Archive for April, 2008
I just received this comment from Alfie Meek, the Gwinnett County economist who generated the County’s economic impact estimates, in response to a post of mine on the Gwinnett Daily Post’s slanted reporting of the Gwinnett Braves stadium deal.
I respond to each issue one at a time. Here is Dr. Meek.
I have a question. If the bonds used to pay for a stadium are revenue bonds and not G.O. bonds (in other words are backed by a revenue stream that is un-related to taxes and not backed by the full faith and credit of the taxing authority) then why can’t the community claim that “the stadium will pay for itself?” For example, if the bonds are backed by rent from the team, ticket surcharges, naming rights, and parking fees, then how are the local taxpayers harmed?
Are the bonds lacking a full faith and credit commitment? From Tim Tucker at the AJC.
The three major bond-rating agencies have assigned AAA grades to the $33 million in taxable revenue bonds that will fund the stadium. None of the three agencies attribute their rating to projected stadium revenue. All attribute the rating to the county’s fallback position.
“The … AAA rating reflects the security provided by a pledge of Gwinnett County’s full faith and credit and taxing power,” Fitch said in a report on the bonds.
In an interview, Moody’s public finance analyst Baye Larsen said: “The bottom line is they are pledging their full taxing authority, not just one revenue stream.” (Emphasis added)
Your bond-rating agency doesn’t think so. From the stories I’ve read, I have assumed that the bonds are certificates of obligation, which are backed by taxing power but do not necessarily require a referendum.
Second, there is absolutely no way the revenue generated from the stadium will be sufficient to cover the debt. See my Op-Ed in the Atlanta Journal-Constitution, which no one in Gwinnett’s government has challenged. You would think that if my calculations are wrong that someone from Gwinnett would have pointed out my errors. If you want to start claiming otherwise, it is your duty to demonstrate where my work is wrong.
Third, the county’s commissioned feasibility study states that the revenue generated from the stadium will not be sufficient to cover the debt and costs of operation, which is why the study discusses several tax-instrument options. The county has also imposed a car rental tax and has discussed a
property tax increase. Furthermore, the Gwinnett Convention and Visitor’s Bureau is kicking in funds from the publicly-owned arena to cover some of the short-fall. If the revenue from the stadium was sufficient to cover the project, then these taxes and subsidies would not be necessary.
Finally, Jock Connell claims that he was misquoted and admitted that taxes are necessary to pay for the stadium; though, I find it odd that two separate newspapers reported the same “pay for itself from day one” quote verbatim. He claims that paying for itself includes the taxes.
Second, as a professional economist with years of experience in economic impact analysis and analysis of sports-related projects, I object to the notion that the stadium won’t provide economic stimulus. To the extent that it keeps discretionary income from leaving the community, or attracts new income into the community, it certainly will provide stimulus.
As an academic economist working in the field of public finance, I am familiar with the vast literature on economic impact analysis, which finds that public stadium projects transfer income within the locality and do not bring in new income. The academic literature backs me up on this. For example, see this study by Dennis Coates and Brad Humphreys.
Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.
Also, while I realize that JC’s point has to do with the reporting of the economic impact and not the economic impact numbers themselves, as the economist that did that particular analysis, I would like to point out that just because the numbers cited in the story above were done by “an employee of the county” doesn’t mean that they are necessarily less credible.
The fact that the author is a county employee does not mean that the numbers are wrong—though, I believe that they are wrong—but it does tell us something about the financial incentives of the author. It is the job of a reporter to seek objective opinions. Your numbers are newsworthy. However, the numbers were not relevant to the story, and even if they were, it is irresponsible just take the word of a county employee.
In conclusion, I have been willing to discuss this issue since the day the deal was announced. Yet, no government official has been willing to respond to me. As a result of the County’s reluctance to explain the deal, reporters have been forced to using open records requests to learn the details of the deal. If you want to debate this in a public forum, I would be happy to do so. I expect that the Atlanta Journal-Constitution would be willing to give you the space to respond to my Op-Ed.
UPDATE: I have verified that the bonds are backed by the full faith and credit of Gwinnett County. County taxpayers are on the hook for any revenue shortfall.
Monte Burke has a nice article on the financial direction of the Braves in Forbes. In particular, he takes a look at how the new owner is managing the team.
However, by last year the organization that once called itself “America’s Team” seemed to be running on fumes. Time Warner (nyse: TWX – news – people ) had acquired it as part of Turner Broadcasting in 1996 and after 2003 had dramatically reduced player payroll. In 2007 the Braves missed the playoffs for the second season in a row, and their 31-year-old television contract with superstation TBS–which provided a nationwide fan base–ran out. Home game attendance, at 2.7 million, was below the National League average.
The biggest blow appeared to come in May last year, when Major League Baseball owners approved Time Warner’s sale of the team to Liberty Media (nasdaq: LCAPA – news – people ), a Colorado cable and telecom conglomerate run by noted dealmaker John Malone….
Some of the Braves’ players worried out loud that Malone would care more about the bottom line than about winning. Fans were plain angry. “It was frustrating because it went against MLB’s stated policies of local and personal ownership,” says Mac A. Thomason, who writes a Braves fan blog.
They were in for a surprise: Malone, 66, whose Liberty already owned a small piece of the team through a stake in Time Warner, is starting to look like just what the Braves needed. He’s moving ahead with an ambitious and expensive turnaround plan that the team launched five years ago, and he’s even pumped in some Liberty money to push it along.
The turnaround effort has already begun to bear fruit. This year, with a mix of young fielders like Mark Teixeira and Brian McCann and veteran pitchers like Tim Hudson and John Smoltz, the Braves are contenders again. Attendance still lags behind that of the glory days of the 1990s, but it was up from 2.5 million last season and could reach 3 million this year, after vast stadium renovations and improvements in parking, concessions and guest services.
Even without making the postseason last year, the Braves brought in $28.1 million in operating income. FORBES values the team at $497 million, seventh among baseball’s 30 teams.
Malone has given his baseball people all the money they need, upping the club payroll from $87 million to $102 million, the tenth highest in the majors. “I think the management, if anything, is reasonably more empowered now,” says Liberty’s chief executive, Gregory Maffei. “We’ve backed them and given them freedom to move.” At first there was fear Malone might flip the team for a quick profit, but he says he can see owning it for decades, even though he’s contractually obliged to hold on only until 2011. “Most of the assets we’re in we’ve owned for a long time,” he says, citing his involvement in Turner Broadcasting–since 1986–and QVC. “I like to think the Braves are an appreciating asset.”
I’ve never understood fan dislike of corporate owners. Because financial success is largely a product of winning, I think the incentives are aligned to promote success. Time Warner owned the Braves for the majority of the Braves playoff streak. Yes, Time Warner put the breaks on spending in 2003, and that was probably the right move considering that profits were down to zero and fans were losing interest in the team.
I’m more fearful of a fan-owner than a corporate-owner. George Steinbrenner and Ted Turner were loved when they were winning, but for most of my childhood these men were hated for ruining their teams. Remember this?
I don’t know much about the actual development of Puerto Rican prospects, but assuming the story told is correct, Brian Joura provides a nice example of how weakening of property rights hurts investment.
In 1990, Puerto Rico, a U.S. territory, was added to the MLB amateur draft, meaning that players from the island were subject to the same signing rules and terms of draft eligibility as players in the U.S. and Canada. While players from countries outside the MLB amateur draft could be signed as soon as they reached the age of 16, those subject to the MLB amateur draft had to wait until they finished high school.
In the 17 years since being included in the draft, only four players from Puerto Rico have approached the level of success achieved by the players from the 1982-88 period. Only Carlos Beltran, Jorge Posada, Javy Vazquez and Jose Vidro have emerged from what previously was a booming market of star players from Puerto Rico.
What happened here?
In a word – money. When teams had to compete to sign the best talent in an open marketplace, they had to spend money, both in signing bonuses and in promoting their brand. Teams would spend money on facilities in these countries, hoping players would develop allegiances to an organization. It’s no coincidence that three of the 13 players listed above (Gonzalez, Rodriguez and Sierra) signed with the Texas Rangers. Teams added locally-based scouts to their payroll to help identify talented players at an early age so they could get the jump on other teams.
But with the addition of Puerto Rico to the annual amateur draft, a team no longer had incentive to invest money in developing relationships in Puerto Rico because a player they spent money on could be drafted by any of the other teams in MLB. So money that might have gone to Puerto Rico now went elsewhere. Like Venezuela, which has sent Bobby Abreu, Edgardo Alfonzo, Miguel Cabrera, Carlos Guillen, Ramon Hernandez, Richard Hidalgo, Victor Martinez, Melvin Mora, Magglio Ordonez and Johan Santana, among others, to the majors since 1990. The Astros have been very active in Venezuela, signing Abreu, Guillen, Hidalgo and Santana from the above list.
Now that there is less benefit to finding and signing a hidden gem in Puerto Rico, teams have little reason to stay. Also, informal local “agents” who scout and develop prospects in return for a cut of future player earnings have less incentive to find at groom pre-16 talent. The draft reduced signing bonuses, and agents may have then decided spend time doing things other than finding baseball talent.
I’m a bit concerned with the way Kelly Johnson has started the season. Yes, it’s early, and sample size is an issue, but Johnson appears to have changed his hitting approach. His batting line is an un-Kelly-like .263/.282/.368: the power is gone, but the disappearance of walks is more disturbing. Last season, Johnson walked 79 times; and after drawing his first walk of the season in yesterday’s game, he is on pace for a Francoeur-esque 16. Even Jeff Francoeur has more walks (2), so far.
But, my concern grows when I look at the more-granular Pitch Data Summary numbers from Baseball-Reference. Last season, KJ averaged 4.12 pitches per plate appearance compared to this year’s 3.59. He’s swinging at 72% of strikes (compared to 67% in 2007), 49% of all pitches (compared to 39% in 2007), 26% of first pitches (compared to 20% in 2007).
Hey, it’s early, and a balky knee may be throwing him off his game. But, I’m a bit worried that Terry Pendleton has had one of his “you need to be more aggressive” chats with him.
According to the NY Daily News, Jordan Schafer is the first victim of MLB’s new whistle-blower hotline.
“This is not something that came from a government investigation,” said an MLB source who requested anonymity, speaking about the Schafer case. “It came from a team of investigators following what Mitchell recommended.”
The source would not confirm if the Schafer investigation was an offshoot of the hotline, but the source did say the line was available to anybody in baseball with access to its private code, including players, managers and front-office personnel. Tipsters can also report rules violations through a secure Web site.
The hotline goes directly to the Department of Investigations, said the source.
“You can leave a message or speak to someone live if that is your choice,” the source added.
The Department of Investigations signals a radical departure in how Major League Baseball pursues leads about performance-enhancing drug use – in the past, allegations fell on deaf ears.
If the goal of performance-enhancement is to make a player relatively better than his peers, then those peers are going to be a valuable resource to the Department of Investigations.
CPA Jorge Costales has a new blog detailing the Florida Marlins Finances. He has put a lot of work into this project, and I think his posts are quite revealing.
Here is a brief description of his motivation and approach.
As someone with a financial background, I watch in slight amazement as the Marlins management suggests, typically without specifics [understandably we now understand], that they are not very profitable. Further, they seem rather dismissive in suggesting that their finances involve concepts beyond the grasp of their fans.
Normally, when someone points out that their finances are private and they won’t provide you access to them, that would cut-off most inquiries fairly quickly. But in the case of MLB, their player contracts, attendance and network television deals are public knowledge. In other words, their main revenues and expenses are in the public domain, just not specifically allocated. Forbes, one of the most prestigious business publications in the US, has provided a yearly franchise valuation of every MLB team since 1998. In the course of that valuation, Forbes’ analysis estimates such key financial information as total revenues, player expenses and operating income or loss.
One of my favorite writers, GK Chesterton, notes that, “even a bad shot is dignified when they accept a duel.” The challenge in this case was not issued personally, I don’t know anyone directly with the Florida Marlins or MLB. But this blog, my KHR [Keep Hanley Ramirez] Project, is my response to the suggestion that understanding the Marlins’ finances is a difficult concept. It’s not, as long as we’re willing to think about it in a rational way.
I just returned from my visit to Rhodes College in Memphis where I gave two presentations: an afternoon research talk on aging in baseball and a general-interest talk on economics in baseball in the evening. I had a fabulous time. The Rhodes faculty and students were excellent hosts, and I particularly enjoyed interacting with the students. The campus is also quite lovely. It must be a wonderful place to attend college.
A federal indictment unsealed Wednesday charged that unidentified agents for baseball players steered clients to a California physician linked in media reports to supplying Troy Glaus and Scott Schoeneweis with illegal performance-enhancing drugs.
No players or agents were mentioned by name in the 11-count indictment returned by a grand jury against Dr. Ramon Scruggs and two of his alleged associates at the New Hope Health Center in Costa Mesa, Calif….
The indictment, dated March 5, was unsealed in U.S. District Court in San Jose, Calif. It contains counts involving distribution of steroids, conspiracy, misbranding drugs, money laundering and conspiracy to commit money laundering. The indictment covers activity from September 2000 to May 2003, and charges the defendants with illegally distributing drugs to baseball players, law-enforcement officers and others.
“It was a further part of the conspiracy that, on occasion, sports representation agents for professional baseball players referred their client-players to defendants Scruggs, Danto and MacPherson for the purpose of obtaining anabolic steroids and other drugs which those individuals knew to be banned by Major League Baseball and therefore unavailable to the players through lawful medical channels absent the illegal prescriptions provided by Scruggs,” the indictment said.
I’m heading out the door to catch a plane to Memphis, so I don’t have much time. But, I want to briefly comment on the 50-game suspension of Braves prospect Jordan Schafer for violating MLB’s drug policy in regard to human growth hormone. I’ll offer a few thoughts.
— What the hell is this kid doing? Growth hormone doesn’t improve athletic performance, and it is very bad for you. It’s funny that I have yet to see any mainstream media bring this up, even though this fact was discussed in a widely-covered Congressional hearing two months ago. Maybe Jordan should be reading Sabernomics more and driving his Hummer less.
— When it comes to Schafer the baseball player, I’ve never seen what all the fuss is about. He could be good or drift off into nothing. His numbers aren’t that eye-popping and he is young. He is not good enough to garner the media attention he has been getting.
— The fact that no one will say how he was busted makes me think that he has been ratted out by a dealer. Maybe it’s someone we have already heard of, or it could be that this is just the first of several names to come.
UPDATE: Kevin Goldstein at Baseball Prospectus write the following.
Stories are beginning to come out of an investigation of Schafer and other Braves teammates that led to a confession from Schafer, but it sounds like this could get ugly, if these early stories are true.
Possibly, but keep in mind that early news reports are often tainted by incorrect rumors.
— What does the future hold for Schafer? This is going to be tough to shake, because the first time he doesn’t perform up to his hype—something that is likely to happen anyway—people are going to say, “see, he’s off the drugs.” He might even believe it. Damn placebos!
— Should Schafer be punished for using growth hormone, even though it lacks performance-enhancing benefits? Absolutely. The rules state you can’t do it. Corking a bat doesn’t increase the distance that you can hit a ball, but it is against the rules to do so. The rules must be enforced.