Archive for March, 2008

My Letter to The Gwinnett Daily Post

Here is a letter that I have written to the editor of The Gwinnett Daily Post, the paper which should be covering the issues surrounding the funding of the Gwinnett Braves stadium.

Dear Editor,

I am disappointed that The Gwinnett Daily Post has failed to report the important news that financing the Gwinnett Braves stadium will be more expensive than previously projected. Bonds that were initially scheduled to be issued at a 5.95% interest rate will now be issued at 6.25%. Over the course of the 30-year repayment of the $33 million loan this will cost taxpayers an additional $2.5 million dollars. I expect this will not be the last cost increase.

This is just one more example of rah-rah journalism from a paper that refuses to ask tough questions of local government officials about public funding of sports venues. Perhaps you should change the name of the paper to The Gwinnett Daily Pompon.

J.C. Bradbury
Kennesaw State University

I do not normally write such letters, but I feel that the paper has fallen short of its obligation to properly cover this story for its readers—many of whom get all of their news from this paper.

Surprise! The Gwinnett Stadium Is Getting More Expensive

The headline from today’s AJC says it all:

Cost of new Gwinnett stadium will be slightly higher: Interest rate more than first projected.

Underestimating expenses is a common “mistake” for publicly-funding sports stadiums. It hasn’t even been two months since Gwinnett County announced that it was planning to build the Braves a $45 million stadium and hand the team a majority of the revenues; yet, already the government has announced its first cost increase.

Bonds sold to provide $33 million in funding for the project will carry a fixed 6.25 percent interest rate, up from the 5.95 percent rate county officials had projected in the financing models made available to the public last month.

The rate changed because of market conditions, Finance Director Lisa Johnsa said. Buyers bid on bonds and the seller accepts the best available rate.

Johnsa said Tuesday that she did not have immediate access to documents detailing the interest payments and could not say how much the change in rates would increase annual debt service payments on the project.

“It’s a few basis points higher than we were hoping for. It’s still something we can manage,” she said.

First off, I don’t know where the 5.95% figure comes from. In the feasibility study, the county anticipated an interest rate of 5.5%. With an interest rate of 6.25%, this means that the cost estimate I used for my analysis in the AJC understated the county’s yearly cost burden by $190,000. That increases the annual tax burden to about $1 more per Gwinnett County household. In total, it raises the county’s total 30-year expenditure nearly $6 million.

It is also not surprising to see county government officials continue to hush up details that are too important for them not to know. Ms. Johnsa couldn’t explain how the change in rates would impact annual debt payments? I think there is a better chance that a group of high school seniors all legitimately forgot their IDs in their cars when ordering a round of banana daiquiris at Bahama Breeze.

While the actual computations are more complex, you can get an idea of the change in expense from an online mortgage calculator. Here are estimates for three interest rates: 5.5%, 5.95%, and 6.25% . There is no doubt that Ms. Johnsa was well aware of the differences when asked, but it is good policy to keep your mouth shut when you are raising taxes or cutting government services.

When the deal was announced, we were told that the project would pay for itself from day one; however, as each day passes, the government asks taxpayers for more assistance. This isn’t going to be the last cost overrun.

Also, I would like to point out how easy it is for Gwinnett officials to get away with this. The account of the bond approval in the Gwinnett Daily Pompon doesn’t even mention the cost increase. Rah rah, Gwinnett is great!

The French God of Walks

In a recent interview with Ken Rosenthal, Jeff Francoeur expressed his desire to walk more during the upcoming season.

Q: How much are you still focused on improving your plate discipline?

A: My goal has been to go 10 or 15 walks up in the next two or three years, every year. Last year, I had 42 (up from 23 in ’06). This year, I want to get to about 60 or so and keep moving up.

I would love to walk about 80 times a year. I know I’m too aggressive to get into the 100 range. But to be able to do that would be something that would be big for me. And that’s when I will be able to hit .310, that kind of average.

After seeing this, I realized that we have a good opportunity for a reader contest. Well, let’s make it two contests.

How many bases on balls will Jeff Francoeur take from Opening Day–May 31, 2008?
How many bases on balls will Jeff Francoeur take during the 2008 regular season?

The prize for both contests will be a signed copy of The Baseball Economist. You can choose between the hardback or paperback versions. The first contest is for Father’s Day, with the idea being that I will sign the book to your father or father-figure of your choosing (father-in-law, uncle, Charles Barkley…I don’t care). The second contest is for personal glory.

To get things started, I submit my entries.

March–May: 16
2008: 45

Here are the rules:

  • Submit your entry in the comments section. E-mailed submissions will not be accepted. If your comment does not appear immediately upon posting, do not worry, because it will appear after it has been moderated.
  • One entry per person.
  • The first person to predict the correct walk total will be declared the winner.
  • You must submit a valid e-mail address, which will not be published, so that I can award the prize.
  • The first line of your post should include the number of walks you expect at the end of games started on May 31. Use the following format: March–May: 16.
  • The second line of your post should include the number of walks you expect at the end of the 2008 regular season. Use the following format: 2008: 45.
  • Any commentary you wish to add must be submitted in a separate paragraph below the numbers submitted for the contest. Submissions that list the predictions within prose will be deleted and declared invalid.
  • Entries must be submitted by March 28, 2008.
  • Should Jeff Francoeur suffer a significant injury, or be involved in a situation, that will cause him miss a significant portion of the season prior to the start of the regular season, the contest will be suspended.
  • If my prediction is correct, then the prize will be awarded to the next closest submission. If two submissions are equidistant from my prediction, then the lower prediction will win (The Price is Right rule).
  • I reserve the right to exclude the participation of anyone.
  • I am the final judge of the winner and I reserve the right to adjust for complexities and unforeseen events as I choose.

Defending the Marlins

Few people are high on the Florida Marlins’s business practices. Since the club’s inception in 1993, it has had three owners who have employed a build-’em-up then tear-’em-down strategy. In addition, the team has consistently threatened to move from the Miami area to another locality unless taxpayers help build a new stadium for the team. Current owner Jeffrey Loria has received much of the criticism for the club’s stingy reputation. And though he can expect a new stadium in 2011, he is keeping payroll low for now.

A new stadium means the notoriously frugal Marlins plan to increase their payroll, but not until the team moves into the new park.

The Marlins’ payroll for 2008 is projected to be around $20 million, the lowest in the league and $10 million lower than last season.

“It’s a function of revenues, and we were not really able to derive any revenues out of this facility,” Loria said of the team’s current home, Dolphin Stadium. “As we get closer to the (new) stadium, those things will change. We need to be in that facility.”

Count Maury Brown as one of those who is disgusted with the Marlins’s current operation.

On the player payroll at $20 million, that would be $5 million less than what the club will receive in revenue-sharing, which is projected to be $25 million. Apparently, a “function of the revenues” is to make a mockery of the revenue-sharing system, and do a good bit of profit making.

Forbes estimated that the Marlins posted $43.3 million in operating income last year. That operating income included earnings before interest, taxes, depreciation and amortization. How did the Marlins rate in terms of operating income – a measure of profit – compared to their other 29 counterparts? They were first with the Dodgers in second at $25.5 million, a difference of 41 percent.

Cut your margins enough (low player payroll) and regardless of whether you have embarrassingly low attendance by rolling out a team of made up with what can best be described as replacement level players, take in a healthy level of revenue-sharing, and what you have is a prime example of Jeffrey Loria and David Sampson living on corporate welfare.

As much as I dislike Loria’s tactics for obtaining public funding, I think he is getting too much blame. After all, though his behavior seems juvenile, it worked: he’s getting a $500 million stadium for a third of the price. Why spend your own money when you can spend someone else’s? It’s the voters and the politicians who deserve the blame for giving in. But this is beside the point.

While the Marlins are not spending great sums of money on their players, they have actually put decent teams on the field. Since Loria became the owner in 2002, despite spending 45% less than the league-average payroll, the Marlins have been a .500 team with a World Series title. Teams with similar average wins over this time include Seattle (81 wins, +20% payroll), Toronto (80 wins, -15% payroll), New York Mets (80 wins, +42% payroll), and Cleveland (82 wins, -27% payroll). In terms of payroll frugality, only Tampa Bay had a lower payroll (-65%) while averaging a league low of 64 wins. Pittsburgh (70 wins, -42% payroll) , Montreal/Washington (76 wins, -36% payroll), Milwaukee (72 wins, -36% payroll), and Kansas City (65 wins, -35% payroll) had similarly-constrained budgets, yet were much less successful than the Marlins. Spending less certainly helps profitability, but you have to give Loria credit for not putting replacement players on the field.

Team	% +/- Lg. Mean	Mean Wins
TBD	-60%		64
FLA	-45%		81
PIT	-42%		70
WSN	-36%		76
MIL	-36%		72
KCR	-35%		65
CLE	-27%		82
SDP	-25%		79
COL	-24%		75
MIN	-23%		89
CIN	-23%		75
OAK	-22%		91
TOR	-15%		80
DET	-11%		71
BAL	-4%		72
ARI	-1%		79
CHW	3%		85
TEX	5%		78
HOU	5%		85
PHI	12%		86
STL	17%		91
SFG	17%		85
CHC	20%		79
SEA	20%		81
ANA	24%		91
ATL	26%		92
LAD	33%		85
NYM	42%		80
BOS	64%		94
NYY	139%		99

While some of this might be luck, I think good management explains most of the difference (see Chapter 7 of my book). Some of that money not going to player payroll is going to baseball operations devoted to scouting young talent that is cheap. And because this practice yields substantial savings over signing expensive free agents, then this is a good use of funds. At least the Marlins deserve credit for putting a better team on the field than most teams with similar budgets.

If the Marlins can build a good core with cheap players, why doesn’t its front office fill out its roster with quality free agents in order to make a stronger bid for the post-season? Another point that I want to make is that Marlins fans don’t seem to be as sensitive to winning as other major-league franchises. Thus, buying free agents doesn’t yield the return at the turnstiles like it does for other teams.

The first figure below maps all major league teams’ attendance and wins since the 1994–1995 strike.

Marlins vs. MLB

The Marlins’s data points are bordered in red and labeled with the year of observation. The graph also displays a linear prediction of attendance based on wins for the Marlins (red) and all other teams (black). The Marlins observations lie below the major-league average and its slope is flatter.

The second figure tracks the Marlins’s attendance and attendance predicted by the typical attendance yielded to non-Marlins teams in the year of observation. That is, I estimated what the Marlins’s attendance would have been if fans had reacted to the games the team won based on the typical response in other markets (Attendance = f(wins, vector of year effects); estimates corrected for serial correlation).

Predicted Attendance

On average, the Marlins took in an average of 869,000 fewer fans than predicted. In 2003, the year that the Marlins won 91 games and won the World Series, the team attracted 1.1 million fewer fans than expected. In 2005, the Marlins increased their payroll by 43%: attendance increased by 8% and still their attendance was 25% below the average attendance for other teams.

In light of the the team’s current on-field situation, fiscal restraint in terms of player salaries seems to be the smart move. The front office looked at the team and felt the chance of this team winning the World Series was slim, so it traded away Miguel Cabrera and Dontrelle Willis for talent that will help the team win in the future. The Oakland A’s did the same thing by trading Nick Swisher and Dan Haren. Dumping expensive veterans for prospects is normally considered a smart strategy. The team’s new strategy is to win back fans with a new stadium and continuous core of farm products to keep the team consistently competitive at a high level.

Based on the low win-sensitivity of Marlins fans, I can understand why the owner does not want to put more into payroll. This isn’t to say that Marlins ownership isn’t partially responsible for alienating fans by holding a fire sale after winning the 1997 World Series and posturing for public subsidies; but, these actions cannot be reversed. The front office has learned that simply throwing money at free agents won’t bring the fans back.

I’d Like to Play Poker with These Guys

I don’t play poker. I’ve tried a few times, but I had to give it up. It’s the human element that gets me. I am so easy to read that I might as well turn my cards around so everyone can see them. But, even I could bluff the Gwinnett County Board of Commissioners.

One part of the agreement that hasn’t gotten much attention is that the County is responsible for the capital maintenance of the stadium. Tim Tucker explains the details in the AJC.

The agreement requires Gwinnett County, which will own the stadium, to pay for all capital maintenance, improvements and repairs. An attachment to the agreement provides a long list of examples of Gwinnett’s responsibilities — everything from seats to scoreboards, from structural components to repainting.

The deal requires the county to maintain a minimum balance of $500,000 in a capital maintenance fund, with the amount to increase over time. Because all revenue Gwinnett receives from the stadium and a new rental-car tax likely will go toward paying off the $33 million the county will borrow to build the ballpark, the county probably will have to find the capital-fund money elsewhere. County Administrator Jock Connell said that, if not from excess revenue, it could come from Gwinnett Convention & Visitors Bureau funds.

This is the same Jock Connell who insisted, “we anticipate it paying for itself from day one.” Yet, once again, we see more Gwinnett tax dollars coming to the aid of poor Liberty Media shareholders. But, it gets even better.

Moreover, the agreement makes clear that the $500,000 minimum balance is not a cap on the county’s annual obligation to keep up the stadium.

There is no cap, nor at this point a detailed projection of what the costs might be over time. The Braves will submit an annual list of proposed expenditures, subject to county approval.

How did the Braves pull this off? Apparently, the Braves said they wouldn’t commit to a 30-year lease—and in fact they still have not—without this concession.

The Braves initially offered to sign only a 15-year lease. Gwinnett countered that the agreement had to run for 30 years because construction would be financed with 30-year bonds. The Braves relented to a 30-year lease, with provisions that the county fund all capital improvements needed over time and that the Braves have an escape clause if the stadium were to deteriorate significantly.

That means the county will be on the hook not just for paying off the debt, but also for future costs to keep Braves minor leaguers in the stadium beyond 2023.

“One of the things the Braves were real sensitive about was not finding themselves, 20 years down the road, in a situation like in Richmond,” said Gwinnett County Commissioner Bert Nasuti, a driving force behind the deal.

Oh, boo who: how terrible that the Braves might have a majority of their facility expenditures covered by someone else for a paltry 20 years! Perhaps Braves officials became wise to the desperation of Commissioner Bert Nasuti as he virtually prostrated himself at their feet handing away even the concessions revenues to the county’s own events.

The out-clause doesn’t set a high bar for terminating the lease.

The deal then gives the Braves the option of terminating at any point after the 2023 season if the team and the county “are unable to reach agreement . . . with respect to any item to be included within Capital Maintenance and Repairs . . . and which is material to the operation of the stadium or otherwise unreasonably interferes” with use of the stadium.

Both sides say the wording is intended to give the Braves an escape only in a worst-case scenario.

“It’s just to make sure that if the stadium wasn’t being kept up to a standard and started falling into disrepair, there’s an out,” the Braves’ Plant said. “I don’t see that happening, but in this day and age, you need to protect yourself.”

What does “up to a standard” really mean? It’s hard to say, but don’t be surprised if the Braves expect more than new curtains. In 1990, MLB agreed to Attachment 58, which required its minor league baseball stadiums to meet new minimum standards of stadium size and quality. It was a list of unfunded mandates, and many teams used these standards demand more funds from host communities.

What is new and state-of-art today may be outdated in 15 years, especially when it comes to sports stadiums. As a junior high student in Charlotte, I remember when the Charlotte Coliseum was unveiled with much fanfare about its future prospects in 1988. It would host the Charlotte Hornets and boasted the world’s largest indoor scoreboard at the time—it crashed to the floor before the first game, an ominous sign of things to come. After selling out 358 consecutive NBA games and hosting the NBA All-Star Game (1991) and the NCAA Final Four (1994), the building began to show its age, due to is lack of luxury amenities. Hornets owner George Shinn wanted a new arena. He didn’t get it; thus, the Hornets left for New Orleans in 2002 and the arena was demolished just last year.

I hope that Gwinnett heeds the experience of its neighbor up I-85 when it crafts the words in the final contract. Because, in 15 years, one side is going to have all of the bargaining power. The Braves have territorial rights over Gwinnett County, and the team can prevent any other MLB-affiliated minor league club from playing in the area. As I say in the story,

“A 15-year out clause is not abnormal,” said J.C. Bradbury, a Kennesaw State University sports economist who has been a critic of the Gwinnett deal. “But it certainly is problematic for Gwinnett in this case because basically you have a stadium that serves one and only one tenant.”

Don’t think that the Braves won’t flex their muscles in 15 years. And who can blame them? The County Commission has given the Braves everything they asked for, possibly more.