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Is there enough money to finance the Vikings stadium?

We live in iffy times, but the experts seem confident the deal will get done.

At $975 million, the facility is monumentally expensive.
HKS Inc.

The new Vikings stadium is a done deal, but I won’t completely believe until I see crowds pouring into it in 2016, when it’s supposed to open. 

My biggest worry: there won’t be enough money to finance the thing. At $975 million, the facility is monumentally expensive — and who’s to know that there won’t be cost overruns? For the same kind of dough, we probably could have built a real tourist attraction, like the Pyramid of Khufu. It couldn’t have cost much more, even with a Jumbotron.

My concern goes beyond that of the normal fan. The Metrodome sits a block outside my bedroom window, and it’s the first thing I see when I wake up — after my husband and “Morning Joe.” If the site becomes a 33-acre surface parking lot, I’ll need a lot more Prozac.

So you can imagine how agitated I was when I read about this note in the state budget forecast released the other day:

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Projected new gambling revenues from stadium legislation are expected to be $18 million (51 percent) below end-of-session estimates. For both the FY [fiscal year] 2014-15 and FY 2016-17 biennia, estimates have been reduced $9 million (7.7 percent). The forecast reduction reflects a slower than expected implementation of electronic gaming options and reduced estimates for daily revenue per gaming device. As a result, the stadium reserve balance is now expected to be $47 million by the end of 2017, $36 million lower than end-of-session estimates.

Just to remind you, the state’s $350 million share is to come from taxes on the expansion of charitable gambling to include electronic pull-tabs. A shortfall is not good news.

Still, nobody seemed terribly perturbed about this turn of events. Michele Kelm-Helgen, chairman of the Minnesota Sports Facility Authority, told MinnPost’s James Nord that right now the state has no bond payments to make; so underperformance this year doesn’t matter. “The state had much higher coverage than what’s needed for the bonds to be repaid,” she added. Even under the new projections, the state will have a $47 million cushion by the end of 2017, albeit only half as much as the expected $83 million.

Al Lund, the executive director of Allied Charities of Minnesota, the trade association of nonprofits benefiting from the gambling, also pooh-poohed the revenue shortage. Getting electronic pull-tabs up and running takes time. “Virginia adopted them three years ago, and they’ve just got it implemented this year,” he says.

Right now, there’s only one company providing the electronic gizmos, and only 70 of the total 2,300 charities are participating. Many organizations are hanging back, he says, until more vendors come into the market maybe offering better pricing. Even though his predecessor King Wilson had shared doubts with me last spring that electronic pull-tabs would pull in enough, Lund is upbeat. “We’re very excited about electronics,” he says.

Vikings’ finances?

I was somewhat reassured — but what about the Vikings? Their finances are a black box. The stadium authority will be allowed to examine the team’s books but is forbidden by law from disclosing any of the information to the public.

Under its deal with the state, the team is supposed to contribute $477 million. That’s more than owner Zygi Wilf’s $310 million net worth, as estimated by Sports Illustrated, and I doubt that he and his family will sell all the shopping plazas  and office buildings they own to pour the proceeds into the building fund. And then a few weeks ago I heard that the Vikings were surveying their ticket holders to see who among them might be interested in buying personal seat licenses. (Paying a fee for the license gives you lifetime rights to purchase season tickets for a particular seat.) I thought oh-oh. If the team is doing that, it could be hard up for dough.

It turns out, however, that selling personal seat licenses to help pay for a new stadium is now S.O.P. among team owners who “will do anything they can to avoid borrowing money and paying interest,” says Rick Eckstein, professor of sociology at Villanova University and co-author of “Public Dollars, Private Stadiums.” “Only a small number of NFL owners have taken out loans to pay for stadiums.”

Examples: the San Francisco 49ers sold some $670 million in seats and luxury boxes to help finance their new Santa Clara stadium. Fees for seat licenses at the new Cowboys stadium in Dallas ran as high as $1 million.

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Minnesota has no oil billionaires, however, and the Twin Cities are not in or near Silicon Valley where tons of people own chunks of Cisco Systems or Google and are happy to pay extra for the right to buy expensive season tickets. And Vikings fans expressed some sales resistance — more like rage — when the Vikings survey appeared in their mailboxes. “$1,000 a year per seat is hard enough for me to justify. Stick a $10,000 license on there, and I am done,” commented one ticket holder.

Still, Eckstein says, “Fans can scream all they want, but then they turn around and pay the fee.”

So how much could the Vikings expect? Greg Carl, president of PSL Source, a Charlotte, N.C., seat license broker, says that the price of personal seat licenses depends on population, the reputation of the team, how well it’s playing and a number of other factors. He estimates that the Vikings could probably pull in about $50 million to $60 million. 

But where will the Vikings find the remaining $417 million? A second source would be naming rights to the stadium. Presumably 3M or Medtronic or United Health will pay dearly to plaster their logo on the new building.  How dearly? About $10 million a year.

Eckstein says that the deal would likely last for 10 to 20 years, and the team might be able to get the money upfront. It would then have to accept the present value of the funds (the amount you’d have to invest today to receive $200 million at the end of 20 years, assuming a 4 percent interest rate). That would come to about $91 million, leaving the team with another $326 million to raise.

NFL loan

They could get some of that from the NFL’s new G-4 loan program. The maximum amount available is $200 million, but only if the team invests $200 million of its own — so it looks like a dollar-for-dollar match. That means the Vikings could perhaps count on $163 million, leaving them to somehow come up with the rest.

Neil deMause, coauthor of “Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit,” argues in his blog that the NFL loan is more like a grant because the team can use “club seat money they normally would have had to share with the league. They can now also use incremental regular ticket revenue, defined as the difference between ticket sales in the new stadium and average sales in the last three years of the old one.”

I’m not sure I agree; after all, if the team didn’t have a loan, they could pocket all that dough — but I leave it to the CPAs among us to figure that out.

For the remainder “the team would have no trouble getting bank loans,” says Eckstein. The collateral would be the team’s value, which Forbes now puts at $975 million, two-thirds of it debt-free. Some teams, he adds, have scrimped on interest charges by persuading the local government to float municipal bonds for the team. In any case, he adds, “there will be money.”

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Whew, that’s a relief. Still, we live in iffy times. Until I see that stadium full of people, I’m not resting easy.