February 24, 2003

Breaking Balls

Portland's Gamble Might Pay Off

by Derek Zumsteg

Last week I talked a little about possible homes for the Expos, profiling a number of cities often included in discussions about relocation. Well, according to reports, the big three contenders--Washington, D.C., Northern Virginia, and Portland, Oregon--are slated to make presentations to Major League Baseball on March 20th and 21st. MLB's major priority in selecting a place to move the team is not long-term viability, or strength of ownership, or anything like that. No, as you'd expect, it's the funding, location, and construction of a new ballpark.

(Sigh.)

In Portland, Oregon (where Jeff Bower and I will be for a BP Pizza Feed in March), there are some developments that have suddenly made Portland the front-runner in convincing baseball to move another team to the West Coast.

Portland doesn't have a public financing package in place, and it's not going to get one, what with the awful economy up here in the Great Northwest. The state of Oregon is facing a $2 billion deficit in the next two years and has already started slashing police, social services, and education funding, to the point that the Oregonian is reporting that Portland-area teachers, students, and administrators are moving into southwest Washington for their not-as-awful public schools. (Hey, it produced me, so how bad can it be? Don't answer that.) The good news is, the more you cut education, the more gullible, math-ignorant people will gamble, which opens up an entirely separate door.

And what door might that be? Try the door to a privately funded stadium. The Confederated Tribes of the Grand Ronde have offered to back stadium construction bonds if the state will allow the tribes to build an off-reservation casino in the metro Portland area. Oregon already endorses gambling, so it's not as if they're making a dramatic reversal of policy. It's just a matter of degree. Plus, they were considering letting a different group of tribes build an off-reservation casino anyway in, on, or about the Columbia Gorge, on the Washington/Oregon border. As long as you're thinking about building one in the boonies, why not build a huge one in the middle of your largest and most prosperous city?

And it's not like this idea is facing bureaucratic opposition. The Mayor likes the idea; Portland's Commissioner of Public Affairs has said likes the idea; and Reuters quoted City Commissioner Dan Saltzman as saying, "That's one down and two to go. We've got to get somebody to own the team and we have to get the league to agree to put the team here."

Public policy shouldn't be set by the amount of money offered to set it. I'm shocked that this hasn't been brought up as a concern by anyone. If I came forward and offered to pay Washington schools $350 million--wait, not even that, if I offered to back bonds for the Washington schools--on the condition that the state dismantle its wasteful and morally corrupt Liquor Control Board along with its price-gouging, bad-service, state-run liquor stores, wouldn't that raise some eyebrows? Sure, it might be for the better good, but if all we care about is the ends and not the process, we might as well have the Presidency be an appointed position.

That said, Portland looked into some possible sites for the stadium, last week. The Portland Baseball Group--which wants to bring baseball to Portland to "enrich our community's economy and quality of life"--has all seven sites listed, each one with pictures. Unfortunately, the PBG has issues with each site, though these "issues" are both pro and con. HOK ("If it holds 40,000 people or more, we built it") guys toured the potential sites last week with city officials, and a rift developed between Commissioner of Public Safety Randy Leonard, who wants a southeast Portland site with freeway/light rail access over HOK’s-and-everyone-else's preference for a downtown, walk-up ballpark. Leonard's apparently mad his favorite site hasn't been selected already, being only up for consideration, and made a bunch of nasty, showboaty comments I won't get into.

On top of which, the PBG also offers a page on the economic benefits of a stadium. It's a remarkable contrast to the hyper-inflated claims of many stadium-funding groups (and we'll get to that in a minute). They claim a stadium "will generate an estimated $433 million in revenues to the state over a 25-year period from taxes on players' salaries alone (based on an average payroll of $80 million)."

This is wrong. If the Expos got a new owner and moved to Portland immediately to play in their 25,000-capacity Triple-A stadium next season, they'd have a payroll of $40-45 million, would be seriously revenue-handicapped for the first couple of years, and would be unlikely to spend a ton more. So then figure it starts at $45 million and increases to $80 million all at once after a stadium's built after three years (2003-2005) for the 2006 season. I figured that Oregon's going to classify all the home-town players as residents and tax them at the full rate, while visiting players get taxed only on income earned while in Oregon (I don't even want to argue whether or not this sort of taxation is ethical). Nine percent is the current highest tax rate in Oregon, so they get that on the home team all season long, and 9% on whoever's in town, which will work out to be 9% on the average rest-of-MLB payroll for the length of the season--April-September, seven months of the year.

So they collect $8.25 million those first three years ($45 million at 9%, 7/12 of $80 million at 9%) and $11.4 million for 22 years after that, which comes out to $275.55 million. Even if they spend $80 million out of the gate, that's $287 million total. To make up even that shortfall, there's about $23 million in annual salary missing. Maybe the average MLB payroll will be $100 million next year and every year after that. But does anyone seriously want to project that kind of increase with an awful regional economy, and no knowledge of whether the Portland ownership group--which doesn't exist yet--could or would spend as much as $80 million once they had a stadium in place? That shortfall also omits entirely the effects of the new and future CBAs, along with the thinning of baseball's middle class, which could keep payrolls flat or set them declining.

Short version math: Based on the assumptions PBG gives us, they're $150 million short on the state tax benefits. That's a shortfall that the good taxpayers of Portland are going to end up picking up one way or another.

Other than that, the PBG thinks a team moving to town will generate 200 more full-time jobs, and more than 1,400 part-time jobs supporting the stadium ("Ice cold beer right here!"). Also, they think property values will go up, which isn't unreasonable, though that might happen anyway. But in terms of claiming baseball as a widespread economic cure-all, they're silent, and I have to say I have a lot of respect for that. Maybe they just haven't commissioned the right studies.

The Virginia Baseball Stadium Authority has those studies. While the Portland Baseball Group is a bunch of dudes who want baseball in Portland, the VBSA is "a political subdivision of the Commonwealth of Virginia." They've got government money and power, and they've commissioned studies to justify their money and power. In the 2003 update, they say:

In the intervening three years since the initial research was collected for the 2000 report, overall economic conditions nationally and in Virginia have changed significantly. In addition, more accurate information on baseball operations has become available with the publication of Commissioner of Baseball Allan H. "Bud" Selig's Blue Ribbon Report on Baseball Economics, and other information made public in conjunction with congressional hearings held in late 2001 and early 2002.

Um, yeah. More accurate information. Still, if they were using the MLB numbers and managed to come up with a rosy picture... wow. You have to hire Stephen S. Fuller, Ph.D. of George Mason University to get that kind of quality analysis. The VBSA's study claims a team in Virginia will generate unlimited previously unspent money, of which the Commonwealth will get a huge cut, allowing them to buy every citizen of Virginia a Lexus and a new big-screen television. I exaggerate only slightly. There's $72.3 million in increased spending on "food and beverages, retail sales, parking, entertainment, over-night accommodations, and local transportation" (p. 7 of the update). It would add $266.9 million to Virginia's gross state product (p. 8). And on and on.

I'm no economist, but Keith Law wrote some good pieces about the bad numbers frequently used in these studies way back before he was a Blue Jay. Check out his interview with Brad Humphreys, who wrote "The Stadium Gambit and Local Economic Development."

Despite my relative ignorance on the issue, even I can see that the VBSA-commissioned study is nutty. For instance, in their economic numbers they admit that, depending on who wins the stadium-building battle (Virginia or D.C.), each one plans to leech off the other: "A decision to locate a team and new ballpark in the District of Columbia, rather than Northern Virginia, would cause Virginia residents to spend significant amounts of money in the District that would likely otherwise be spent in Virginia, generating revenues for the District government at the expense of the Commonwealth of Virginia and its local governments" (p. 12). The total impact's estimated at "$266.4 million in state and local tax revenue over the team's first thirty years in the District of Columbia" (p. 11). I don't want to sound ignorant, but if most of this economic benefit is from brand new spending of magically generated money, why would it matter if it was in D.C. rather than Northern Virginia? According to the logic in other sections, the money that they claim they'll lose isn't money they're getting right now. Wouldn't that magic money get spent at least partly on hotels, restaurants, and other services in Virginia, thus providing at least some economic boost? I mean it's new money, right? Maybe I'm just confused. Or maybe I'm not supposed to read the whole thing in one sitting.

That said, the VBSA doesn't have much to worry about with regards to competition. The District of Columbia seems to be the worst-off of the three groups that are in active pursuit. They've studied five sites, but have no funding. And if you think Congress is going to add a line item to D.C.'s budget to fund a metro stadium, you're loony.

The VBSA is also going right after Peter Angelos. They've published a study on "The Impact on the Baltimore Orioles of Major League Baseball in Northern Virginia," which concludes that it would cost the Orioles "less than 1,000 fans per game over the course of the season." The report is an interesting read, if you've got time to read a 122-page document. It looks at new fan creation, corporate support, and where people who went to Orioles games got their tickets. I ate it up--it was probably the coolest thing I read all week. And unlike the economic study, it's all straight statistics: surveys and dollars, with none of that "economic multiplier" stuff.

However, there's a brutal section where they show that the residents of the D.C. area don't even like the Orioles--only 37% of people from the D.C. area they surveyed on their way in to Orioles games described themselves as "Orioles fans." If their numbers are to be believed, the cost to get Angelos to stop complaining should be pretty modest, and worth it in the face of the Expos’ continuing losses.

While Portland is going to approach baseball with a way to completely fund a stadium through unconventionally issued bonds, Northern Virginia's taking a different tack that may cost them their chance. It's been reported that the Virginia group has told baseball it's not going to try to procure additional funding without being awarded the team. They already have state legislation passed to fund a third of construction costs, and have four sites, some a Potomac crossing away from the District of Columbia. But baseball wants to see a 100% public-funding package in place so they can plunk the team down and make money immediately. Right now, Portland's got a complete plan, even if it's a bad plan, while the VBSA has a plan that only gets them part of the way.

Other follow-up notes on the last relocation essay:

• San Antonio, Texas

  Readers wrote in to say that San Antonio should have Austin at least partly counted as part of its population base though the two are not combined by the Census. And if light rail between the two cities goes through, it's a city of 1.2 million people who rabidly support their Double-A team. Even counting Austin at 50%, it'd be up there with Portland and Pittsburgh in population. Moreover, adding 1.2 million people close by would add a lot of money in media revenue. What they don't have is money to fund construction of a stadium, so that would seem to eliminate them right off. Also, San Antonio hasn't surfaced in mainstream press coverage of the pursuit yet, which means that if there are people exploring the possibility (and I think there are), they're being coy about it. Selig's said they want to make a decision by the All-Star game this year, and while that may be unrealistic, any groups in San Antonio that want to make a bid are running out of time.

• Montreal, Quebec

  I talked to a friend in the hotel business and he said the Montreal hospitality industry is destroyed, to the point that conventions don't consider the place. He said that insanely high taxes make it hard to give away rooms, literally, because per-room surcharges were so heavy. With tourism devastated, it's much harder to get a stadium built with public money, since a favorite trick of local governments is to pay those costs with taxes targeted at tourists--hotel rooms, restaurant, rental cars, for instance--rather than something that might affect locals, like higher taxes on milk or baby formula.

Derek Zumsteg is an author of Baseball Prospectus. You can contact him by clicking here.