The Perils of Pohlad
Debate over whether or not to build a new stadium for the Minnesota Twins has taken on the madcap, melodramatic quality of The Perils of Pauline, with the Legislature continually adjourning right before it is about to cut the head off Twins patriarch Carl Pohlad. For his part, the octogenarian owner has shown more pluck in trying to overcome his financial losses than his teams have demonstrated in years. His latest gambit--ceding possession of the franchise to a charitable foundation, which would sell it to the public or a local owner in three to five years--has proponents of a new facility closer than ever to getting something done: Two days before the Legislature goes back into special session, word is that a stadium bill will pass the Senate and faces an extremely close vote in the House.
Given the frantic, last-minute nature of this "community ownership" proposal, the details haven't yet been determined. Nevertheless, it is not too early to start considering what might happen if the bill were to pass.
Under the proposal, financing for the $250-million stadium would come from $175 million in state bonds and $75 million from the Metropolitan Sports Utilities Commission. To pay for the bonds, income-tax money from pro-sports athletes and sales-tax money from non-clothing pro-sports memorabilia would be diverted from the general fund. According to calculations by the Star Tribune, legislators would have to either raise taxes or cut programs by more than $11 million in the first year alone to balance the state budget. The bonds would also be paid off by a new state-lottery game, and by new food and entertainment taxes on establishments around the new stadium, costs that obviously would be passed on to consumers. To come up with its $75 million, the Sports Facilities Commission would sell the stadium naming rights, negotiate concessionaire contracts, and impose a fee on tickets purchased for events at the stadium.
If the stadium deal goes through, Pohlad has agreed to transfer ownership of the team over to a charitable foundation. He would also pay the operating expenses and absorb any losses incurred by the team during the three-to-five-year period it takes to build a new ballpark. On the surface, it sounds like a very generous gesture. But Pohlad didn't become a billionaire by mistake: When the stadium is finished, it will enhance the value of the franchise to an estimated $140 million. Pohlad will receive $86 million of that money when the foundation sells the team--an amount that covers his original purchase price and losses he has incurred up to now. The remaining $54 million of the $140-million value of the franchise will be considered a profit for the charitable foundation selling the team, enabling Pohlad to take a tax break estimated to be worth tens of millions of dollars.
This jerry-rigged deal is full of potential land mines. Begin with Pohlad's agreement to pay for the Twins' operating losses during the stadium-construction phase: Why would he invest any money in putting a competitive ballclub on the field during those three to five years? He is on record as saying that he will lose money in the Dome even if he operates the Twins responsibly--that's why the stadium debate began in the first place. Isn't there a financial incentive to operate it irresponsibly and cut his losses? Having spent nearly $4 million on stadium commercials, he's already somewhat in the hole. And under the terms of the deal, the local business community has agreed to buy $1.6 million in tickets and other items no matter how the team performs. True, developing young talent doesn't cost money, but during the Pohlad regime that development has been abysmal. Why, as a lame duck, would he go out and hire more capable people now, let alone spend big bucks on free agents?
If the ballclub performs as dismally as could be expected, public enthusiasm for the Twins could be at an all-time low by the time a new park is finished. And that's not good news for the stadium financing. The admission-tax revenue figured into the equation is based on attendance of 3 million a year, eventually dropping to 2.7 million. That's more than 80 percent of capacity in a 42,000-seat facility. If the team doesn't draw that well, they need to find other revenue sources to make up the difference.
Nearly half of the sales and income-tax dollars paying off the bonds come from the payrolls and memorabilia associated with the Minnesota Vikings--money you can bet will be negotiated back to the team when it inevitably gets its own stadium deal a few years from now. Then there is the question of locating the new stadium: Minneapolis may be hamstrung by the recently passed referendum preventing public expenditures of more than $10 million without public approval; St. Paul has $65 million in hockey-arena financing to contend with. If the ballpark is built in the suburbs, the entertainment-tax revenue on establishments around the place will be greatly diminished
So much for the troubling little details. Let's say the stadium financing and the team sale work out just the way Pohlad and the legislators plan it. For those who envision a return to the glory days of 1987 and 1991, or even a decently competitive team in a beautiful facility on a warm summer night, understand that times have changed. The Twins are still a small-market team, in a sport where even the big-market teams have difficulty avoiding economic suicide. Of the two teams who played in this year's World Series, Cleveland has sold out every seat since 1995 in a ballpark bigger than the proposed Minnesota facility, and Florida spent $89 million on free agents last season and lost $30 million overall despite becoming world champions. (They are currently up for sale.) The team that had the best record in the American League, the Baltimore Orioles, also have what is generally acknowledged to be the finest new stadium in the country. Last year they lost $6 million.
Fortunately, Minnesota always has a dependable ace in the hole. Twins President Jerry Bell has already publicly said that if the charitable foundation can find no credible buyer for the Twins once the stadium is built, there is a mechanism for Pohlad to buy them back--only to protect the foundation from any losses, of course. For that matter, as of last Monday night, Bill Lester of the Metropolitan Sports Facilities Commission said there is nothing in the stadium deal to prevent Pohlad from becoming the high bidder for the team three to five years down the road. He'd lose that charitable deduction, no doubt. But the stadium would be built. And, according to the terms of the deal, he'd have an $86 million head start on that repurchase price.
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