Sports owners are entitled to lion’s share of stadium revenues – and here’s why
THURSDAY, 24 MARCH 2011 06:39
BY EVAN WEINER
Washington Post sports columnist Sally Jenkins asked a question in a column written after the NFL lockout started on March 11. It was a simple query that the writer could not answer. "Where is it written that (NFL) owners are entitled to the lion’s share of revenues from structures we help build and support?"
There was no answer in the piece – although if Jenkins did some research (all she would have to do is go back almost 25 years) and read her own newspaper, which covers the politics of Washington, D. C., she would have found it.
It actually is written and the document with Ronald Reagan's signature sits somewhere in Washington.
The answer is the 1986 Tax Reform Act, signed into law by President Reagan, which says only eight cents of every dollar generated in a facility goes off to pay down the debt. That is the starting point for leases. Before the change in the federal tax code in 1986, municipalities got more money from stadium- or arena-generated revenue and used that money to pay down the debt.
The Tax Reform Act of 1986 opened a loophole in the tax laws and gave owners ammunition in their battles with cities and states to get new or renovated stadiums with the opportunity to cash in on newly found revenue streams like luxury boxes and club seats.
The owners pitted city versus city. In the NFL, Art Modell took his Cleveland Browns to Baltimore (and got a loan from the state to help him out financially as part of the deal), Bud Adams moved his Houston Oilers to Nashville, Al Davis returned his Raiders to Oakland after failing to get a new stadium in Inglewood and left the Los Angeles Coliseum. Georgia Frontiere went home to St. Louis with her Rams leaving Anaheim behind. Robert Kraft played ball with Connecticut Gov. John Rowland and thought about going to Hartford but stayed in Foxboro with his New England Patriots working out a deal, although he put up money for his stadium.
Houston outbid Los Angeles for the NFL’s 32nd team, an expansion franchise in 1999 thanks to a new stadium. The Glazier family stayed in Tampa after considering a Baltimore bid. Cleveland built a new stadium after Modell left. Pittsburgh voters said no to a new stadium but elected officials decided to construct one anyway. Cincinnati paid for a new stadium. Indianapolis found money for Jim Irsay who might have moved his Colts elsewhere. Jacksonville built a new stadium for an NFL expansion team. Oakland renovated the Coliseum for Davis. Kansas City-area voters put up funding to renovate the Chiefs’ home field. Denver OK’d a new stadium while San Diego upgraded the city’s stadium for the Chargers and the Super Bowl.
Arlington, Texas raised the city’s sales tax again for a stadium, this time for Jerry Jones’ Dallas Cowboys; Philadelphia built Jeffrey Lurie a new Eagles park. Dan Snyder may want a new Redskins facility in Washington replacing his Landover, Maryland structure. Chicago rebuilt Soldier Field, Detroit put up money for William Clay Ford’s Lions. Green Bay got a renovation job at Lambeau Field which included funding from a 0.5 percent sales tax hike in 2000. Seattle replaced the Kingdome with a baseball stadium (which was approved by the state legislature after voters said no) and a football facility.
More than $310 million went into the construction of a Glendale, Arizona stadium for Bill Bidwill’s Cardinals. Louisiana rebuilt the Superdome after Hurricane Katrina in 2005 and the state is spending millions on yet another renovation at the building. Arthur Blank wants to replace the soon-to-be 19-year-old municipally funded Georgia Dome with a new stadium for his Atlanta Falcons.
In some cases, NFL owners like Jones, Bidwill, Ford and others threw some money into the projects. In some cases, NFL owners double dipped selling personal seat licenses and then asking those who bought the licenses to pay for tickets for a game to pay off owners’ debt.
The 1986 law gave municipalities a federal tax exemption on bonds to build new stadiums. The results are stunning. In 2011, 29 of the NFL's 32 teams have new stadiums or renovated facilities with enhanced revenue streams stemming from the 1986 legislative action. Only San Francisco and Minneapolis have not upgraded facilities for NFL owners.
Sports-team owners started putting pressure on municipalities shortly after Congress sent the completed bill to Reagan for his approval. The frenzy then started as the Chicago White Sox ownership threatened to move to a publicly funded stadium in St. Petersburg, had the Illinois General Assembly not given approval for building a new ballpark on Chicago's South Side.
Baseball expanded to taxpayer-funded stadiums in Denver, St. Petersburg and Phoenix. Most cities built new ballparks for their Major League teams. The Cubs, Red Sox, Dodgers, and A’s still play in old facilities but Chicago, Boston and Los Angeles have renovated their ballparks. Spring training is different, too, with little cities being forced to build state-of-the-art complexes in a bid to keep teams from leaving for better offers in other areas of Florida or Arizona.
In 1990, Major League Baseball and Minor League Baseball signed a new agreement that mandated cities and states across the country to either build new facilities or renovate existing parks by 1994, or Major League owners could pull out of those cities. It's no coincidence that independent minor league teams sprung up, using cities that Major League Baseball deserted as the basis for their business ventures.
The National Hockey League decided to expand the league's United States "footprint" in 1990 claiming that the league needed to expand for television purposes. With the help of municipal governments leagues did expand and owners got a slice of expansion money. The new venues also raised the value of franchises.
The United States government, along with state and city governments, is partners with sports, whether it is on the professional or college level. National Basketball Association Commissioner David Stern freely admits that government is a sports partner.
According to Stern, there are three elements needed for sports teams to succeed: Government, cable TV and corporate support. Government has funded stadiums and arenas, provided tax breaks and incentives to build facilities and through the Cable TV Act of 1984 and the Tax Act of 1986 provided more revenues for sports owners. Without the Cable TV Act of 1984, ESPN might have folded; the tax act capped revenues that were generated inside a facility to pay off the debt of a publicly funded stadium or an arena at eight cents on a dollar. Neither New York Senator Daniel Patrick Moynihan nor Pennsylvania Senator Arlen Specter could close the loophole that exists to this day.
Arizona Senator and one-time Republican Presidential candidate John McCain wanted to end the stadium and arena building process that has taken place since the 1986 tax reforms that were passed by Congress, called for the elimination of the tax exemption for bonds for stadiums and arenas. McCain has said little about the legislation since his Presidential run.
The 1986 law that capped revenues at a municipally built facility for sports franchise had a significant consequence. There was no way to pay off the debt with just eight cents being collected from every dollar spent in a stadium or an arena so other taxes were used to make up the difference.
There was a "sin tax" in Cleveland with an extra levy put on cigarettes, cigars and alcohol. Many areas raised sales tax while others hit local residents with "tourist" taxes from tax hikes on motel, hotel, restaurant and car rentals bills. There was also a water tax, some owners were able to negotiate deals for rent and agreed to a formula called payment in lieu of taxes (PILOT) and didn't have to pay full property taxes on stadiums they controlled that were municipally financed. The sports facilities, proponents argue from both sides of the political aisle. If that wasn't enough, team owners received cash from states to help out with some bills.
The worst deal that was signed was between Louisiana Governor Mike Foster and New Orleans Saints owner Tom Benson. Louisiana gave Benson $186.5 million in checks as a thank you for keeping the team in New Orleans between 2002 and 2010. The city of San Diego was buying unsold San Diego Chargers tickets as part of a lease arrangement in the late 1990s.
New York State is heavily invested in Ralph Wilson's Buffalo Bills by virtue of a 1998 lease agreement between Wilson and Erie County that called for $63.25 million worth of improvements at the Orchard Park facility. The Empire State Development Corporation gives $3 million a year to Orchard Park for stadium maintenance.
In the summer of 2010, the giveaways kept coming despite belt tightening around the country. Jacksonville politicians gave up the city's right to collect 25 percent of the revenue for naming rights of the city owned football stadium to the National Football League's Jaguars or about $4 million through 2014.
NFL owners fear the municipal gravy train may be heading to the station and one of the disputes in the 2011 lockout centers around stadium costs and that the players should be kicking in money to help build stadiums. The reason why there has been no work on the new Santa Clara, Calif., stadium that will eventually house the San Francisco 49ers franchise is that the NFL doesn't want any funding to go into the construction until there is a new agreement between the owners and players. Minnesota and San Diego are seeking new stadiums. Two Los Angeles groups are planning to build new stadiums with the operative word being "planning."
As the new stadiums that came into existence in the 1990s, Rupert Murdoch’s struggling FOX television syndication company which is misidentified as a network threw an enormous amount of money at NFL owners and wrested the rights to NFC games from CBS. That deal helped establish FOX as a TV power and caused NBC and Disney to ante up billions for the right to televise NFL games.
The NFL was swimming in money and a lot of it, more than 57 percent, ended up in the players’ pocket.
"Where is it written that (NFL) owners are entitled to the lion’s share of revenues from structures we help build and support?"
It was written in Congress and signed into law in the Oval Office in 1986. Ronald Reagan's signature opened the floodgates for the owners to get their hands on revenue streams in new facilities at bargain basement prices as taxpayers’ dollars were used to build stadiums and arenas. The Gipper's greatest football role wasn't in the movies but at 1600 Pennsylvania Ave. in 1986.
Evan Weiner, the winner of the United States Sports Academy's 2010 Ronald Reagan Media Award, is an author, radio-TV commentator and speaker on "The Politics of Sports Business." His book, "The Business and Politics of Sports, Second Edition is available at bickley.com, Barnes and Noble or amazonkindle.