A Taxpayer-funded Stadium is a Financial Own Goal for St. Louis

Today I read a column from Benjamin Hochman in the St. Louis Post-Dispatch that made my blood boil. Hochman was attempting to counter the argument put forth by Governer-elect Eric Greitens that taxpayer-funded sports stadiums are "welfare for millionaires". I happen to agree with the governor-elect that taxpayers have no business speculating on sports stadiums, but that's not what made me sigh and shake my head at Mr. Hochman's column.

He's entitled to his (wrong) opinion that building a Major League Soccer (MLS) stadium using taxpayer funding would be good for St. Louis and spur economic growth in the city. What I take issue with is presenting a nonsensical investment scenario as sound practice such as in the following excerpt: 

"Let’s consider it this way. A house appraises at $150,000 — but someone buys it for $240,000 and plans to wait for it to increase in value, just to see a return. The house’s investor understands that buying the house could benefit the whole community, so it’s worth this initial cash loss.

Well, Forbes says an MLS franchise, in a market similar to St. Louis, is worth $150 million. But SC STL is willing to invest $240 million (paying for the MLS expansion fee and some of the stadium), acknowledging that it could take eight to 10 years to make the money back."

The way I read it, Hochman is arguing that taxpayers should support the "partnership" offered by SC STL because the ownership group is ready and willing to overpay to bring an MLS franchise here by putting up 65% of the cost of the project. This is apparently worth it to the benevolent owners of SC STL because it will benefit the whole community now and then they'll worry about recouping their investment down the line when the value of the team has appreciated.

One problem, of course, is that this is NOT a return on investment. In the house example, if you paid $240,000 for a $150,000 house, you would need the house to appreciate in value by 60% just to break even. At that break-even point your "return" is a big fat ZERO. No intelligent investor would take that deal and expect to come out ahead more often than not.

However, there is a reason that such a senseless investment scheme could make sense to the ownership group behind SC STL if they get some help from the city. In broad terms, Major League Soccer is a single entity made up of all the teams in the league. The ownership group of each team holds one "share" in the league and thus the profits or losses of individual teams are shared equally. Through normal operations, MLS loses money each year, but in order to buy into the league, you need to pay a hefty expansion fee which has increased with each additional team. This expansion fee is shared among the existing owners.

The way I see it, even though SC STL would be paying for 40% of the cost of construction in order to get a stadium deal done, this is a small price to pay for an opportunity buy a share in the league with their $150 million expansion fee. They won't get such an opportunity without a new stadium to operate in. SC STL has presented this as evidence that they're being a generous partner in the deal. While they're only paying for some of the cost of the stadium, they're paying for all the cost of the expansion fee. How nice of them!

Although, according to Forbes (via Hochman) that $150 million is exactly what the team would be worth once it is up and running. Since ever-increasing expansion fees are the only way MLS owners are currently making any real return, having a share of the league pie (and any future expansion fees) is the only appreciating asset in the deal. The league owners' hope is that by the time MLS stops expanding, the league will be profitable and the value of each share (team) will go up value. There's no guarantee the league will be profitable in the future, but as long as new money keeps coming in via expansion fees, those holding a share in the league will get paid. If you're thinking this makes MLS seem like a Ponzi scheme, you're not alone. 

So, if we apply this to Hochman's example, here's what's actually going on: SC STL wants to buy a house that's worth $150,000 right now, but the price tag to acquire it is $350,000. Their proposal is that SC STL will pay $150,000 for the house only (exactly what it's worth) and will own the house free-and-clear. To satisfy the seller, they still need to come up with the remaining $200,000. To do this, SC STL is proposing that they put up $80,000 (40%) as long as the taxpayers will take out a loan for $120,000 to cover the remainder.

When it's all said and done, SC STL would own a house worth $150,000 that they paid $230,000 for. That's a 53% premium, but assuming the house is truly worth $150,000 and they're bringing their own money to the deal, they'll have a 65% equity position. The taxpayers will owe $120,000 on their loan and own nothing except conjecture from SC STL that doing this deal will improve the value of adjacent homes in the neighborhood, create jobs because they'll hire people to cook, clean, and do maintenance at their house, and also create new tax revenue by having out-of-towners to come visit them and spend money at nearby bars, restaurants, and hotels. I think it's pretty obvious that the SC STL proposal is not a benevolent investment partnership, but more like a bait-and-switch.

The potential benefits to the taxpayers of such a deal may indeed come to fruition, but what if they don't? What if the addition of an MLS team doesn't create any additional revenue for the city after all? The SC STL ownership group will very likely make a return on their investment no matter what because they own the only appreciating asset in the deal, a share in MLS along with a cut of any future expansion fees. The ownership group would also receive 100% of any profits from a future sale of the team. If "build it and they will come" doesn't come true, the city could take a total loss on their end of the deal even while the ownership group pockets a healthy profit. Does that sound like a "partnership"?

If the projections do come true and enough new revenue is created to pay the taxpayers back in full, what was the return on investment for the risk they took funding the unsecured end of the deal? Even if there was an actual net positive return for the city over the life of the stadium lease, time and again we've seen sports teams come back to taxpayers and ask for more money for renovations or a brand new stadium. One team is currently suing to get out of their lease and others have threatened to move the team to gain leverage.

I would love to see MLS come to St. Louis, but not at the expense of taxpayers. Adding a team here would be a definite plus for the city both in terms of civic pride and financially. I am not disputing that. However, if the city has to put up $80 million with no guarantee of success and no asset to fall back on if it doesn't work out like SC STL says it will, it's a terrible proposition any way you look at it.

Simply put, the city would put a lot of taxpayer money at risk in order to help the investors behind SC STL acquire the a potentially lucrative share in Major League Soccer. You can argue the merits of various tax incentives that have been given to many other businesses in St. Louis, but there's no denying that the proposal put forth by SC STL socializes the majority of the risk while privatizing any potential for a hefty profit in the future. That's not a partnership to make St. Louis great again; it's the definition of welfare for millionaires.

In the spirit of bad analogies (thanks Mr. Hochman!), I see this "deal" as asking St. Louis to score an own goal in order to spur growth. Imagine your soccer team is coming off a string of draws and losses, but they've been playing better recently and it's unclear at this point what the outcome of the season is going to be. The next match is about to start and their opponent is much more talented and has your team outmatched. The other team comes to your team before kickoff with a proposition: we'll let you score an own goal right from the kickoff.

It will put your team behind and definitely give the other team an immediate advantage, but being behind might spur your team to play really hard over the remaining 90 minutes which could help them have a chance of coming back to tie or even win the game. While winning after scoring an own goal right away is possible, it's unlikely. A tie is probably the best your team can hope for and it's almost certain that giving the other team an advantage will just end up helping them score more goals than they otherwise would have in the rest of the game. There's always a chance it could work in your favor though. Would you want your team to accept that proposal?

Sticks and Stones

Right off the bat, I did not vote in this election. That's a separate discussion unrelated to thoughts I have about the results. My vote was not worth 42 votes in the electoral college, so spare the non-voter/3rd party shaming. I am simply offering some thoughts I had while trying to understand what caused such a stunning upset to take place.

 

While looking out over the smoldering ruins of last night's election predictions, I was struck by the realization that words don't matter after all. For most of my lifetime, and at an accelerated rate over the last decade, we've been told how powerful words are. Because they're so powerful, we've been told that we need very well-educated people to carefully sift through all the words and tell us what we're allowed to say and to whom we're allowed to say it. Any speech that deviates from allowable opinion is now defined as racist, sexist, homophobic, or nationalist and anyone engaging in such talk has been branded accordingly. I think this final step is where the foundation was laid for Trump's victory last night.

Is a world where we avoid hurtful words so that nobody ever has to suffer taking offense or being triggered something to strive for? Yes, I believe that it is. However, I disagree with the notion that someone's words mean more than the actions that they take or what's in their heart. In recent years though, we've been told that no, a person's words are what determines whether they are a racist or sexist and they need to answer for them and be punished accordingly, no different than if they had firebombed a church or hit a woman rather than simply said something politically incorrect. I think that over time this attitude alienated a huge swath of rural America.

You can believe that this group of people is still privileged by virtue of their sex and/or skin color, but you cannot deny the fact that they have been left behind both socially and economically. Instead of discussing ways to help people in rural America understand and cope with the social and economic changes that are taking place, you have an establishment media made up of coastal elites that consistently, and with increasing vitriol, labelled these people as rednecks, racists, and various other forms of "deplorable". After years of being treated like social pariahs, I think it's easy to see how many in this group would be drawn to someone who doesn't kowtow to the politically correct status quo.

Trump is a truly unique phenomenon. He broke all the rules set forth for a Presidential candidate by the establishment and yet he still won in a landslide. This proves that more people than anyone realized were deeply fed up with being told in what ways they are and are not allowed to express their frustration with the changes taking place all around them. Do you really believe that 1 in 2 Americans are deeply racist, sexist, homophobic, xenophobic, or all of the above? I don't. More and more people are open to change than ever before, but it's a slow process that takes time and it won't be sped up by labeling those who can't keep up with ever-changing definitions of acceptable speech as awful human beings. I think many of the people who voted for Trump felt they had no other way to express their fear that life in America as they and their parents and their grandparents knew it was going away faster than they were ready for. 

Americans have always despised being told what to do and last night a large group people, who felt left behind by the speed at which our society has changed over the last decade, said enough is enough and put the brakes on the whole thing. Trump said many hurtful things during his campaign, but I think that his supporters looked past his words and personal impropriety because they were angry that the establishment saw him as nothing more than a hilarious caricature of their underlying fears about social change and the economy. I would suggest that one consider this before unleashing more anger and finger-wagging over the fact that Trump won. If you try to understand how a Trump voter could possibly feel that siding with him was their best choice, I think you'll find that it's not because they hate women or immigrants, but that too many people told them it's where they belonged.

This too shall pass though and while it stings for many that the country as a whole may not be as far along as the progressives would like, it doesn't mean that social change is going to be thrust into reverse and take us back to the dark ages as many have been forecasting this morning. While Trump was winning electoral votes, the legalization of marijuana in various forms recorded a clean sweep wherever it was on ballots. Look beyond the president; society is becoming more socially liberal and accepting of change by the day and that's not going to stop because of Donald Trump. American society doesn't change based on who's voted president. The only effective action you can take to make the world a better place is to focus on your sphere of influence. Be a good person to your neighbors, do good things in your community, and focus on raising your kids to be the people you want to see in the world. Do that and it's guaranteed you'll be on the right side of history.

The NFL's Popularity Problem Is a Familiar One

If you haven't noticed, this NFL season has been about as entertaining as a toddler's birthday party. Inexperienced players, bad coaching, injuries, a lack of star power, and an erratic commissioner are among the issues that have conspired to make America's richest sport's league all but unwatchable. In watching this unfold, I've noticed that many of the root causes of the NFL's recent problems are strikingly similar to those causing the current plight of our national economy and political system.

Professional Football used to be a free market. Sure, the game has certain rules necessary for fair play, but so does a free market economy. In the past, fans knew that the best 22 players would take the field for their favorite team each week and compete within that set of rules. Over the years, however, the commissioner (government) has burdened the game (economy) with an unrelenting barrage of new rules, revisions, and fines. Many of the new rules favor quarterbacks (too big to fail) and scoring in general (Wall Street). The League's new salary structure favors cheap, unskilled (rookie) labor over established veterans. Instead of letting the game's free market decide if the league should be geared toward offense or defense and then ebb and flow over time as coaches and players adjust, the commissioner decided it's in everybody's best interest if scoring goes up as high as possible and the most important players when it comes to scoring points get protected even if it means basic fundamentals and the ability to get through more than three plays without a penalty flag goes straight out the window.

Can anyone explain what constitutes a catch in today's NFL? Ruling on a catch used to be like Supreme Court Justice Potter Stewart's famous quote regarding obscenity, "I'll know it when I see it." The current explanation in the 2016 NFL Rulebook includes 6 paragraphs and over 200 words. Beyond the catch rule, there are now a litany of new penalties surrounding the way players tackle, hit, block, and conduct themselves on the field. You can't tackle receivers unless they're defenseless, then you can only tackle them a certain way. You can block, just don't block from behind, from the side, or  below the waist. You can tackle a quarterback, just not too high, or too low, or anywhere near his head. Did you manage to score a touchdown? Great! Just don't coordinate your celebration with a teammate, celebrate near an opponent, or celebrate too long. Don't wear anything that's not league-sponsor approved and if you're thinking of supporting a childhood cancer patient by writing a Bible verse on your eye black, don't even go there.

While some of the rule changes have no doubt improved player safety, so much of the intervention of the league office seems rooted in nothing other than exerting control. Instead of letting each team regulate their players' behavior, the league office wants to make sure everyone conforms to one polished image. Gone are the days where teams had a personality matching their coach, their city, their star players, or like most things cultural, a combination of many influences. Fans are tired of rooting for indistinguishable teams made up boring, unmarketable players. It's impossible to market a team or an individual player well when they've been forced to act alike by an uptight commissioner.

Modern stadiums are completely sterile and corporate-focused even though they're largely funded with taxpayer money. Beyond the on-field rules of conduct, the League has chosen to enforce rules for off-field conduct as well. Of course, much like our national government, the League likes to pick winners and losers by doling out punishment based solely on their perception of public opinion rather than any defined legal or moral code. The League has ignored damning evidence of domestic violence involving well-known players (Ray Rice, Greg Hardy, Josh Brown) while gleefully pouring time and effort into punishing teams (New England Patriots) and players (Tom Brady) that don't instantly submit to a decree of wrongdoing (Deflategate) even if it's based on nothing. The League's hypocrisy in this manner is obvious to anyone who's watching and eerily similar to the way government seeks to apply punishment to some (Edward Snowden), but not others (Hillary Clinton) even when they've committed the same crime.

The result of all this onerous regulation, intervention, and meddling in what was once a relatively free market sport is a vastly inferior product. Sure the league has grown immensely over the last 15 years and made billions in profit, but who has benefited from this? Players? Fans? The cities that pay for new stadiums? The sole benefactors have been the League itself, the commissioner, and the owners, i.e. the elites. Much like our current bubble economy, just because the stock market is at an all-time high, doesn't mean that the output or the outlook is any better than it was when this uptrend began.

All of the NFL's money and power has flowed in one direction and I think fans inherently know this and as the product in front of their eyes has gotten worse and worse, they've realized how deeply frustrated it makes them feel to have put so much time and effort into something without anything in return except asking for more. As a result, I think many fans have become more willing to turn away altogether and sink their time, money, and energy into other endeavors. Similarly, many people are fed up being told how great the United States economy and system of government is because when they look at their bank statement or the candidates being foisted up them they are asking themselves, if this is the best our country can do, why should I even bother tuning in?