Guest MINDSETTER™ Sheehan: New PawSox Proposal Still Falls Short of Public’s Approval
Wednesday, December 20, 2017
I would like to respond to a letter written by two of my fine Senate colleagues regarding the Pawtucket Red Sox stadium proposal.
I will start by commending Senate Finance Chairman William Conley, his committee and the Senate leadership for incorporating positive suggestions into the amended proposal, such as shoring up Pawtucket’s financial position by providing additional revenue streams — 50% naming rights and a surcharge on premium seats. The cost of the proposed stadium remains roughly the same at $83 million (before interest), which will be raised through the sale of revenue or moral obligation bonds. Three parties would share this expense over 30 years. The state would pay $23 million, Pawtucket $15 million and the team $33 million, in addition to their one-time equity contribution of $12 million. In spite of improvements made, the proposal still falls short of meriting public support.
The primary flaw remains: Rhode Island should not bear the lion’s share of the risk of stadium ownership (debt). While some argue there is no legal requirement to repay moral obligation bonds, we have learned through the 38 Studios’ debacle that public agencies are “too big to fail.” Accordingly, the State would serve as the ultimate financial backstop.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTNo one has a crystal ball to predict how the franchise will perform over a 30-year term. My colleagues are clearly bullish on the future of the PawSox. They argued that an investment in the PawSox represents a low risk because the team is a proven business entity. Of course, past performance is no guarantee of future results. They further argued that “the state’s Auditor General and Commerce Corporation separately scrutinized the company’s (PawSox) financials, and both reported back that the PawSox organization will have the resources to keep their promise and pay their share of the debt.” But, they failed to mention that this analysis was largely dependent on a hoped-for surge in fan attendance. While some new stadiums experience an initial increase in attendance, these increases were usually temporary. Sustaining increased attendance, in the medium and long-term, is vital to the success of this entire deal.
What would happen if there were a decline in attendance in the medium or long term? Given shrinking attention spans, it is highly plausible that attendance for baseball, a slow-paced, traditional game, may decline over the next 30 years. If attendance declines, the PawSox may not generate the necessary income and tax revenues to enable full payment on the stadium (debt). Taxpayers would be then asked to take up the slack. Worse yet, should the franchise become insolvent, taxpayers would be called upon to pay-off [many] millions of dollars in remaining stadium debt.
My colleagues also claim that the new stadium would invigorate economic growth in Pawtucket. But research on publicly-backed stadiums has concluded that new sports facilities have a small effect on economic activity and employment. That is why reputable economists have concluded that the return on investment from publicly-backed sports facilities is minimal. As it relates to jobs generated at the stadium, these tend to be seasonal and most often, low-paying.
Lastly, my colleagues warn that if the PawSox were to leave Rhode Island, the state would have “less tax revenue to fix its roads and school buildings.” Perhaps, but I would submit that this number would be relatively small. However, conversely, if the stadium were built, and it simply “pay[s] for itself,” there would be, likewise, few, if any revenues leftover to pay for such public projects. In other words, if the stadium succeeds, the public return on investment would essentially be a break even. However, if the franchise were to be unsuccessful or fail outright, taxpayers would be on the losing end of yet another sizable public/private venture gone bad.
While the weak financial position of Pawtucket has been mitigated in the recently amended PawSox stadium proposal, the risk of stadium ownership has not. Given the significant net worth of the PawSox team owners, it is unfair for them to ask the general public to bear the lion’s share of the risk for their business venture. Instead, the owners could privately finance the upfront costs of building the stadium. The public could perhaps then rebate the owners those taxes attributable to the new stadium on an annual basis. Short of this, the owners should provide financial guarantees to protect the public interest in years to come.
The author, James Sheehan of North Kingstown, is a state senator representing North Kingstown and Narragansett
Related Slideshow: New PawSox Deal—December, 2017
Here are the provisions of the legislation according to the Senate Finance Committee,
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