Archive for January, 2008

Comedy with the Rental Car Tax

So, I began to think a bit more on Gwinnett County’s plan to fund the Gwinnett Braves stadium with a tax on car rentals. The choice of the commodity chosen to tax is consistent with what many communities have used to fund sports facilities. But, I think that public officials forgot the reason for this tax instrument’s popularity.

The idea is that out-of-town visitors use rental cars during their stay; therefore, the revenue generated by additional use of rental cars ought to help cover the cost of the venue. While the logic behind this assumption doesn’t hold up—the tax seems to be quite distorting—you don’t have to think too hard to see how Gwinnett County doesn’t fit your standard argument for justifying the tax.

The problem is that out-of-town visitors will not be renting cars in Gwinnett. Visitors who fly to see the team will arrive at the Hartsfield-Jackson Airport in Fulton and Clayton counties. Are they going to catch MARTA or take a cab to Gwinnett before getting a rental? And out-of-town visitors who drive don’t need to rent cars.

The only reason to suggest taxing rental cars is that it has been done in several localities to fund sports facilities. But, in most of these cases, the facility is located within the district that is issuing the tax. It would be no more arbitrary for the county to tax dog ownership. Car rentals and stadium use are not connected in Gwinnett County.

Another problem is that taxing rental cars doesn’t have the political cover of taxing outsiders. Who rents cars in Gwinnett County? People who live in Gwinnett County, mostly when their own cars break down. I expect that the county’s demand for rental cars is quite elastic considering that residents ought to be aware of alternatives such as carpooling, public transportation, renting from another county, or borrowing from a friend. This tax probably won’t raise much money, because it’s so easy to dodge, and it will significantly harm to the rental car industry in Gwinnett.

If you are going to raise taxes, please do it as efficiently and equitably as possible. Having rental car companies and those with car trouble foot the bill doesn’t seem like a good solution.

Here Come the Taxes

When it was announced last week that the Atlanta Braves would be moving their Triple-A franchise to a yet-to-be-built publicly-financed stadium Gwinnett County, county administrator Jock Connell indicated that the debt would be fully financed from stadium revenues.

“We anticipate it paying for itself from day one,” Connell said. “The decision we made before going into this was it had to be financially feasible.”

After running some preliminary numbers, I came to the conclusion that the county would be unlikely to cover debt payments from stadium revenue. This is mainly because the deal gives almost all of any revenue the stadium generates to the Braves.

Today, we found out the following from the AJC.

The Gwinnett County Commission will consider a tax on car rentals to help pay for the new stadium the county will build for the AAA affiliate of the Atlanta Braves.

The 3 percent rental tax would generate about $600,000 in revenue next year, the first full year it would be in effect, according to the county finance director, Lisa Johnsa.

That is quite a bit different than “paying for itself from day one.” That is unless, by “paying for itself” Jock Connell meant levying a tax to make up any shortfall in revenue. Apparently, that is exactly what he meant.

County Administrator Jock Connell said Friday that the tax was part of a financing plan that was too complex to describe in detail during the news briefing. He said he would have answered detailed questions about the proposal had reporters asked.

Connell said Friday he was referring to the total revenue package county officials prepared, not just stadium operating revenues.

Both Connell and Commissioner Bert Nasuti said the car rental tax was part of the financing plan from the earliest stages of the county’s efforts to bring a baseball team to the county.

I now have a category tag that links to all of the posts on the Gwinnett Braves.

New Steroids Website

Eric Walker has just started a new website, Steroids, Other “Drugs, and Baseball.

Breaking Down the Gwinnett Braves Stadium Deal

Now that the initial shock of the move of the Triple-A Braves from Richmond to Gwinnett County has worn off, I’d like to take a look at the stadium deal. The AJC has run several articles on the subject, and the articles contain most of the details of the Braves’s lease with the city. Here are the details that I know.

  • It is a 30-year lease (2009–2038) with the opportunity for termination by the Braves after the 2023 season (15 years); however, the conditions for termination look to be quite stringent.
  • Gwinnett is responsible for design and construction of the stadium and parking facilities, as well as covering major capital repairs to the stadium and non-preventive maintenance (e.g., HVAC, scoreboard, seats, walls, floors). To ensure that the improvements will happen, Gwinnett must maintain a capital maintenance fund with a minimum balance of $500,000.
  • The Braves are responsible for operation costs not associated with capital maintenance and repairs.
  • The Braves retain all revenues from the operation of the facility during Braves events. This includes revenue from tickets, concessions, luxury suites, club seats, sponsorship, advertising, and broadcasting.
  • The Braves have exclusive rights to the stadium, except for 10 non-Braves events hosted by Gwinnett. The Braves are entitled to concessions revenue from these events.
  • Gwinnett is responsible for selling the naming rights. The Braves are entitled to $350,000 share of this revenue annually.
  • The Braves will operate parking services and set parking fees. Revenues will be split 50-50 with Gwinnett.
  • The Braves will pay rent of $250,000 per year for the first five years. After this time the rent will increase according to the growth of the Consumer Price Index. In addition, the Braves will pay Gwinnett a ticket fee of $1 per ticket sold, with a minimum guarantee of $400,000 remitted to Gwinnett.

After reviewing the agreement, I see why the Braves were so eager to sign this deal, and why Gwinnett officials negotiated this deal in private and approved it quickly. Gwinnett County administrator Jock Connell anticipates the total expenditure for the stadium to be $45 million. $12 million will come from tax dollars earmarked towards recreation, and the remaining $33 million will be borrowed with revenue from the stadium paying off the debt. From the information I have seen, I don’t think this is likely.

Gwinnett is guaranteed four sources of revenue: rent, naming rights, parking, and non-Braves events. Let’s look at what these sources will bring in.

  • Gwinnett is guaranteed a minimum of $650,000 a year in rent: $250,000 (rent) +$400,000 (ticket fee minimum). While it is possible for the county to earn more from the ticket fee, I think it is unlikely. In 2006, the Richmond Braves total home attendance was 321,696 and averaged 4,730 per game.
  • The current ballpark design is for 5,500 seats, 1,500 in grass seating, 300 club seats, and 16 suites. In order to earn more than $400,000 from the ticket fee, the team would have to average over 5,700 fans a game (assuming 70 home games). That is not going to happen.

    [Update: This stadium design refers to an older design considered by Gwinnett for hosting an independent league team. To be a Triple-A facility, it most hold a minimum 10,000 fans. However, I still do not think the team will average more than 5,700 fans.]

  • Gwinnett retains all naming rights sales beyond $350,000, which it must pay to the Braves. How much will the naming rights generate? Let’s look for a comparable deal. Lackawanna County Stadium—home of the Scranton/Wilkes-Barre Yankees—sold its rights to be called PNC Field for the price of $365,000 annually (a three-year deal) just last year . While I don’t doubt that a new stadium in Gwinnett can garner a higher price, I don’t think it will be that much higher. I’ll be generous and assume that they can sell the rights for $450,0000 per year. Thus, the county gets $100,000 ($450,000 — $350,000)
  • Gwinnett receives 50% of the parking. Richmond charges $3 for parking. If we assume that the Braves sell out all 2,300 parking spaces for 70 games, this translates to $483,000 in revenue. Gwinnett would receive $241,500 of this.
  • As for revenue from the 10 non-Braves events, I won’t even try to guess. But the fact that the Braves retain all of the concession revenues doesn’t help.

So, let’s add up what we have. We anticipate an annual income stream of $991,500—I’ll make in an even million. Will the non-concession revenue from the 10 non-Braves events be enough to cover the debt payments and capital maintenance over the life of the stadium? The stadium will be financed through local bonds, which is complicated. But let’s just make this simple by pretending this is a regular 30-year mortgage for $33 million, and we will give the county a 3% interest rate. This results in annual payments of $1.67 million, which means that Gwinnett needs to bring in $670,000 per year on the 10 non-Braves events in order to cover its loan payments. If each of these events brings in 7,000 people (approaching stadium capacity), then the county must bring in about $10 per person in profits (revenue minus operating costs) at these events. I think that this is unlikely.

[Update: I have just received a copy of the feasibility study of bringing a minor league team to Gwinnett, which was released in summer 2007. The plan calls for borrowing for 25 years at a 5.5% interest rate. Keeping the term of the loan to 30 years and re-running the numbers with the higher interest rate, the annual dept payments rise to $2.25 million.—requiring nearly $18 per person in profit to cover the remaining debt with 10 events of 7,000 people.]

I want to caution that this is a first pass at these numbers, and I have had to make several simplifying assumptions. However, I have tried to be optimistic about revenue projections that favor Gwinnett. I am willing to update my estimates as new information comes to light.

I find it disturbing that Gwinnett officials pushed this through so quickly and without public debate. If the Braves sell 5,000 tickets a game for and average of $10, the team will bring in $3.5 million year just off of tickets. With naming rights ($350,000) and all of the other rights (concessions, advertising, etc.) adding in, this is a good deal for the Braves.

I think it is a shame that this was rushed through in secret. It is possible that Gwinnett County residents don’t mind an increased tax burden if it means they get the Braves. It could mean only a few dollars more in taxes a year for the next 30 years. But, I think everyone would be happier if we could have had the opportunity to agree on this with some advance notice.

Welcome to Gwinnett County

Valuing Nate Robertson

I was sort of surprised to see the Detroit Tigers locking up Nate Robertson for three years and $21.25 million. While I normally like buying out free agent years, I don’t think this was a good move. The Tigers bought out only one year for not much of a discount.

As a free agent, I have him valued at $30 million over the next three years. But the Tigers would have gotten him for about what they will pay him during his arbitration years—$4.5 (2008) and $7 million (2009)—without much risk. If he has a phenomenal year in 2008 it’s possible that he gets more in 2009, but if he pitches poorly they get him for less. Why not just go to arbitration and take a small risk? A small fluctuation in performance means little to the Tigers, but is quite significant to a single player whose livelihood depends on his talent. The cost savings are supposed to occur in 2010 when he gets $10 million. But I have him valued at about $11 million in his first year as a free agent, which isn’t much of a cost savings.

It doesn’t seem like the Tigers are getting much of a discount for insuring Robertson against a decline in his play. I think it would have been better to let the future play out, and if he continues to pitch as he has, then you suck it up and pay the extra million. But maybe this is a sign that salaries are in for an even bigger jump than I am anticipating.

Thanks to David Pinto for the pointer.

Selig and Fehr on Human Growth Hormone

I watched a good bit of yesterday’s Congressional hearing regarding the Mitchell Report. The star of the show was not a person, but human growth hormone (HGH). Bud Selig and Donald Fehr were honest and acknowledged mistakes about the past, but the league and the players union have come along way to develop a system for deterring the use of performance-enhancing drugs. Mandatory random drug testing with fines and suspensions are consistent with what other governing sports bodies employ to deter doping. But the fact that HGH remains undetectable is distracting everyone from the progress that has been made. It is just not that big of a deal. And it pains me that both Selig and Fehr are being blamed for not being able to eradicate a drug that people only think enhances performance.

Here is what Selig had to say.

Senator Mitchell’s report reveals that those who are intent on cheating will continue to search for ways to avoid detection, such as turning to the use of Human Growth Hormone (“HGH”) which is not detectable in a urine test. Perhaps my single biggest frustration in reading Senator Mitchell’s report was in learning that, just as Baseball was putting in place an effective testing program aimed at steroids, HGH use was growing. Just as we have seen our programs effectively reduce the use of steroids in Baseball, I am committed to stop the use of HGH in our sport, as well. Along with the National Football League, Baseball is funding an effort by Dr. Don Catlin, one of the leading drug testing experts in the world, to develop a urine test for HGH, and we will be convening a summit of the best minds in sports and science to develop a strategy to address the use of HGH by players. Just recently, we have joined with the United States Olympic Committee in a new, longterm program of research on performance enhancing drugs. Our initial commitment is for $3 million in funding. When a valid, commercially available and practical test for HGH becomes reality – regardless of whether the test is based on blood or urine – Baseball will support the utilization of that test.

A $3 million initial commitment to detect a drug that even the Mitchell Report declares to be ineffective (pp. 9-10)? [See I Don’t Worry about HGH in Baseball, and Neither Should You for further evidence.] Selig may be acting on many of Senator Mitchell’s recommendations, but he’s got no one to blame but himself on this one. I’d much prefer that MLB allow HGH use, spend some money educating players on how this stuff doesn’t work—and please no more scare-tactic commercials with deflating balls or crumbling statues; these do nothing—and then devote the bulk of those resources to the RBI program. Take HGH off the banned list and send a credible signal to players that this stuff doesn’t work (my plan).

Fehr seemed even more bothered than Selig by the fact that there are not reliable tests for HGH.

Senator Mitchell pointed out that our JDA is indeed working to detect the use of detectable performance enhancing substances. With respect to steroids, the numbers are clear: We have conducted more than 3,000 tests in each of the last two years, and the number of steroid positives we have had during that time is five. More precisely, during 2006 and 2007 we conducted 6,252 tests, and there were five steroid positives (two in 2006 and three in 2007).

But what about undetectable PEDs, most notably Human Growth Hormone (HGH)? We share Senator Mitchell’s concern, and we have acted. Starting in January 2005, we banned HGH. We do not test for HGH, because there is no scientifically reliable urine test available. As soon as one is, our agreement states that HGH testing for players will begin automatically.

Even in the absence of a test, our commitment against HGH is no less strong than our commitment against steroids. We have developed and agreed to procedures which allow players to be suspended for HGH use based on evidence other than a positive test, a so called “non-analytical” finding. In both 2006 and 2007, players were suspended on that basis.

Of course, it is possible that a valid blood test for HGH will be developed before a valid urine test. However, as Senator Mitchell has indicated, if there is a blood test developed in the near future it may well be of very limited utility; i.e. a player will need to have used HGH a very short time before the test in order for it to show up. In addition there are very serious issues involved with blood tests for athletes, particularly on competition days, and in baseball we play nearly every day. As of now, no major professional sport has blood testing for PEDs. If and when a blood test becomes available, we will consider it based on the facts then available.

However, the biggest problem with HGH is very probably its availability to the American public. Anti-aging clinics and others openly advertise in magazines stressing the benefits of HGH. We will continue to take steps against HGH, but this is a societal, not just a baseball problem. If we did not know that before, the investigations into internet pharmacy sales of HGH made public over the last year have made this apparent.

All one need do in order to appreciate the magnitude of this problem is to go onto Google’s website and type in the words, “Where can I buy HGH?” A few days ago this search returned 349,000 options in a quarter of a second. Advertisements for HGH can be found in newspapers and magazines nationwide. For example, in the current Continental Airlines magazine, on page 99, there is an advertisement with the following headline: “Choose life. Grow young with HGH.” Abuse of HGH and other licit (and illicit) pharmaceuticals is not just baseball’s problem.

And I feel for Fehr, because he can’t come out and say that HGH doesn’t work, even if he is aware that of this—I believe that both Selig and Fehr know this. The committee would have laughed him out of the room because he is the enemy. This runs counter to every thing we “know”. He might as well have said that Neil Armstrong never walked on the moon. Instead, he provided a comical advertisement that puts the drug on the same footing as ionic bracelets. Nice tactic, by the way.

And what about the children for whom the representatives showed so much concern? What about them?! Do children buy growth hormone to improve performance? According to Kirk Radomski, the going rate for the drug is $1,600 for a one-month supply. That’s more than most parents’ house payments. Teenagers are not buying HGH to pump up anymore than they are buying $200 bottles of mail order wine to get drunk. There is the role model issue, but this just doesn’t concern me. The world is full of immoral people. Teach your kids right and wrong and get over it. I’m more worried that my children will be influenced by friends and family than baseball players. Anyway, I find Tony La Rusa to be more offensive than any of the players he has ever managed, but I think it would be a bad idea to hold congressional hearing on rampant arrogant jackassery in sports. This is a bigger problem in the role model department for professional sports.

The fact that HGH is undetectable is a problem only if it enhances performance. The evidence is that it doesn’t, so let’s move on. The war on HGH serves as the drug’s best advertisement, and Congress just bought anti-aging clinics a 30-second spot during the Super Bowl. At the next hearing, I hope that Congress invites some clinical researchers who have studied the substance to weigh in.

Why Move the Triple-A Braves to Gwinnett County?

The Richmond Braves are moving to Gwinnett County. This is an interesting development. The organization has been upset with the arrangement in Richmond for several years, so a move is not surprising. However, I did not expect the team to move so close to the parent club. On my way home from work yesterday evening, most of the feedback I heard on the radio was negative, which surprised me. The main concern was that the Triple-A club would draw fans away from Turner Field. However, I’m not concerned about this for a few reasons.

— If fans in Atlanta have a cheaper and more convenient option for watching baseball, isn’t that a good thing? I don’t cheer for the Braves to be a more successful business, I want baseball. There is the possible downside that a poor business decision will harm the team’s ability to win, but I don’t think there is much danger of that.

— The map below highlights three points of interest: Turner Field (A), an approximate location of the Gwinnett Braves (B), and Marietta (C) the city where I live—my grandfather was once the coroner here. While I am more likely to see a Triple-A game in Gwinnett than Richmond, the probability does not improve all that much. I’m about 40 miles away—about 45 minutes without traffic. Going to a weekday night game would probably take me two hours, if I am lucky, and I know the back roads (they don’t help). It would take me less time to go to Rome, to see the Low-A Braves. Like most other Braves fans outside of Gwinnett county, Turner Field is a superior option for me. This team will truly be the Gwinnett Braves. Gwinnett has been successful in supporting a minor league hockey team and an arena league football team. I think the baseball team will survive.

View Larger Map

— As for the team’s affect on Gwinnett residents attending MLB games, I think the result will be positive, not negative. As I told Thomas Stinson of the AJC,

“What the minor league fan wants is an affordable ticket, eat a hot dog, watch three or four innings and then take his kids home and put them to bed,” said J.C. Bradbury, a Kennesaw State associate professor and author of “The Baseball Economist.”

“You just can’t take your kid to a mid-week major league game. It’s just too expensive. But this could enhance your desire to go to a Braves game over the weekend.”

I consider major and minor league sports to be complements not substitutes. While I am sure there will be some families that will choose to attend more Gwinnett games at the expense of Braves games, I think this loss will be minimal. The opportunity cost of going to a Gwinnett Braves game is most likely doing something at home, not going to a Braves game. The proposed stadium site is nearly 40 miles from Turner Field. My guess is that most fans will switch from doing something else in Gwinnett rather than canceling trips to Turner Field; thus, this will be a net gain to the big club.

I also think that a minor league team will increase the fanbase of the big-league club, not decrease it. Fans who never visited Turner Field before might be more inclined to do so after making the easy trip to see the Triple-A players. It will likely increase television ratings as well.

I also think moving the club to the Atlanta MSA has a few other benefits.

— The geographic consolidation of the organization is a benefit that should not be overlooked. Scouts, coaches, and doctors can easily get quick looks at players. Plus, the organization can employ fewer people by using individuals to work for both the major and minor league clubs. And travel time is reduced significantly.

— There will be some gains from shuttling players between levels; however, I think these benefits are not so great. With both teams traveling quite a bit, my guess is that transferring players will still be a pain. I do actually worry that the proximity of clubhouses could create some awkward situations with clubhouse culture. Triple-A veterans may spend more time with their friends on the big-league club rather than grooming the younger guys.

Update on Oscar Pistorius

The International Association of Athletics Federations has just ruled that double-amputee sprinter Oscar Pistorius cannot use his “Cheetah” blades in the competitions it sanctions, including the 2008 Olympics. I mentioned this the other day, but today’s NYT article reveals a little bit more.

The decision was reached in an e-mail vote by the 27-member IAAF Council. The vote count was not disclosed but was believed to be unanimous.

The IAAF endorsed studies by German professor Gert-Peter Brueggemann, who conducted tests on the prosthetic limbs and said they give Pistorius a clear competitive advantage over able-bodied runners.

”An athlete using this prosthetic blade has a demonstrable mechanical advantage (more than 30 percent) when compared to someone not using the blade,” the IAAF said.

The federation said Pistorius had been allowed to compete in some able-bodied events until now because his case was so unique that such artificial protheses had not been properly studied.

”We did not have the science,” IAAF spokesman Nick Davies said. ”Now we have the science. We are only interested in competitions that we govern.”

Davies stressed the findings only covered Pistorius’ specific blades and did not necessarily mean that all lesser-abled athletes would automatically be excluded.

Brueggemann found that Pistorius was able to run at the same speed as able bodied runners on about a quarter less energy. He found that once the runners hit a certain stride, athletes with artificial limbs needed less additional energy than other athletes.

The professor found that the returned energy ”from the prosthetic blade is close to three times higher than with the human ankle joint in maximum sprinting.”

Based on these findings, the Council ruled against Pistorius.

Basically, the prostheses he uses allow running function beyond what properly functioning living legs would provide. While I hate to exclude denying a disabled person access to the competition, this ruling does not do this. It only states that these particular prosthetic limbs are disallowed. Other prostheses that offer a similar level of energy transfer would be allowed.

However, Pistorius’s manager disputes these findings.

”Based on the feedback that we got, the general feeling was that there were a lot of variables that weren’t taken into consideration and that all avenues hadn’t been explored in terms of coming to a final conclusion on whether Oscar was getting some advantage or not,” Van Zyl said. ”We were hoping that they would reconsider and hopefully do some more tests.”

There is still another appeal before the decision is final.

Addendum: IAAF link

Kotsay for Devine

As it stands, the Braves and Athletics have agreed on a deal that sends Joey Devine to the A’s for Mark Kotsay and a significant portion of his salary—the Braves are on the hook for $2 million. The deal is contingent on Kotsay passing a physical.

My first inclination is to like this deal. Though Devine is young with good minor league numbers, he is no sure thing and at his best he is a relief pitcher. I have rule about never concerning myself with individual relievers, because they pitch so little and cheap replacements are not that difficult to find. For his career, Kotsay has been a league-average hitter (100 OPS+ exactly), but his poor production last year and the likelihood that his injury problems will continue is what keeps his value down. If Kotsay stays healthy, he will be worth well more than the $2 million expenditure—$7–8 million.

What interests me the most about this deal is the difference in which the A’s and Braves are approaching the near term. The A’s have also traded away Danny Haren and Nick Swisher for prospects. Though both of these players are good, young, and cheap, the A’s have decided that it is better to use their value to build the farm system for a better future. I think the A’s had a shot at the playoffs with the club as it was, but it was no guarantee. The Braves, on the other hand, are adding little pieces to win now. I think the Braves are playoff contenders, but I don’t think it is a strong team. I wonder where these organizations will be five years down the road.

Missing the Boat on HGH, Again

It’s hard to take MLB serious when it forms a task force to support anti-doping research that includes the following priorities.

• New methods to more cost-effectively detect and deter the use of banned and illegal substances at every level of sport
• Identification and detection of designer substances the consequences of doping, from both a medical and ethical perspective
The further development of a widely-available, cost-effective test to detect Human Growth Hormone (HGH) [Emphasis added]

I have no problem with the first two goals, but why—WHY!—must they insist on continuing the needless war on growth hormone. There is no point in devoting resources to an HGH test, when there is no evidence that the drug improves performance. Why not go after B-12 while they are at it? Even the Mitchell Report acknowledges this.

A number of studies have shown that use of human growth hormone does not increase muscle strength in healthy subjects or well-trained athletes. Athletes who have tried human growth hormone as a training aid have reached the same conclusion. The author of one book targeted at steroid abusers observed that “[t]he most curious aspect of the whole situation is that I’ve never encountered any athlete using HGH to benefit from it, and all the athletes who admit to having used it will usually agree: it didn’t/doesn’t work for them.” (pp. 9-10)

My plan is cheaper and money would be better spent by educating players on the lack of performance-enhancing effects of growth hormone. Instead, we are stuck with this.

Flushing $ down the toilet