Cincinnati Taxpayers left Holding the Bag for Stadiums Financial Failures

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Cincinnati's Paul Brown Stadium

Wall Street Journal and Cincinnati.com Cite Faulty Financial Projections and a Failed Maintenance Plan as the Reasons

Cincinnati.com reports that the Bengals are have requested a $43 Million infusion for repairs and improvements to Paul Brown Stadium that was only opened 10 years ago. This figure is reported to be four times the amount budgeted by Hamilton County and the City of Cincinnati when the two stadium complex for the Reds and Bengals was built 10 years ago. The amount does not include an $8 Million scoreboard that the Bengals also say is necessary to remain competitive in offering a good NFL experience.

The total upkeep on the two stadiums over the ten year period has only amounted to $12.4 Million or $1.24 Million per year. Mark Rosentraub, a professor of sports management at the University of Michigan, said stadium maintenance is no different than making home repairs – just on a larger scale. Rosentraub estimates that the annual maintenance for the Cincinnati stadiums could be as high as $4 Million per year and that ignoring a maintenance program will just lead to deterioration and big ticket items in the future.

At the same time the Wall Street Journal is reporting that the sales tax revenues in Hamilton County, where one in seven people lives beneath the poverty line and budget cuts have left gaps in the schools and sheriffs department, has residents bracing for more belt-tightening. The county is being forced to consider a rollback of a property-tax break promised as part of a 1996 plan to entice voters to pay for two new stadiums.

The tax hit is just the latest in a string of unforeseen consequences from what has turned into one of the worst professional sports deals ever struck by a local government—soaking up unprecedented tax dollars and county resources while returning little economic benefit the Journal went on to report.

Excerpts from the WSJ Article.

“A preliminary PricewaterhouseCoopers audit of construction costs, reviewed by the Journal, found that there were insufficient financial controls on the part of various project managers and contractors hired by the county.”

“The auditors, citing “blurred accountability,” said they hadn’t been given enough information for a full accounting. “Each party suggested that we speak to other parties about specific details of the changes,” they said in the report.”

“It’s the monster that ate the public sector,” says Mark Reed, Hamilton County’s juvenile court administrator.”

“County Auditor Dusty Rhodes initially supported the stadium deal—partly as a matter of civic pride. But now he feels differently about the costly legacy that has grown in the arenas’ shadow—and believes there’s plenty of blame to go around. The county, he underscores, has used some of the tax dollars earmarked for the stadium on things like a road project and a new waterfront development. “They just went nuts spending this money for stuff that was not envisioned,” he says.”

“Some local officials had cautioned that the stadium expense was too great. They warned that the projected $300 million in economic benefits, outlined in a report commissioned by the county, were exaggerated. Tom Luken, a former Cincinnati mayor and councilman, actively campaigned against the deal. “Anybody with half a brain can figure that this is a bad deal,” he says. “As it turned out, it was even worse than they painted it.””

” Late last year, officials announced they would have to break their promise about reducing property taxes for 2011.”

“Recently, as local officials mulled new ways to stretch the budget, one commissioner suggested making up for the tax hike by cutting another property-tax levy: one that funds health services for the poor.”

“Harold Flaherty, a former schoolteacher, says he is livid about the sports pact. “It staggers my imagination that we should pay for this,” he says. “I think it’s the dumbest thing we ever did.” Mr. Flaherty, 77, will pay about $240 more in property taxes this year due to the rollback.”

In the spirit of exposing surprises before they grow into unmanageable quandaries like the downtown hotel, the McCurdy, and the Evansville Parks have from failed maintenance programs and absence of planning, we encourage our readership to familiarize themselves with the shortcomings of other cities that have chosen to bet their economic futures on investing public dollars into temples of sport. Now it is possible that the due diligence, proper vetting, and exemplary management has gone on in Evansville that was not in Cincinnati. We certainly hope so but as Mrs. Doubtfire once said “Effie, brace yourself.”

Cincinnati.com article

http://news.cincinnati.com/article/AB/20110130/NEWS0108/101300319/Bengals-seek-43M-stadium-fixes

Wall Street Journal Article

http://online.wsj.com/article/SB10001424052748704461304576216330349497852.html

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22 COMMENTS

  1. Why is it that reading this articular provokes feeling of deja vu? I must be psychic today, is this Evansville 10 years from now?

    • 10 years?

      Uh, I don’t think you can experience deja vu of a future event. Deja vu is felt in a current situation.

      [Hint: Denial is not just a river in Egypt.]

      • Note to self:

        Down the road, when and if the powers that be, finally decide to take an honest assessment of Weinzapfel’s gamble…

        Be sure to remind them that at least Cincinnati gambled on an existing franchise, with an existing market.

        Weinzapfel’s gamble, on the other hand, involved creating an ice hockey market two to three times that of the existing market?

        Weinzapfel’s gamble, wasn’t spurred by a team threatening to leave, as Cincinnati. But didn’t the decision indirectly cause an existing team to fold? (Bluecats)

        By ramping up the market in ice hockey, one has to wonder how aggressive the revenue predictions (ticket prices!) Weinzapfel used in his, break even analysis were.

        After all, to use an Otters analogy the CCO commenters seem to like…. Isn’t Weinzapfel’s gamble, a bit like trying to build a “Yankee stadium” for our Otters to play in? (And/or a Rupp for our Aces)

    • “..soaking up unprecedented tax dollars and county resources while returning little economic benefit…”

      * * * * * * * * * * * *

      I would suggest that we are already there. No need to wait 10 years.

  2. You guys must be in a very optimistic mood today. Do you really think the idiots that run Evansville have done due diligence and vetting of any kind?I bet you laughed out loud when you were writing that. After reading about this in Cincinnati and following the antics of the ERC here in Evansville I am beginning to think that the north side of the Ohio River must cause brain damage.

    • LOL….it plays out like a comedy but in fact is a tragedy, nothing much we can do but laugh or cry depending on your perspective.

  3. So if there is no NFL season this year Cincy will really be in a world of hurt. Maybe they can hire the Mayor of Evansville and his hand picked puppets on the ERC to consult for them on how to get a hotel in there to save their stadium without a team.

  4. Evansville isn’t the only city caught up in this kind of thing. I predict we’ll be seeing this all over the country in the next 2-3 years.

    Sport owners all over the country have bilked, errr convinced politicians and taxpayers of all stripes, ideologies and partys that these humongous tributes to our tribalism are engines of economic growth.

    When you hear from one of these fancy pants consultants and their studies written to sell these stadiums as “job creators” ask your self a simple question. Are the fans who attend these better or worse off financially after the game and did the consultant subtract that out of their financial reports? The answer of course is no!

    If this country’s idea of economic development is watching grown men run up and down a field or court or skate around a rink as the case may be then we are in a world of hurt.

    The Indy Capital Improvement Board CIB was bailed out even before Lucas OIL was built and the Colts only pay a measly $250M/yr to use it.
    I have reviewed the financial statements of the CIB and I can almost guaranteee the CIB will be back to the state legislature in the next year or two asking and needing more money.

    Stop the madness.

    • I agree with this post. Larger cities with major league sports franchises have almost all built new, lavish stadiums in order to compete with other franchises. Exception being Los Angeles (no NFL teams in metro area).
      Some owners have put their money up to accept part of the risk associated with building these new stadiums. However, many franchise owners expect local politicians to jam through legislation to have taxpayers foot the bill for their greed. If they don’t get what they want (like Houston Oilers owner Bud Adams) they pack up to a new city eager to lay down the welcome mat for them.
      Most of these stadium projects promise economic development for the area that never materializes. Unless overpriced parking, tickets, hot dogs and warm beer are what they think economic development is about.

    • HA!

      Steve, I think there are many of us that are tired of the false political equivocation.

      Locally, isn’t the record pretty clear?

      They bilked us via Lloyd’s (Republican) stripes for $1 million. He studied it, started a bit down that path and he yanked the plug and said NO MAS, no mas.

      After seeing that lost opportunity. The other, ahem, Weinzapfel (Democrat) stripes seized political opportunity to build a legacy of progressivism, with a little demagoguery. Isn’t that progressive legacy leaving children to grow up licking their hypodermic needle wounds and grabbing for their missing wallets?

      As I pointed out before, to my knowledge, no evil “sports owner” threatening to leave, spurred Weinzapfel’s gamble…

  5. The fact that Cincy has a County Auditor named Dusty Rhodes makes me more happy than it should . . .

  6. We do not have to go to Cincinnati or Houston to witness taxpayer abuse at the hands of a sports franchise.

    The Colts front office sent their highly paid lobbyists to join the Indy CIB’s highly paid lobbyists to secure a taxpayer bailout of the Lucas Oil Stadium project.

    The result? Now every taxpayer in the state gets his/her share of that debt service for 8 years, if they don’t extend it. Never mind the fact that the legislation that enabled that to happen was “SPECIAL LEGISLATION” that is forbidden by Indiana’s Constitution!

    I guess now the Colts and the CIB can sight precedence in any future attempts at bilking the taxpayers.

    _

    • This excerpt is from one of the articles linked in your blogspot:

      “A professional sports team, therefore, creates a “public good” or “externality”—a benefit enjoyed by consumers who follow sports regardless of whether they help pay for it. The magnitude of this benefit is unknown, and is not shared by everyone; nevertheless, it exists.”

      I doubt the writer actually understands what an “externality” really is. The “benefit” must be measurable for it to factor into the equation. Example: Pollution is regarded as an externality which can be measured by declining health conditions, property values. etc. The effects are quantifiable.

      That is another question I have with all the articles you have linked. There are no works cited, or studies referenced, for all the numbers the authors provide in the articles. Where is the economic impact study on each of these stadiums? Who ordered them? Who conducted the studies?

      My favorite saying applies: “Figures lie, and liars figure.”

      • 1. There ARE studies and works cited. Everything that is quoted is directly behind the link it came from whether it was Brookings, UC, or the Economics Center.

        2. All 3 sources most definitely understand what they are doing and saying. It is pretty obvious that when you write an article about a sports team creating $250 million + indirect benefits that you know what an externality. And it is most definitely measurable. Whatever a visiting fan spends is whatever the impact is.

        3. You cannot produce one single article that can successfully prove the Bengals and Reds do not have this impact. It is there whether anyone wants to admit it or not. These two facilities draw well over a 1,000,000 people a year. If these were empty stadiums that would be one thing, but they’re not.

        4.

    • Within a nine-block area of the new arena? Not a very large area to have an overall positive impact on a city or metro area. Lends itself well to the argument that a project such as the new stadium has benefit to only a few.

      And qouting one real estate agent about a couple of properties sold doesn’t exactly constitute a gold rush.

      • Which is why the funding used for the new arena comes from the downtown TIF not city and county property taxpayers outside of the area.

        Yes, there are two other funding sources as well but they are specifically marked for tourism which this arena will provide. This arena will dump more money into the general fund coffers than it will pull, just like cincinnati.

  9. A little sanity here guys. It is clear from the WSJ article that the financial projections that were done before the stadiums were built to get the people to vote YES were not achieved. They were not even close. It is also clear that the property tax reduction commitments that were made to the people of Cincinnati were repealed to pay for the stadiums.

    For both those in favor of or opposed to public funding of stadiums the facts are that the front end consultants were not accurate and the people of Cincinnati are paying for it.

    Are the benefits worth the costs? Different and trickier question. It will be interesting to observe the results in Evansville. Will the Arena start a renaissance downtown or will it just replace Roberts? Are there any examples where Arenas alone had big impacts? The answer is no. There has to be more.

    Public money to sports teams is reverse redistribution of income. Why can’t the team owners build their own stadiums? For example if an NFL team has a $50 Million payroll and plays in a publicly funded stadium that has a debt payment of $10 Million, this is directly taking money from the pockets of people that work and handing it to ballplayers. The team should support their own stadiums and pay the players with what is left. This is no different than bailing out banks or oil companies.

    • “It is clear from the WSJ article that the financial projections that were done before the stadiums were built to get the people to vote YES were not achieved. They were not even close. It is also clear that the property tax reduction commitments that were made to the people of Cincinnati were repealed to pay for the stadiums.”

      They bring in $245 million +. That’s about as good as it gets for a stadium and a ballpark that have not hosted any all-star or Super Bowls, but it’s good enough to support itself. In 4 years, those stadiums have generated almost a billion dollars. If the city of Cincinnati cannot budget the tax revenue from that impact wisely to be able to afford a one time $50 million upgrade then how can you blame the stadium and ballpark?

      “For both those in favor of or opposed to public funding of stadiums the facts are that the front end consultants were not accurate and the people of Cincinnati are paying for it.”

      I don’t remember the exact estimate the consultants came up with but I believe it was pretty close. Cincinnati has 2.1 million in it’s metro area and 300,000 roughly in its city area. How exactly does someone’s property taxes need to be jacked up to $240 to pay for a simple $50 million upgrade? Especially when the facilities are bringing in $245 million a year to the area?

      “Are the benefits worth the costs? Different and trickier question. It will be interesting to observe the results in Evansville. Will the Arena start a renaissance downtown or will it just replace Roberts? Are there any examples where Arenas alone had big impacts? The answer is no. There has to be more.”

      Yes there is. The Minnesota Vikings…

      http://www.myfoxtwincities.com/dpp/news/minnesota/losing-vikings-game-costs-twincities-9-million-dec-13-2010

      http://www.vikings.com/assets/docs/infrastructure-061311.pdf

      The Metrodome has been heavily criticized for its lack of development around it even though that was mainly the fault of the city planners who committed to pushing the development down the wrong streets. The development has since begun to take off now that they changed course but the Vikings and the Metrodome have been generating more than enough economic impact to pay for the dome including the successful Super Bowl they had several decades ago.

      You are right though that we need to build around the new arena. In fact, we need to go through with the ENTIRE 2001 master plan. If we don’t commit to downtown we cannot expect downtown to produce for us. Build the ballpark, build the canal, build the marina, and revamp the civic center.

      Also, the arena is not replacing Roberts although the locals want you to believe that. Roberts is repositioning itself as a mid-sized expo center while the new arena will do for Evansville what Roberts or the Coliseum cannot: produce revenue from modern club and louge boxes.

      “Public money to sports teams is reverse redistribution of income. Why can’t the team owners build their own stadiums? For example if an NFL team has a $50 Million payroll and plays in a publicly funded stadium that has a debt payment of $10 Million, this is directly taking money from the pockets of people that work and handing it to ballplayers. The team should support their own stadiums and pay the players with what is left. This is no different than bailing out banks or oil companies.”

      I agree and disagree with you on this one. I could make the argument either way. I do see why you believe that teams should pay their stadium debt before their players. I would fully support extending the NFL lockout until that happened but it won’t. The players receive the majority of the money ( I think they have a 57-43 revenue split with the owners) and will not move an inch on that which I find to be unacceptable.

      Also, the NFL did have a stadium fund. It was called G3. Unfortunately, the Chiefs, Jets, and Giants have since drained it and when it’s replenished the Cowboys will still need it, so will the Colts, and then the 49ers will need it so it will be gone again quickly.

      On the otherhand, I really don’t have a problem with the city giving support to a stadium. These stadiums bring in exponential amounts of direct and indirect benefits to the city. Why should one owner/one team have to foot the bill when the entire area around the stadium is reaping the rewards? If that owner suggested placing a venue there that did not make any money, the nearby businesses would protest.

      Unlike oil and banks, stadiums bring in tourists and revenue to a city.

      • Tourists can’t get here or anywhere else without oil. As for banks, how many of them buy the sponsorship rights to these stadiums. Heck you can’t even turn on the lights, the scoreboard, or gas up the Zamboni without oil. Transportation and banking are vital to every economy in the world. Stadiums are ultimately just some place to watch grown men play ball.

        As for the estimates by the consultants, they were not close enough to keep Hamilton County from having to welch on its promise to the taxpayers.

        Stadiums are much like politicians which is why politicians seem to love them so much. They are big and flashy. Lies have to be told up front to get them put into place. When the lies are evident, the jackasses that told the lies are long gone with a pocket full of money and the public is left holding the bag.

        One thing I will say for Cincinnati. At least their leaders had the courage to take to a vote of the people.

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