Stadium Politics and Economics

Whew, this has been a tiring couple of days here at DN. Now, I’m not an expert on economics or politics…I’m just a music professor and avid Vikings fan...but, I do understand political subterfuge pretty well. I’ve also been following the stadium developments very closely for the past 4 months. Not that anyone asked, but in my opinion we are a few days away from an announcement from Zygi Wilf that we’ll have a new stadium at the Metrodome site. What follows are a lot of details supporting why I think this will happen.

Here’s a brief history of the recent stadium developments within the state legislature:

1. The Vikings are working with elected officials, business, labor and community leaders in an effort to advance the team’s stadium development project during the 2011 Legislative Session. (taken from Vikings.com)

2. It is now the 2012 Legislative Session. (taken from public records)

You read that right. Of all the stuff that has been reported in local media, exactly nothing has officially happened except that the Vikings are “working with elected officials.” Yes, we’ve gotten official proposals, press conferences, interviews, etc. But until there is a bill to vote on in the legislature, all of this is just political posturing.

The Economics.

The cost of the stadium depends on where it is built, but it could cost as much as $1.1 Billion dollars. How that cost is split up between the Vikings, the State of Minnesota and the local partner also depends on where it is built. But, if we use the Arden Hills proposal as the working example, taxpayers would pay $675 Million and the Vikings would pay $425 Million (a 62/38 split). There has been a lot of misinformation posted in the comments section about what kind of return taxpayers can expect from that $675 Million investment. But according to Jason ReDusha of CBS:

1. Vikings are directly responsible for about $21.5 Million in tax revenue right now (player, staff, coaches income tax, visiting team taxes, taxes on tickets, merchandise and fees). This total will likely be higher once the stadium is built, as their profits will be better in a new stadium. If the Vikings were to leave, this would be lost revenue.

2. Other organizations would use the new stadium too. 25% of the revenue that the Metrodome currently generates comes from non-Vikings use. This additional use is difficult to estimate, so in order to be generous and very conservative in the estimate, we’ll throw it out.

2. 40% of Vikings’ season ticket holders are “out-of-towners”, which are key to measuring economic development that the Vikings are directly responsible for. Since local economic activity is a wash (it’s assumed locals would spend their money elsewhere if the Vikings didn’t exist), only the out-of-towners matter. It was calculated that a single Vikings playoff game led to $5 Million in economic activity from out-of-towners. If we assume a conservative estimate of 5% tax return on that, for a 10-game season, the Vikings are responsible for an additional $2.5 Million in tax revenue from the out-of-towner economic activity.

3. So, going with a purposefully conservative estimate, if you assume that the Vikings are therefore responsible for $24 Million in tax revenue, it would take about 28 years to pay off the stadium…if there was no inflation. Currently, inflation is at about 3%. So, that $24 Million in tax revenue would compound each year and would trim at least 4-5 years off of that estimate.

4. The current Metrodome has been in use for 30 years, so if the new stadium is paid off in 24 years, the state is looking to reap pure profit for at least 5 years. 25 years from now, $24 Million in tax revenue would be at least double that due to inflation. So, at the end of the stadium’s life, taxpayers would reap at least $250 Million in tax revenue during the life of the 30-year stadium (or an average of $8 million profit for the state per year after subtracting the cost of the stadium).

5. The Metrodome was built for $55 Million in 1982, which would be about $123 Million in today’s dollars. Of course, we’d also have the exact same stadium for those dollars. The needs of today’s NFL are vastly different than the NFL of 1982 due to advances in technology and popularity of the sport. So, this isn’t a fair comparison. If we wanted to build a Metrodome today, we wouldn’t need to spend $123 Million…we already have one and it’s been deemed out-dated.

So, the above is a very conservative estimate of the economics of the stadium, and it is a positive investment by the state of Minnesota. Taxpayers invest $675 Million, and generate at least $925 Million in tax revenue as a result of that investment, equaling a return of at least $8 Million per year over the life of the stadium. This return is likely going to be higher, but it’s difficult to estimate.

The Politics.

Now, what about the politics? On the one hand, taxpayers are subsidizing a highly profitable business to keep that business in Minnesota. Is it a form of corporate welfare? On the other hand, taxpayers are reaping the benefits of having the Vikings in Minnesota through tax revenue and economic activity. Whatever your viewpoint, everyone must understand one thing: an NFL Team is a rare commodity for any city to have. The demand for an NFL Team FAR exceeds the supply of 32 NFL Teams. This is why cities and governments are willing to subsidize stadiums for professional sports. Subsidizing a stadium has nothing to do with corporate welfare, and everything to do with the tax revenue and economic activity (as shown above) that an NFL Team brings to a city. Therefore subsidizing these businesses through stadium building is worth it for any city. One only needs to look at the multitude of cities vying for NFL teams for proof of the demand. One can also look at the competing local proposals right here in Minnesota for further proof.

1. Arden Hills Proposal. You can bet that the politicians in Minneapolis would do just about anything to prevent this proposal from becoming a reality, and you can’t blame them. They should be interested in keeping a new stadium in Minneapolis. Minneapolis swings Democratic, and the Governor swings Democratic, so there is common interest there, and neither one has anything to do with the St. Paul suburbs. It should come as no surprise that the state legislature is not interested in overriding a voter referendum on this proposal. And frankly, if Wilf thought this proposal had any chance, then he’s either more naïve than I thought, or he’s an idiot.

2. Minneapolis Proposal. The Ramsey county politicians are trying their best to keep their proposal relevant, but it’s tough to get around a voter referendum. The Minneapolis proposal could avoid that altogether by reallocating current tax revenue and building a new casino. The fact that they had upwards of three site options once upon a time makes it obvious that they have the political will to keep the stadium in Minneapolis. Combine that with their 3-for-1 funding proposal and this is about as slam-dunk of a proposal as there is, 4 pages in all. This just needs the Vikings to sign on.

Predicitions.

There is a lot of doom and gloom right now, but I personally don’t see it. Not once have the Vikings said they would move or sell the team. Yes, they mentioned being contacted by other cities about relocating, but mentioning being contacted by other locations, and threatening to leave are two completely different things. The Vikings have nothing to lose by mentioning other cities, as it simply reminds everyone of the possibility and gives the team leverage. I truly believe Zygi Wilf has been working in good faith, and I expect them to work out a deal with Minneapolis and the University to go with the Metrodome site, and having the Vikings play at TCF for the next 3 years. The Vikings would be foolish to wait for another legislative session, and essentially gamble on more favorable politics. They would be smart to negotiate with Minneapolis, and Minneapolis should be motivated to work with the Vikings to find a compromise funding package.