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Tax revenues and a new Vikings stadium: A payback?

There may just be a payback to the state of Minnesota for any new Vikings stadium.

Ted Mondale
Ted Mondale

As much as stadium critics take whacks at the economics of stadiums — much of it deserved — we got our hands on an interesting chart (PDF). Have a look at it.

In recent days, Metropolitan Sports Facilities Commission Chairman Ted Mondale, Gov. Mark Dayton's stadium point man, has been telling audiences that a new Vikings stadium would generate about $1.8 billion in state taxes over the potential life of a stadium for any $300 million upfront investment.

We scratched our head about this.

But the commission's longtime sports business consulting agency — CSL International — has run the numbers and shared them with us.


Here are the debt assumptions:

• State puts in $300 million, via bonding.

• Interest rate over time is 5 percent.

• So, total debt service over a 20-year payoff is $481 million. That is, just like your mortgage at home, the cost of borrowing that initial $300 million becomes almost $500 million.

That's the cost side.

Here are the revenue assumptions:

• Vikings players, visiting players and Vikings staff pay state income taxes of $12.5 million annually. As player income increases at 5 percent a year and staff at 3 percent a year, the revenue take increases.

• Sales tax collections WITHIN the new stadium, including liquor, are pegged at $5.3 million per year, with a 3 percent increase annually.

According to the CSL calculations, those taxes grow to about $1 billion over 30 years — the expected life of a stadium. That would be a net surplus of about $500 million to the state over the typical life of a modern stadium. The Metrodome has lasted 30 years.

If you extend it to 40 years — an unlikely length of a stadium's life — you get to the larger number that Mondale has been mentioning, $1.8 billion in total state tax collection, or $1.36 billion as a net surplus to the state because of the initial $300 million investment.

Take a look at the chart, and see what you think.

Then, take your whacks.


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Comments (33)

The numbers don't add up. The only real revenue that can be pegged to the Vikings stadium is the players income tax revenue.

The sales tax revenue is subject to substitution, in other words those are entertainment dollars that people will spend elsewhere if there were no Vikings games. In 2004 when the NHL locked out the players sales tax revenue citywide actually increased $15,000 in one month.

So let's run the numbers on the players income tax: 5% of $12 million is $600,000. The debt service will be $15 million a year. So we're spending $15 million to get $600,000 back.

It's not safe to assume that player salaries will increase like that in the first place, this is a sports industry bubble that's being inflated with public subsidies. If that bubble pops players salaries will start to decrease rather than increase.

That $15 million a year is low. For one thing the deal right now calls for $600 million in public funding not $300 million. Second, the debt service of $15 million a year looks low, it's simply a function multiplying the interest rate but there must be other charges. The $350 million Twin debt is $20 million a year instead of the $17 million it would be if you just calculate 5% interest. But even at $15 million a year player income tax will never match it.

I've done an analysis of this on my blog. I demonstrate that at this point the public sports subsidy at best is breaking even right now. If you add even as little as $5 million a year in public subsidies you tip the balance against the public subsidy. That means the limit of any public subsidy should probably around $100 million total. The only deal that makes economic sense here would be a 10% public portion, with the team or private investors picking up the other 90%. And yes, that means we may lose the team, and 70% of say that's OK.

You can see my graph and everything on my blog:

http://pudstrand.fatcow.com/blog/?p=108

This looks like the typical voodoo economics sports teams engage in when they want public subsidies.

Paul already hit on the biggest falacy- that dollars spent (and taxed) at the new stadium would somehow never be spent in the state were the stadium not there. That's simply not realistic. Since competing economists can generally spin the numbers to favor wither side, the truth is probably that the actual effect is miniscule, or at least lost in the noise of a large city's economy.

Jay- are you witholding your own analysis? You have written a book on this, surely you have opinions on how valid these numbers are. Putting it out sans any critique could be seen as a tacit endorsement- is it? Why ask for reader input when you're not giving your own?

The analysis on whether or not to build a new stadium shouldn't just be about the basic economic calculation. You have to factor in the totality of the effect of the stadium and the MN Vikings.

What is the benefit of the concentration of resources & dollars? Yes, entertainment spending by individuals in MN with be almost certainly be spent in other ways...but concentration of those dollars from sources all over the state in a particular area has a developmental benefit that's not being calculated. Put simply, it's better to have those Vikings fans spend it in one place than in 300.

Paul, you're claiming the numbers are wrong...mostly because you say they look low and that they don't represent what you think the actual deal will be. You also claim the projection of player salaries won't increase because the historical models will collapse but how else are we supposed to make the projection? Based on your theory?

There are reasons to oppose a stadium deal, but right now yours seem biased.

It's an interesting chart. Ted was smart to put it out there, I think. It's a good place to start.

Art Rolnick did a study on stadium payback a number of years ago and concluded that ROI on a stadium 'investment' is much lower than other public investments in things like schools and early childhood education. In tough times, we need to be maximizing bang for the buck - which a football playground will not.

My beef about building a new Vikings stadium is, it would be the highest-cost sports facility in Minnesota for the fewest number of games. The Twins have a fabulous venue for their 81 home games a year, one that I am proud to support, even though I have to fight through the crowds of Twins fans in order to get on the LRT when the Twins are in town. The Vikings need a stadium for 8 home games a year. Why can we not simply expand the seating capacity of TCF stadium and call it a done deal?

Notwithstanding sales tax substitution noted in comment #1, the analysis seems to ignore any capital improvements to the stadium in it's lifetime (for example, the inevitable roof) and cost for improvements to infrastructure.

(#4) Josh...Put simply, it's better to have those Vikings fans spend it in one place than in 300...

Really? For whom? Ziggy?

What justification in economics is there for this assumption?

The beneficiaries, beyond Ziggy, in this "concentrated spending" are more likely to not be local and already have enough money and therefore are less likely to recycle ("spend") their additional profit.

(#1-Paul)...The only real revenue that can be pegged to the Vikings stadium is the players income tax revenue...

Really? If that money devoted to players salary are spent elsewhere in the state, no tax revenues are generated?

Just a little exercise: If the state could spare $300 million cash, deposited it with a 5% simple interest rate, after 20 years that $300 million would be worth about $800 million--a gain of about $500 million. Definitely better than the $64 million dollar gain shown in their table after 20 years.

//What is the benefit of the concentration of resources & dollars? Yes, entertainment spending by individuals in MN with be almost certainly be spent in other ways...but concentration of those dollars from sources all over the state in a particular area has a developmental benefit that's not being calculated. Put simply, it's better to have those Vikings fans spend it in one place than in 300.

Josh, you're making a claim without substance here. Why is it better to concentrate this economic activity? Why is it better to funnel so much income into the pockets of a few players rather than spread that spending around? Why is it better for 56 players and a handful staff to make 40 million a years rather than spread that around to more people? The fact is that a more compelling economic argument can be made for spreading that spending around rather than concentrating it inside a stadium.

//Paul, you're claiming the numbers are wrong...mostly because you say they look low and that they don't represent what you think the actual deal will be. You also claim the projection of player salaries won't increase because the historical models will collapse but how else are we supposed to make the projection? Based on your theory?

Josh, I said even if you accept CSL numbers you still come up $14+ million short, that's not bias, it's math. I'm not denying bias, but the question is whether or not I'm right. As far as projections are concerned, if you plot out the projections based on CSL's number, as I have, you see the public subsidy outspending the return by $30 million a year- THAT's the projection based on historical models. If historical models collapse it just makes it worse, but there's no way players salaries will go up 300% which is what they'd have to do in order to math public spending. No one thought the housing bubble would ever collapse either.

//Why can we not simply expand the seating capacity of TCF stadium and call it a done deal?

That's not the subsidy Ziggy wants, it's not a big enough welfare program.

I wouldn't be assuming that player salaries will be increasing 5% a year seeing the owners have locked out the players to....lower player salaries.

Also you say...Sales tax collections WITHIN the new stadium, including liquor, are pegged at $5.3 million per year, with a 3 percent increase annually.

I wonder what the price of a beer will be?

I'm considering opening an alligator petting zoo franchise, with expansion potential to include a kangaroo rodeo and a pig mud wrestling pavilion. I'm talking jobs, jobs, jobs*.

Given the significant investment in MN this will entail, I'm afraid I must insist on a strong public-private partnership to seal the deal. If not, well, there are plenty of other jobs friendly states who will do that.

But fear not, I assure you that MN will make up the difference with interest by way of income, sales, and property taxes over the expected 400 year lifetime of the facility. Yes, it's complicated math: there's NO WAY this would be profitable without the government fronting 60-70% of the cost, but you're GUARANTEED to earn that and much more back through skimming off a tiny sliver in taxes. Did I mention I'm a job creator**? It's true.

Anyway, think about it. But don't take too long--I've got Wisconsin and Alabama on the other line. And they're--jobs--ready to deal (jobs).

*Jobs

**Jobs

"Vikings players, visiting players and Vikings staff pay state income taxes of $12.5 million annually. As player income increases at 5 percent a year and staff at 3 percent a year, the revenue take increases.

"• Sales tax collections WITHIN the new stadium, including liquor, are pegged at $5.3 million per year, with a 3 percent increase annually."

What's the source of these numbers? Are these Department of Revenue figures? Are they tax revenue numbers from some past season? Or did someone just pull them out of a hat?

"My beef about building a new Vikings stadium is, it would be the highest-cost sports facility in Minnesota for the fewest number of games."

That is true, but the NFL is by far the highest impact sport on the national scene. It is the only national sport. The Twins, at best, have regional appeal and interest, and the hockey and basketball teams don't even have that.

"Why can we not simply expand the seating capacity of TCF stadium and call it a done deal?"

Because that's a deal that will never, ever get done. I believe it was foolish not to construct an NFL style stadium that both the Vikings and Gopher could play in, when building what is now the Gopher stadium was under consideration, but that was the decision that was made then, and we must live with the sad consequences of it now.

Harris hit one nail on the head that shows up again and again. Advocates of this kind of deal do not include maintenance, upkeep and repair over the life of the facility nor necessary remodel or renovation over such an extended lifetime. That is a huge hole in the estimates, given the fact that the Metrodome has had emergency needs for how many new roofs? Add in periodic remodels and then redo the numbers, and it gets a whole lot more expensive.

There is another consideration and that is the unlikelihood of guaranteed tenancy for the whole period in the calculations. If and when the Vikings get sold, I would be willing to bet that any such long term lease would be tossed out in court, or the Vikings simply bankrupted outright and gone with the assets moved. A new stadium has to be full for its whole projected lifetime to return anything close to the investment and the continuing expenses involved. In the case of Mondale's numbers that would be full for 133% of the lifetime.

I find it hard to believe that any sports venue "creates" money.

Paul did some good math, not perfect (a good number of people come from out of the state to see a game, so not all the entertainment dollars spent here on a Vikings game are dollars that would have already been spent here), but it puts into perspective how much of the "created" money is money that already reaches the state coffers.

Neal mentions that a better investment would be a simple 5% interest investment. However, dropping $300 million in a bank does not create jobs, which is the real benefit of building a stadium--still, the impact is relatively low and fairly temporary. We're not talking about high end jobs, here, or tons of them. We're talking about food vending, janitorial, ticket sales, etc. at the venue itself, and wait staff, parking attendant, etc. jobs outside of the venue. All part time. Some small businesses will benefit, but with only 8 games a year, it's nothing to hang your hat on. A restaurant, for example, in downtown had better have something more to build a name upon.

Yes, a new sports venue might be used by other groups, but it's not free. In fact, once the taxpayer subsidized loan is paid off, the public has no ownership over the facility. Even before the loan is paid off, the public gets little benefit from the facility other than the "opportunity" to pay out the nose to watch another sad Vikings game, or maybe land a part time job related to the facility.

And with the current deficits, the potential revenue over a minimum of 30 years (with no surplus seen for 20 years) is a drop in the bucket. If something should happen within those first 20 years, such as the Vikings leaving, the "interesting chart" is garbage. So, the taxpayers are out $300 million, with no relief in sight for at least 20 years, and a chance of no profit, too. By the time there IS a profit, those funds will have already been eaten up by some other project that you can bet will not benefit the average Minnesotan. In the meanwhile, the roads are going to potholes, primary education is being squeezed from the bottom, higher education is being priced out of the market, the unemployed and underemployed are losing their health insurance, their houses, and a way to even feed their families, etc.

The "interesting chart" as others have pointed out, is "interesting" in that it mostly masks that it simply juggles numbers. The whole scheme appears to be a state-sponsored exercise in tricke-down economics, which has been proven to be about as effective as watering the masses by peeing on a sponge.

I have a very high degree of confidence that these owners and there successors will comply with the terms of the lease. That can be the least of our concerns.

//"Vikings players, visiting players and Vikings staff pay state income taxes of $12.5 million annually. As player income increases at 5 percent a year and staff at 3 percent a year, the revenue take increases.

"• Sales tax collections WITHIN the new stadium, including liquor, are pegged at $5.3 million per year, with a 3 percent increase annually."

That's an interesting Question Hiram. These figures come from a CSL- Convention Sports and Leisure International report. This is a company that specializes in "advising" teams and municipalities regarding sports stadium spending. How they arrive at these numbers is not know to anyone outside CSL. I can't say the numbers are wrong, but their prediction that the Vikings will create 3,500 jobs is definitely hinky. The Metrodome currently employs 19 people full time- yes 19. The Vikings have 56 players and what? 30 staff? So who are these 3,400 people and what are they doing on the 355 days of the year the vikings aren't playing games in MN?

This doesn't mean their tax revenue numbers are wrong, but it may indicate they're prone to some exaggeration.

Regarding Harris's comment on the maintenance. I don't don't know frankly how all of that factors into the budget, but I can tell you that the total cost of operating the Metrodome from 1981-2006 was $465 million. According to CSL.

http://growthandjustice.typepad.com/my_weblog/files/RSM.McGladreyFinal_R...

Page 5.

However, the more I look at that the goofier it looks. $186 million in construction and debt service on a stadium that cost $65 million to build? And another $69 million in capital improvements? Only 7% of this was paid with public funding?

I would only count the player income tax withholdings (Vikings and visiting teams) because they are paid with NFL money NOT Minnesota money. I won't even count what the out-of-state patrons spend since they could come to Minnesota and spend their money on the Twins or Wild or visit the MOA instead of attending a Vikings game.

There's no question the Vikings bring some dollars into the state and into the tax coffers, but no were near what CSL is reporting. Their number are totally misleading... Kinda like the 8000 construction jobs that are really less than 800 full time jobs lasting three year.

OK... if we can assume that all the money spent to generate those sales tax revenues were otherwise burned if we lost the Vikings, those numbers make perfect sense.

And the player payroll would need to be $1 billion/y to generate $78 million in tax revenues. That would be an average player salary of $20 million/y.

Why is it OK to figure publicly financed stadium workers get 3% raises automatically while public workers and teachers are skewered for wanting to simply freeze wages and benefits. Are we now thinking that money invested in a stadium is neutral, that is will pay off the investment over time while money spent on education is simply spent revenue. The opposite is actually more accurate. I am offended by the tortured thought process that goes on in legislators minds to arrive at their spending priority here.

I've been looking at the CSL chart. I must say it's much more useful than their previous reports, it demonstrates a predicted trend over time instead of just adding up numbers. There are still two problems with it. First, we've already discussed, the predicted salary rise over time may not be as reliable as they claim. If it slows down even a little for any reason the best you can hope for is wage-debt parity just about the time the Vikings will want another new stadium. This only makes sense if you assume we will never build them another stadium, which may not be a bad assumption in the end.

However, you have to remember that most of this money is already in the economy, it's NOT added to the economy by the stadium. We will get most of that income tax revenue anyways, we don't have to spend $500 million to get it. In fact we'll be $500 million ahead if we don't provide the subsidy.

The second issue is subsidy amount. by limiting this analysis to the state portion CSL is artificially converging the lines. The actual deal now calls for $600 not $300 million worth of public subsidies. The question here isn't simply what happens to the state money, whoever provides that other $300 million has to get paid back as well. The effect of adding another $24 million a year to the debt/cost side pushes the convergence out to 34 years instead of the 22 currently predicted. And again, that's assuming the pro-sports bubble doesn't burst in the next 30 years.

If you look at my analysis and the RSM McGladrey report you see that the state has always made the most money because the biggest share of tax revenue is the income tax revenue. Whoever put's in that other $300 million is going to have a tough go of it trying to pay off their end of the debt. MPLS and St. Paul have been losing money at a two to one ratio. MPLS has put $89 million into sports subsidies in the last 20 years and gotten maybe $20 million back. St. Paul has put $7 million into the Xcel and gotten $1.7 back. And that's making unrealistically generous assumptions regarding the sales tax returns that are not subject to the substitution effect.

By limiting their analysis to the states predicted portion CSL is artificially restricting the cost. That is unless Wilf agrees to reverse the current plan and put two dollars in for every one dollar the public contributes.

"There is another consideration and that is the unlikelihood of guaranteed tenancy for the whole period in the calculations."

Personally, I have no doubt at all that if a new stadium is built and a carefully drafted lease is signed, that the Vikings under this ownership and any future ownership team will faithfully abide by it's terms. And I have no doubt that such a lease will be legally enforceable, in the unlikely event that any future Vikings ownership should try to breach it.

I can play with numbers too.

Lambeau Field was built for $960,000 in '57. In 2003 the cost of renovating the stadium was $295 million. That over 300X the original cost of the stadium. Therefore, sometime before the 40-year lease is up the $900 million stadium we're going to build is going to cost over $270 billion to renovate.

Or we can look at Arrowhead Stadium in KC that was build in '72 for $43 million. The recent renovation cost was $375 million or only 8.7X the original cost. Using those numbers, our $900 million stadium would only cost $7.8 billion to renovate in about 30 years.

Stadiums are going to cost money over time. When that stops, that's the first indication that someone wants a new stadium. The Twins and the Gophers did that. They stopped keeping up their existing stadiums and then they used the argument that the stadiums were too costly to repair and maintain.

There doesn't seem to be any source for the income tax figures. That's not surprising; for a lot of reasons they would be difficult to ascertain, and it seemed unlikely to me that the Department of Revenue, the only legitimate source for them, would have broken them out. In any event, the problem with those revenues is that whatever amount they generate, those are the last dollars they generate. Players take their money elsewhere, spend it someplace else than Minnesota resulting in an outflow of dollars from the state. Better to hire a couple of thousand teachers, with that money otherwise blown on athletes, people who will work here and buy things here.

After studying the CSL data kindly provided by Jay here I have a couple comments. First, as already stated, they're kinda choosey about the debt they they acknowledge, limiting it to $300 million. Second, they make kinda funny with their graph. The combine a bar graph with a line graph, and stretch the projection out over 40 years even though the debt is paid off in 20 years or so. This distorts the graph and exaggerates the revenue side of the equation. I've re-done the graph and made some adjustments to illustrate my point on my blog:

http://pudstrand.fatcow.com/blog/?p=123

Players' salaries go up 5% a year. Wow, wish mine did. Maybe mine would if Mondale could convince the state to pony up for a new mansion for my boss.

I just read an article in SI that mentioned two NFL teams that may be moving soon. They were projected to land in LA and Toronto. With all the hype here from Mondale and Ziggy's other minions you'd think the Vikes would be one of these teams but they're not. The teams in question were NO and Jacksonville. I guess they are betting that Minnesotans are dumb enough to build a new palace for our billionaire.

The thing about the NFL is that a relatively small market can support a team. That expands significantly the universe of cities to which an NFL team can move.

It is possible that when it comes down to it, the Vikings might have no place to go. On the other hand, if the Jaguars and the Saints move, those are two attractive options right there.

These teams that might move, are they leaving old stadiums and moving into new ones? If so wouldn't the Vikings just be moving out their old stadium here into someone elses old stadium somewhere else?

It seems to me that with the exception of Los Angeles, teams that have lost NFL franchises generally get a new one after a while. And they generally make a deal far worse for themselves than the one that would have kept the original team. In any event, the current model doesn't work for the Vikings here. I have a high degree of confidence that in preference to failing here, they will take a chance to succeed somewhere else.

//I have a high degree of confidence that in preference to failing here, they will take a chance to succeed somewhere else.

Speaking of failing here; during the course of the research for my analysis I compiled the revenue figures for the vikings over the last ten years. Between 2000 and 2009 Vikings revenue doubled, increasing from $104 million to $209 million. For those following at home they made $1.5 billion dollars in 9 years. Yes Mr. Spadafora, only $300 million of that was local dollars... ONLY $300 million. They saw this revenue despite the worse recession since the Great Depression, and despite playing in the crappy dome that's supposed to be obsolete. Strange definition of "fail" if you ask me.

The NFL and the Vikings have been a successful business in the past. But at least where the Vikings are concerned, that success will not continue indefinitely in the future. The NFL simply will not tolerate a franchise in Minnesota that does not carry it's load.

1. You need to ID Tony Spadafora and his personal business interest in stadiums.
2. Would the tax revenue from a new Vikings stadium be any different if Mr. Wilf paid for it himself? During the Twins stadium campaign, then Strib staffer Jay asked me over coffee one day at a little place on Franklin Avenue what my take on the entire stadium business was. I responed with one word that holds today and tomorrow: (No, not plastics.) Fairness.
Wilf is able to extort a new stadium out of us because Gov. Dayton wants to use stadium construction jobs to pay off his huge political debt to Big Labor and because he doesn't want to be remembered as the governor who "lost" the Vikings. To me, however, that would be his Purple Badge of Courage.
Sid may be right May 8 when he says 2012 rather than 2011 will be the Vikings' year in the Lege. It certainly won't be on the field.
I'm glad to have this opportunity to air my views to a public audience since the Strib no longer publishes my letters on any topic because I vehemently oppose their pet project and make fun of the shills on the sports staff and editorial board.
Can you imagine the state's largest newspaper afraid to print essentially what I just said above? Sad. Pathetic.

Willard,

What is this "Strib" you speak of?