New Meadowlands Stadium, still carries about $110 million in debt, or nearly $13 for every New Jersey resident, even though it is now a parking lot.
The financial hole was dug over decades by politicians who passed along the cost of building and fixing the stadium, and it is getting deeper. With the razing of the old stadium and the Giantsand the Jets moving into their splashy new home next door, a big source of revenue to pay down the debt has shriveled.
New Jerseyans are hardly alone in paying for stadiums that no longer exist. Residents of Seattle's King County owe more than $80 million for the Kingdome, which was razed in 2000. The story has been similar in Indianapolis and Philadelphia. In Houston, Kansas City, Mo., Memphis and Pittsburgh, residents are paying for stadiums and arenas that were abandoned by the teams they were built for.
And so on. Only one problem: Whether the debt on an old stadium is paid off before it's demolished doesn't matter one whit. While "Whattaya mean, we're still paying for that pile of rubble?!?" is a natural reaction, it doesn't make much economic sense. Stadium debt is, when you come down to it, a bookkeeping measure — the construction expense is sunk the moment you sign the contract to build the thing. The rest is just a matter of (in a manner of speaking) what kind of mortgage your municipality wants to take out.
If the state of New Jersey had chosen to pay off Giants Stadium by selling 20-year bonds, in other words, it still would have represented the same expense to the public — but since the bonds would have been retired faster, suddenly it wouldn't make Belson's hall of shame. That's nonsensical. If cities shifted to paying for their stadiums with suitcases full of twenties, would that make them better deals?
The problem with tearing down stadiums early isn't the debt, it's the revenues that you're giving up by allowing teams to move into new buildings with sweetheart leases. As Belson notes late in his piece, the old Giants Stadium generated about $20 million a year for the state; at the new one, the Jets and Giants supply only $6.3 million a year in lease payments. That's a real cost, and one that could have been avoided if the state hadn't agreed to rent public land to the teams so they could build a new stadium and get out from their Giants Stadium lease.
The real scandal here isn't how debt service is financed, but rather that cities and states are tearing down perfectly functional stadiums just so that teams can stop paying rent, costing taxpayers millions. Now there's a headline I'd like to see in the Times.
Are you assuming that twenty year bonds would carry the same principle as longer-term debt? I doubt it...
This is an important distinction, as there's a difference between financing terms in which there's still collateral and rent money to back it and financing terms in which there are not. The former is a much sounder practice, and less risky for taxpayers.
Posted by J-Doug on September 8, 2010 02:00 PM
By definition, 20-year bonds would carry the same principal. I think maybe you mean the same annual bond payments? In that case, no, of course they wouldn't — to pay them off faster, you'd have to pay more each year, just like with a home mortgage.
As for your second point, you need to be comparing the cumulative rent payments to the cumulative costs, not the year to year. Otherwise it's easy to come up with a good stadium deal: Just make one lump-sum payment to bondholders of $20 billion in the year 2050. It's guaranteed to be a winner for taxpayers ... every year until 2050.
Posted by Neil on September 8, 2010 02:05 PM
What I meant wasn't principle, but the total cost of borrowing, which is usually higher when a loan is stretched out. And the delta between the cumulative rent and cumulative costs is going to be higher if A) the cost of borrowing is higher and B) there's no more rent being collected.
Otherwise, are you saying a mortgage that expires after the collateral disappears isn't better than one that doesn't? Seems like a longer term loan that after a certain point is no longer backed by physical assets is worse than a shorter term loan that is.
Posted by J-Doug on September 8, 2010 04:43 PM
I'm having a hard time with your terminology — the only "collateral" for stadium debt is the general revenue of the city or state that issues it. And the "total cost of borrowing," in present dollars, should be roughly equivalent for short- and long-term loans — yes, you pay more on a 40-year mortgage if you add up all the dollars cumulatively, but since you're deferring more of the debt, in present dollars you end up coming out roughly even.
So, no, the length of the loan term doesn't matter for whether it's a good deal or not. What matters is whether how much you're getting over the life of the stadium is more than how much you're spending, all in present dollars.
Posted by Neil on September 8, 2010 05:35 PM
Nice work, Neil.
When you wrap it up as the people of NJ paying for the privilege of reducing the amount of rent the Jets/Giants pay on the stadium lands by 2/3rds, it really clears up where the economic benefit is coming from... and by extension, who it's going to.
Still, at least a relatively small amount of public money (if what I've read is the truth... which is not guaranteed) went into the New Meadowlands... not like Cincinatti, Pittsburgh, Philadelphia and on and on and on...
And we (Canada) are no different. BC Place, a stadium built for around $90M USD in 1981-2, is presently being renovated - for $450M...
The only difference here is we don't then give the stadium to a private business, and agree to continue to pay all operating costs out of the public purse. At least, not yet.
First, Neil, this is a fabulous website!
Second, why isn't old stadium debt rolled over into new stadium financing deals?
Thank you!
Posted by Briana on March 22, 2012 11:48 PM