[Senate Hearing 106-484]
[From the U.S. Government Publishing Office]
S. Hrg. 106-484
STADIUM FINANCING AND FRANCHISE RELOCATION ACT OF 1999
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
on
S. 952
A BILL TO EXPAND AN ANTITRUST EXEMPTION APPLICABLE TO PROFESSIONAL
SPORTS LEAGUES AND TO REQUIRE, AS A CONDITION OF SUCH AN EXEMPTION,
PARTICIPATION BY PROFESSIONAL FOOTBALL AND MAJOR LEAGUE BASEBALL SPORTS
LEAGUES IN THE FINANCING OF CERTAIN STADIUM CONSTRUCTION ACTIVITIES,
AND FOR OTHER PURPOSES
__________
WASHINGTON, DC; WASHINGTON, DC; PHILADELPHIA, PA
__________
JUNE 15, JUNE 22, AND SEPTEMBER 13, 1999
__________
Serial No. J-106-32
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
63-000 CC WASHINGTON : 2000
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
(ii)
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Specter, Hon. Arlen, U.S. Senator from the State of Pennsylvania
1, 52, 109.....................................................
Thurmond, Hon. Strom, U.S. Senator from the State of South
Carolina....................................................... 51
Feinstein, Hon. Dianne, U.S. Senator from the State of California 54
Schumer, Hon. Charles E., U.S. Senator from the State of New York 55
Feingold, Hon. Russell D., U.S. Senator from the State of
Wisconsin...................................................... 56
Kennedy, Hon. Edward M., U.S. Senator from the State of
Massachusetts.................................................. 57
Hatch, Hon. Orrin G., U.S. Senator from the State of Utah........ 58
Leahy, Hon. Patrick J., U.S. Senator from the State of Vermont... 72
Biden, Hon. Joseph R., Jr., U.S. Senator from the State of
Delaware....................................................... 110
PROPOSED LEGISLATION
S. 952, a bill to expand an antitrust exemption applicable
to professional sports leagues and to require, as a condition
of such an exemption, participation by professional football
and major league baseball sports leagues in the financing of
certain stadium construction activities, and for other
purpose......................................................... 2
CHRONOLOGICAL LIST OF WITNESSES
june 15, 1999
Panel consisting of Hon. Thomas M. Finneran, speaker,
Massachusetts house of representatives, Boston, MA; Hon. Edith
G. Prague, assistant majority leader, Connecticut State senate,
Hartford, CT; John Moag, Jr., Legg Mason Wood Walker, Inc.,
Baltimore, MD; Hon. Jean B. Cryor, delegate, Maryland house of
delegates, Annapolis, MD; D. Bruce Poole, former delegate,
Maryland house of delegates, Annapolis, MD; Andrew Zimbalist,
Robert A. Woods professor of economics, Smith College,
Northampton, MA; and Mark S. Rosentraub, professor, School of
Public and Environmental Affairs, Indiana University,
Indianapolis, IN................................................ 13
june 22, 1999
Panel consisting of Jerry Richardson, owner and founder,
Carolina Panthers, Charlotte, NC; Benjamin Klein, professor of
economics, University of California at Los Angeles, Los
Angeles, CA; Gene Upshaw, executive director, National Football
League Players Association, Washington, DC; Paul Tagliabue,
commissioner, National Football League, New York, NY; and
Richard Horrow, president, Horrow Sports Ventures, Miami, FL.... 61
september 13, 1999
Statement of Hon. Rick Santorum, U.S. Senator from the State of
Pennsylvania.................................................. 112
ALPHABETICAL LIST AND MATERIALS SUBMITTED
Carn, Hon. Andrew: Testimony.................................... 128
Cryor, Hon. Jean B.: Testimony.................................. 30
Finneran, Thomas M.:
Testimony................................................... 13
Prepared statement.......................................... 18
Horrow, Richard:
Testimony..................................................... 93
Prepared statement............................................ 95
Katz, Sam: Testimony............................................ 131
Klein, Benjamin:
Testimony.................................................... 66
Prepared statement........................................... 67
Moag, John, Jr.: Testimony..................................... 25
Poole, D. Bruce:
Testimony................................................... 33
Prepared statement.......................................... 35
Prague, Edith G.:
Testimony.................................................... 20
Prepared statement........................................... 23
Rendell, Hon. Ed: Testimony..................................... 114
Richardson, Jerry:
Testimony................................................... 61
Prepared statement.......................................... 62
Letter from Jerry Richardson to Senator Thurmond,
dated June 9, 1999................................... 63
1999 Resolution G-3-As Amended.......................... 64
Rosentraub, Mark S.:
Testimony................................................... 42
Prepared statement.......................................... 44
Saidel, Jonathan A.: Testimony.................................. 124
Santorum, Hon.Rick: Testimony................................... 112
Tagliabue, Paul:
Testimony................................................... 76
Letters from:
Joe Browne, National Football League, to Marc
Morial, Mayor of New Orleans, dated June 11,1999...... 78
Marc H. Morial to Paul Tagliabue, dated June 21, 1999... 79
Prepared statement.......................................... 79
Upshaw, Gene:
Testimony.................................................... 73
Prepared statement........................................... 74
Zimbalist, Andrew:
Testimony.................................................... 37
Prepared statement........................................... 40
APPENDIX
Questions and Answers
Responses of Professor Benjamin Klein to questions from
Senator Leahy................................................. 143
Responses of Jerry Richardson to questions from Senator
Feingold...................................................... 144
STADIUM FINANCING AND FRANCHISE RELOCATION ACT OF 1999
----------
TUESDAY, JUNE 15, 1999
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 12:04 p.m., in
room SD-226, Dirksen Senate Office Building Hon. Arlen Specter
presiding.
Also present: Senator Feingold.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Senator Specter. Good afternoon, ladies and gentlemen. We
will proceed with the hearing on S. 952, which involves the
conditioning of the antitrust exemptions enjoyed by baseball
and revenue-sharing on football on the major leagues and the
National Football League contributing to new stadium
construction. And another part of the legislation would give
the National Football League an antitrust exemption to control
franchise moves.
[The text of the bill follows:]
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Senator Specter. Senator Hatch is on the floor at the
moment and we have been asked to proceed. The chairman will be
here shortly, but we have a very distinguished array of
panelists and we will move ahead at this time.
The crux of the problem might be categorized by the request
for National Football League teams for publicly-financed
stadiums at a time when they enjoy an antitrust exemption which
has enabled them to have enormous revenues, some $17.6 billion
over a multiyear television contract, and that is by virtue of
the exemption which the Congress has granted.
And a fundamental proposition of the proposed legislation
is that in that context, the NFL ought to be giving something
back, like paying for its own stadiums, or at least a major
share of its own stadiums, as this legislation proposes, for
the NFL and Major League Baseball to pay for half of new
stadium construction, with a quarter coming from the team
owners and a quarter coming from public financing. Some of you
have even protested that that is too much coming from public
financing, and this is an initial proposal and all subject to
revision.
The situation, as well-known, is that America has had a
longstanding love affair with sports, and I must confess to
having been a participant in that since I was 8 years old and
became interested in the Chicago Cubs when I lived in Wichita,
KS, and gravitated to the Cubs because I traveled to Chicago to
see the World's Fair. As a youngster, I studied the box score
assiduously in the Wichita Beacon.
I later moved to Russell, KS, the home of Senator Dole, who
made one of his famous quips that in Russell the most popular
Saturday night entertainment is watching the paint dry, so that
when the box scores would come in in the morning, that was a
major source of interest.
And I can recall as an 11-year-old going to the local
baseball field to see an exhibition game between the
Philadelphia Athletics and the Pittsburgh Pirates, and got the
autographs of Connie Mack, the original one, not the No. 3, who
is my colleague in the Senate, and Honus Wager, the famous Hall
of Fame Pirate third basemen.
And I was one of millions of Americans who were troubled in
1958 when the Dodgers moved to Los Angeles. I think Los Angeles
should have had a baseball team, but not Brooklyn's. And San
Francisco should have had a baseball team, but not the New York
Giants.
And we have seen the proliferation of legalized extortion--
and I am not going to bandy any words about it--when teams move
from one city to another in order to get enormous subsidies
from stadium construction or stay in the town on the threat of
moving away, getting stadium construction from the city which
is there.
The financing of major league teams implicates necessarily
some collateral issues such as free agency and revenue-sharing
for baseball, and there are growing rumbles in America of
public concern on these issues. Just last week, I noted a
commentary by Frank DeFord, of Sports Illustrated, on National
Public Radio last Wednesday, and it encapsulates the problem in
a nutshell and I shall read a small excerpt from Mr. DeFord's
statement.
Even if you aren't a fan of the current best team,
you have faith that someday soon your team will rise
from the ashes, only baseball, in its greedy
shortsightedness, has managed to destroy that sweet
reverie. Of course, it's not just the owners of the
wealthy, big-market teams who are responsible for this
estate, but a filthy-rich share and
unlikely alliance with the proletariat, the Players
Union, which remains absolute in its position that no
limits should be placed on a player's right to
remuneration and residence, even if this threatens the
very essence of the sport, that faith that tomorrow may
be a better day.
Our initial two hearings are going to involve football
only, but we will be moving to baseball as well and we will be
taking up the issues, as I say, which implicate revenue-sharing
and free agency. For the record, we will make a list of a great
number of witnesses who have been invited to today's hearings
who have declined. We have sought witnesses in opposition to
the legislation, as well as witnesses who might have a
favorable stance.
Next Tuesday, on the 22d, we will hear from NFL
Commissioner Paul Tagliabue, Players Representative Gene
Upshaw, and Carolina Panthers owner Mr. Jerry Richardson. And
perhaps other NFL representatives will testify as well
according to a letter which I just received from the National
Football League.
Well, at this time let us proceed to our very distinguished
panel of witnesses. We are joined by the well-known Speaker of
the Massachusetts House of Representatives, the Honorable
Thomas Finneran. He has been a member of the Massachusetts
House since 1979. He has been a leading figure in the situation
with the Patriots, in a classic struggle of the home area
seeking to retain the team against a very substantial bid, $375
million, by Hartford to move the Patriots down.
And then when it looked as if Hartford had the team, the
National Football League came into the picture and the Patriots
are remaining in Massachusetts, in significant part due to
Speaker Finneran's persistence and steadfastness in refusing to
up the ante. And part of that arrangement was some funding by
the National Football League, and it is just possible that some
of that might have been influenced by the pending legislation.
This bill was
introduced relatively recently, but I have been jawboning with
Commissioner Tagliabue on this subject for several years, and
also with the representatives of Major League Baseball.
So thank you for joining us, Speaker Finneran. The floor is
yours.
PANEL CONSISTING OF HON. THOMAS M. FINNERAN, SPEAKER,
MASSACHUSETTS HOUSE OF REPRESENTATIVES, BOSTON, MA; HON. EDITH
G. PRAGUE, ASSISTANT MAJORITY LEADER, CONNECTICUT STATE SENATE,
HARTFORD, CT; JOHN MOAG, JR., LEGG MASON WOOD WALKER, INC.,
BALTIMORE, MD; HON. JEAN B. CRYOR, DELEGATE, MARYLAND HOUSE OF
DELEGATES, ANNAPOLIS, MD; D. BRUCE POOLE, FORMER DELEGATE,
MARYLAND HOUSE OF DELEGATES, ANNAPOLIS, MD; ANDREW ZIMBALIST,
ROBERT A. WOODS PROFESSOR OF ECONOMICS, SMITH COLLEGE,
NORTHAMPTON, MA; AND MARK S. ROSENTRAUB, PROFESSOR, SCHOOL OF
PUBLIC AND ENVIRONMENTAL AFFAIRS, INDIANA UNIVERSITY,
INDIANAPOLIS, IN
STATEMENT OF HON. THOMAS M. FINNERAN
Mr. Finneran. Thank you, Senator Specter. I appreciate the
opportunity and the invitation to testify on S. 952. For the
record, my name is Thomas Finneran. I live in Boston, MA, and I
am, as you were so gracious enough to point out, the Speaker of
the House in Massachusetts, the Massachusetts House of
Representatives.
I should for the record point out also that I, as a young
fellow, also fell in love with that habit of going through the
daily box scores. And while we may have been rooting for
different teams, I will never forget the heartbreak associated
with the 1960 World Series, when Bill Mazeroski for the Pirates
drove a stake into the heart of my--I was a Boston guy and I
was a Yankee fan. So you try to figure out my politics or my
leanings and my hungerings. I am not quite sure that I can as
well.
Senator Specter. Mr. Speaker, I started off as a Cub fan,
but my allegiance shifted to the Phillies when I became a
Pennsylvanian, where I root for the Pirates as well.
Mr. Finneran. Well, we wish you well in your continued
support and enthusiasm for the Phillies. I think they miss Mike
Schmidt and folks who could really throw the ball. But hope
springs eternal, although Frank DeFord apparently has come to a
different conclusion, given the intransigence of the Players
Union and the League.
Nonetheless, with regard to S. 952 and your proposal, I am
encouraged quite frankly by your willingness to step into this
public arena and into this debate, by the jawboning that you
made
reference to with regard to Commissioner Tagliabue. I think the
proposal injects a much needed element of clarity to a debate
that really suffers from remarkable economic confusion.
We have such a confusion of interests in which ordinary
taxpayers are now expected to subsidize the already immense
wealth of a few players, a handful of players, an even smaller
handful of agents, and an indescribably small number of owners.
And that, to me, seems to really turn economics and policy on
its head.
The fact is that team actions all across this country
range, I think--and I have examined your remarks in the
Congressional Record, and I applaud them and I recommend them
to anybody who hasn't yet had an opportunity to read them.
Those actions range from somewhere between extortion, as you
have pointed out, to seduction, and it is an attempt to, in one
way or another, take extraordinary advantage of local
governments and local jurisdictions.
In Massachusetts, we just concluded a 4-year debate
regarding the Patriots. Having closed that chapter, we are
about to open a new chapter with regard to the Red Sox. Boston
and Massachusetts are home to four professional teams--the
Celtics, the Bruins, the Patriots and the Red Sox--and we host
innumerable collegiate and amateur teams. It is a part of the
fabric of Massachusetts, as I am sure sports are a part of the
fabric of any particular community.
Senator Specter. Mr. Speaker, when you mention the teams--
and we have scheduled this at a rather unique hour because
there were many conflicts with other hearings, and I think we
can be a little less formal today than we are on so many of the
hearings with taking the witnesses in order in the interests of
the economy of time.
But you do have quite a problem with as many teams as you
have, and as a Pennsylvania Senator, we are looking at four new
stadiums. Two are under construction now in western
Pennsylvania for the Steelers and the Pirates, and two are in
the immediate offing for the Phillies and the Eagles. And that
is a $1 billion package and the format is two-thirds public
subsidy, so that I have a profound interest in this issue as a
U.S. Senator, but an extraordinary interest as a Pennsylvania
Senator.
Mr. Finneran. That is a huge package that you make
reference to, Senator, and clearly the $1 billion that is
proposed, at least some part of it, if not the entirety, is
probably expected or hoped for, at least by the owners of those
teams, to come from the public treasury, which would clearly
come at the expense of opportunities for ordinary Pennsylvania
citizens with regard to education and investment in health and
infrastructure and public safety and the like.
And I hope that today my remarks might prove instructive or
at least give some illumination to the model that we in the end
embraced in Massachusetts after a great deal of controversy.
Notwithstanding the presence of those four teams and the
affiliation, the affection that so many of us feel for those
teams, we don't allow them to define or shape public policy in
Massachusetts.
Indeed, I would say that public policy in Massachusetts,
and I expect in almost every other jurisdiction, is shaped by
more universally important things--investments in education,
investments in infrastructure that allow the swift and rapid
movement of people and products and goods and services,
investments in health care and housing and other issues that I
made reference to.
We also do have, quite frankly, almost a quaint recognition
in Massachusetts for the limited role and responsibility of
government, and we stood up and articulated that without any
hesitation or equivocation for the better part of 4 years. And
in the face of an awful lot of pressure both from the press and
from some powerful economic interests, we said no to what we
characterized as corporate welfare.
It seemed to us that this was highly unnecessary,
particularly in the aftermath of the National Football League
broadcasting contract, to which you have made reference. As we
articulated our point of view, our frame of reference, being
the taxpayers of Massachusetts, and also articulated that
limited role and responsibility of government, we continued to
ask the question why. Why are taxpayers expected to subsidize
already profitable businesses?
In no other area, in no other realm of our private sector
economy are taxpayers routinely asked or expected to subsidize
the profit margins of businesses.
Senator Specter. Speaker Finneran, don't pay attention to
the red light. I have interrupted you substantially. Just
proceed.
Mr. Finneran. OK, no problem. Let me wrap up because I am
also quite aware that we have some extraordinary testimony that
we will take.
When we articulated these principles, we were greeted with
smirks, and smirks, I suppose, are part of life in the public
arena. Whenever any elected official talks about principles,
the wise guys begin to think that it is nothing but a rouse or
a smoke screen for something else. These were the principles
that are now clearly on the record and a part of any debate
that will occur henceforth in Massachusetts: no public funds
whatsoever for any part of a stadium facility; no public funds
or subsidy to be provided directly to the team franchise, which
was also proposed; no public funds for the purchase and lease-
back of land which would then be used for the benefit of the
franchise; no expectation that taxpayers should act as either a
no-cost or low-cost bank or financing mechanism for private
for-profit businesses; no recognition whatsoever, or acceptance
or embrace of the so-called economic multiplier models which
attempt to justify public subsidies of private business
arrangements; a complete insistence that the leagues and the
member teams take full responsibility for their facility
financing needs; and insistence that any public funds be used
solely and exclusively for infrastructure--an on-ramp, an off-
ramp, a pedestrian overpass, utility or sewerage lines that
might enhance public safety, public access and public health
purposes; and finally an insistence that any infrastructure
expenditure that primarily benefits a private interest would
also have a revenue stream coming back to, in our case, the
Commonwealth in order to assist and help support part of that
debt service.
With regard to two specific suggestions I might make for S.
952, you might consider trying to utilize the Massachusetts
model, recognizing that this is subject to debate and great
negotiation back and forth. But our insistence that the team
and or the league take exclusive responsibility and bear that
cost solely on its own shoulders rather than on the shoulders
of the taxpayers has been borne out and now embraced by the
league.
As you pointed out, the league changed its bylaws in
February or March, and I think it might be, quite frankly, in
combination to the bill that you had filed and to the
resistance that we were able to mount in Massachusetts. If that
first proposal can't make it or garner majority support in the
legislative process, I would suggest the following that
minimally with regard to this two-for-one match mechanism that
you propose, you might want to make sure that you give local
governments full financial credit for any infrastructure
expenditure they are going to make. Those infrastructure
expenditures are of substantial economic value and worth to the
franchise, and I think it should be weighed and given full
credit to the local government so that the local taxpayers
again aren't picking up the lion's share of the expenses
associated with this.
Let me close just by thanking you once again, Senator, not
only for the invitation but for the courage to enter the fray
on this public debate. I think it is long overdue and I wish
you well.
Senator Specter. Well, thank you, Speaker Finneran. You
have certainly shown a tenacious approach in Massachusetts. It
is different from what happened with the Buffalo Bills when
they threatened to move. There was a subsidy of $180 million
for renovations of the stadium. The Cincinnati Bengals
threatened to move, stadium approved with a public subsidy of
$400 million.
The Denver Broncos threatened to move. A stadium was
approved with a public subsidy of $260 million. The Detroit
Lions got $240 million in subsidies. The Seattle Seahawks
threatened to move, a $325 million public subsidy. The Tampa
Bay Buccaneers threatened to move, a $300 million-plus subsidy.
But let me ask you one threshold question. You were
prepared to have the Patriots move. I have a little different
view, and I have noted your testimony with admiration about
what defines Massachusetts and what defines Boston, as you have
articulated it. There was a real problem in Pittsburgh with the
threatened move of the Pirates, and I have publicly thanked
before Commissioner Selig and Major League Baseball for helping
to keep the Pirates in Pittsburgh and I do so again today.
And I worked very hard, along with many others, to keep the
Pirates in Pittsburgh, Senator Santorum and then Senator
Wofford both crossing party lines, because I thought the
Pirates were really important to Pittsburgh. It is a small-
market city and they are struggling to make it. They have got a
vigorous, able young owner who is working very hard, and I
really wanted to keep the Pirates there. You were willing to
take a chance on losing the Patriots.
A two-part question. How would your constituents have
responded had you lost the Patriots? And, secondly--well, take
that one up first and I will ask the second one later.
Mr. Finneran. My constituents and I think the overall
citizenry of Massachusetts were pleasantly surprised that
somebody would stand up and speak for them. They found it both
rare and refreshing. There is a small segment of the public,
obviously very enthusiastic fans and some people who are
patrons of sports radio talk shows, and they tend to work
themselves up into a lather, some mild form of hysteria from
time to time.
Ordinary citizens, however, would literally stop me in the
subway outside the church and the supermarket and say thanks
for standing up and injecting an element of common sense into
this debate.
Senator Specter. Did any stop you to the contrary?
Mr. Finneran. Yes, some did stop me to the contrary and
some told me that they thought I was a complete fool. My wife
occasionally tells me that as well, as they have company.
But the Frank DeFord article that you made reference to, I
think, is again instructive. Sports has lost its connection in
many ways to common fans and to common citizens or ordinary
taxpayers. We still root for the home team. When they win,
there is a buoyancy to our everyday conversations. We rise and
fall with the pennant race or how the local team is doing.
But nonetheless, the extraordinary salaries, the
extraordinary negative attitudes that are reflected by the
players, by the agents, by the owners, the selfishness and the
greed that so evident has turned off a great number of people.
And they literally, I think, are encouraged by public officials
or leaders who will stand up and say, look, enough is enough.
We will help, we will assist with infrastructure, but if you
want us to be a partner, count us in on the equity share, too.
We don't want to take all the financial risk without assuming
some of the reward.
Now, of course, when you talk like that, which is the
normal language or lexicon of a capitalist and an investor, the
capitalists and investors who have bought these teams run from
the room. They want some form of communism in which literally
the public will provide all the dough to them. It is somewhere
between socialism and communism that they want for their own
league and for their own profits and their own benefits.
Senator Specter. I thought I was tough on the issue, Mr.
Speaker. [Laughter.]
I think I am mild when you have characterized them as
socialists and communists.
Mr. Finneran. Well, they actually make the commies look
good.
Senator Specter. Well, the other half of the question is
what so many cities respond to--I know Seattle has, as well as
Pittsburgh and Cincinnati and Buffalo--not wanting to lose big-
league status. How did that influence you, if at all?
Mr. Finneran. It is relevant and it is important, in all
honesty, to give appropriate deference and respect to the value
and importance of any of these franchises. It is probably more
important psychologically than it is economically. If I had to
choose, I would rather not make this type of choice, but I
would rather lose a pro sports franchise than Gillette or
Raytheon or some major employer who employs thousands of people
in a range of ordinary occupations rather than a handful of
multi-million-dollar salaries.
But there is a legitimacy to that observation.
One of the things that I thought we had going for us in
Boston, particularly with regard to the National Football
League and the Patriots franchise, was a recognition on our
part, long before any other people commented on it, that we are
either the No. 5 or No. 6 major media market, and that the
jurisdictions which were likely to attract the attention of the
owner and the league were something less than that. And, truly,
it is the broadcast revenue that is the oxygen to this league.
It is when we finally stood up--and I suspect that when you
filed S. 952, the league itself huddled back and decided to
rearrange their bylaws and provide financing because if I was
the broadcast executive having just entered into that contract
for $17.6 billion for 8 years and now saw the market shifting
from No. 5 or 6 to the Hartford, CT market which is somewhere
in the 20's, I would be on the phone right away with
Commissioner Tagliabue and say, ``Hey, that is not the benefit
of the bargain that I drove and paid for.''
We recognized in Massachusetts that we had that card in our
hand and that it was unlikely that they were going to be able
to move to New York, because you would have the Jets and the
Giants contesting that, or Chicago or San Francisco or Los
Angeles. The other major media markets that surpass and eclipse
even Boston and New England were not likely competitors for us.
And all the competitors were on the downside and we thought the
broadcasters would do--I don't know whether they actually did
it or not, but clearly the NFL changed its bylaws and they had
never even contemplated that action or that behavior until we
stood our ground.
Senator Specter. Well, I am inclined to agree with your
analysis. We will never know for sure, and changes are
frequently the result of a great many factors, but I think the
pendency of the legislation, the so-called jawboning over the
years, and the growing concern about the greed of players'
salaries and the free agency all, in combination, are going to
move the envelope here.
Mr. Finneran. I agree. It is absolutely out of control, and
we should keep in mind these are all self-inflicted wounds and
yet the owners continue to turn to the taxpayers in every
jurisdiction and say essentially, save us from ourselves. They
don't show the discipline or restraint that they show in every
other business that they control. And the players themselves,
the employees, won't show any restraint.
And until public leaders such as yourself help change the
rules and level the field, and the rest of us stand up and
articulate what are the essential interests of our taxpayers,
those owners would continue to reach into the public till. I
think we have changed the model here not just based on
Massachusetts, but clearly based upon this legislation which
you have advanced.
Senator Specter. Well, thank you very much, Speaker
Finneran.
Mr. Finneran. Thank you, Senator.
[The prepared statement of Mr. Finneran follows:]
Prepared Statement of Thomas M. Finneran
Thank you, Mr. Chairman.
For the record, my name is Thomas M. Finneran. I live in Boston,
Massachusetts and I serve as the Speaker of the Massachusetts House of
Representatives.
I am honored to appear before the Committee on the Judiciary of the
United States Senate relative to Senate No. 952, entitled the ``Stadium
Financing and Franchise Relocation Act of 1999.'' I thank you, Mr.
Chairman, Senator Specter, the sponsor of the legislation and all the
Members of the Committee for such a generous and unique opportunity to
present testimony in support of this legislation which is consistent--
although not entirely in alignment--with the approach articulated and
adopted in the Commonwealth of Massachusetts.
I am proud to say that in Massachusetts we have resisted the
pressure brought by the owners of professional sports teams who have
directly or indirectly threatened to move their franchise to another
city or to sell their team if significant taxpayer money was not
appropriated to construct a new ballpark or stadium. Far too many teams
have taken advantage of the unique loyalty held by many fans, who out
of a love of the game and of sport, champion the cause of team owners
who do not share or reciprocate such loyalty.
Massachusetts is home to four major professional sports
franchises--the Celtics, the Red Sox, the Bruins and the Patriots.
Massachusetts has a storied sports history and its people are
passionate about sports--both amateur and professional. We are quite
proud of our hometown teams but they most emphatically do not
constitute the essence of the social, cultural, or economic fabric of
Massachusetts. We truly cherish our historical role in the birth and
development of our nation; we boast of the fact that we house over 80
colleges and universities, including some of the most prestigious in
the world; we value our many artistic and theatrical companies and we
enjoy as frequently as possible the mountains and forests of western
Massachusetts, the waters of Boston harbor, and the natural beauty of
Cape Cod. Professional sports do not and will not define us or shape
us.
Education, research, health care, financial services, banking,
investment, trade, tourism, history, art, culture, drama and the
natural beauty and bounty of our
Commonwealth are precious to our heritage and our future. Contrary to
their self-serving assertions, professional sports teams are not the
engines that drive local economies. I encourage legitimate economic
development as an appropriate governmental objective, but multiple
independent studies--including those given by scholars that have
testified before you over the last several years, such as Andrew
Zimbalist and Robert Baade--show no significant positive net economic
impact derived from professional sports franchises.
I think it is crucial to bear in mind that the money which fans
spend on tickets, concessions, and team apparel is purely
discretionary. Rational economic theory suggests that housing,
transportation, tuition, food, clothing, and utility expenses are
essential to every household and therefore claim an economic grounding
and status which surpasses that of any dollars spent on the options of
diversion and entertainment. For example, Robert Baade, and Alan
Sanderson write that during the 1994 major league baseball strike,
``September 1994 [was] the most successful September in history for
movies. With no baseball to watch in person or on television, fans and
their families went to movies, rented videos, ate out more often, and
visited amusement parks. Very few if any dollars were ``lost'' as a
result of the baseball strike; they just appeared on other ledgers. A
sports team's ``multiplier effect'' and contributions to a region's
economy, trotted out so often by chambers of commerce and team owners *
* * are invariably gross overestimates, maybe even by a factor of
ten.'' Intellectual ammunition. The Heartland Institute, March/April
1996.
I applaud Senator Specter for recognizing the need to address the
distasteful ``city-shopping'' by professional sports teams.
I must respectfully take exception to the legislation's
encouragement of taxpayer money actually being used for ballpark and
stadium construction. This provision puts local governments in hock and
in harness for up to one third of the cost of stadium construction.
Such a result is troubling.
In Massachusetts, we have declared that the only appropriate use of
taxpayer money is for infrastructure improvements. This includes the
cost of roads, bridges, sewer pipes and traffic controls that have a
definitive ``public purpose'' to promote and enhance public access,
public safety, and public health. There is no state taxpayer money for
``brick or mortar'' to build a new ballpark or stadium. There is no
state taxpayer money to purchase land or engage in any creative land-
swap or leaseback scheme. In Massachusetts, we recognize that
infrastructure improvements which carry a valid ``public purpose'' are
appropriate public expenditures.
Many leagues talk of ``public-private'' partnerships between the
professional sports team and the host municipality. To date, such
relationships have consisted of the municipality assuming the burdens
of expensive, long-term debt while receiving no stake in the
exponential increase of the value of the team with whom they are a
``partner.'' These sports teams are extremely profitable private
business enterprises. They enjoy astronomical revenues. You are all
aware of the current National Football League television contract that
yields that league 17.6 billion dollars over 8 years. When any business
negotiates such a private transfer of private wealth, there is no
public injury. However, there should be no confusion regarding
franchise demands and expectations for public subsidies. Based upon
that television contract, the National Football League could build
every single team a brand-new $300 million stadium and still share over
1 billion dollars a year for 8 years!
Team owners often argue that there exists a ``psychological value''
to a community that hosts a professional sports franchise. Such claims
are the ego-driven bunk of billionaires and their acolytes. Some
communities might indulge such superficial and irrational economic and
psychic claims, but they do so at the obvious expense of essential and
fundamental public responsibilities. Any ``psychological value'' that
may be derived from hosting a professional sports team does not pay for
crumbling school buildings, Social Security, prescription drug programs
for impoverished seniors, early childhood education, obsolete
infrastructure, innovative housing programs, public safety, or public
health. The list of legitimate public responsibilities is lengthy and I
dare say that all of them are more important than financing a
stadium for the competitive advantage and benefit of any privately-
owned business venture.
In Massachusetts, we rejected the notion that taxpayers are
obligated to subsidize stadiums for professional sports franchises. The
Massachusetts House of Representatives has consistently articulated a
set of principles, which are as follows:
No public funds for any part of a stadium facility;
No public funds or subsidy for the team franchise;
No public funds for the purchase and lease-back of land
for the benefit of the franchise;
No expectation that taxpayers should act as a no-cost or
low-cost bank for private, for-profit businesses;
No recognition, acceptance, or embrace of ``economic
multiplier models'' which attempt to justify public subsidies of
private business arrangements;
An insistence that the leagues and member teams take full
responsibility for their facility financing needs;
An insistence that any public funds be used solely for
infrastructure needs which serve public access, public safety, and/or
public health purposes;
An insistence that any infrastructure expenditure which
primarily or exclusively benefits the individual franchise owners be
accompanied by an annual revenue stream back to the taxpayers in order
to help support such an expenditure.
I believe that these principles represent a balanced, thoughtful
approach to any public participation in stadium development with
professional sports franchises. The application of these principles to
S. 952 would require that monies from the ``special trust fund'' be
used to pay the entirety of all stadium costs in order to maintain
certain anti-trust privileges presently enjoyed. At a minimum, the
legislation should allow local governments full financial credit for
infrastructure costs in order to trigger the $2 for $1 match. The value
of infrastructure improvements is of substantial economic significance
and should be factored in to the overall construction costs of any new
facility. Such factoring would give due recognition to the costs and
burdens borne by local governments on behalf of immensely wealthy
individuals and highly profitable enterprises.
I thank you for this opportunity to testify before you. I commend
your willingness to address and resolve this perverse abuse of the
nation's taxpayers, and I welcome any questions you might have.
Senator Specter. We now turn to the Honorable Edith Prague,
elected to the Connecticut Senate in November 1994. Prior
thereto, Senator Prague was a member of the State House of
Representatives for four terms, and also the Assistant House
Majority Leader.
We very much appreciate your joining us, Senator Prague,
and look forward to your testimony.
STATEMENT OF HON. EDITH G. PRAGUE
Ms. Prague. Thank you, Senator Specter, and thank you for
the invitation to come and tell you about the Hartford
experience. I am certainly here in support of S. 952, the
Stadium Financing and Franchise Relocation Act of 1999. I want
to tell you about the Hartford deal with the Patriots.
``TOUCHDOWN,'' blasted the headlines across the front page
of the Hartford Courant on November 19, 1998. Governor John
Rowland and Robert Kraft, owner of the New England Patriots,
had negotiated a memorandum of understanding, secretively, I
might add, that would give Robert Kraft what would become known
as the richest, most egregious deal in the history of
professional sports, a deal that would put the taxpayers of
Connecticut in the most unenviable position of paying all the
bills for 30 years while Mr. Kraft reaped all the profits.
The deal became known as the biggest giveaway in the
history of professional sports. The new rent-free stadium for
the New England Patriots was estimated to cost more than $1
billion, and the governor was quoted as saying he didn't care
how rich the State makes the Patriots; he just wanted the
Patriots to come to
Hartford.
And the excitement surrounding these headlines was
phenomenal. It was really madness. The governor and the
legislative leaders completely ignored the research done by
economists such as Professor Andrew Zimbalist, Professor of
Economics at Smith, and Professor Roger Noll, Professor of
Economics at Stanford, both of whom are experts in the field of
economic impact of sports team and stadiums. Both had clearly
documented after extensive
research that a new sports facility has an extremely small,
perhaps even negative effect on the overall economic activity
and employment of a city, and that no recent facility appears
to have earned anything approaching a reasonable return on the
investment. The economic benefits of sports facilities are
really de minimis. Sports stadiums are clearly not the economic
engine that would drive a poverty-ridden area to
revitalization.
The deal itself was given to the legislators on December
18, in a 77-page document, 20 minutes before the time to vote.
The governor had called a special session on December 18. No
committee hearings in which legislators could examine the
details and the public could participate were ever held. Absent
the public hearings, time was not afforded the elected
officials to examine the details privately and the deal
followed no prescribed path of democratic government.
When the details emerged, the shock of its content began to
take hold. The deal contained a $374 million stadium for Mr.
Kraft that would be turned over to him rent-free and tax-free,
and it was a 30-year commitment. The State of Connecticut would
pay for preparing the site and building any needed
infrastructure.
The stadium would have 150 luxury suites and 6,000 club
seats. The luxury suites would sell for $100,000 to $125,000,
and the club seats for $5,000. The State guaranteed a minimum
of $13 million a year toward any shortfall in the sale of these
seats. The State would provide 25,000 parking spaces. The State
would provide $15 million for a practice facility. The State
would provide a stadium capital replacement cost fund of $115
million over the 30-year period. The State would pay every year
$250,000 for insurance, $750,000 to move the team from Boston
to Hartford. The State would even pay $125,000 a year for the
agency expenses incurred by this deal. After 30 years, we would
have paid an additional $212 million in interest on the bond.
The one big unanswered question was the $100 million cost
to clear the site by moving a steam plant. It was clear Mr.
Kraft was not going to pay, but just who was remained an open
question. All this while the city of Hartford is the 10th
poorest city in the United States of America, according to the
U.S. Department of Housing and Urban Development statistics, a
city where 35.2 percent of the residents live in poverty.
In our State of Connecticut, one out of every five children
live in poverty. We have the highest property taxes in the
Nation and the greatest bonded indebtedness. 11.3 percent of
our $23.8 billion biannual budget goes to debt service.
In return for the so-called luxury of having the Patriots
come to Hartford--and I really thank Mr. Finneran for the fact
that they are going back to Massachusetts--Mr. Kraft would
receive all revenues from the stadium operations, including all
ticket sales and luxury seat sales, concessions, food and
souvenirs from all functions at the stadium except for the
University of Connecticut football games.
The stadium would be owned and operated by Mr. Kraft and he
would receive the revenues from the naming rights, the
television contracts, and the 5,000 parking spaces abutting the
stadium. A Hartford Courant article claimed that Mr. Kraft
would pocket $100 million per year by the fifth year of this
deal. The State would receive a 10-percent tax on ticket sales.
And to add insult to injury, if the construction costs came in
below estimates, Mr. Kraft would pocket the savings. This is
the deal that Mr. Kraft walked away from on April 30, 1999.
The Federal Government played a role in this deal and in
every other deal around the country according to the Brookings
Review position paper ``Are New Stadiums Worth the Cost,'' a
copy of which I have submitted for your review. I would like to
draw your attention to the $7 billion that will be spent on new
facilities for sports teams before the year 2006. Of that, the
majority is in public financing. The Federal Government allows
States to issue tax-exempt bonds costing the Federal Government
millions of dollars in taxes annually. When these bonds are
issued for such things as roads or schools, that is fine. But
to allow these bonds to be used for stadiums to make the team
owners even wealthier is totally inappropriate.
S. 952 is very timely. However, I have one suggestion.
Taxpayers should not bear 25 percent of the cost of any stadium
unless 25 percent of the profit is returned to those taxpayers.
Thank you for this opportunity to tell you about the
Hartford story.
Senator Specter. Well, I think it appropriate at this point
to note for the record that both Governor Rowland and Mr. Kraft
were invited to come and testify today and both declined.
Senator Prague, you characterized the total cost at $1
billion. How do you aggregate to that figure?
Ms. Prague. Well, the cost of the stadium, the $374
million; the $212 million in interest on the bonds; the $13
million guarantee every year for 30 years for any shortfall in
the sale of those seats; the cost of the practice facility; the
$800,000 that it would cost in legal fees; the $750,000 that it
would cost to move the team from Boston to Hartford; and the
$100 million that was in question about who was going to pay
for the removal of a steam plant where the stadium was going to
be located. You know, I am sure if you add that up, that is
very close to $1 billion.
Senator Specter. I did some mental computation, and
depending on the contingencies it does get there.
Senator Prague, you characterized Mr. Kraft's response as
walking away from the deal. As you articulate it, the natural
question arose in my mind--I am not saying you are the proper
person to ask this question to, but you are the only one I have
available and you said he walked away. Any speculation as to
why he walked away from such a lucrative deal?
Ms. Prague. I think there were a number of contributing
factors, but I think the biggest reason he walked away from the
deal was that basically he really wanted to stay in Boston.
That is where his heart is, that is where his family is, and I
think that is where his loyalty is.
No. 2, there was a question of whether he would get into
this stadium by the year 2002, when there were tremendous
environmental issues involved in clearing the site. Moving the
steam plant was the next thing to a nightmare, with having to
move underground pipes that heated and cooled all the office
buildings in the city of Hartford.
He was advised by his advisers that it was very unlikely
that he would get into play in the stadium in the year 2002,
and I think that that, combined with the opposition that was
growing amongst the citizens of the State of Connecticut, just
made his decision for him.
Senator Specter. Senator Prague, thank you very, very much.
Ms. Prague. You are very welcome.
[The prepared statement of Ms. Prague follows:]
Prepared Statement of Hon. Edith G. Prague
Good Afternoon, Senator Hatch--members of the Judiciary Committee,
for the record, I am State Senator Edith Prague of Connecticut and am
here at the invitation of Senator Arlen Specter to testify on S. 952
``Stadium Financing and Franchise Relocation Act of 1999.''
``TOUCHDOWN'' blasted the headlines across the front of the page of
the Hartford Courant on November 19, 1998. Govemor John Rowland and
Robert Kraft, owner of the New England Patriots, had negotiated a
memorandum of understanding (secretly, I may add) that would give
Robert Kraft what would become known as the richest, most egregious
deal in the history of professional sports. A deal that would put the
taxpayers of Connecticut in the most unenviable position of paying all
the bills for 30 years, while Mr. Kraft reaped all the profits.
The deal became known as the biggest giveaway in the history of
professional sports--the new, ``rent-free'' stadium for the New England
Patriots was estimated to cost more than a billion dollars and Governor
Rowland was quoted as saying ``he did not care how rich the state makes
the Patriots.''
It was madness. The Governor and legislative leaders ignored the
research done by economists such as Andrew Zimbalist, Professor of
Economics at Smith College, and Richard Noll, Professor of Economics at
Stanford, both of whom are experts in the field of the economic impact
of sport teams and stadiums. Both had clearly documented after
extensive research that a new sports facility has an extremely small
(perhaps, even negative) effect on the overall economic activity, and
employment of a city, that no recent facility appears to have earned
anything approaching a reasonable return on investment. And the
economic benefits of sports facilities are de minimis. Sports stadiums
are clearly not the economic engine that would drive a poverty-ridden
area to revitalization.
The proponents claimed that the stadium would improve the local
economy in three ways: First, building the facility creates
construction jobs. Second, people who attend games or work for the team
generate new spending in the community, expanding local employment.
Third, a team attracts tourist and companies to the host city further
increasing local spending and jobs.
The Governor and Legislative Leaders argued that the stadium would
spur so much economic growth that it would be self-financing. The
investment of state dollars would be offset by revenues from the ticket
sales tax, taxes on concessions and other spending outside the stadium,
along with property tax increases arising from the stadium's economic
impact.
The deal was given to the legislators in a seventy-seven (77) page
document twenty minutes before the time to vote. No committee hearings
in which legislators could examine the details and the public could
participate were ever held. Absent the public hearings, time was not
afforded the elected officials to examine the details privately. The
deal followed no prescribed path of democratic government.
When the details emerged, the shock of its content began to take
hold. In short, the deal contained:
1. $374 million for a stadium which when completed would be turned
over to Mr. Kraft. It would be rent-free and tax-free. It was a thirty-
year commitment.
2. The State of Connecticut would pay for preparing the site and
building any needed infrastructure.
3. The stadium would have 150 luxury suites and 6,000 club seats.
The luxury suites would sell for $100,000 to $125,000 and the club
seats for $5,000. The state at first guaranteed $17.5 million a year
for 30 years toward any shortfall in sales. That figure was lowered to
$13 million, a reduction presented as a breakthrough in negotiations.
4. The state would pay $15 million for a practice facility for the
Patriots.
5. The state would provide 25,000 parking spaces, 5,000 adjoining
the stadium, 1,000 within a mile and the rest within a reasonable
distance.
6. Mr. Kraft would pay $70 million for a hotel attached to the
Pavilion. He would be free at any time to sell the hotel and make
millions in profit.
7. The state would provide a Stadium Capital Replacement Costs
Fund of $115 million available over the 30-year period.
8. The state would pay $250,000 per year for insurance.
9. The state would incur $125,000 per year for agency expenses.
10. The state would pay $750,000 to move the Patriots to Hartford.
11. At the end of 30 years, we would have paid an additional $212
million in interest on the bonds.
12. And the state did pay $800,000 in legal fees to hammer out the
deal.
13. The one unanswered question was the $100 million cost to clear
the site by moving a steam plant--and the attendant environmental
cleanup costs. Mr. Kraft certainly was not going to pay and who was
remained an open question.
All this while Hartford is the tenth poorest city in the United
States of America, according to United States Department of Housing and
Urban Development statistics--a city where 35.2 percent of the
residents live in poverty. In our state of Connecticut, one out of
every five children lives in poverty. We have the highest property
taxes in the nation and the greatest bonded indebtedness. Eleven
percent of our $4.5 billion budget goes to debt service.
In return, for the luxury of having the Patriots come to Hartford,
Mr. Kraft would receive:
1. All revenues from stadium operations, including all ticket sales
and luxury seat sales, concessions--food and souvenirs--from all
functions at the stadium except for University of Connecticut football
games. The stadium would be owned and operated by Mr. Kraft and he
would receive the revenues from the naming rights, television contracts
and the 5,000 parking spaces abutting the stadium. A Hartford Courant
article claimed that Mr. Kraft would pocket $100 million per year by
the fifth year of this deal.
2. The state would receive a 10 percent tax on ticket sales. And to
add insult to injury, if the construction costs came in below
estimates, Mr. Kraft would pocket the savings.
That is the deal Mr. Kraft walked away from on April 30, 1999.
The federal government played a role in this deal and in every
other deal around the country--according to the Brookings Review
position paper, ``Are New Stadiums Worth the Cost?'' a copy of which I
am submitting for your review. I would like to draw your attention to
the $7 billion that will be spent on new facilities for professional
sports teams before the year 2006. Of that the majority is in public
financing. Unfortunately the federal government allows states to issue
tax-exempt bonds, costing the federal government millions of dollars in
taxes annually.
S. 952 is very timely. However, I have one suggestion. Taxpayers
should not bear 25 percent of the cost of a stadium unless 25 percent
of the profit is returned to the taxpayers.
Again, thank you for this opportunity to testify. It has been a
pleasure. I am available for questions.
Senator Specter. I would like now to turn to the situation
with the Cleveland Browns and Baltimore Ravens, and we are
going to turn first to Mr. John Moag, who has a somewhat
different perspective of the arrangements.
By way of introduction, the representations I have, subject
to what Mr. Moag may have to say, are that, well, first of all,
a problem arose when the Colts left in the middle of the night
to go to Indianapolis. And I thought Indianapolis should have
had a football team, but not the Colts. The Colts had a long,
glorious history in Baltimore with Johnny Unitas and some
great, great teams.
And then when Mr. Art Modell had his differences with
Cleveland, the bidding occurred and Baltimore agreed to a $223
million stadium, financed, as I have it, with 89 percent public
funds. The Ravens were required to pay no rent during the 30-
year lease, but do pay operating expenses in the range of $3 to
$4 million a year.
And this was an extraordinary provision which I would be
interested in your comments on, Mr. Moag, among others, that
the
Baltimore Ravens paid the Maryland State Stadium Authority $10
million for the right to sell the name of the team's new
stadium, and Mr. Modell eventually sold the name to PSINet for
$105 million. It is a little surprising to me on a number of
aspects of that transaction.
We thank you very much for joining us, Mr. Moag, and look
forward to your testimony.
STATEMENT OF JOHN MOAG, JR.
Mr. Moag. Thank you, Senator. I am the former chairman of
the Maryland Stadium Authority up until this past January. The
Maryland Stadium Authority owns and operates Oriole Park at
Camden Yards and the Ravens stadium. We had a statutory
directive actually to go out and get an NFL football team,
either through the expansion process, which we lost, or in
bringing
another team to our city.
And it is a pretty extraordinary piece of legislation which
directed the chairman of the Stadium Authority to enter into
any and all agreements necessary or convenient to carry out the
purpose of this subtitle, which was bring football back.
Senator Specter. A statutory directive?
Mr. Moag. With $200 million attached to that directive.
Senator Specter. Were you limited in how much you could
spend?
Mr. Moag. No. There is a fund that is funded by the
Maryland Lottery. We created a scratch-off lottery game. The
stadium is funded by Art Modell, in part, as you mentioned; by
the stadium scratch-off game, which people obviously
voluntarily purchase; bonds which are retired through the
lottery and through an admissions tax on the fans. So it is the
fans, the lottery tickets and Mr. Modell, and also Mr. Angelos
in the case of the Orioles.
Senator Specter. Edward Bennett Williams was quoted as
saying as the owner of the Redskins way back that he hired a
new head coach and gave him an unlimited budget which was
exceeded.
Mr. Moag. He was quite an owner.
In addition to being the former chairman of the Stadium
Authority, I am the managing director of Legg Mason's sports
industry group in our corporate finance department and we have
been engaged in about 18 different sports transactions,
different arenas and stadium, both baseball and football,
around the country. If there is any common denominator to those
18 deals, it is that none of them are the least bit alike. They
differ in four major aspects.
Politics is different everywhere. The politics in Arizona
are different from your politics in Philly and Pittsburgh and
Boston and California. Voters react differently and the
politicians react differently. Second, the financing issues are
all different. How are you going to pay for these? Is there
money to pay for them? Do you have bonding capacity? Do you
have flush budgets? Do you have a tax you can impose? Do you
have a lottery like we did in Maryland?
Third, team revenues vary dramatically. We hear over and
over again about greedy owners holding up cities. The fact
remains that there are very few franchises that make a lot of
money. I can tell you certainly that the Pirates and the
Phillies are not making much money, which helps explain the
product that is out on the field on Philadelphia.
They tried to get that budget balanced and they, believe
me, want to put good product out there because if they have
product on the field, they generate revenues. But to get that
product--and it is a circular issue--they need the revenue.
And, of course, they look to the new stadium for that.
Finally, franchise revenues are different. All four leagues
operate differently. The NFL is definitely a socialistic
organization. Major League Baseball is not, and Major League
Baseball, like hockey, has some very challenging financial
issues ahead of it. I like to paraphrase Tip O'Neill that, like
politics, all sports is local. Because of all those reasons, I
would unfortunately oppose this legislation, although I applaud
your intent.
And let me also mention two other issues, I think, that the
legislation raises. One is, is it adequate to do what you want
to do in the first place. In the NFL, I think your legislation
might raise on the order of $200 million a year, $180 million,
that you could put in this pot. The NFL is actually already
doing this in the form of revenue forgone. They are saying
money the team would normally have to pay into the league to
visiting share can now be used to build the stadiums. So the
money the league is allotting for that purpose is actually
going to be significantly higher than your legislation would
raise.
In baseball, you would raise $34 million, something like
that, not enough to make a dent in some of the projects out
there. In hockey, you would raise about $12 million. And, of
course, that doesn't get you anywhere for a $200, $300 million
building.
Finally, frankly, I think it is unnecessary. I believe we
are heading into an era of stabilization in sports. We are
going to see within about 5 years the completion of most of
these buildings around the country. The arenas are pretty much
there. You look at Comcast and MCI here in Washington, DC.
Pittsburgh has an issue obviously with the Penguins, but there
aren't many of these left, believe it or not. We are flushing
out old stadiums that didn't work economically and were bad,
frankly, for the sports experience.
We built buildings like the Vet, like Three Rivers in the
1970s, some of them in the 1980s, that were not functional for
watching both baseball and football. We thought we were being
real smart about it. And, of course, the municipalities were
saving money, but they weren't providing a good arena, if you
will, to watch a sport. And, of course, they were not
generating the revenues that had to be generated to keep up
with these increasing player costs.
I think again we are getting through that and we are now
approaching an era where we are going to see very few moves. I
think there may be a couple left, maybe one or two possibly in
football. We have a situation in Montreal, obviously, a
baseball situation, but there are not many of those left around
the country.
That is all I had to say and I would be glad to respond to
any of your questions.
Senator Specter. Well, Mr. Moag, what do you anticipate
with respect to Los Angeles, an expansion team, not a team
moving in?
Mr. Moag. Going back to the issue of all sports is local
and all politics is local, I am pretty familiar with the Los
Angeles situation and it is a mess. It is a real mess. They
have basically decided as a community that they are not going
to put any public money into a facility out there.
So you have a contest, if you will, between the economics
of the sport and the politics of Los Angeles. To get into the
Los Angeles market could very well cost $1 billion, and it is a
market that the NFL does not want to lose. But the building,
redoing that Coliseum out there, is probably a $350 million
issue. There are parking spaces that are needed that are
probably another $200 million issue. And, again, the public is
reticent about doing that.
Well, that begs the issue, then, obviously who pays. Is a
new expansion owner going to pay for that, and can he pay for
it. Right now, you have a situation in Los Angeles where the
expansion entity, if you will, is probably not financable on
the private side because there is just too much of a nut to
bite off and not enough income.
Senator Specter. What is going to happen with Houston?
Mr. Moag. I think Houston gets a team. Again, you have a
contribution in Houston from the local government down there.
They have stepped up to the plate. In combination with the
rodeo, the economics of building that stadium with a roof over
it will work, and I suspect Mr. McNair and the people of
Houston are going to have a football team and it may very well
be before Los Angeles has a football team.
Senator Specter. Well, there are many other cities which
aspire to be NFL cities. I can't begin to pick them out, but
there are plenty of them around. Notwithstanding Senator
Prague, Hartford may yet have aspirations. Birmingham has
aspirations. You can run over the map. It is big status to be
in the NFL. You have got a competing league coming in. The USFL
tried to crack in in the 1980s.
It seems to me that football is going to have to look at
their expansion issues and how they handle their matters. I
know that both baseball and football have their representatives
here today, very confident people who are going to be
dissecting all the innuendoes as to what we have to say.
Senator Feingold has joined us. The floor is yours.
Senator Feingold. Thank you, Mr. Chairman. I just wanted to
thank everyone for being here today and make a brief statement.
I want to commend you for holding a hearing on this important
topic that has an impact on sports fans all across the country.
I want to especially commend you, Chairman Specter, for your
efforts to try to think of creative ways to deal with this
issue.
I share your desire to alleviate the burden on the
taxpayers for the financing of stadium renovation and
construction projects. We have seen some communities pay a very
high price when their
beloved team threatens to leave town unless they agree to help
fund a stadium project. Of course, not all owners are like
this. In fact, my colleague from Wisconsin, Senator Kohl, who
helped keep the Milwaukee Bucks from leaving Wisconsin, is a
good counter-
example, where he was able to do this despite the small size of
the market.
But while I agree with the bill's laudable goal, I do have
some concerns about the method that Senator Specter has chosen
to achieve that goal. The National Football League made a wise
decision years ago to enter into a revenue-sharing agreement
with all of its member teams to the television rights to their
games. This revenue-sharing agreement has enabled teams like
our team, the Green Bay Packers, which play in smaller media
markets to be viable teams.
As you may know, the Packers operate quite differently from
other NFL teams. The Packers are not owned by a billionaire or
a corporate entity. Rather, the Packers are a community-owned
team. In fact, I have one share of the Packer stock and when I,
on my financial disclosure report, had to list the value of it,
I put down ``infinite'' for that.
The fans of Green Bay, Titletown USA, own the team, but
because they don't have the ready access to a revenue stream
that a wealthy or corporate owner brings, they are in a tighter
financial situation compared to other NFL teams. The Packers
are also different because they don't have the kind of luxury
boxes that generate high revenues per year, like the luxury
boxes in many of the glamorous new stadiums.
The average club box at Lambeau Field generates $30,000 a
year, at best, while the average club box at other NFL stadiums
generates $60,000 per season, that's twice as much. In the
newer NFL stadiums, luxury boxes typically generate even more
revenue and can command as much as $165,000 per person. As a
result, the Packers are dependent chiefly on their share of the
television revenues from the NFL. In fact, 60 percent of the
Packers' operating revenues are derived from these funds.
What this means is that this bill's trust fund provision
will
severely hurt the ability of the Packers to survive. The
Packers have obviously done amazing things, and I am not just
talking about their two recent trips to the Super Bowl. The
Packers have managed to thrive as the NFL's only truly
community-oriented team in an era when teams are going to the
highest bidder and sometimes losing any sense of connection to
the cities they once called home.
The Packers have maintained their rich history and a
passionate base of followers precisely because they are a 100-
percent community-owned team. I don't think we should threaten
the viability of the Packers or any other small-market team
that heavily relies on its share of media revenues.
So, Mr. Chairman, I do support the goals of the bill, and I
think we may need to think of another way to assist communities
and teams with stadium construction. I certainly thank you for
letting me interrupt at this point to make this statement.
Thank you, Mr. Chairman.
Senator Specter. Well, thank you very much, Senator
Feingold. The goose that lays the golden egg, of course, on
revenue-sharing comes from the 1961 exemption. So it is a
special privilege for revenue-sharing in the NFL. But you and I
have worked together on a great many projects and we will put
our collective thinking
together on this one as well.
Senator Feingold. Thank you, Mr. Chairman.
Senator Specter. Just one or two more questions, Mr. Moag.
Some of the stadiums have been privately financed--the Miami
Stadium. How were they able to work it out contrasted with,
let's say, Baltimore?
Mr. Moag. You are talking about what was the Joe Robbie
Stadium. Actually, the Robbies unfortunately were bankrupted by
that project. It was way too early for a project like that to
happen
because the media income that the league enjoys simply wasn't
there.
Senator Specter. Is the time right now?
Mr. Moag. You are getting close, but neither baseball nor
football are really totally there. They are getting close. If
you have a basketball team and a hockey team, you can do it, as
evidenced here with the MCI building. That is enough revenue to
make it work.
Football--you know, again you are seeing owners who are
able to contribute $100, $150 million. In baseball, the same
thing, so we are getting there, but the revenues are still not
quite there. The politicians are smart now about sports. They
weren't so smart 5 years ago. They are asking to look at the
balance sheets. They are looking to see what these teams end up
with and that bottom line after you build these buildings, and
then they are kind of working backwards into the contribution,
which is a smart and fair thing to do.
You know, again, the good news about this whole process is
that we are talking about financing buildings now that are old
or in bad shape that were by and large, every one of them,
built with public money. And we are in a new era where we are
able to go to these owners and they are saying back to us,
``Yes, you know, we understand, we will make more money and we
will contribute''. The Red Sox are generously talking about
$300 million up in Boston.
Senator Specter. Well, I am glad to hear you say that you
think it is a fair question for the political leaders to ask
about the financial status of the teams because if the teams
are asking for public assistance on the ground that they can't
afford it, that raises the obvious question of their profits
and their financial ability to afford it.
Recently, a controversy was publicized in Philadelphia
about the Phillies with a national publication printing a
figure of profitability for the Phillies and the Phillies
management denying it. It is easy to put it in print, and what
has to be done is the facts have to be ascertained. But I am
glad to hear you say you think that is a fair question.
Mr. Moag. And Mayor Rendell, I believe, has seen the
Phillies' books. And I am aware of the Phillies' books and they
are not making any money right now. They will make money in a
new stadium. I was up there in your city this week.
Senator Specter. They had a pretty good crowd on Sunday.
Mr. Moag. They had actually two good crowds in a row with
the Yanks.
Senator Specter. I was there on Sunday. They had terrific
crowds in Baltimore.
Mr. Moag. Yes. We had our largest sellout ever the weekend
before, and it was Pennsylvanians all over the place spending
their money in our town, which is what we like. [Laughter.]
Senator Specter. Thank you, Amtrak.
Mr. Moag. Thank you, sir.
Senator Specter. We turn now to the Honorable Jean Cryor, a
Delegate in the Maryland House of Delegates since 1995. She was
very heavily involved in the issue on the Baltimore Ravens. And
on a personal note her husband, Dan Cryor, used to cover the
local district attorney in Philadelphia for TV 10.
Thank you, Delegate Cryor, and the floor is yours.
STATEMENT OF HON. JEAN B. CRYOR
Ms. Cryor. Thank you very much. It is obviously a great
honor to be asked to testify about this question. I am most
grateful.
The anger and resentment felt by the taxpayers over the
expenditure colors, the political environment. It detracts
truly from the work that is being done by government. And worst
of all, I think it fuels this idea that government is just out
of touch with its own citizens. It brings forward the question
of how did government get in the business of entertaining its
citizens, as opposed to educating them, building roads,
building bridges.
In Maryland, we have a football stadium built with terrible
controversy. The anger felt by the citizens of Maryland when
they learned that the Cleveland Browns were coming to Baltimore
to play in a stadium not built by private funds dominated our
news for months and months. From columnist Jonathan Yardley of
the Washington Post, who usually writes of a very genteel
world, to every call-in radio show, everyone weighed in in
opposition.
The statewide anger was apparently unexpected by our
Governor. After all, Baltimore, as you referred to, is a city
where its professional football team, the Colts, slipped out of
town one miserable night and never came back. And years later,
some fans still meet and wear their Colts T-shirts to buoy
their spirits. And as one Colt fan explained to me at a hearing
in Annapolis concerning the new team, she said to me when
people come to visit you from other States, it gives you
something to brag about; your city has a professional football
team.
But bragging only carries the issue so far, and frankly
there are just not enough tough-minded braggarts to go around.
Real anger centered on the use of public funds being funneled
to a privately-owned football stadium. It mattered little that
the State government hustled out news releases on a steady
basis that the stadium was really being financed by State
lottery. And if you do not want to support the stadium, they
said, then don't buy the tickets.
Well, people may not understand every nuance of spending
affordability provisions or education funding formulas, but
they knew that public money was headed to the stadium. After
the feel-good arguments fell flat, the governor, who probably
and justifiably, I think, felt the citizens were treating him
pretty shabbily--after all, he had brought a team back to
Baltimore--tried to tie the stadium to economic development.
And critics loved that argument. They pointed out the cost
of building the stadium, in excess of $200 million. The people
hurling the peanuts and the fellow pointing out where to park
your car would have to earn about $80,000 a year to make this
argument.
The economic argument then turned to the size of the wallet
of the fan. It was argued people would come to Baltimore City,
see the games, be so euphoric and giddy about the joy of seeing
live football that they would lavishly spend their money on
meals, expensive trinkets, and stay overnight. The city would
be engulfed in a wave of tourism money. Unfortunately,
geography was not with that argument. It quickly dissolved with
the realization that most fans would drive to Baltimore to see
the game and then drive home.
A singular problem Baltimore had that would not be shared
by most cities is that the people felt guilty about the way the
town was gaining a team. The Browns were leaving Cleveland, a
town that loved them. Baltimore found it heard to celebrate
with Cleveland's gloom hanging over them. It did not help when
a Cleveland magazine article reported the owner of the
Cleveland Browns telling his wife to pack and leave town before
Cleveland fans found out about the move. The good feeling
balloon was definitely coming down.
And the news kept getting worse. The State would build the
stadium, but it would not get any proceeds from other events
held there. Every economist, I believe, in the State of
Maryland wrote to us legislators to tell us this is a bad deal.
I would suggest that if public money is being used to build
a stadium, the lion's share of the money netted by the stadium
from parking to rent for rock concerts be returned back to the
city or the State, and not just by the sales tax. The State
should get a generous cut from any license to sell seats to
ticket purchasers. And the lucrative naming of the stadium
should remain the property of the people who build the stadium.
Threats made by team owners that they will go elsewhere if
they do not have a new publicly-funded stadium needs Federal
legislation to put a limit on the public financial help. Today,
team owners are holding the baby captive and waiting for
ransom. They are using the fear of losing everything to force
the ransom payment. It is time to rescue the States and cities.
Only the Federal Government can out-muscle the team owners.
If the owner is so eager for a new stadium, then let the
owner build it, for while the public was footing the bill in
Baltimore City, at the same time Jack Kent Cooke was building a
stadium in Prince George's and he only asked for road
assistance. If the business community of the city or State
wants a new stadium, let them put together a good chunk of
financing. I support your legislation, and I particularly
support your comments made in the Congressional Record. It is
not a good feeling for the State of Maryland.
Senator Specter. Thank you very much, Delegate Cryor. Are
your views as to the issue with the Ravens similar as to the
construction of Camden Yards for the Orioles?
Ms. Cryor. I must tell you I was not in office when Camden
Yards was built. And, of course, Camden Yards has been very
successful in many, many ways. Camden Yards did not face the
kind of problems that the Ravens stadium faced. I just heard
someone say earlier that all stadiums are publicly funded. That
may be so, but not with a great amount of money.
I want to remind you Baltimore City is a city where only
three elementary schools have enough books in their libraries
to meet the State requirements. We have children who literally
can't read in the city of Baltimore. Those parents came to my
colleague and myself to talk about why this shouldn't happen.
This kind of expenditure--no matter how you look at, the people
say this is out of touch, this is not what we are looking for.
And I want to remind you of the difference between Camden
Yards and a football stadium. They play baseball all the time.
They hardly ever, it seems to me, play football. It is a very
few weeks in the fall. That makes an enormous difference when
you figure out how many weeks are actually being devoted to the
sport for which this is being built. That is one of the other
things that drove people crazy.
Looking at this, it was a very elitist idea, when we have
other problems. And I think the government tried its best in
our State to work with the problem. But, frankly, we are
dealing with goliaths all over the place coming at you from no
end of different directions. As it was said earlier, they all
have a different plan, they all have a different platform, and
we are there trying to hold back we don't know what--a
hurricane, a typhoon, a storm, a fire. We are not sure, but one
thing we do know is we are in trouble.
Senator Specter. What weight, if any, will you give to the
sense that you have to have an NFL team if you are going to be
a big-league city?
Ms. Cryor. I find that to be one of the most curious
comments ever because it is the final argument. In other words,
everything else falls before. When you look at the arguments of
economic
development and you look at everything, you end up with only
one argument: we want to feel good about ourselves.
Senator Specter. You have a pretty strong argument if only
three libraries have enough school books to comply with State
law.
Ms. Cryor. The libraries, yes, have enough. I think the
arguments are very strong. I have to tell you the feel-good
argument to me and to many of my colleagues is pathetic. It is
not what we are talking about at all. And if people want to
build things, let the rich build what they want to build. They
have that right, but don't turn to the citizens, who frankly
will never be able to buy a ticket to this. It is out of their
range, and yet they--and whether you want to say it is lottery
proceeds or anything else like that--I am on Ways and Means.
The lottery comes under Ways and Means. We have people tell us
all the time they don't want to buy lottery tickets because of
the stadium. It is a very small number, but you shouldn't have
people and the citizens of a State turn to you and say why
couldn't you have stopped it, when to them it is obviously not
enough to feel good. There are not enough people to feel good
about this.
Senator Specter. Thank you very much, Delegate Cryor.
Ms. Cryor. Thank you.
Senator Specter. We turn now to Bruce Poole, former
delegate to the Maryland House of Delegates; served as the
House majority leader from 1991 to 1994, one of the youngest
ever elected to that position. Delegate Poole is now a partner
in the firm of Poole and Poole, P.A.
Welcome, Mr. Poole, and the floor is yours.
STATEMENT OF D. BRUCE POOLE
Mr. Poole. Thank you very much. It is a real honor to be
here today, and I wish to testify in favor of S. 952. I guess
preliminarily I would disagree--I feel like it is old home week
because I have got Jean Cryor here, who I fought the fight
with, and I have somebody I admire greatly and like, John Moag,
who I fought against.
Once again, John and I, I think, disagree on a very
fundamental issue. I think John says that the legislation now
may not be needed because stability is coming to the forefront
in this area. And that may be so, but I would ask that the
committee do further investigation on the issue because of two
reasons.
First of all, I would suspect that even if John's premise
is true that the construction of these stadiums is now about
finished and that we have reached going through the cycle, I
will submit to you that there will come a time when yet again
that cycle will go full measure and we will find ourselves
again with stadiums that are deemed to be outmoded, and so once
again we will find this problem.
However, I would suspect that even prior to that--the truth
of the matter is this is not just a question about construction
of a stadium; it is the question of a whole package, and that
is really what it is. We are not just talking about, will you
build me a stadium. We are talking about, how much is the
stadium going to cost and then, in turn, who gets the money
that is generated from that.
And I would like to go through my remarks today, but if I
may follow forward, I think you will see where I am coming
from. I was a member of the Maryland General Assembly at the
time that the debate came, and I was actually the person who
offered the amendment on the House floor to block taxpayer
funding of the Ravens stadium in Baltimore. And after rancorous
debate, we lost by just a handful of votes. It was very, very
close.
And I would submit to you that as you go through this
process, probably the thought process that we followed then is
very helpful as the committee considers the bill before it.
Now, I will say to you today the Baltimore Ravens stadium is a
beautiful stadium. Truly, John Moag does a great job. He does a
great job every time that I have seen him in action. But I
still don't think that the taxpayers should have built the
stadium. And it supplements Oriole Park at Camden Yards, as we
know, another taxpayer-funded stadium.
To me, there really are two questions that are fundamental
to the debate, and if you understand these two questions, the
rest of the debate flows easily. No. 1, are we really
generating revenues or are we shifting revenues? And No. 2, if
there is value-added to the equation, where is that value-added
and who receives it?
Now, let me answer the first question, the question of
whether or not there is, in fact, a revenue generation. We are
going to hear all sorts of talk as this debate ensues about
multiplier effects.
Everybody is nodding their head on this side; we have already
heard it. You are going to hear all sorts of talk, spin about
ripple effects and everything else. And the premise is made
time and again from those who are proponents that, in fact,
stadiums create revenues.
I look at it this way. In terms of the Maryland government,
there were only two ways that that could have been the case.
Either the stadium was going to cause people who lived in
Maryland who traditionally would have spent that money outside
of our boundaries, outside of our borders, to now spend it in
Maryland or, on the other hand, it was going to cause people
outside the State of Maryland to come in and spend money here
in our State of Maryland which they otherwise would have spent
outside the State.
That is not really what stadiums do. Yes, it is true that
on any given day you will find people from Philadelphia coming
down to an Orioles, and you will find people going back and
forth. But the same is true that Maryland citizens, in turn, go
over to Philadelphia and spend their money there, and it
probably all balances out.
Really, what stadiums do is they tend to make people make a
choice about how they are going to spend money, and it is money
that is finite in quantity. I guess that if we really were ever
able to pull back the veneer and look at the true effect, the
truth of the matter is that the Ravens stadium has made people
choose as to whether or not they want to spend money on the
Ravens or whether they want to go golfing, whether they want to
go to the sports bar that is in the stadium or whether they
want to go to a pub or a restaurant, whether they want to go on
some other outing inside the State of Maryland or whether, in
fact, on that particular day they want to go see NFL football.
That is really what it is about.
Now, the second question, I guess, that needs to be
answered then is, is valued added, and if so, to whom. The
value that is added is added after the stadium is built.
Effectively, the taxpayers pay the mortgage, and the gold then
goes to the owners, to the franchises. And the reason it does
so is because they largely get the benefits.
Senator I see the light taking off there. I will try to
speed through this, but let me get some figures at hand. These
are figures that were compiled from data available through
Maryland Legislative Services and these are some of the costs
to the taxpayer: Gift of the land, $50 million; construction of
the stadium--and when I say gift, fee simple was not
transferred to the Ravens, but effectively that is land that we
could have used for something else is now a football stadium;
construction of the stadium, $223 million; concession stands
and equipment, $6 million; light-rail walkway, $5 million; debt
service, $101 million; relocation expenses paid to the Ravens,
which includes transferring what we would call personal seat
licensing, which actually gives you the right to buy tickets in
the first place, $68 million; naming rights value transferred
over to the owner--actually, I wish to amend the testimony. It
states in here $15 million, and the Senator is correct. If you
deduct out the payment that was made, in fact, that is $5
million, not $15 million, although the Ravens will receive
$105.5 million from PSINet so that it can be a presenting
sponsor of the team as part of the name sale agreement.
Finally, for the deliberations of the Senate, I submit that
there is one other question that we really didn't have to ask
and answer but would be appropriate here, and that is the
question of who can say no. Certainly, there are several people
here who have shown valor under fire and have said no. But,
largely, public officials are unwilling to say no to an NFL
football team, whether it is a question of whether it should
stay or whether it should come. And the reason is because of
the perspective.
Today, we live in a world where you are defined as a
metropolitan area as to whether or not you have a professional
sports team. If you lose that team or you fail to get a team,
you are deemed to have suffered losses in many scales. It is
seen as being a loss of favorable exposure.
Senator Specter. How do you evaluate that, Delegate Poole?
I have asked the other witnesses that question. My recollection
is that at one time Baltimore did not have a baseball team. You
had the Orioles in the old days with Wee Willie Keeler, but you
went through a long period of time when Baltimore did not have
a baseball team. At that time, Baltimore did have a football
team, so you have never been without one or the other and big-
league status.
Mr. Poole. Yes.
Senator Specter. How do you evaluate that?
Mr. Poole. Well, part of the problem, is that you cannot
quantify that. So, sure enough, the proponents are going to
come in and say, ``Look, if you lose this team, you are going
to be branded a loser''. Certainly, Baltimore received a blow
to the ego at the time that the Colts left. And I have to tell
you, sure enough, if we had blocked the Ravens stadium and the
Ravens had not ended up being in Baltimore, there would have
been all sorts of rancor about whether or not we should have
had the team and what it means for Baltimore now.
Senator Specter. Well, there is an enormous impetus if you
take the Pirates with world championship teams and Willie
Stargell, or the Steelers and the Iron Curtain, or the 1980
Phillies and the world championship. I was there in 1960--I am
sorry Senator Feingold has left--when the Eagles beat the
Packers. That is the last time the Eagles did it. It has been a
long time. I started off being an Eagles season ticket-holder
in 1958, and I go to the Phillies regularly on Sundays, like I
did 2 days ago, when I am in town and they are in town. So you
have that intangible that is hard to quantify.
Mr. Poole. Yes, sir, and it pulls at the heart strings and
it is an emotional argument, and it is what is trotted out and
it is a very effective argument.
[The prepared statement of Mr. Poole follows:]
Prepared Statement of D. Bruce Poole
Mr. Chairman, Members of the Committee, it is a great honor to be
here today. I have come to support S. 952.
I was a member of the Maryland House of Delegates from 1987 until
1999. In 1995, I was the person who offered the Amendment on the House
floor to block tax-payer funding of construction of the Baltimore
Ravens football stadium. After rancorous debate, that Amendment failed
by a handful of votes.
Four years later, we have a new football stadium in Baltimore,
which supplements Oriole Park at Camden Yards. The facility is state of
the art and testament to the fact that the State of Maryland produces
top quality. Having said that, I still believe it was a bad idea to use
public funds to build the Ravens stadium and submit to you that
virtually the same thought process I used in concluding I would oppose
the Ravens stadium should guide your consideration of the Bill before
you.
In my deliberations, I concluded there were two fundamental
questions. Answer these questions, and the rest of the debate flows
easily. First, do stadiums create revenue or do they shift revenue?
Second, at what point is value added?
Let me answer the first question. For all of the talk about
``ripple effects'' and ``multipliers'', the truth of the matter is that
stadiums do not make much new revenue. For Maryland government
purposes, there were two ways the stadium could have created new
revenue: either keep money inside Maryland that otherwise would have
gone elsewhere or bring money into the state that would otherwise not
have come in.
That is not what stadiums do. Stadiums tend to simply cause people
in an area to make a new choice. The choice is how to spend the finite
amount of money that the people have. In Maryland, citizens who now
spend their money on the Ravens probably had spent their money at a
restaurant or pub in Maryland, golfing in Maryland or on some other
activity in Maryland. So, when the Ravens came to town, their true
effect was not to generate spending but to substitute spending, not to
create new revenue, but instead shift monies spent mostly around the
state and concentrate that spending to the vicinity of the stadium.
This leads me to my second question: Where in the equation is value
added? The answer, clearly, is that the value is added to the
franchise, after the stadium is built. For owners, this really is the
most ingenious part of the whole trend. Since public funding of
professional stadiums has become the vogue, effectively, the taxpayers
incur the costs and the franchises reap the rewards. The rewards, of
course come from ticket sales, seat licenses, marketing and copyright
use, but the real money comes from television viewing rights. Since the
owners control viewing privileges, they make the rules and they get the
gold. By being allowed to pool broadcasting revenues, the owners now
get a lot of gold.
On the other hand, taxpayers get the mortgage. Let me quote for you
some of the true costs of ownership for the Ravens stadium. These
figures were compiled from data available through Maryland Legislative
Services:
------------------------------------------------------------------------
Gift of Land............................................ $ 50 million
Construction of Stadium................................. 223 million
Concession Stands and Equipment......................... 6 million
Light-rail Walkway...................................... 5 million
Debt Service............................................ 101 million
Relocation Expenses, etc., paid to Ravens (includes seat 68 million
licensing).............................................
Naming Rights Value of Owner:........................... \1\ 14.9
million
------------------------------------------------------------------------
\1\ Estimated (although the Ravens will receive $105.5 million from
PSINet so that it can be ``Presenting Sponsor'' of the team as part of
the sale of the naming rights)
Finally, for your deliberations, I have one last question: Who can
say ``No''? Where are the public officials who are willings to walk
away from having professional sports teams in their city or state at
any cost? By that I am not speaking of state legislators--I am speaking
of mayors and governors who ultimately have to make a very tough
decision, knowing that if they do not get or keep a team, their
jurisdiction will be marred. Loss of a professional sports team has
become synonymous with loss of status, loss of prestige, loss of
favorable exposure, and loss of opportunity at many levels.
In Maryland's case, this quandary became most evident in the 1998
Gubernatorial race. While voters were angry at the incumbent for
backing the stadium, his primary and general election challengers were
noticeably silent on the issue. Purportedly, this was because polling
indicated that attack ads on this issue would anger two sets of
voters--one for the candidate and one against the candidate. It was a
no-win situation, which was fitting. I say that because no-win
situations are precisely what public officials and taxpayers
contemplating the construction of professional football stadiums face
in this environment. Thank you.
Senator Specter. We now turn to the first of two very
distinguished authors on this subject, our expert witnesses, so
to speak. Dr. Andrew Zimbalist is the Robert A. Woods Professor
of Economics at Smith College, in Northampton, MA, where he has
been since 1974. He has published two major books on sports
economics, ``Baseball and Billions'' and ``Sports Jobs and
Taxes.'' He has also written articles on sports economics and
is a contributor columnist to the Sports Business Journal.
Thank you for joining us, Dr. Zimbalist, and what is the
answer?
STATEMENT OF ANDREW ZIMBALIST
Mr. Zimbalist. Thank you for having me, Senator. One of the
advantages of going toward the end is that a lot of the things
I was going to say have been said. Let me depart from my formal
remarks and make some comments on what has been said and then a
few comments on your bill.
Let me begin by noting that I agree wholeheartedly with the
tenets of equity financing that Speaker Finneran suggested to
us, and I applaud Speaker Finneran for the heroism and tenacity
that he displayed with regard to the Patriots. But I also think
it is important to point out--and Speaker Finneran recognized
this--that Boston is the sixth largest media market in the
United States, and that gave Boston a good deal of leverage
that most other sports cities won't have.
That is why it is very important for there to be some kind
of national policy with regard to stadiums. We cannot depend on
the Thomas Finnerans around the United States to do what
happened in Boston.
Senator Specter. Not enough of them?
Mr. Zimbalist. There are not enough of them in the sixth
largest media market in the United States.
Second, a topic that often comes up in these discussions is
that there are companies in the United States that get
subsidies from cities to move their plants into their cities,
and if private companies can sometimes do this, why shouldn't
sports teams do it as well?
Well, first of all, it is not at all routine for that to
happen for manufacturing companies. But there is a very large
difference between the manufacturing company that comes into
town, builds a plant, hires 500 or 1,000 workers, produces a
good and then sells that good to the rest of the country and
the rest of the world. They are exporting their product. They
are bringing money from the rest of the world into the city.
As some of the speakers have pointed out, most recently Mr.
Poole, most of the money that gets spent at a sports arena or
sports facility is recirculated money within the town. It does
not generate new value-added.
A third comment--this is just to improve the record--is on
the issue about $1 billion being spent on the stadium deal in
Hartford. Senator Prague gave a very exhaustive list, but she
left out one important item, which is that there was a
provision in the agreement for approximately $170 million to go
into a stadium improvement fund. Then that amount would be
increased by the rate of inflation, as would several of the
other amounts that she alluded to.
Fourth, you asked Mr. Moag about expansion in the NFL, and
I would like to remind you and remind your colleagues in the
Senate that when Commissioner Rozelle testified before this
body in the late 1960s, asking for permission to have an
exemption from antitrust so that the AFL and the NFL could
merge, one Senator asked Mr. Rozelle, he said the NFL has been
expanding in the last several years. In fact, it had just
expanded on two occasions by two teams in the previous 4 years.
And he said, Mr. Rozelle, can you guarantee to us if we
allow this merger that you won't abuse your monopoly power and
that you will continue to expand? And Mr. Rozelle said
absolutely, and he committed himself to an ongoing process of
expansion. They got two teams in 1976, after Mr. Rozelle
intimated that they would come in 1970, and then the NFL didn't
expand again until 1995.
Senator Specter. What is the Senate's remedy now, Professor
Zimbalist?
Mr. Zimbalist. Well, let me say that an economist has no
difficulty--before you talk about remedies, you have to talk
about the root of the problem. An economist has no difficulty
in identifying monopoly as the root of the problem. The sports
leagues that we are talking about are monopoly sports leagues.
There is only one National Football League that provides top-
level professional football in the United States, and the same
for the other professional team sports leagues in the United
States.
There are two ways that economists say you can deal with
monopolies. One is to break them up, to have a bill that would
force divestiture, put the NFL back into the AFL, make them
compete on business grounds, let them cooperate on playing
rules, let them cooperate on the post-season, let them have a
Super Bowl, to be sure, but make them compete. In baseball,
make the AL and the NL two different leagues, make them compete
on business terms. If you had the AL and the NL competing in
business terms in baseball, you wouldn't have had Washington,
DC, one of the 10 largest media markets in the United States,
without a baseball team since 1972. So, that is one possible
remedy, divestiture.
The other remedy is some kind of regulation, which your
bill provides, and I think it is a good effort. But by the same
token, I think that there are some weaknesses in your approach.
I think that you are, No. 1, looking for a single formula to
apply to very distinct circumstances and very distinct leagues.
As it has been pointed out, the NFL has a tremendous amount
of revenue-sharing, whereas baseball and the other leagues have
very little. That means that all of the owners of football
teams can benefit if there is a new stadium in Boston or a new
stadium in Hartford. That revenue spreads out to the whole
league, and when there is one team that is doing very poorly,
that is a loss that is absorbed by the whole league. So, to
have a mandated funding program from the league is much
different, carries much different economic incentives from one
league to another.
Another problem--I agree with John Moag that the financing
provision, particularly as it applies to Major League Baseball,
is inadequate. If you take a $340 million yearly TV contract
and take 10 percent of that and put it into a stadium fund, you
are not going to have enough money to get anywhere near the 50
percent that you are looking for.
Third, and I think this is very important, the National
Football League Players Association and the owners have come to
an agreement which provides for the Players Association to
contribute in any financing that is done by league funds for
new stadiums. They have already handled that and they are
already discussing and negotiating means to extend that with
regard to the new bylaw in the NFL. So they are doing that
particular thing on their own, and I don't think it is
necessary for your bill to insert the Federal Government into a
collective bargaining relationship, particularly a collective
bargaining relationship that has been so successful.
Fourth, I agree with Senator Feingold. I think you have got
the wrong punishment in your bill. I think it would be
perfectly appropriate, for instance, to remove the Federal
exemption on municipal bonds for a league that didn't comply. I
think you are going to wreak havoc and financial disarray if
you take away the Sports Broadcasting Act powers from the
sports leagues.
You simply can't take $71 million from the coffers of the
Jacksonville Jaguars or the Carolina Panthers and expect them
to play NFL football. You are going to create similar kinds of
problems, not quite as severe but similar kinds of problems if
you take the $14 million away that goes to each of the major
league baseball teams that comes from the Federal contract.
Let me lastly say that with regard to the bylaw change in
the NFL that they are, as Mr. Moag suggests, taking a step in
the right direction. They are not nearly going far enough with
that, and they are particularly not going far enough in the
medium-sized and small cities.
Senator Specter. What should they do if they are going to
follow their current path?
Mr. Zimbalist. Well, the problem here is that they are
going to make a very large contribution in New England because
Robert Kraft is going to spend about $250 million and the NFL
is going to contribute $125 million. But one of the reasons why
Robert Kraft has to spend $250 million is because Boston is the
sixth largest media market. When you go to smaller media
markets, without legislation similar to the one that you are
proposing, the medium and smaller-sized cities are not going to
get that kind of private financing. So the NFL is going to be
contributing a smaller share, less than 50 percent, to a much,
much smaller commitment from the private sector. So I think
that you need to do more.
In terms of what the NFL should do, I wouldn't put the
burden on them. They are a monopoly sports league. They are
going to maximize their profits the best they can. I think
again we need Federal action, we need Federal policy, and I
think either divestiture or a bill that moves toward the
direction that yours moves is appropriate.
Senator Specter. Well, thank you very much, Professor
Zimbalist. One further question. Washington is the tenth
largest media market with no baseball team. Not enough
political clout in this town?
Mr. Zimbalist. Well, I think that that is a question that
you could provide more insight to than I could. There have been
powerful owners of the Baltimore Orioles and Baltimore football
teams which have lobbied effectively in the past to keep
professional baseball out of Washington. But, again, I think
there are probably nuances to your question that you could
provide more insight for than I could.
Senator Specter. Thank you very much, Dr. Zimbalist.
[The prepared statement of Mr. Zimbalist follows:]
Prepared Statement of Andrew Zimbalist \1\
Good afternoon. I would like to begin by commending Senator Specter
for making an earnest effort at ameliorating what has been a growing
problem in our country, the most recent instance of which was the
unsavory competition between Connecticut and Massachusetts over the New
England Patriots. For over four decades U.S. states and cities have
used increasing public subsidies to compete with each other over
professional sports teams, only to see ever higher franchise values.
Modern stadium architecture and new revenue-generating accoutrements
have led to an explosion in both the number and cost of publicly-
financed facilities during the 1990s.
---------------------------------------------------------------------------
\1\ Andrew Zimbalist is Robert A. Woods, Professor of Economics,
Smith College, Northampton, Ma. He has written about and consulted
extensively in the sports industry. His next book, Unpaid
Professionals: Commercialism and Conflict in Big-Time College Sports,
will be published by Princeton University Press in August 1999.
---------------------------------------------------------------------------
With few exceptions, the competition among our states and cities
over sports teams is supported by the U.S. Government which grants tax
exemption on the interest from the municipal bonds which are floated to
finance sports facility construction. An effort to limit the use of
this exemption for publicly-funded sports facilities in the 1986 tax
reform only backfired, as financing loopholes were discovered which
actually led to lower team rental payments.
Although teams and leagues often hire consulting firms to publicize
purported positive economic impact from sports stadiums, all
independent academic studies have found that there is no statistically
significant positive effect from having a new team or stadium on an
area's economy. This fact alone does not mean that there should be no
public subsidization of new stadium construction. If the voting public
in an area believes that having a new facility or team would enhance
the local culture and create a positive consumption value for its
citizens, then the public may very well decide to expend tax dollars in
support of sports teams--much the same way they may decide to use
public funds to park construction (albeit in the case of sports teams
the subsidies are eventually appropriated by the private owners of the
franchises). The voters, however, need to understand that they are
voting for cultural, not economic, value. The voters are also entitled
to make this election without the threat of extortion by the monopoly
sports leagues.
Economists have no difficulty identifying the source of this
problem. Both the National Football League (NFL) and Major League
Baseball (MLB) are monopolies. As such, they artificially limit output
(i.e., the number of teams) below the demand for teams from
economically-viable cities. With excess demand for teams, cities are
thrust into competition with each other.
Economists also have no difficulty identifying the possible
remedies. There are two choices. Either create competition or regulate.
The easiest way to create competition is to force league divestiture.
That is, the league could be broken up into two competing business
entities while being allowed to set common playing rules and post-
season competition. If baseball had two competing leagues, the American
League and the National League, it would be inconceivable that
Washington, D.C. would go 27 years without a team. It is one of the ten
largest media markets in the country and the two leagues would be
tripping over each other to occupy it. Similarly, cities like New York
would have more than two teams and the competitive advantage Mr.
Steinbrenner derives from his MSG contract would attenuate. Compelling
divestiture via legislation, however, is not something the U.S.
Congress is likely to embrace.
Another route, heretofore spurned by the Congress, is meaningful
regulation of the monopoly abuses perpetrated by the major sports
leagues. Senator Specter's present bill is but the most recent of
several failed efforts at partial regulation of the sports industry.
The Senator's goal--to obligate MLB and the NFL to put aside 10
percent of their national television contracts in order to finance up
to 50 percent of new ballpark construction--is admirable. Senator
Specter also suggests in his floor statement that of the remaining 50
percent, half should be public money and half should come from the team
owner.
I am supportive of the Senator's ends but a bit skeptical of his
means. Let me explain. First, specifying a single formula for distinct
situations, especially when the lease terms for the new facility have
not been spelled out, is problematic. Second, the present size of MLB's
network contract renders it insufficient to meet the financing
expectations of the bill.
Third, while franchise geographic stability has its virtues, in the
present context extending the NFL an antitrust exemption with regard to
franchise relocation is potentially perilous. If the NFL is allowed to
decide when teams move, then it also is allowed to prevent two or more
teams seeking to move to the same city from competing with each other.
Such competition would give the city a modicum of bargaining leverage
in setting the financing arrangements and lease terms for the new
stadium. Moreover, although it might limit the actual frequency of team
relocations, it would not prevent teams from threatening their host
city. No baseball team has relocated since 1972, but many franchises
have threatened to move and, thereby, obtained tens or hundreds of
millions of dollars in public subsidies. While it is probable that
granting the NFL this exemption would reduce the amount of litigation
against the league, and this is certainly desirable, it is simply too
dangerous to grant a monopoly league still greater economic power.
Fourth, the Senator's bill mandates that any monies put into the
stadium trust fund will be excluded from the NFL's defined gross
revenue (DGR) and, hence, not subject to the 63 percent sharing with
the players implied by the league's salary cap. While there is a
reasonable logic behind this provision, it is inappropriate for the
U.S. Congress to insert itself into the collective bargaining
relationship between the owners and players. It would be equally
inappropriate, for instance, for the bill to require the abolition of
the NFL's salary cap as a means to bypass its automatic sharing
provisions and to encourage player contribution to stadium
construction. In fact, the NFLPA recognizes the value to the players
from new facilities and already has, on its own accord, entered into
agreements with the owners that allow the exclusion of certain league
financing of stadium construction from DGR. This is not an area where
the NFL and NFLPA have failed. It would set a destructive precedent if
Congress were to mandate a particular collective bargaining outcome,
especially on a subject where the league and players have accomplished
much the same on their own.
Fifth, Senator Specter's bill proposes to punish a league's failure
to establish a stadium trust fund by removing its member teams' ability
to join together to sign a leaguewide network television contract. The
NFL derived its ability to do this in the 1961 Sports Broadcasting Act.
MLB claims to have derived its ability from its presumed blanket
exemption from the nation's antitrust laws granted by the Supreme Court
in 1922, and MLB is also covered by the Sports Broadcasting Act. But if
Congress proscribes leaguewide television deals, yet continues to allow
the NFL and MLB to function as monopolies in other regards, it is
courting disarray. Revenue from network television are shared equally
among all the teams. If each NFL team signed its own television deal,
then the $71 million per team annual average under the current contract
would disappear. Certain popular, big-city franchises, like the New
York Giants and Dallas Cowboys, might earn larger contracts, but the
Charlotte Panthers and Jacksonville Jaguars might find themselves $60-
$70 million in the hole. League financial stability would disappear and
competitive balance may be undermined. Less dramatically, a similar
pattern would affect baseball. Thus, the punishment for non-compliance
is too draconian and certainly would not be in the fans' interests.
Further, the punishment does not fit the crime. It is a bit like
punishing a child who steals candy by not letting her go to school.
Non-compliance in stadium finance would more appropriately be
sanctioned by removing the opportunities for federal financing of
stadium construction, i.e., not allowing the interest on municipal
stadium construction bonds to be exempt from federal income taxation.
The NFL, in an effort to maximize its long-term television
revenues, has passed a policy providing league support for financing
new facility construction. In the case of the six largest NFL markets,
the league will provide an interest-free loan to a team owner for up to
half of the owners commitment to stadium financing (with
proportionately smaller amounts going to teams in smaller markets). The
loan is repaid by monies that the owner would otherwise have to share
with the league. Since large cities have more bargaining leverage
around stadium issues, they are likely to extract a larger component of
financing from the team owner. This policy is a step in the right
direction, but it does not go far enough and provides too little
support for the 25 smallest markets in the league. MLB has no policy at
all that provides league financing support of facility construction.
Thus, more needs to be done to bring sports industry welfare under
control. Senator Spector's effort is to be commended. The task now is
to make appropriate refinements to the bill and to overcome the ever-
so-effective lobbying efforts of the NFL and MLB by enlisting support
for the measure among members of Congress from outside the few cities
and states currently being extorted for large public stadium subsidies.
Senator Specter. We now turn to Professor Mark Rosentraub,
Professor and Associate Dean in the School of Public and
Environmental Affairs at Indiana University in Indianapolis.
Dr. Rosentraub's research focuses on the relationships between
sports and economic development in the public sector. He is the
author of ``Major League Losers: The Real Costs of Sports and
Who Is Paying for It.''
Thank you for joining us, Professor Rosentraub, and the
floor is yours.
STATEMENT OF MARK S. ROSENTRAUB
Mr. Rosentraub. Senator, thank you very much for the honor
to be here, and I will also just briefly summarize a couple of
points, and batting cleanup gives you that opportunity.
First, Senator, I want to let you know that--
Senator Specter. When does the seventh hitter bat cleanup?
[Laughter.]
Mr. Rosentraub. Our lineup is so deep, I guess everybody is
a cleanup hitter.
It has been honor also--I just want to add one thing that
is not in my testimony--to work with the city controller in
Philadelphia on the situation dealing with the Phillies and the
Eagles, and I continue to enjoy that association. And this is
just an issue that Mr. Moag and I will differ on very sharply,
including the profitability of the Philadelphia Phillies.
Having had the opportunity to work through those numbers with
the Phillies and with the city, I can tell you there is a real
divergence of opinion there.
I also want to point out for the record that I have
assessed the issue of the intangible benefits that you have
spoken about, and written and published on that. Part of what I
am going to recommend today in terms of a solution deals with
user fee charges that is based on intangible benefit research.
But let me just highlight five or six points and then turn to
you for some questions.
No. 1, it is clear we need to change the financing of
professional sports facilities because it is the result,
unfortunately, of actions that the Congress has taken to
protect the monopoly status of professional sports. But as many
of my colleagues have spoken to, looking at the media is not
the right source, given the different sources of income that
the leagues enjoy. It would perhaps be better to simply develop
legislation that gave the leagues the 50-percent responsibility
that you seek and let them choose the revenue sources. As many
have pointed out, including Andy, the NFL has already gone that
route. We need to see similar action from the other sports
leagues.
It is imperative, though, in your legislation, Senator,
that you also specify and discuss the repayment of any funds
that get utilized in terms of local government shares. Part of
the problem that we will face is that certain communities,
including Philadelphia, are seeking to use user fees as a way
because of the very lucrative nature of the Philadelphia market
for both the Phillies and the Eagles. They should not be
precluded from passing local taxes that hit fans only and users
of the facility, as opposed to general revenue or gaming funds.
As we go through, in terms of my written testimony for the
record, I have identified several funds that you ought to
specify cannot be used by local governments to finance their
share of facilities, but specify the funds that can be used and
circulate those basically on what occurs at the facility or
adjacent to the facility itself.
The Senate bill needs to go a little further, in my view,
on defining total cost, as many of the State representatives
have already spoken about. The infrastructure and environmental
remediation costs of these facilities are quite substantial,
and if they are not included in the bill, it becomes a mandated
cost on local governments or it leaves it open to the
negotiation between teams and State and local governments. And
as many have talked about, this is not a level playing field in
which State and local governments can negotiate with it. They
play in a monopoly world where the cards are held with the
leagues.
I talk in my testimony a great deal about using user
charges as a way to do that. User fees that are paid, whether
it is a fee for tickets, whether it is a special sales tax of
all consumption around the area, these are not taxes paid by
the fans. These are taxes that get split between the players
and the owners relative to the revenue-sharing agreements that
go on in those leagues because owners, in the absence of a tax,
will simply price all products, including tickets, to the
maximum they can. The tax simply freezes or puts a ceiling on
it, with a chunk of that money going to facility development.
And I talk about that extensively.
I also want to touch on one point which I think no one here
has yet dealt with, and that is the question of a loophole, as
I see it, in S. 952. If, for example, the city of Philadelphia,
Senator, would decide to present to the Eagles and to the
Phillies a revenue package that included the one-third share,
as you well know, that the State legislature requires from
local government to be collected from a series of user fees,
the owners of both teams might receive more lucrative offers
from other communities that would be willing to pass a property
tax or a sales tax or a gaming tax to fund that one-third, and
hence they would lose the team.
I would ask that you think about including in S. 952 the
provision that if any local government came forward with a
matching funding formula based on users fees and a team left
that because of monopoly status the NFL or Major League
Baseball be required within 24 months to award an expansion
franchise through a bidding process, as they have done in
Cleveland as they have gone through in Los Angeles, in a way
that would award a franchise so that a community that believes,
because of its market size, like Boston--and Philadelphia
clearly fits into this mode--that if Philadelphia could come
forward with a user fee basis and if the teams left that
Philadelphia would be assured of the fact that it would, in
fact, have a new franchise within 24 months. I talk about that
in my written testimony, how that would work, because the
stadiums would not be as subsidized, but, in effect, that would
be handled in that fashion.
Senator Specter. Professor Rosentraub, for the fans that is
totally insufficient to get a new team.
Mr. Rosentraub. Senator, I agree with you, and I think Andy
and I have both written about different ways to handle it in
terms of a set of issues about how you deal with a monopoly.
But let me point out, Senator, that if the NFL and Major League
Baseball knew that if a team moved that they had to, in effect,
expand immediately, you would get pressure not to allow the
movements to occur.
We have seen this happen, in fact, when we dealt with the
situation of the New England Patriots where the loss to the
media partners and to the NFL were sufficient to encourage them
to seek a solution to the Boston problem, together with the
excellent political leadership provided. If, in fact, Major
League Baseball and the NFL knew that if the Phillies and the
Eagles left Philadelphia that within 24 months both would have
to expand, that would create a very powerful incentive for the
leagues to help explore the solutions.
So where I agree with you, Senator, that, in effect, the
fans don't receive the kind of protection that you and I would
like to afford them, what I would say is that S. 952 could
create a set of incentives that would require the leagues'
participation. And based on what we saw in New England, I think
your legislation and your discussions had an impact. I know
that the Speaker's work had a great impact, but I also know,
Senator, that the fear of losing a team's presence in a very
large media market was something that the media partners were
not willing to accept and that creates the incentive for a
solution. If you required expansion, then, in fact, you would
have an incentive.
And the last point I will make, adding on to some things
Andy said, is in 1966 Commissioner Rozelle came before this
committee and not only did he promise to expand, he also
guaranteed that there would be no movement of teams from the
smaller markets and from their existing stadiums. Within 15
years, that commitment to the Senate Judiciary was left in
shambles. So it is critical that the bill specify rules for
expansion and what is expected in return for the monopoly
status that this committee has been generous in extending to
professional sports.
Senator Specter. Well, thank you very much for those ideas
and for those suggestions, Professor Rosentraub.
[The prepared statement of Mr. Rosentraub follows:]
Prepared Statement of Mark S. Rosentraub
introduction
Thank you for the opportunity to address the Committee on Senate
Bill 952, the Stadium Financing and Relocation Act of 1999.
Across the past several years there has been an unprecedented level
of activity in the building of new facilities for professional sports
teams. The changing economics of the sports business has driven this
construction boom. While television revenue is still crucial, team
owners have learned that they can earn substantial amounts of money
from in-stadium or arena sources including luxury seating and the sale
of food, beverages, advertising, and souvenirs. Ballparks and arenas
built in the 1970s did not have luxury suites and club seats; nor did
they have the concourses needed for a large number of quick sales and a
variety of food and souvenir outlets. The provision of luxury seating
also attracts a caste of fans that are highly desired by firms that
seek to identify themselves in the minds of business leaders and
consumers.
The modern ballpark is much like today's airports and the Internet.
They are filled with glitzy shops, first class seating, exclusive clubs
and seating areas, and the opportunity to capitalize on the disposable
wealth of a captive population. Advertising adorns all available space,
and as technology is coupled with facility design, advertising appears
on personal video screens along with menus and the latest statistics
and replays.
The building of these new facilities should be greeted with uniform
joy. After all, projects of this nature provide short-term construction
jobs, other limited service sector employment opportunities, and fans
generally enjoy the new facilities while eagerly spending far more
money at the ballgame then they did years ago. Amidst all this good
news why are some people joyless when plans for new facilities are
usually announced? It is because team owners want more than a new
stadium or ballpark. They generally want someone else to pay for their
new facilities.
In the vast majority of instances when a plan is announced for a
new facility state and local taxes rise. State and local governments
are expected to enter into public/private partnerships with teams.
These partnerships are somewhat peculiar. Governments provide part and
sometimes all of the funds for the new facilities, but the teams keep
the overwhelming majority of the revenues collected at the facility.
Why do governments agree to these deals? The sports leagues are
permitted to control the supply of teams and their locations. There are
always one or two cities without teams, and these areas are used to
insure that adequate subsidies are provided. If a city fails to provide
the required subsidy a team just moves to a more pliant area.
Many have argued that this is not a matter with which the federal
government or any government ought to concern itself. After all, any
community is free to decide to assist in the financing of a new stadium
or ballpark or let a team move to another community that is willing to
offer what is demanded. State and local govemments make decisions of
this nature every day in the provision of abatements, the establishment
of tax increment financing districts, and the provision of other
incentives to influence the locational decisions of firms and
households. Why do professional sports--and in the case of Senate bill
952, the National Football League (NFL) and Major League Baseball (MLB)
require special treatment or federal legislation?
the special status of professional sports
Sports are separated from other businesses by at least two
characteristics. First, sports require organized competition and
competitors to be successful. Ford, Microsoft, or American Airlines can
operate without the existence of other carmakers, software firms, or
airlines. Baseball and football teams, however, must have competitors
to be financially successful as fans are attracted to games between
teams where the outcome is uncertain and both teams are following the
same rules and procedures to build a winning franchise. Sports
entrepreneurs did experiment with ``barnstorming'' teams that went from
city to city playing local athletes. This framework was not as
successful or profitable as organized leagues of ``conjoint
competitors'' seeking a championship. Teams do compete with each other
for players (economic competition) and on the field for championships
(athletic competition). Yet, every team owner knows the profitability
of any single franchise depends on the success in staging competitive
games with unsure outcomes. The success of any sports league comes from
a form of self-regulation or conjoint competition to insure competitive
balance. However, self-regulation can under certain circumstances
create a powerful imbalance in the relationship when leagues control a
desired
resource.
Second, while all corporations that produce goods and services are
important and valuable, there is a social dimension to sports that
elevates it to a different position. Sports are, and have been for
almost 4,000 years, an organizing element of society upon which people
place extreme value. The Greeks, Romans, and Mayans among ancient
societies used sports to define critical religious, political, and
social aspect of their societies. The importance placed on sports was
no less critical in the time of the Ottoman Republic and the reign of
the Sultans then it is today for the celebration of American holidays
and events. Patriotism and civic virtues are tied to athletic events
today as they have been for thousands of years. The Olympics are
frequently used to establish political objectives, and teams across the
US are critical elements in the establishment of a national and
international identity. Finally, leaders in virtually every city
believe that hosting a baseball or football team is a necessary
prerequisite for establishing themselves as a real or ``major league''
community. The presence of a large manufacturing plant, bank, or resort
complex did not mean the same thing to the people of Jacksonville or
Charlotte when they received a NFL franchise. The extreme steps taken
by Connecticut and Hartford, as well as St. Louis and Nashville, are
representative of the importance our society places on sports. The
subsidies teams receive are the most recent examples of the importance
people believe everyone places on sports. Without a team a city is not
seen as being ``major league'' and ``serious'' or ``real'' players in
the American economy. Without a team communities do not believe they
are ``real players'' in American society.
In this environment the power of the supply of teams is not market-
driven but controlled by small groups who use their ability to
establish the number of teams to secure subsidies. And, unlike an
automobile plant or airline maintenance facility, if a community loses
in the subsidy race to get a NFL or MLB team, there are no other
suppliers of these goods and services with whom the community can
negotiate.
How Much Are State and Local Governments Paying for Ballparks and
Stadia?
It is estimated that $7 billion has been spent by state and local
governments since the mid-1980s to build facilities for teams in the
four major sports leagues. The financing tools used by state and local
governments to support this investment have led to increased taxes. New
sales and property taxes have been used as well as special taxes on
hotel stays and the rental of cars. Table 1 details the subsidies
received by each team.
Table 1.--A Selected Overview of Public Subsidies for the Facilities
Used by Professional Sports Teams
------------------------------------------------------------------------
League/Team Situation Resolution
------------------------------------------------------------------------
Major League Baseball:
Arizona Diamondbacks.......... New Stadium Part $238 Million
of Expansion Bid. Subsidy from
County (sales
tax)
Baltimore Orioles............. Demanded New Camden Yards,
Stadium. $200+ Million
Subsidy, 1992
Chicago White Sox............. Threatened to Move New Stadium, 1991,
to Florida. 100% Public
Subsidy, $125+
million
Cincinnati Reds............... Threatened to Move New Stadium
Approved, 1996;
$250 miliion
subsidy
Cleveland Indians............. Threatened to Move New Stadium, 1994
Out of Region. Public Subsidy In
Excess of $150
Million
Colorado Rockies.............. New Stadium Part $215 Million
of Expansion Bid. Subsidy (sales
tax)
Detroit Tigers................ Threatened Move to New Stadium
Suburbs. Approved, 1997;
public subsidy
$240 Million
Houston Astros................ Threatened to New Stadium
Leave the Region. Approved, 1997;
$180 Million
public subsidy
Milwaukee Brewers............. Threatened to New Stadium
Leave the Region. Approved, 1997;
$232 Million in
subsidy
Seattle Mariners.............. Demanded New $360 Million
Stadium. Public Subsidy
For New Stadium
Texas Rangers................. Threatened to New Stadium, 1994
Leave Arlington. Public Cost $135
Million
Toronto Blue Jays............. New Stadium Opened Public Cost In
In 1989. Excess of $262
Million
(Canadian)
National Basketball Association:
Atlanta Hawks................. Demanded New Arena $62 Million In
Infrastructure
From Public
Sector
Charlotte Hornets............. New Arena for 100 Percent Public
Expansion Bid, Financing ($52
1988. Million)
Cleveland Cavaliers........... New Arena To Bring Public Subsidy In
Team Downtown. Excess of $100
Million
Dallas Mavericks.............. Threatened to Move Public Subsidy of
to Arlington, $125 Million
Texas. Approved, 1998
Indiana Pacers................ New Arena Approved $107 Million
in 1996. Public Subsidy
Miami Heat.................... New Arena Approved Public Pays $6.5
in 1996. million per year
and $34.7 million
for land
Orlando Magic................. New Arena For Publicly Financed
Expansion Bid in $98 Million Arena
1989.
Phoenix Suns.................. New Arena in 1992. Public Subsidy
Exceeds 50
Percent of $90
Million Costs
Sacramento Kings.............. Remodeled Arena in Public Loan of $70
1997/98. Million
Seattle Supersonics........... Remodeled Arena Arena Revenues For
1995. Public Sector's
$110 Million
Investment
National Football League:
Baltimore Colts............... Moved to Received Excellent
Indianapolis. Lease in 1984;
revised 1998
Baltimore Ravens.............. Received New Public Subsidy In
Stadium To Excess of $200
Relocate. Million
Buffalo Bills................. Threatened To Move Public Subsidy,
$180 Million for
Renovations;
Operating Subsidy
Cleveland Browns.............. New Stadium for Public Subsidies
1999 Season. Exceed $200
Million
Cincinnati Bengals............ Threatened a Move. New Stadium
Approved, public
subsidy; $400
Million subsidy
Denver Broncos................ Threatened a Move. New Stadium
Approved, 1998;
public subsidy of
$260 Million
Detroit Lions................. New Stadium $240 Million in
Approved in 1996. public subsidies
Houston Oilers................ Moved to Nashville New Stadium in
1999; $292
Million Package
to Move
Indianapolis Colts............ Moved from New Lease With
Baltimore in 1984. Expanded
Subsidies in 1998
Jacksonville Jaguars.......... Renovated Stadium $121 Million
for Expansion Bid. public subsidy
Los Angeles Raiders........... Moved to Oakland.. New Stadium Lease,
Remodeled
Stadium; $100
Million subsidy
Los Angeles Rams.............. Moved to St. Louis New Stadium in St.
Louis; $280
Million+ public
subsidy
Miami Dolphins................ New Stadium in Privately Financed
1987.
Minnesota Vikings............. Want New Stadium.. Unresolved
New England Patriots.......... Threatened to move Connecticut
to Hartford, offered a subsidy
Connecticut. of more than $350
million; team
accepted new
infrastructure
from
Massachusetts and
assistance from
the NFL to remain
in Foxboro,
Massachusetts
San Diego Chargers............ Renovated Stadium, $60 Million public
1997. subsidy plus
ticket sale
guarantee from
city
San Francisco 49ers........... New Stadium $100 Million
Approved 1997. subsidy
Seattle Seahawks.............. Threatened a Move. New Stadium
Approved, 1997,
$325 Million
Public Subsidy
Tampa Bay Buccaneers.......... Threatened a Move. New Stadium 1998,
$300 Million+
Subsidy
------------------------------------------------------------------------
While it is undeniable that there is a level of intangible benefits
secured by communities from the presence of a team, these benefits do
not translate into any form of economic gain. Across more than two
decades a number of researchers from our most acclaimed universities
and from the federal agencies have studied the economic development
effects of professional sports. There is no evidence that a team's
presence generates economic development for a region. Sports facilities
largely reshuffle existing spending for recreation among activities in
a region. In other words, in the absence of a team, the money spent by
people will continue to be expended for other recreational pursuits. To
be sure teams do attract a number of visitors to a community to attend
games. In addition, the presence of a team does encourage people to
spend their discretionary income on local events as opposed to games or
activities in other regions. The combination of economic development
from both of these sources has been found to be quite small.
leveling the field
The Congress, through past actions has provided the NFL with
protection from market forces that has increased the value of each
team, the profits earned by team owners, and the salaries earned by
players. Congress approved the merger of the NFL with its rival AFL and
commitments made by the NFL and its owners to secure that approval have
not been honored. When the Congress permitted the NFL to merge with a
competitive league, the NFL gave assurances that teams would remain in
their existing locations and new franchises would be created. The NFL
did create one franchise in the aftermath of the merger, but additional
expansions would not occur for several decades. Today, Los Angeles and
Houston, still compete for a sole NFL expansion franchise. In addition,
while the league committed to keep teams in existing markets, less than
15 years after the merger franchise movement became commonplace. The
Sports Broadcast Act of 1961 (Public Law 87-331, 15 U.S.C. 1292) also
had the effect of increasing the value of the NFL. Protecting the
interests of cities and abating the ability of individual owners to
stage unfair competitions for franchises whose value the Congress has
protected and supported in exchange for unmet assurances regarding
franchise location is not only appropriate, but serves to level the
bargaining field between cities and teams.
MLB also has received protection from market forces through its
limited exemption from anti-trust legislation and the reluctance of the
Congress to eliminate the special status accorded to baseball. MLB also
profits from the Sports Broadcast Act, although the NFL enjoys a larger
concentration of the benefits from this act.
Towards these ends, then, Senate Bill 952 is both warranted and
takes important strides to correcting the imbalances between
communities and teams created as a result of past laws. However, there
are some additions or changes that I would like to suggest that the
committee consider.
First, it is appropriate that revenues from the broadcast of games
be used to establish a pool for the financing of facilities. However,
the legislation must make it clear the entity responsible for the
repayment of any facility financing loans generated by this important
pool of resources. As written, the proposed legislation does discuss
the availability of revenue for fnancing a new stadium or the
rehabilitation of an existing facility, but it is unclear on the issue
of repayment. Is the intention of Senate Bill 952 to establish a
revolving loan fund? Or is the intent to establish a source of funds to
provide matching grants to build facilities? There are ways to make
both systems work to reach the goals that seem to be the objective of
Senate Bill 952, but clarification is required to be sure the intent is
clear and the repayment method specified.
Second, it is also imperative that the source of funds for
repayment of any load be specified. A failure to identify the source of
funds could lead to larger tax burdens for local communities.
Third, it may be more efficient to simply specify that the leagues
are responsible for 50 percent of all stadium construction costs rather
than specifying the specific source of the funds to be used. Given that
the proportion of team income from media varies by sport, leaving the
issue of revenue sources to the leagues may be more equitable and far
more practical.
Fourth, Senate Bill 952 still leaves open the issues of defining
the total cost of a stadium project and the share of these total costs
that should be shared between a team and the local community. The next
section of my testimony touches on each of these matters.
matching grants or a revolving loan fund?--methods for
protecting taxpayers
Matching Grants. If a league was responsible for financing 50
percent of the cost of a facility in exchange for a commitment of
participation by a local government, then these funds could be
considered a grant with any requirements for repayment to the fund left
to the leagues and their members. If this were the intent of Senate
Bill 952 then I would recommend that the Committee consider more
specific language to clarify its intent. A matching grant would, in
effect, require the league to develop procedures for sharing the cost
of the grant.
Revolving Loan Fund. The same objectives relative to insuring that
a league use its revenues to fund half the cost of a facility can still
be achieved by treating the funds in the pool as a source of loans if
the methods of repayment are carefully specified. If any repayments of
these funds are to be made Senate Bill 952 should require that the
money used to repay a loan must be generated at the facility.
Specifically excluded from repayment programs should be broad-based or
general sales or property taxes. In addition taxes on the short-term
rental of vehicles, stays in hotels, or citywide or countywide food and
beverage taxes or taxes on the consumption the tobacco and alcohol
products should also be deemed inappropriate. I would also ask that
repayment from gaming revenues (e.g., lotteries or betting pools) also
be prohibited to insure that income generated only from stadium or
ballpark-related activities are used for repayment. This would insure
that the repayment to a loan fund would be the responsibility of a team
or the league and would not be shifted to taxpayers. In the case of
utilizing gaming revenues, a reliance on this unpredictable revenue
stream would constrain its use for other infrastructure projects. In
addition, if gaming revenues declined a state or local government might
be required to substitute other funds from their general revenues.
The NFL has already indicated a willingness to consider such an
option and to use its own revenues to insure repayment. To help finance
a new stadium for the New England Patriots the NFL loaned the team half
of the money for the new facility. Repayment is to be made from
revenues the Patriots would have had to share with visiting teams
(luxury seating income). As a result no tax revenues are being used to
fund this half of the facility's costs. The NFL has also agreed that in
smaller markets a financing plan of this nature will be used to support
34 percent of the cost of a new stadium. The cap on financing new
stadia in large markets is 50 percent to dissuade owners from
relocating to smaller areas.
The NFL's actions have been prompted by the movement of teams to
smaller market areas that have offered large subsidies. The owners that
accept these subsidies increased their own profits, but the failure to
have teams in the largest markets is unacceptable to the NFL's media
partners who have paid large sums of money and want home teams in
America's largest television markets. Senate Bill 952 would insure that
the NFL's commitment to financing new facilities continues beyond the
current wave of construction. Given the changing economics of sports,
it would be wise to insure that there is an on-going and continual
requirement for league participation in financing new construction and
the rehabilitation of existing structures.
Broadening the Base to Include MLB and Protect Small Market Teams
in MLB. The Judiciary Committee might also wish to consider the
stipulation that 50 percent of the cost of facility financing
(construction or rehabilitation) is the responsibility of the league
with repayment required from the leagues' existing revenue sources.
Removing the requirement that media funds are used would simply mean
that the leagues themselves must develop plans irrespective of the
source of revenues they identify. The key elements of any proposed
legislation must be that (1) the league provides the funds and (2)
repayment must be from facility-related revenues and not from any form
of taxation related to activities that occur outside of the facility
(or beyond a one mile radius). This would preclude the possibility of
shifting the leagues' cost of facility construction to state or local
tax bases or reducing the level of gaming revenues available to state
and local governments.
A requirement of this nature could then be extended to MLB.
Specifying television revenue works to the disadvantage of MLB teams
located in smaller television markets. Income from the national media
contract for MLB is a far smaller portion of total team revenues then
the national media contract is for teams in the NFL. In MLB the
difference in revenues earned by teams is partially related to the
contracts some teams have negotiated for the broadcast of their games
in local markets. Some teams earn in excess of $45 million while others
earn less than $5 million. In addition, media-related corporations own
some teams and it is difficult to accurately account for their income
from the broadcast of games. As such, a simple solution could be to
require the NFL and MLB to establish a funding pool for facility
construction or rehabilitation that insures that league revenues are
used to support at least 50 percent of the cost of all construction.
Repayment of any loans received from this fund will be from facility-
related income. Revenues from broad-based taxes, taxes on hotel usage
or vehicle rentals, and gaming revenues would be exempt from any
repayment plan.
one other issue
In developing Senate Bill 952 there is at least one other complex
issue that I would suggest that the Judiciary Committee consider. This
issue involves both the total cost of constructing a ballpark or
stadium and the source of local government funds to support the 50
percent investment required by Senate Bill 952. These issues are
related and that interrelationship can help forge a solution to a
complex issue.
First, as relates to total project cost the required infrastructure
that is needed for a stadium or ballpark as well as any environmental
remediation or protection can substantially raise the total cost of a
facility. A possible interpretation of Senate Bill 952 is that these
expenses are not part of the construction costs and this could expose
local communities to the very real possibility that they pay more than
50 percent of the cost of a project. Virtually every stadium and
ballpark project requires the investment of millions of dollars in new
infrastructure or the expenditure of funds to meet environmental
issues. A failure to include infrastructure and environmental costs in
estimating the expenses associated with a new facility will increase
the proportion the public sector pays.
Second, if a local government would elect to finance their share of
construction costs for a new stadium or ballpark by administering a
ticket tax or some other user fee, a new round in the subsidy war could
actually be instigated by Senate Bill 952. For example, if a city
agrees to the terms specified in Senate Bill 952, but opts to implement
a ticket tax to fund their portion of the construction cost of a
stadium, a team owner could elect to move his team. Ticket taxes (or
any sort of stadium or ballpark user fee) reduce the income earned by
teams. Hence to increase their income an owner might well be attracted
to a community that guaranteed to use a broad-based tax or tax on
unrelated activities (e.g., vehicle rentals, hotels, etc.) instead of a
ticket tax or other tax on stadium operations. A city in a large market
that believes its area affords a team owner an exceptional opportunity
to earn profits and that elects to fund its portion of the investment
with a ticket tax or rental charge could lose the team to another area
willing to provide general tax support. In Massachusetts for example,
the state will spend but $70 million for infrastructure costs while the
team pays $1 million in rent and is responsible for all other
construction costs. In addition, the state will receive some revenue
from the operation of parking lots. Senate Bill 952 should not preclude
deals of this nature and these options for state and local governments.
This dilemma or conundrum can be at least partially addressed by
requiring the leagues to be responsible for 50 percent of the
construction cost of a facility while the individual team and the city
must equally share the remaining construction AND infrastructure costs.
In addition, and most importantly, if a community implements a user fee
or other facility-related taxes to support its share of the investment,
and a team leaves the area, the community must be afforded an immediate
opportunity to receive an expansion franchise. The award of an
expansion franchise must be made within 24 months of a team's announced
intention to relocate. To select a new owner a competitive bidding
process administered by the league will be held. The league of course
keeps all revenues from the franchise purchase. However the new team's
owners must be guaranteed and full and immediate share of all revenues
pooled by that league.
The bids received will reflect the structure of the public sector's
offer to fund its share of the stadium costs. A less subsidized stadium
creates a team of less value and the bids for prospective owners will
reflect this outcome. However, if the new owners pay less for their
team and still share in the pool of league revenues with other owners,
it will be possible to operate a competitive team and earn a rate of
return similar to other owners. In this manner if a city has a team and
meets the requirements of Senate Bill 952 they are assured of a team
even if they elect to provide less of a subsidy then another community.
Again, I thank the committee for the opportunity to comment on
Senate Bill 952 and I hope my suggestions help enhance the discussion
and add to the bill's abilities to achieve the public policy goals
established by its authors.
Senator Specter. We want to really structure it so that we
don't get expansion teams and you don't put a Cleveland through
the trauma. We had hearings back in 1982 when the National
Football League came to the Judiciary Committee, and I was
consulted because I had two teams. Senator Matthias was one of
the others. And we had in this room really a phenomenal debate
between Mr. Rozelle and Mr. Al Davis on those issues.
It seemed to me at that time, and I said that sports were
affected with a public interest, that the fans really had a
significant ownership interest in the team. The Brooklyn
Dodgers fans had a big ownership interest, aside from Walter
O'Malley, who got all that real estate in Los Angeles.
Well, this has been very helpful to me. There have been
quite a number of suggestions as to how we can sharpen up the
legislation. I regret we didn't have more of our colleagues,
but at the noon hour on Tuesdays we have caucus meetings. And I
had anticipated initially this would be a 10 o'clock hearing,
and instead we had Mr. Gates down and the entrepreneurs in town
to coincide with a big event they are having. So there is
always a lot of competition, but we very much appreciate your
coming.
That concludes our hearing.
[Whereupon, at 1:37 p.m., the committee was adjourned.]
STADIUM FINANCING AND FRANCHISE RELOCATION ACT OF 1999
----------
TUESDAY, JUNE 22, 1999
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 11:12 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Arlen Specter
presiding.
Also present: Senators Hatch, Thurmond, Kennedy, Feinstein,
Feingold, and Schumer.
Senator Specter. Senator Hatch has sent word that while he
is on his way that it would be appropriate for us to begin the
hearing.
The senior Senator here, the senior Senator anywhere,
Senator Thurmond.
OPENING STATEMENT OF HON. STROM THURMOND, A U.S. SENATOR FROM
THE STATE OF SOUTH CAROLINA
Senator Thurmond. Thank you very much. Today, the Judiciary
Committee is continuing its consideration of S. 952, the
Stadium Financing and Franchise Relocation Act. I am pleased to
have this distinguished panel of witnesses with us today. I
would like to especially welcome Mr. Jerry Richardson, the
owner and founder of the Carolina Panthers, which joined the
NFL in 1995.
Mr. Richardson, stand up and let them see you.
[Mr. Richardson stood.]
Senator Thurmond. The team is based in Charlotte, NC, just
across the border from my State. It is a fine regional team and
serves many, many loyal fans in South Carolina as well.
I share the concerns of Mr. Richardson and others regarding
the legislation we are considering today. Stadiums are
extremely expensive to build, and I appreciate the frustration
that many local communities face in their efforts to finance
the stadiums. However, the question before us today is whether
the Federal Government should involve itself in regulating the
financing of stadium construction. I have serious reservations
about this approach.
Today, stadiums are financed in many different ways based
on economic and other factors in the local community. Many are
financed in public-private partnerships. Others such as the
Carolina Panthers are financed by the private sector. The key
is that these are primarily local questions, based on local
needs and local interests. I do not believe the Federal
Government should impose a tax that dictates how financing is
achieved.
Recent franchise additions located in smaller markets such
as the Carolina Panthers could be seriously harmed by this
legislation. This legislation would create a trust fund for
stadium construction, and the money for the fund would come
from television revenue which is currently shared among all
teams. Teams like the Carolina Panthers depend heavily on this
revenue-sharing to field competitive teams because their local
television markets do not provide sufficient revenue.
I am concerned about the impact that this loss of revenue
would have on teams in small markets. Moreover, the NFL has
recently passed a resolution increasing its contribution to
stadium projects. I believe that this will help foster public-
private partnerships to address stadium issues. I am pleased to
have our witnesses here to discuss this important matter.
Senator Specter. Thank you very much, Senator Thurmond.
While we are awaiting Senator Hatch----
Senator Thurmond. Have the witnesses all come up.
Senator Specter. Senator Thurmond suggests that the
witnesses come up and I think that is a good idea. After an
opening statement, we can begin the testimony.
Senator Thurmond. We can just start down at the end with
Mr. Richardson and follow through.
Oh, Senator Specter, do you have a statement? Excuse me.
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. I do have an opening statement.
I think there is a great deal to be said for leaving the
Federal Government out of professional football.
Senator Thurmond. I have got another appointment and have
got to leave. Take charge.
Senator Specter. OK. Senator Thurmond said I should take
charge. I will take charge.
Senator Thurmond. I have another appointment and I have got
to go.
Senator Specter. I would be willing to leave the Federal
Government out of any dealings with the National Football
League, and that is, in effect, what my bill says, Senate bill
952, that the National Football League would not be the
beneficiary of the antitrust exemption which enables the NFL to
share television receipts which has produced a multi-year $17.6
billion television contract.
If the NFL wants to function like any other business in
America and be subject to the antitrust laws, I think that
would be a perfectly good arrangement. But the point that
Senate bill 952 makes is that if the National Football League
is to be the beneficiary of this antitrust exemption that the
NFL ought to help pay for the football stadiums which are being
constructed across America.
The bill is constructed to require the NFL to establish a
fund to pay for 50 percent of stadium construction, 25 percent
by the Governmental entities and 25 percent by the teams. And
it may be that the NFL in this bill is being asked for too
little, considering what the NFL is getting by way of
television revenues.
This is a problem for America, but it is a special problem
for Pennsylvania, where we have four new stadiums going up at a
cost of about $1 billion, with two-thirds of them being paid
for by the State and by local governments, at a time when we
are very hard-pressed on education and health care and highway
construction and the whole panoply of what government has to
do.
So it seems to me that where professional sports--and this
includes baseball as well--has a total antitrust exemption, and
football has the limited antitrust exemption which I have
mentioned, the taxpayers ought not to be asked to pay for these
stadiums.
When you take a look at the stadium construction costs
across America, they are astronomical. Cincinnati projects a
new stadium in the year 2000 at a total cost of $240 million,
and the public contribution is $190 million. Baltimore has a
total stadium construction cost of $224 million, $200 million
paid by the public contribution. It goes on and on and on,
without reading the entire chart.
I think that Baltimore ought to have a football team; it
ought to be the Colts. They had a great football team. Mr.
Richardson was a player on that team. Mr. Tagliabue points out
that Mr. Richardson is the first owner to have played
professional football since George Halas, and Carolina has
great potential. I really enjoyed their season the year before
last, and I think he may duplicate what George Halas has done
or hasn't done, or may exceed it. But the Colts should have
been in Baltimore.
I just said to Mr. Richardson privately that I think that
Federal Government ought to put a prohibition on teams moving
between midnight and 5 a.m. Maybe Senator Thurmond wouldn't
object to that limited Federal intervention, just those 5
hours. Any other time, they can move out if they want to, if
they can avoid the sheriff. But between midnight and 5 a.m.,
they ought to be prohibited from moving out.
Last week, we heard about the fandango in New England, with
Hartford putting up $375 million to steal the Patriots, and
Massachusetts worked it out to the contrary. And I haven't
minced any words. I think it is legalized extortion for
football teams to threaten to move and get these giant public
contributions. And I compliment Mr. Richardson, who is the only
team on this list which the NFL graciously provided--when it
comes to public contribution, there is a zero as to what
Carolina did. Maybe Miami was in that category as well.
But I compliment you, Mr. Richardson, for doing that. I
don't want any of your money for the Eagles and the Steelers or
the Pirates and the Phillies from baseball. If you can pay for
it yourself, that is fine, but that is not the pattern as to
what goes on in America. And it is a very complicated picture
and I know it.
I have been a sports fan forever. I bought my first season
tickets to the Eagles in 1958, and studied the box scores when
I was a kid growing up in Wichita, and lamented the move of the
Dodgers to Los Angeles and the Giants to San Francisco. With
all due respect to Senator Feinstein, San Francisco and Los
Angeles should have had teams; they just shouldn't have had New
York's and Brooklyn's teams, in my opinion.
[Senator Schumer applauds.]
Senator Specter. Senator Schumer hasn't been around too
long. That is the first he has agreed with me on anything.
[Laughter.]
It is tied up with free agency and with salary caps and
revenue-sharing in baseball and a lot of things. I just said to
Mr. Upshaw, whom I have enjoyed as a witness, not as much as I
enjoyed him as a football player, that the Eagles have a
terrific bunch of players. The problem is too many of them are
playing for Green Bay and Miami and every other team in the
league.
I love professional sports, and I am just one of millions
of Americans who do. Americans have a love affair with football
and baseball and I would like to help preserve the game, and I
would like to help preserve education and health care in
Pennsylvania and America as well.
That is not all I have to say, but that is a starter.
Senator Feinstein, your turn.
STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE
STATE OF CALIFORNIA
Senator Feinstein. Well, I thank you very much, Mr.
Chairman. This bill, I must say, presents a kind of Hobson's
choice for me because I do believe that all professional sports
should have an antitrust exemption to prevent franchise
relocation. And I say this as a former mayor with a
professional baseball team and a professional football team,
and particularly the world champion, some of the time, 49ers.
I have been through the stadium wars and have watched them
evolve throughout many places in the country. My own view on
that part of the bill is that the people are going to take care
of the issue themselves without Federal legislation. The reason
I say this is because most local jurisdictions finance new
stadiums by bond issues, and increasingly voters are reluctant
to pass these bond issues, with the belief that it really is
the franchisee's responsibility.
I watched this happen in my own city, San Francisco. I
watched it happen in San Jose. San Francisco barely eked
through a stadium bond issue recently for the 49ers, connected
with a mall which may or may not be built. I don't know. But I
think the people themselves in each community can make the
decision with respect to the passage of a stadium bond that
really can decide this.
I feel a little differently. I think there is a tremendous
public desire, receptiveness, for professional sports in their
communities. I have seen them put a ``there'' there. I saw what
happened when the San Francisco 49ers won the Super Bowl in
1981. I was a new mayor and there were over a million people on
the streets and it was one of the greatest bringing together of
a city I have ever seen. So, I have been a staunch proponent of
professional sports and of the nexus between the sports and the
communities in which they reside.
This bill has a couple of troubling effects. I see Mr.
Upshaw here. I am delighted to welcome him. I suspect he is
going to talk on the effect on collective bargaining. As a
matter of fact, my staff did call specifically Dean Spanos, who
is the son of the owner of the San Diego Padres, and he
mentioned that his two biggest concerns with the bill were, No.
1, the effect on collective bargaining, and that under the
league's collective bargaining agreement with the players, the
players now get a set percentage, approximately 63 percent of
the league's designated gross revenues.
By removing 10 percent of the league's national TV
revenues, Mr. Spanos was concerned that the bill would lead to
the collective bargaining agreement having to be renegotiated,
and that that would certainly undermine the stability that has
been gained and the labor peace and the continuity that has
been gained since the negotiation of that latest collective
bargaining agreement.
The second point that was mentioned was that this bill
would disadvantage small-market teams, in that the league's
national television revenue is shared equally among each of the
NFL teams. So teams in smaller markets like San Diego are
dependent on this revenue, as it represents a much greater
share of their income than it does for larger-market teams. By
tabbing this shared revenue to fund the proposed stadium
construction fund, the burden imposed would be felt
disproportionately by small-market teams and would be a
consequential disadvantage for them. These are two very real
points, the effect on collective bargaining and the
disadvantage to small-market teams, that I hope these panelists
will speak to.
By and large, though, just to summarize, I think each
community really has to settle for itself the degree to which
it wants to become the funding mechanism for new stadiums. As I
said, the bond issue is generally the source of public funding,
and here the people themselves make a decision. I think if the
people of the local jurisdiction want to support a stadium
bond, they should have that right and ability to do. If they
don't, they speak at the polls and so state.
So, I am very interested to hear the testimony before us
today and I would like to welcome the distinguished panel.
Thanks, Mr. Chairman.
Senator Specter. Thank you very much, Senator Feinstein.
In order of appearance under the early bird rule, Senator
Schumer.
STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE
STATE OF NEW YORK
Senator Schumer. Well, thank you, Senator Specter, and I
want to thank you for holding this hearing, and particularly
thank you for bringing the issue of sports stadium financing
once more to our attention. I believe that my colleague from
Pennsylvania is asking some questions that really need to be
asked in this era of sports as mega business first, and
everything else seems to be second.
The simple question is this: what about the fan? What about
the taxpayer given the choice of anteing up for a new stadium
or watching his or her favorite team depart for greener--and I
underline greener--pastures? That question has to be asked and
I think this hearing is a salutary way to do that.
You know, I have seen over my years five major professional
sports teams leave my State--the baseball Giants, the Dodgers,
the football Giants, the Jets and the Nets, with particular
affection for me with the Dodgers. I am one who believes in
what Pete Hamill has written that the three most evil men of
the 20th century were Hitler, Stalin and Walter O'Malley, Sr.
He moved the Dodgers, and my father almost lost his job as a
result of it, too. And I think even Mets fans would, at least
in the confines of their own homes, shudder at the thought of
the Bronx Bombers becoming the Meadowland Monsters. So this is
a real question.
You know, we have seen this in other areas as well. This is
not just over sports franchises. Our States go into competition
for businesses and the lowest common denominator prevails.
First, they say any business can come that pays no taxes. Then
they say we will give you lots of money to do this, and it is
sort of a bidding war that has no bottom and hurts the citizens
throughout the country.
We frankly have not come up with a good way to deal with
this issue in the macro sense, not just with sports teams but
with all businesses. And every one of our States engages in it;
we have no choice. My State of New York watched hundreds and
thousands of businesses be lured with these huge packages. And
at first we said this is wrong, this not free-market enterprise
when States, public entities, are forced to just bid and bid
and bid, but then we had no choice and we joined in and now our
package of incentives, we brag, equals any other.
And we have no choice and it is a good package, but I wish
that none of that happened to begin with and people made their
moves on purely economic grounds, not political economic
grounds, such as which community could give the best incentives
to any ongoing business.
And so I know what Senator Specter is trying to do here. He
is simply trying to require sports leagues to do something for
the fan, to repay years of fan loyalty, the goodwill of this
business by contributing to the costs of keeping a franchise in
its current home. And I know that the NFL accepts that it has
some responsibility in this regard, and I commend the league
for doing so.
What we are really debating here is how to ensure that a
sports league's obligation to its fans--and, again, an
obligation that we all concede exists--will be fulfilled. To
leave it up to each State again gets us into that horrible
bidding war that nobody likes, and we just saw between Boston
and Hartford didn't have good effects, no matter what the
outcome was going to be.
So, Senator Specter, you have offered a creative and
thoughtful proposal to this effect and I am studying it
carefully. I look forward to learning more about this issue
from today's witnesses, and look forward to working with my
colleague from Pennsylvania to try and move something that will
deal with this problem through the legislative process because
I think if you look at what our constituents feel, it is too
important an issue to ignore.
Senator Specter. Thank you very much, Senator Schumer.
Under the early bird rule, Senator Feingold.
STATEMENT OF HON. RUSSELL D. FEINGOLD, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Senator Feingold. Thank you, Mr. Chairman. As I did at the
subcommittee hearing, I reiterate my support of your effort to
deal with the issue of stadium financing and franchise
relocation in a creative way. I also want to commend you for
including witnesses from all sides on the issue. It is
absolutely vital that we hear from everyone--the communities,
the sports leagues, and the players--and I want to thank all
the witnesses for agreeing to be here today.
As I stated last week, I agree with the goal of Senator
Specter's bill, but I disagree with the means to the end. I
believe that the burden and responsibility of constructing
stadiums should rest predominantly with the professional sports
leagues and the particular team involved. But at the same time,
we need to be careful with how we attempt to legislate greater
team responsibility for stadium construction.
I am particularly concerned with how this legislation would
impact small media market teams like the Green Bay Packers. It
is a little known historical fact, but I know it to be true,
that one member of this committee was actually recruited by the
Green Bay Packers. I will not identify him unless he wants to
be identified, but there are even connections to that.
The NFL was wise to enter into a television revenue-sharing
agreement years ago. That revenue-sharing agreement has allowed
the Packers to survive over the years and has allowed small
media markets like Green Bay to develop world champions. And,
of course, this is terribly serious business to us in
Wisconsin, and to illustrate it I actually have a piece of the
Green Bay stadium, Lambeau Field, with me today.
Lambeau Field is a special place. I keep a little piece of
it right in my office. And if you look at this jar of Green Bay
Packer dirt from Lambeau Field, you will see a picture of our
old stadium filled with a sea of devoted Packer fans. What you
won't see, Mr. Chairman, is a lot of revenue-generating luxury
boxes. Without that luxury box revenue, the Packers have to
rely on TV revenue.
So, I think the goals are admirable, but we do need a
different approach, and I do thank Senator Specter for his
leadership on this issue.
The Chairman. Senator Kennedy.
STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE
STATE OF MASSACHUSETTS
Senator Kennedy. Thank you, Mr. Chairman, and I want to
also join in thanking Senator Specter for raising this issue in
terms of football. We have also reviewed antitrust issues with
regard to baseball.
I have always felt that with regard to football that this
whole system has really worked, worked very effectively with
the shared revenues. All we have to do is look at the
competitive aspects in the leagues and see how they have
shifted and altered and changed, and seen where some teams are
on top and able to stay on top for a period of time, but other
teams are able to come through a kind of process. And this has
worked and worked very effectively, I think, for the fans. It
has really worked very well for the fans.
I think there is always the issue of the movement of the
various teams, and it is being done really for the sole issue
and question, where teams have had lifelong associations with
different communities--and as pointed out earlier, they move
for reasons totally financial in terms of those that are the
owners. And I suppose a case can be made in terms of we are a
free country; they put the resources up and they ought to be
able to move.
But I am also mindful that the league on this issue has
taken steps to indicate that they would have to be able to get
three-quarters of the owners of the league in order to be able
to move. And I think that this is a very, very strong
indication of the desire to try and make sure that in different
parts of the country, representing an urban area where the
numbers are there and where the sports fans are there, people
are going to have some kind of assurance of continuity.
Representing an area where there has been speculation that the
team would be moving in any year, at any time, it has had an
enormous impact, unfortunately, in terms of the kind of morale
generally of the community on this issue.
I have been enormously impressed, Mr. Chairman, by the
actions that have been taken in terms of the league with regard
to their willingness to support the proposal for the Patriots
situation. That, I think, has been something that, as I
understand it, is going to be a part of that whole league
policy, and it seems to me to represent a balance in terms of
both the league and the owners. And I think it has been a very
encouraging action, and I think it is something that should be
supported.
So, I am enormously interested in the proposal that is
before the committee, but I am also impressed by what has
happened in the past in the league and the determination of the
league now in terms of these issues and the leadership that is
being provided in the league to address these questions in
terms of the construction, as well as in terms of the movement.
I think the final issue is the difficulty that we all see
in terms of the accessibility and the availability of access to
the games. On the one hand, you have the sale of the super
boxes, and on the other hand we have seen the continued
escalation in terms of the cost for the average family to be
able to go to these games.
I welcome the fact that the sky boxes and others are going
to be picking up the heavy lifting in terms of the financing,
and am always interested in what is being done to continue to
assure the availability and the accessibility of families to
take their kids to football games, which is certainly a part of
the whole tradition in terms of the sport of football and
American athletics generally. This is an area that is of very
considerable interest to me.
I thank the Chair for having these hearings and look
forward to the witnesses.
STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE
OF UTAH
The Chairman. Well, thank you, Senator Kennedy.
Good morning, and we are happy to welcome all of you to
today's hearing on the Stadium Financing and Franchise
Relocation Act of 1999. I want to thank Senator Specter for his
leadership in this area and hard work on this important issue.
I know this is a matter of great interest to Senator Specter
and others on this committee.
I would also like to recognize that today is Senator
Feingold's birthday. I won't mention how many years, but it is
46, I believe.
Congratulations. You have made it through this far.
Senator Feingold. Regrettably, it was March 2.
The Chairman. I thought it was today.
Senator Feingold. No.
Senator Feinstein. It is my birthday.
The Chairman. It is your birthday?
Senator Feinstein. Yes.
The Chairman. Oh, I am not going to touch that. [Laughter.]
Senator Kennedy. These presidential aspirations sometimes
affect one's judgment. [Laughter.]
I can tell you that from practical experience.
The Chairman. It shows how it discombobulates your mind. I
have recognized that many years in Senator Kennedy, let me tell
you. [Laughter.]
Is it really your birthday, Senator Feinstein?
Senator Feinstein. Yes.
The Chairman. Well, happy birthday.
Senator Feinstein. I am 46. [Laughter.]
Why is everybody laughing?
The Chairman. I thought you were going to be mad at me for
saying 46. In any event, happy birthday.
Senator Schumer. And to anyone else.
The Chairman. Yes, and anybody else in the room.
Let me just say that this is an important issue to all the
sports communities because how this turns out, I think, could
have a dramatic impact. I am just concerned about whether we
should be legislating in this area. On the other hand, I am
looking at it very carefully.
As I noted in my statement last week, I have been
interested in the public financing of stadiums and, of course,
its impact on local communities and their respective economies.
Professional sports play an ever-increasing role in our society
today and in communities across the Nation, whether through
direct involvement in local charities or their economic impact
on revitalization of the immediate communities.
Also, more and more professional athletes serve as possible
role models for our young people. So it is very important, and
I recognize that. I look at Gene Upshaw here and he has been a
role model for me for many years. I don't think you knew that
and you may not want to own up to that, but the fact is that I
have admired you for many years.
And when Tagliabue played basketball here--and that was a
long time ago----
Mr. Tagliabue. Too long.
The Chairman. But I kind of admired you. The way you played
ball was very good. It is good to see you still in professional
athletics after doing all those important legal things that you
did all those years.
We are going to examine in this the impact of professional
sports, and specifically professional football on local
economies. Last week's hearing shed some light on this matter.
I was interested in what the distinguished panel had to say. We
heard mostly from public officials and economists who generally
supported the underlying objectives of Senator Specter's
legislation. For instance, Speaker Thomas M. Finneran, of the
Massachusetts House of Representatives, referring to the NFL,
asked, ``Why are taxpayers expected to subsidize already
profitable businesses?'' It is a question that has to be
answered.
As far as I am concerned, we could not have a more
distinguished panel than we have today. I welcome each of you,
and I think you, for the most part, should provide us with
another point of view and we should listen to you very
carefully. We want to come to the best possible resolution, and
it is important to have the benefit of all views on this
particular issue.
We all need to work together with the local communities,
the mayors, the sports leagues, and most importantly the sports
fans in arriving at a mutually beneficial and fair solution. So
I look forward to working with Senator Specter and others on
this committee and others in the Senate to carefully and
thoroughly examine the issue of stadium financing and franchise
relocation.
I particularly am looking forward to the testimony today. I
won't be able to stay, but I am going to read each of your
statements today. And I am following this very, very closely
and we will try to do what is best under the circumstances. I
think you can count on that. So I just want to welcome you all
here and tell you we are very honored to have you here.
So I am going to turn the hearing over to Senator Specter,
and I know that that may be of some worry to you, but he will
handle it very well. Thanks for being here.
Senator Specter [presiding]. Thank you very much, Senator
Hatch, and thank you for scheduling the hearing and for
cosponsoring the bill.
We turn now to the witness list. We have a very
distinguished panel. Our first witness is Mr. Jerry Richardson,
the owner and founder of the Carolina Panthers, the 29th
franchise to enter the NFL. Ericsson Stadium in Charlotte,
where the Panthers play, was privately funded and opened in
1996. The stadium featured the innovation of permanent seat
licenses as a way of financing stadium construction.
Mr. Richardson is also the chairman of the NFL's Stadium
Committee. Mr. Richardson, as noted before, played with the
Baltimore Colts as a wide receiver, receiving passes from
Johnny Unitas at that time. In May 1995, Mr. Richardson retired
as chairman of the Flagstar Company, which is one of the
largest food service companies in the United States, to shift
his emphasis to another goal, to bring the people of the
Carolinas a Super Bowl championship within the next 10 years.
We welcome you here, Mr. Richardson, and look forward to
your testimony. All statements will be made a part of the
record, and the committee procedure is to put a green light up
for 5 minutes, with the yellow going on at 1 minute and the red
at the conclusion.
Mr. Richardson, the floor is yours.
PANEL CONSISTING OF JERRY RICHARDSON, OWNER AND FOUNDER,
CAROLINA PANTHERS, CHARLOTTE, NC; BENJAMIN KLEIN, PROFESSOR OF
ECONOMICS, UNIVERSITY OF CALIFORNIA AT LOS ANGELES, LOS
ANGELES, CA; GENE UPSHAW, EXECUTIVE DIRECTOR, NATIONAL FOOTBALL
LEAGUE PLAYERS ASSOCIATION, WASHINGTON, DC; PAUL TAGLIABUE,
COMMISSIONER, NATIONAL FOOTBALL LEAGUE, NEW YORK, NY; AND
RICHARD HORROW, PRESIDENT, HORROW SPORTS VENTURES, MIAMI, FL
STATEMENT OF JERRY RICHARDSON
Mr. Richardson. Thank you. Mr. Chairman and members of the
committee, as has been stated, my name is Jerry Richardson and
I am the owner and founder of the Carolina Panthers. I do have
a written statement that has been submitted for the record, but
I would like to briefly make a few more remarks, if I could.
It was also stated earlier that we operate our team out of
Charlotte, NC, even though we call our team the Carolina
Panthers and we represent both States with great pleasure and
enthusiasm.
In addition to my role with the Panthers, I am also
chairman of the Stadium Committee, as you stated, and in that
role I have been involved in stadium projects throughout the
country and have worked with team owners, State and local
governments, lenders, and the Commissioner and his staff. Our
goal has been to promote sensible stadium alternatives that
serve the interests of our teams, their fans, and their
communities, and promote franchise stability.
I am here today, Mr. Chairman, in response to the request
that you and Senator Hatch made of me, but also would like to
make clearly known that I support the position that has been
submitted to you by the Commissioner in regard to the bill that
you propose.
If my work with the Stadium Committee has taught me any one
thing, it is that there are as many different solutions to
stadium issues as there are communities in the country. Cities
use stadiums to facilitate and accomplish a wide variety of
purposes beyond simply securing or maintaining a professional
franchise. In many cases, stadiums will serve as the
centerpiece of a broader urban renovation plan, and play an
important role in enhancing local communities and their
economies.
Communities and teams have recognized that benefit, and
that the burden of construction is properly shared between the
teams and the communities. As a result of this, a number of
creative public-private financial partnerships have been
developed which, in turn, have served the league in the
building of some 23 new stadiums in the NFL. There are many
different ways to pay for these products, and each community
and team must weigh the alternatives available and select or
create the one that works the best for that particular
community.
I have also learned that stadium products are among the
most hotly contested and closely scrutinized issues that come
before local governments. In each case, stadium proposals face
a great deal of publicity and spirited public debate,
particularly when bonds or taxes are involved. And it is both
wrong and unfair to suggest that voters throughout America will
just leave their good senses at the door and give the NFL
whatever it is that we ask for. Given these realities, I don't
see any reason why Congress should take on the responsibility
of trying to determine for communities what the communities
themselves think is best for them.
I am happy to be here today and I would be happy to answer
any questions that you may have at a later date or now.
Senator Specter. Thank you very much. Mr. Richardson. We
will complete the testimony of all the witnesses and then go to
the rounds of questions.
[The prepared statement of Mr. Richardson follows:]
Prepared Statement of Jerry Richardson
Mr. Chairman and members of the Committee, good morning.
My name is Jerry Richardson, and I am the owner and founder of the
Carolina Panthers. Although we play our home games in Charlotte, North
Carolina, we call ourselves the ``Carolina Panthers'' because we serve
the fans of the entire region, and we're proud to say that our home
includes both North and South Carolina. Indeed, when the Panthers
joined the NFL in 1995, we played our first season at Clemson
University in Clemson, South Carolina, before opening our new stadium
in Charlotte.
In addition to my role with the Panthers, I am also the Chairman of
the NFL's Stadium Committee. In that role, I have been involved in
stadium projects throughout the country and have worked with team
owners, state and local government officials, lenders, and the
Commissioner and his staff. Our goal has been to promote sensible
stadium alternatives that serve the interests of our teams, their fans,
and their home communities, that are sound economic investments, and
that promote franchise stability. I am here today, Mr. Chairman, both
in response to the invitations from Senators Hatch and Specter, but
also to make clear that I fully endorse the views expressed by the
Commissioner in his testimony and that I, too, urge the Committee not
to proceed further with this bill.
If my work on the Stadium Committee has taught me anything, it is
that there are as many different solutions to stadium issues as there
are communities in this country. Cities use stadium facilities to
accomplish a wide variety of purposes beyond simply securing or
maintaining a professional franchise. In many cases, stadiums serve as
the centerpiece of a broader urban renovation plan, and play an
important role in enhancing the local economy. Communities and teams
have recognized that the benefit and burden of stadium construction is
properly a shared one. As a result, a number of creative public-private
financial partnerships have been developed, which have in turn resulted
in the successful new construction or significant renovation of
stadiums in twenty-one NFL communities. There are many different ways
to pay for stadium projects, and each community and team must weigh the
alternatives available and select--or create--the one that works best.
I have also learned that stadium projects are among the most hotly
contested and closely scrutinized issues that come before local
governments. In each case, stadium proposals face a great deal of
publicity and spirited public debate, particularly where bonds or taxes
are involved. And it is both wrong and unfair to suggest that voters
leave their good sense at the door and give NFL teams a blank check
when it comes to stadiums. Just last month, the voters in Arizona
rejected a proposal that would have included a new stadium for the
Arizona Cardinals. Voters in Pittsburgh rejected a stadium proposal for
the Steelers, and required the team and government to come up with a
new proposal that was less costly to the taxpayers. Voters in
Minneapolis did the same in respect to the Minnesota Twins.
Given these realities, I cannot understand why the members of this
Committee would feel they need to impose a uniform federal approach on
what is so clearly a local issue. I do not understand what national
problem requires a Congressional act to override the carefully
considered judgments of state and local governments, many of which have
been the subject of direct action by the voters themselves. In effect,
this bill tells mayors, city and county councils, and even voters that
they do not know what they are doing, they cannot be trusted to decide
for themselves how to spend their money, and that Washington must make
those decisions for them.
I have previously expressed my views on this bill in a letter to
Senator Thurmond, dated June 9, 1999. I have attached a copy of that
letter to my statement and respectfully request that it be included as
part of the hearing record.
Because I know that our time here today is limited, let me
summarize briefly a few other points.
First, focusing on the 1961 statute is, in my opinion, precisely
the wrong approach. That statute is not the problem and it should be
left alone. Indeed, if it were not for the 1961 statute and the
television revenues that we share equally in the NFL, I do not believe
that a team based in our part of the country could effectively compete
in the NFL. Although we have received superb fan support in the
Carolinas, Charlotte is still only the twenty-eighth largest television
market in the country, and it is of great significance to us that the
Panthers share television revenues equally with teams located in far
larger communities.
Second, taxing away 10 percent of our television revenues every
year would be a very substantial economic blow to a team like the
Panthers. We would experience no reduction in our player costs, in any
other operating expense, or in our debt service costs. But millions of
dollars would be taxed away from one of the smaller markets in the
League, and it would be virtually impossible for us even to come close
to making up that lost revenue. Such a tax would impose a very
significant threat to our team's well being.
Third, as written, the bill would apply retroactively to any
stadium project not yet completed. I can see no justification for
undoing settled financing arrangements, many of which were specifically
approved by voters. As I understand it, one premise for this
legislation is the new set of television contracts entered into by the
NFL in 1998. But the bill purports to use that money to refinance
stadium projects that had been approved and had been underway well
before a single dollar of those television revenues were received. That
does not seem appropriate and I hope, if nothing else, the Committee
rejects that approach.
Fourth, I am gravely concerned about the effect that this
legislation may have on our collective bargaining arrangements. As a
smaller market club, the Panthers benefit considerably from stable
labor relations and a bargaining agreement that gives all teams an
opportunity to be competitive. I know that you will hear directly from
Mr. Upshaw, but I can only assume that the union would oppose an effort
to rewrite our collective bargaining agreement without its consent. If
this bill becomes law, it would be the NFL teams, and our fans, who
would pay the price in future labor unrest.
Finally, I want to comment briefly on Ericsson Stadium in
Charlotte, where the Panthers play. It is true that the stadium
itself--as opposed to related costs, such as land and infrastructure--
was privately financed. Whether that model can work in other
communities is very much an open question. One reason why it worked in
the Carolinas is because that was a new market and we were able to sell
substantial amounts of personal seat licenses, or PSL's, to finance the
stadium construction. But there is often significant resistance to
PSL's in established communities, where fans have held season tickets
for many years and do not believe that they should have to purchase
PSL's to come to the stadium. I think there are some communities where
PSL's can be marketed successfully, at least to a limited extent.
Cleveland and Pittsburgh are examples. I believe there may be others
where PSL's could not be marketed successfully. For that reason, the
experience in Charlotte is of limited use in trying to formulate a
national policy. Indeed, the experience in Charlotte no more means that
stadiums should be fully financed by the private sector than the
experience in Baltimore or Nashville means that they should be fully
financed by the public sector.
Mr. Chairman, and members of the Committee, I appreciate the
opportunity to speak with you today. I hope that my comments have been
helpful and I look forward to responding to your questions.
______
Carolina Panthers,
Charlotte, NC, June 9, 1999.
Hon. Strom Thurmond,
Russell Senate Office Building,
Washington, DC.
Dear Senator Thurmond: On behalf of the Carolina Panthers, I write
to express my strong opposition to S. 952, which was recently
introduced by Senator Specter. This bill addresses the financing of
baseball and football stadiums, and would impose a federal ``solution''
on what is a particularly local ``problem.'' I urge you to take
whatever steps you can to prevent this unnecessary and negative
proposal from proceeding past a planned June 22 hearing.
In addition to being the principal owner of the Panthers, I also
serve as Chairman of the NFL Stadium Committee. In that capacity, I
have worked with clubs throughout the League, and with state and local
officials throughout the country, on issues relating to the
construction and renovation of stadiums. It is apparent to me that the
issues surrounding a stadium project will almost inevitably differ from
one community to the next and that each community must have the Freedom
to address these issues in its own way.
I also know that stadium projects face the most thorough
evaluations from local and state authorities. Often, these projects do
not go forward without direct approval from the voters themselves. In
every case, there is a great deal of publicity and spirited public
debate on all aspects of the proposal, particularly where bonds or
taxes are involved. Voters have shown they know how to protect their
interests when they believe a project is unwarranted. Just last month,
the voters in three Phoenix-area communities rejected a proposal that
would have included a new stadium for the Arizona Cardinals.
In an effort to foster public-private partnerships to address
stadium issues, the League and its member clubs have collectively
invested hundreds of millions of dollars in projects throughout the
country. Recently, the clubs approved a resolution expanding the
League's contribution to stadium projects. Under the new resolution
(copy enclosed), the League will provide a loan at the onset of a
stadium project that will cover between 34 and 50 percent of the
private contribution toward a stadium. Last month, in keeping with this
resolution, the League's members approved new financial commitments of
well over $300 million toward stadiums in Denver, New England, and
Philadelphia. We strongly supported this stadium proposal because it
represents a League investment in our communities and benefits all
involved in the NFL.
Charlotte, the nation's 28th ranked television market, is one of
the smaller markets in the NFL. However, under the NFL television plan,
the Panthers receive the same amount of money from network television
as do teams located in far larger communities. While we have
extraordinary support from fans in both South Carolina and the Greater
Charlotte area, the Panthers depend on national television revenues for
the resources needed to field a competitive team. It would be a very
substantial blow if we were to lose 10 percent of our television
revenues every year (as prescribed by the Specter bill), particularly
since there would be no corresponding reduction in player salaries or
other operating costs.
We also strongly object to the approach taken by S. 952, which
would condition the League's rights under the 1961 Sports Broadcasting
Act on the creation of a stadium fund. But the 1961 Act is not the
problem and limiting its applicability is not the solution. Under the
1961 Act, the NFL has created the most pro-consumer television plan in
sports today. As you may know, every regular season and playoff game is
televised on free over-the-air television. (Even the Sunday night cable
games, televised nationally on ESPN, are shown on over-the-air stations
in the home communities of the participating teams.) No other league
provides this level of service to its fans. The revenues generated from
those contracts are, in turn, equally shared and assist teams in
communities of widely varying size and circumstances in competing
successfully on the field. The Sports Broadcasting Act has worked in
the manner intended when you and other members of Congress passed it in
1961. There is no justification for tampering with it.
Two aspects of S. 952 are deserving of consideration and would
advance our shared interest in promoting team stability and competitive
balance throughout the League:
Congress should confirm that the antitrust laws do not
prohibit leagues from making decisions on where member clubs will be
located. The abuse of the antitrust laws first precipitated in the
early 1980s, through the Raiders litigation, remains the root cause of
franchise instability.
Congress should confirm that the 1961 broadcasting statute
extends to all forms of television, other than pay-per-view, so long as
the revenues are equally shared among the League's member clubs.
Both of these provisions are constructive, and we would strongly
support them being enacted into law.
I appreciate your consideration of these views. I hope that, once
the June 22 hearing concludes, you will oppose any further action on
this bill. Should you have any questions, please feel free to call me.
Sincerely,
Jerry Richardson.
Owner/Founder.
______
1999 Resolution G-3--As Amended
Whereas, it is appropriate to improve the League's current policies
to support new stadium construction through club seat sharing
exemptions, as reflected in the club seat sharing exemption guidelines
adopted by the League in 1994 (the ``Guidelines''), and through PSL
sharing exemptions;
Whereas, a revised policy can facilitate new stadium construction
projects by (1) making upfront League loans in support of Clubs'
private contributions to such projects (rather than annually exempting
from sharing the visiting team share (``VTS'') of club seat premiums
over a period up to 15 years), and (2) assuring that League loans will
amount to at least 34 percent of an affected Club's private
contributions to a project;
Whereas, such League loans should be subject to member club
approval on a case-by-case basis;
Be it Resolved:
(1) That for any stadium construction project involving a private
investment for which an affected Club makes a binding commitment from
now through the 2002 NFL season (through March 31, 2003), the League
shall make a loan to the affected Club to support such project based on
the amount that the affected Club has committed to such project as a
private contribution (the ``Private Contribution'');
(2) That the amount of such League loan shall range from 34 percent
to 50 percent of the Private Contribution, determined on a case-by-case
basis based on the size of the Private Contribution, with incremental
League loans in excess of 34 percent generally to be made available to
facilitate stadium construction projects in the largest markets that
are home to an NFL Club, and with the League loans in smaller markets
generally limited to 34 percent of the Private Contribution;
(3) That the Commissioner is authorized to make arrangements for
the League to borrow from commercial or institutional lenders funds to
make such League loans, with the funds to be repaid to such lenders
over an appropriate time period (10 years or such other period as may
be determined by the Finance Committee);
(4) That the specific borrowings from commercial or institutional
lenders related to any stadium construction project must be approved as
part of the League's approval of a League loan to such project, with
the borrowings to be repaid principally from the VTS of club seat
premiums generated by such project, and, to the extent that the VTS of
club seat premiums is insufficient to repay such loans, with any
incremental funds needed for repayment to be assessed against the
League's network television revenues;
Further Resolved:
(1) That if PSL's are sold with respect to a particular stadium
construction project, such PSL's shall be eligible for an exemption
from sharing in accordance with current policies;
(2) That the amount of VTS exempted in respect of PSL's sold shall
be offset against the principal amount of League loans available for
the project; and
(3) That for purposes of determining whether a project is eligible
for incremental League loans, only the first $75 million of PSL
proceeds shall be treated as a portion of the Private Contribution;
Further Resolved:
(1) That any League loan under the League policy adopted by this
resolution, as between an affected Club and the League, shall be
forgiven over the term of the aforementioned League borrowing on an
equal annual basis; and
(2) That, if an affected Club that receives a League loan under the
League policy adopted by this resolution (or a controlling interest
therein) is subsequently sold other than to a member or members of an
owner's immediate family (as defined in the NFL Constitution and
Bylaws) before the final maturity date of the League loan, then the
selling party shall repay to the League from the sale proceeds at
closing an amount equal to the outstanding principal balance on the
League loan; and
Further Resolved, that in order for a stadium construction project
involving a Private Contribution to qualify for a League loan, the
conditions set forth in Attachment A to this resolution must be
satisfied.
submitted by finance committee and stadium committee
Reason and Effect: To modify and simplify the League's policies
with respect to stadium construction projects to provide for, among
other things, (1) a standard 34 percent League loan towards the private
contribution to such projects, (2) such League loan to be made upfront
at the beginning of such projects from funds to be borrowed by the
League, and (3) an incremental League loan (in excess of 34 percent) in
respect of such projects in the largest markets.
------------------------------------------------------------------------
VOTE DISPOSITION
------------------------------------------------------------------------
For 29 ................................ Adopted
Against 2...............................
Abstain 0...............................
------------------------------------------------------------------------
Senator Specter. Our next witness is Professor Benjamin
Klein, Professor of Economics at UCLA, a position he has held
since 1968, and president of Economics Analysis LLC, an
economics consulting firm located in Los Angeles. He has had
extensive consulting and litigation experience, made numerous
presentations to various governmental agencies, is widely
published on stadium financing, and has been a consultant to
the U.S. Federal Trade Commission and the Antitrust Division of
the Department of Justice.
Welcome, Professor Klein, and the floor is yours.
STATEMENT OF BENJAMIN KLEIN
Mr. Klein. Thank you, Senator and members of the committee,
for this opportunity to address you. I have covered in my
submitted written testimony a number of reasons why S. 952 is
defective from an economic point of view, but I would like to
make here just three points.
First, I want to correct the mistaken impression that
stadium projects should be looked at primarily as jobs-creating
programs. This is much too narrow a perspective. One must take
into account what economist call the public good consumption
benefits of these projects. In particular, citizens of a
community get benefits from a team even if they don't attend
the games, as Senator Feinstein was mentioning.
They listen to the games on radio. They talk to their
friends about the team. They read about the team in the
newspaper. They identify with the success or failure of the
team. And these benefits that consumers receive without paying
directly for the product is what economists refer to as public
goods, and economists generally recognize that it is legitimate
for local governments to support the provision of such public
goods. It is analytically similar to deciding to have park land
or an opera house or waterfront development. These are quality-
of-life type public goods, and the expenditures that localities
make on these goods should not be judged solely on their job-
creation benefits.
Second, this proposed legislation is not market-driven and,
in fact, it creates significant economic distortions. In
particular, more stadiums will be built and these stadiums will
not be economic; that is, they will not be in the league's and
the community's joint interest to build.
Now, the basic economics here is relatively simple. From
the individual team's point of view, this legislation would
lower the cost of stadiums 50 percent, paid for by the other
team owners, so that every individual team will find it in its
own narrow interest to get the city to ask for the funds for
the largest and most elaborate stadium renovation or
construction, even in cases where city and team benefits
together don't exceed the costs. And there is no mechanism in
the legislation for the league to allocate projects in terms of
overall priorities; for example, an important project to keep a
team in an existing relatively large media market.
Third, and finally, it is not clear that local communities
will be made better off by the proposed legislation. In my
written testimony, I go through a number of cases where
basically from an economist's point of view, what is likely to
happen is that the league contribution is just going to offset
or substitute for the private contribution and not augment the
total contribution.
And I guess the basic economics--I see I still have the
green light--the basic economics is that the city is willing to
pay a certain amount for the stadium project, and they don't
really care where the rest of the money is coming from. And
that willingness to pay will remain the same and the team will
just get the money from the league, and it is not clear in most
cases that there will be any decrease in the public
contribution because of this legislation.
In conclusion, S. 952 would provide few benefits to local
taxpayers, while creating significant economic distortions.
Thank you.
Senator Specter. Thank you very much, Mr. Klein.
[The prepared statement of Mr. Klein follows:]
Prepared Statement of Professor Benjamin Klein *
Thank you for the opportunity to address the Committee on Senate
Bill 952, the Stadium Financing and Franchise Relocation Act of 1999.
---------------------------------------------------------------------------
* Benjamin Klein is a Professor of Economics at UCLA and President
of Economic Analysis LLC, an economic consulting firm. He has written a
wide range of articles in the areas of antitrust economics and
industrial organization and recently has published research on stadium
financing. He has served as a consultant to various government
agencies, including the Antitrust Division of the U.S. Department of
Justice, the Federal Reserve Board of Governors, the New Zealand
Treasury and the U.S. Federal Trade Commission Bureau of Competition
and Bureau of Consumer Protection, and to numerous business firms,
including several sports leagues.
---------------------------------------------------------------------------
I would like to begin by noting that sports teams provide
substantial benefits to citizens of local communities, including the
ability of local residents to follow and enjoy a home team. To an
economist it is important to recognize that these valuable benefits
also are enjoyed by individuals who do not attend the teams' games.
Local citizens identify with the success of the team, follow the team
on television and radio, read about the team in the newspapers, and
talk with their friends about the success or failure of the team.
Indeed, there are few activities that appeal to such a wide cross
section of demographic and socio-economic groups as do professional
sports. Most analysts of stadium projects today agree that professional
sports teams can confer significant economic value on a community in
terms of such consumption benefits.\1\
---------------------------------------------------------------------------
\1\ For example, Roger Noll and Andrew Zimbalist discuss these
consumption benefits as a classic ``externality'' arising from a major
league sports event. See Roger G. Noll and Andrew Zimbalist, ``Economic
Impact of Sports Teams and Facilities,'' in ``Sports, Jobs & Taxes: The
Real Connection,'' in Sports, Jobs, & Taxes: The Economic Impact of
Sports Teams and Stadiums at 58.
---------------------------------------------------------------------------
The type of consumption benefits that many people in the local
community and surrounding region receive from the presence of a
professional sports team are frequently termed ``public good'' benefits
by economists. When private providers of a product can only charge
consumers directly for a portion of the total benefits the consumers
receive from the product, it is widely recognized in the economics
literature that it may well make economic sense for citizens, via their
government, to contribute to the provision of the product. Hence, there
is a strong economic rationale for local public support of sports
teams. Efficient local subsidization does not require that the activity
provide economic development benefits, as would roads or bridges. In
this regard, stadium contributions from the public sector are analogous
to public contributions toward other consumption goods, such as parks,
golf courses, swimming pools, zoos, concert halls, and museums.
Many critics claim that stadium projects are poor public
investments because they do not create many jobs per dollar of
expenditure. However, while sports stadiums do provide economic
benefits to local communities in the form of increased local
employment, taxes, regional development and the potential to re-
invigorate a downtown or other deteriorated area, they are not
primarily development or jobs programs and should not be judged solely
on that basis. The primary economic purpose of sports teams is to
provide consumption benefits to the community.
There is an extensive political process by which local communities
make decisions about which activities provide the greatest net benefits
to their citizens. Within this political process citizens and their
elected representatives decide how to allocate public funds among many
alternative uses, such as parks, museums and golf courses. In fact, new
stadium proposals that involve significant public funding today
typically face substantial scrutiny and often must pass a voter
referendum. There is no reason to believe that this political process
is less effective in evaluating stadium projects than other public
investments.\2\
---------------------------------------------------------------------------
\2\ This is particularly true after the Tax Reform Act of 1986,
which has ensured that issuance of federally tax exempt bonds is only
available for projects that have significant value to many of the
residents of a local community by requiring that repayment of such
bonds be funded at least 90 percent by general as opposed to stadium
specific revenue sources. Therefore, the Tax Reform Act of 1986 has
generated a substantial increase in the frequency with which stadium
proposals must be tested by voter referenda and has resulted in
significant increases in private funding and decreases in public
contributions of sport facility construction. In fact, several recent
stadiums are now being financed primarily with private funds, such as
those in Carolina, Washington and Philadelphia.
---------------------------------------------------------------------------
Many of the largest and most visible of the recent stadium projects
have been associated with actual or proposed relocations of teams. One
part of S. 952 would reduce the ability of teams to unilaterally
relocate in order to extract large stadium contributions. The proposed
legislation would give the league the ability to prevent such team
relocations that were not in the league's interest. This feature of the
legislation is economically desirable. Economic analysis implies that
the incentive for an individual team to relocate is much greater for
the team than for the league as a whole. From the team's perspective,
the economics of the relocation decision involves a relatively
straightforward comparison of the expected income from operating in one
location versus another. If the new location is offering a new stadium
with substantially more lucrative revenue opportunities, such as luxury
boxes and club seats, naming rights, pouring rights, and so forth, it
will frequently be in the team's interest to move.\3\
---------------------------------------------------------------------------
\3\ The fact that many of these revenue streams are not shared
among teams, as are gate receipts and television revenues, increases
the attractiveness of such deals to an individual team.
---------------------------------------------------------------------------
In contrast, even though such moves may raise the moving team's
income, they are often not in the league's interest. The effect of a
team relocation on league income depends on a variety of other factors
that the team generally will not take into account. For example, team
relocations frequently anger many fans in the original city, thereby
damaging the public image of the league and reducing the total demand
for the sport. Some relocations may also disrupt the leagues' optimal
geographic coverage for broadcasting and other purposes. For example,
while the relocation of the Los Angeles Rams to St. Louis made
financial sense for the team because of the attractive financial
package offered by St. Louis, the NFL as a whole was left without a
team (and with many disgruntled fans) in the nation's second largest
media market.
From an economic perspective, sports leagues attempt to internalize
these adverse effects of team relocations to a far greater extent than
individual team owners do. Consequently, many recent team relocations
would not have occurred if sports leagues had the unambiguous legal
authority provided under S. 952 to prevent relocations by individual
teams that are contrary to league interest. For example, the NFL
engaged in costly and protracted litigation to prevent the Raiders move
from Oakland to Los Angeles. After the Raiders decision, the NFL was
largely helpless to prevent the Colts move from Baltimore to
Indianapolis, the Rams move from Los Angeles to St. Louis, and the
Browns move from Cleveland to Baltimore.\4\
---------------------------------------------------------------------------
\4\ In his testimony before this Committee last week, Professor
Rosentraub argued that the NFL ``reneged'' on an agreement with
Congress to prevent team relocations. He ignores the fact that the
courts effectively eliminated the league's ability to control team
relocations after the Raiders' decision.
---------------------------------------------------------------------------
The proposed legislation recognizes the divergence between team and
league interests and would implement a constructive change by giving
the leagues an antitrust exemption for preventing franchise relocations
that are contrary to the league's interest. This legislation would have
a substantial positive effect in reducing relocations and would
mitigate some of the perceived problems with the current stadium
financing situation.
The legislation also would take the productive step of expanding
the leagues' antitrust exemption for negotiating national broadcast
contracts to include cable and satellite (non-pay per view) television.
This action would expand the availability of sports programming and
provide additional options to consumers. The NFL's ``Sunday Ticket''
package for satellite television, for example, allows football fans in
any city to choose from the games of all NFL franchises, in addition to
those of their local team. As with network television broadcasts, the
antitrust exemption would allow the league to negotiate these contracts
without the risk of potentially disruptive and inefficient conflicts
between team and league interests. Since these television revenues are
shared equally among all of the league's teams, the legislation would
also benefit small market teams and promote the goal of competitive
balance. The legislation achieves these procompetitive benefits without
risking anticompetitive effects, since this programming clearly
competes in a broad and highly competitive market for television
programming.
While the proposed legislation recognizes the differences between
team and league interests and would take productive steps to ameliorate
these distortions by granting the antitrust exemptions discussed above,
the stadium financing proposal included in the legislation would create
new economic distortions. First of all, since S. 952 would require the
league to provide an automatic contribution of up to 50 percent for all
stadium projects, it would lower by as much as 50 percent the cost of
stadium projects that must be borne by the individual team and state
and local governments collectively. By thus lowering the cost of
stadium construction to local decision-makers, both public and private,
the proposed legislation would substantially increase the incentives
for individual teams and state and local governments to build and/or
renovate stadiums. This is basic economics. Rather than reducing the
incentives to build new stadiums, as many stadium critics have
advocated, the legislation would substantially increase the incentives
to build more and more costly stadiums by creating an incentive for
individual teams and for state and local governments to use the
league's money for their own purposes.
This distortion of economic incentives would lead to significant
economic inefficiencies. For example, consider a hypothetical new
stadium project that is only expected to generate benefits to the team
and the local community equal to 60 percent of its construction costs.
If the team and the city were bearing 100 percent of the costs, such a
project would not be built. However, since they can collectively demand
that the league finance 50 percent of the project, it will be in each
team's and community's narrow interest to build the new stadium, even
though it is not a project that is in the league's, or the economy's,
interest to build.
As a result, total public spending on stadium projects would likely
increase under S. 952. From an economic perspective the proposed
legislation is equivalent to a large reduction to teams and local
governments taken together in the price of building stadiums. When the
price of any product falls, the ultimate effect on total spending
depends on how strongly consumers respond to the price decline. If
there is an elastic demand for stadiums, total public spending on
stadium projects will increase, even if localities end up paying a
smaller share of the costs, which they very well may not.
While it will clearly increase the overall level of spending on
stadiums, economic analysis indicates that S. 952 is likely to have
little or no effect on reducing the contributions of state and local
taxpayers to the costs of stadium projects. First of all, consider
cases where the local governments would have provided less than 25
percent of the financing without the legislation. In such cases, public
spending on stadium construction would be likely to increase because
the legislation requires public authorities to provide a minimum of
half of the league's contribution. Any increase in the public
contribution up to 25 percent would automatically trigger an increase
in the league contribution equal to twice the public contribution.
Accordingly, the gain to an individual team from convincing its city or
state government to support the project up to at least 25 percent would
become very large. Therefore, individual teams would have increased
incentives to negotiate for at least the 25 percent public contribution
that would guarantee the maximum league funding of 50 percent.
For stadium projects where the public contribution would have been
between 25 and 50 percent absent the legislation, we could expect the
locality to continue to make that contribution if S. 952 were in
effect. There is nothing in the proposed legislation, nor should there
be, that would limit the local contribution to 25 percent. And there is
no economic reason for the stadium financing proposals in the
legislation to affect the bargaining positions of the locality and the
team. In particular, the communities' underlying benefits from having
the team would not be reduced by the proposed legislation and,
therefore, individual teams would likely receive the same state and
local government contributions they would have received in the absence
of the legislation. For example, if a city were willing to provide a
contribution of 50 percent to a stadium project before the legislation
(with the team paying the other 50 percent), the city would still be
willing to do so after. All that would happen is that the league would
replace the team as the source of the private contribution. But the
city would not care where the team obtains its funds. Of course, as
noted above, the team would not be indifferent to whether it or the
league pays the private contribution and would always seek league
financing for the largest and most elaborate stadium, regardless of
economic efficiency.
Even for stadium projects where the public contribution would have
been greater than 50 percent in the absence of the legislation, say 60
percent of the project, and therefore the league's 50 percent
contribution would more than replace what would have been the team's 40
percent contribution in the absence of S. 952, it is not clear that the
local contribution to the project would be reduced by the proposed
legislation. This is because individual teams would seek alternative
ways to get state and local governments to continue to make the same
dollar contributions they were willing to provide in the absence of the
legislation, but in a different form. Since the communities' underlying
benefits from having the team have not been reduced by the proposed
legislation, there would always be strong economic forces leading teams
and cities to ``undo'' any reductions on public contributions to
stadiums by providing the benefits to teams in other ways. For example,
teams and local governments could respond to the reduction in the
public's up front contribution to stadium costs by reducing or
eliminating the team's rent, by allowing the team to retain a larger
portion of stadium related revenues, or by increasing the size and cost
of the stadium project and infrastructure investments, such as, parking
facilities or road improvements. Hence, even in those cases where it
appears that the proposed legislation will provide significant cost
savings to taxpayers, the magnitude of these benefits may very well be
non-existent.
The only stadium projects for which S. 952 would have the effect of
significantly reducing the public contribution would be previously
negotiated projects under construction. This is because the
retroactivity provisions in the proposed legislation would effectively
re-write many of these agreements after the fact, without permitting
any market offsets. But such retroactivity alters the financial terms
agreed to by the parties after extended periods of negotiation,
including in many cases direct voter approval and other extensive
political processes.
S. 952 would also undermine the relationship between the leagues
and their players. The NFL currently operates under a Collective
Bargaining Agreement with the NFL Players Association under which
approximately 63 percent of the league's ``Defined Gross Revenues''
(which includes network television revenues) are shared with the
players. This agreement was reached after years of intense bargaining
and litigation and has been credited with reducing labor conflicts
between the league and its players. The proposed legislation
inappropriately inserts the federal government into this collective
bargaining relationship and allows state and local governments to
implement large wealth transfers from the league as a whole, and from
the players, to individual teams.\5\
---------------------------------------------------------------------------
\5\ In his testimony before this Committee, Professor Zimbalist
agreed that this is an inappropriate role for the federal government.
---------------------------------------------------------------------------
S. 952 also lacks any mechanism by which monies from the proposed
trust fund would be allocated across different stadium projects. Some
process would be required to evaluate each proposal and determine
funding priorities among the many competing projects. Obviously, such a
process could lead to expanded federal intrusion into the industry and
additional inefficiencies. In contrast to this expanded governmental
role, the NFL has recently adopted a new resolution that provides
substantial league-wide contributions to stadium projects, while
avoiding the adverse incentive effects and other inefficiencies of the
inflexible government mandate in the proposed legislation. Under the
NFL's new ``G-3'' plan, the league has the ability to evaluate all
proposed projects from the perspective of the league as a whole (taking
into account the potential differences between team and league
interests discussed above) and can withhold funding for inefficient
projects.\6\
---------------------------------------------------------------------------
\6\ The G-3 plan builds on and extends existing cooperative efforts
between the league and the players to assist individual teams to
finance new stadium facilities. The league has contributed hundreds of
millions of dollars to date under these plans and, based on current
commitments, this amount will grow by an additional hundred million
dollars each year.
---------------------------------------------------------------------------
Yet another distortion of S. 952 is that it would put at risk the
league's ability to negotiate national broadcast contracts. Since
national broadcasting represents a very large source of shared revenue
(particularly in the NFL where it exceeds gate receipts for many
teams), the loss of these revenues would greatly exacerbate revenue
disparities across teams and would be particularly adverse for small
market teams. Competitive balance and fan demand for the league would
suffer.\7\
---------------------------------------------------------------------------
\7\ In his testimony Professor Zimbalist agreed that the
elimination of the broadcast exemption would have adverse consequences,
and he advocated as an alternative ``sanction'' the elimination of tax-
exempt financing for stadium projects. As I have discussed in detail
elsewhere, there is no convincing economic basis for the elimination of
tax-exempt financing for stadium projects. Doing so would discriminate
against states and local communities that legitimately choose to
support professional sports as opposed to other locally valued
consumption activities. See K. Green, B. Klein and B. Lebowitz, ``Using
Tax-Exempt Bonds to Finance Professional Sports Stadiums,'' Tax Notes,
March 30, 1998, pp. 1663-1687.
---------------------------------------------------------------------------
Finally, I must correct the frequent but mistaken assertions that
sports leagues are monopolies and that, by limiting the number of
teams, they enable teams to extract stadium contributions from
localities. First of all, unless one insists that a particular sport
constitutes an industry, all sports leagues compete for consumers in
the increasingly competitive entertainment industry. Clearly, one
league's television programming competes with all other sports
programming and, more generally, entertainment programming. Moreover,
from the viewpoint of competing for local public contributions, sports
leagues compete both with one another and with other forms of publicly
provided consumption goods.
The fact that localities are willing to contribute to stadium
construction costs does not mean that the sports league is a monopoly
and has restricted the number of teams. Manufacturing facilities, for
example, are not in arbitrarily restricted supply, yet cities and
states pay significant amounts to induce the location of such
facilities within their jurisdiction. For example, recent cases of
privately owned and operated facilities that have received large local
subsidies include Indiana's provision of tax and other incentives
valued at $300 million to lure a new United Airlines maintenance
facility, Kentucky's issuance of $140 million in tax credits to attract
a steel plant and $125 million to attract a Toyota plant, and Alabama's
1993 agreement to provide $253 million in subsidies to Mercedes
Benz.\8\ No one would claim that there has been a monopolistic supply
restriction in these cases.
---------------------------------------------------------------------------
\8\ Federal Reserve Bank of San Francisco Weekly Letter, August 4,
1995 and Time Magazine, November 9, 1998.
---------------------------------------------------------------------------
A locality that did not have a team or a Mercedes-Benz factory and
wanted one for the benefits its local citizens would derive would have
to either induce a team or a factory to relocate from another locale or
to induce a new team or factory to locate in the community. One cannot
infer an exercise of ``monopoly power'' from the fact that significant
franchise fees and public funds are used to purchase teams and
construct stadiums. Although some cities without teams may be willing
to pay the ``operating cost'' of fielding a team, this is not the
appropriate standard to determine if supply has been restricted.
Franchise fees must compensate existing owners for the dilution in the
shared revenue streams, most importantly shared TV revenues, and also
pay for the established brand name of the league, created by past
investments and success.
Moreover, even if one thought the leagues were monopolies, S. 952
would not ameliorate any monopoly problem. And the distortions caused
by S. 952 in terms of increased construction of inefficient stadiums
will be present regardless of whether the leagues are monopolies or
not.
In conclusion, S. 952 recognizes the divergence between team and
league interests and would take the productive step of giving the
leagues an antitrust exemption for franchise relocation issues. This
proposal would reduce relocations and mitigate many of the perceived
problems with the current stadium financing situation. However, while
the antitrust exemption for relocation issues would eliminate one
economic distortion, the proposed stadium financing scheme would create
several others. It would substantially increase the incentives to build
new stadiums, even when such projects are not economic. In addition,
the magnitude of any ultimate reduction of public funding would be
small or non-existent as individual teams would undoubtedly find
alternative ways for local governments to continue to provide
comparable contributions. The stadium financing proposals also would
undermine many previously negotiated stadium packages as well as the
leagues' collective bargaining relationships with their players. In
sum, the proposed legislation would provide few benefits to local
taxpayers while creating significant economic distortions.
Senator Specter. Senator Leahy has provided a statement
which will be made part of the record, in accordance with his
request.
[The prepared statement of Senator Leahy follows:]
Prepared Statement of Senator Patrick J. Leahy
Today, the Committee resumes hearings into a proposal to help
remedy the dilemma facing many communities. The problem of scarce
public resources being diverted to pay tribute to the owners of
professional sports teams to build or refurbish stadiums for profitable
professional sports teams places many in a no-win situation. The
allocation of public funds and funding opportunities to the
construction of a stadium for sports may result in less funding being
available for education, infrastructure improvements and other much-
needed public expenditures.
While none of us can be certain of the profit a professional sports
franchise generates, the recent sale of the Washington Redskins for
$800 million supports the view that these enterprises remain highly
profitable. Many of the witnesses at last week's hearing were highly
supportive of Senator Specter's legislation based on their own local
experience.
Senator Feingold raised an important concern, that requiring 10
percent of the revenue derived by broadcast agreements to fund stadiums
would adversely affect small market teams like his beloved Packers. It
would be ironic if, in our efforts to help small market communities
retain their teams, Congress chose a method that had a negative impact
on the competitiveness of those teams. The purpose of this proposed
legislation and of our inquiry is not disproportionately or negatively
to affect small market teams.
I am glad to see Commissioner Tagliabue and other representatives
from the NFL today and I look forward to their testimony regarding the
changes already made in NFL policies regarding loans to owners to
finance stadiums improvements and construction. I think Senator Specter
should be commended for making serious proposals that have had the
effect of encouraging the NFL to invest more than ever before in this
effort.
Although I recognize that the NFL and the owners of the respective
teams are taking a constructive step forward, my initial feeling is
that resolution G-3 falls substantially short of solving the dilemma.
It appears that the motivating factor in enacting this resolution was
the league's desire to locate teams in the largest media areas.
Commissioner Tagliabue was quoted in the Boston Globe as saying ``we
are much better off with our teams centered in large metropolitan
areas.'' While I understand owners' desires to be located in the most
profitable areas of the country, I searched in vain through resolution
G-3 for some recognition of the interests of loyal fans, the community
or the public interest being considered a factor by the team owners.
The resolution and NFL policy are premised on contribution by the
community and the owner with the NFL serving as a financing agent for
the owners' share of the project. It is hard to see how the policy
increases the public's leverage. Communities are not likely to benefit
significantly. So, as I have asked with respect to the proposed
antitrust exemption, I must ask what guarantee we have that the
enactment of resolution G-3 will prevent league owners from continuing
to act simply in their own rather than in the public's best interest?
Last week I suggested an alternative approach to discourage team
movement. I noted that a change in the way professional sports
franchises that relocate for economic gain are treated for federal tax
purposes might prove a more effective solution. If a relocation were
treated as a sale, the owner could be taxed on the gain, measured by
the market value of the franchise at the time of the move compared to
the original cost paid by that owner. This would discourage owners from
moving teams unless the situation they are leaving is extremely
undesirable and unprofitable. There may be other approaches that can be
explored, as well.
With the Federal Government insisting that states do more with less
federal assistance, the allocation of state resources to stadium
financing is creating immense pressure on important social programs.
The league argues that the question of funding of sports stadiums is a
local concern and that state and local governments have repeatedly
shown they can address stadium issues in a way that best suits them.
Citizens in Hartford on both sides of the stadium issue may disagree.
According to Connecticut State Senator Edith Prague, Hartford is the
tenth poorest city in America. She questioned whether spending $374
million on a team that plays in the city eight times a year is in the
best interest of the 35.2 percent of Hartford's residents and one out
of every five of their children who live in poverty.
I commend Senator Specter for taking up this challenge and I look
forward to working with him to forge a legal framework in which the
public will be better served.
Senator Specter. We turn now to Mr. Gene Upshaw, executive
director of the NFL Players Association since June 1983, after
a successful, really spectacular 16-year career as a
professional player. Since then, Mr. Upshaw has worked on
defending players' rights.
He was an offensive guard for the Oakland Raiders from 1967
to 1981, elected to the Pro Football Hall of Fame in 1987,
played 217 league games, 6 Pro Bowls, the only player in NFL
history to play in three Super Bowls in three different
decades--the 1960s, 1970s, 1980s. He played against the Eagles
in the Super Bowl in 1981.
Mr. Upshaw, welcome.
STATEMENT OF GENE UPSHAW
Mr. Upshaw. Thank you, Senator Specter and the committee.
Thanks for having me here. I guess the main reason that I am
opposed to this legislation is that it is unprecedented
intrusion by Congress on both an existing collective bargaining
agreement and on antitrust settlement from a case that we filed
in 1990.
We resolved with a collective bargaining agreement and with
the antitrust settlement many years of strife in the National
Football League. It was a very complicated settlement. It was a
very complicated set of rules that we agreed upon that
guaranteed that the players would get 63 percent of the
revenues. As part of that resolution, we also were assured that
the NFL owners would continue to share a large amount of their
revenues.
Since 1992, and before that, Commissioner Tagliabue and the
players, through me, have worked on many ways to try to address
the problems that confront both the players, the owners, and
the fans. And I think over a course of history--and history
will prove that we have addressed this in the right manner.
I am glad that we have this bill before us. I don't think
that there is a need for congressional intervention here
because we already are doing things. We are already way ahead
of this bill. I think what this bill does give us an
opportunity to do, in many ways, is to let the public know and
give us credit for what we are doing.
I don't particularly like the way that we are being singled
out in this bill because we are not the only ones that use
arenas and stadiums in our communities. I believe that we
should clarify the Broadcasting Act to include the new
technology that is now on board, but I am opposed to franchise
relocation measures that this bill seems to touch on. So in
many ways, I support a lot of the things in the bill, but some
things that are in the bill I don't support.
One of the problems that I really have is that, as players
and as owners, we looked at the landscape around us and we
tried to come up with a set of rules and procedures that would
govern the revenues that we had, and it was very, very
difficult to come up with a system that has worked tremendously
well for us.
Since we first instituted this agreement in 1992, we have
extended it. We have another date in the year 2000 that we will
have an opportunity to decide if we want to extend it again.
And the only way that I am willing to go to the players and ask
for a continuation of our labor peace and the growth that we
have had in the National Football League is that we keep the
same principles in place that have guaranteed labor peace for
us over the last 10 years.
Now, having said that, I do recognize that we have a
responsibility to our communities, and I think we are
fulfilling those responsibilities. But on the other hand, when
you are representing workers, even though they are football
players and wear helmets and they are out on the field and
taking a tremendous amount of risk, when we negotiate a
collective bargaining agreement, I expect that collective
bargaining agreement to be in place and to work for us.
We have already taken the steps that are necessary to
guarantee that cities are protected, the fans are protected,
and the owners and players are protected. And I feel very
strongly about opposing this legislation because I don't think
that it is necessary. I also believe--and I heard Senator
Specter say he is not asking for money from Carolina. But he
is. In this legislation, you would be taking money from
Carolina because of the revenue-sharing that already exists in
the National Football League. You will be destroying cities
like Green Bay and Cincinnati because all of the revenue-
sharing is so dependent on what makes the fiber of the National
Football League work.
And that was the main reason that we agreed to the system
we have in place, is because of the revenue-sharing that now
currently exists. So from that standpoint, I oppose the bill
and I am willing to accept any questions that you might have.
Thank you very much.
Senator Specter. Thank you very much, Mr. Upshaw. We will
come to the questions when we finish all of the testimony.
[The prepared statement of Mr. Upshaw follows:]
Prepared statement of Gene Upshaw
Good afternoon. I want to start by thanking the Committee and
Senator Specter for having me here today.
I am the Executive Director of the National Football League Players
Association, and have held that position since June 1983. Before then,
I was an offensive lineman in the NFL and the AFL, for sixteen years,
with the Oakland Raiders. I am also a member of the NFL's Hall of Fame.
As Executive Director of the NFLPA, I represent all of the players in
the NFL, who have worked very hard for decades to achieve a labor peace
which benefits football fans all across America. The legislation that
the committee is considering would put this hard fought labor peace at
serious risk. I therefore strongly oppose S. 952.
The main reason I am opposed to the legislation is that it is an
unprecedented intrusion by Congress into both an existing collective
bargaining agreement between labor and management, and a judicially
approved and monitored settlement of antitrust litigation, each of
which resolved years of strife between players and owners in the NFL.
The legislation would require the NFL to fund up to 50 percent of the
cost of stadium projects out of network television revenues,
retroactively for all stadium projects that were not completed when the
legislation was introduced on May 4th of this year. Moreover, the
legislation would effectively undo the terms of the antitrust
settlement agreement and collective bargaining agreement in the NFL, by
excluding ten percent of network television revenues--which are
hundreds of millions of dollars--from the revenues upon which the
amount of the NFL's player salary cap is based.
I think it would help the Committee's deliberations for me to
briefly review what labor relations were like in the NFL before the
current agreements between the players and owners were finally reached.
In 1982, there was a strike that lasted 57 days--with nearly half of
the NFL season canceled--before a new CBA was agreed to late that year.
When that agreement expired in 1987, there was another labor dispute in
which the owners resorted to the farce of hiring replacement players.
That farce lasted for a quarter of the season before the players
decided their only recourse was to return to work and seek relief under
the antitrust laws.
In 1989, the players decided they had to decertify their union and
end all collective bargaining in order to pursue their antitrust
rights. It then took another two years, until September 10, 1992, for
the players to win free agency in the Freeman McNeil antitrust case.
Following the verdict in McNeil, the players and owners were finally
able to reach a class action settlement in February 1993 in what is now
known as the Reggie White antitrust case. It was in that settlement--
which was judicially approved by the court--that the current free
agency/salary cap system was established in the NFL. Following the
execution of the White settlement agreement, the players--at the urging
and the insistence of the owners--reformed a union. A new collective
bargaining agreement was then entered into that mirrored the free
agency/salary cap terms of the White antitrust settlement.
The White settlement agreement and its companion CBA have proven to
be remarkably successful. Because of these agreements, the NFL--unlike
every other major league professional team sport in America--has
enjoyed a period of complete labor peace since February 1993. There
have been no strikes, no lockouts, and no work stoppages of any kind
during this period. Indeed, the agreements have now been twice
extended, with judicial approval, so that NFL fans can count on
uninterrupted labor peace in the NFL through at least the 2003 season.
The agreements that the players and owners reached to achieve this
unprecedented labor peace are extremely complicated and delicately
balanced, totaling more than 200 pages each. As Judge David Doty--the
federal judge who approved and monitors the antitrust settlement
agreement--said, ``it is a carefully crafted document that contains
numerous compromises, trade-offs and intricate rules.'' Under the
agreements, the players accepted a very complicated salary cap system,
but also had a guarantee that the owners would have to share a
specified percentage of their revenues--today, 63 percent--with the
players through the salary cap system. The negotiation of this
percentage, as well as the specific categories of revenues that are
included or excluded from the calculation, involved hundreds of hours
of negotiations and numerous tradeoffs too countless to recite.
Significantly, the most important and largest source of revenues
included in the salary cap are the network television agreements
entered into by the NFL and its teams.
The legislation the Committee is considering would undermine and
threaten the parties' agreements, by rewriting them to exclude ten
percent of the NFL's network TV contracts, which is hundreds of
millions of dollars, from the revenues the players share through the
salary cap system, and directing that money to a trust fund to pay for
up to one-half the cost of new or improved stadiums. In principle, it's
the same thing as taking a collective bargaining agreement that auto
workers spent decades to achieve, and having Congress decide that the
hourly wage agreed to between labor and management should be reduced so
that the money can go to a local government that just granted Ford a
tax abatement to help build a plant. Such an intrusion into the
collective bargaining process would be a terrible precedent and is
contrary to the policy of the National Labor Relations Act to let labor
and management compromise their differences in bargaining between them
without government interference. Moreover, the legislation would
improperly and retroactively interfere in a judicially approved class
action settlement, in violation of fundamental principles of due
process and separation of powers between Congress and the courts. If
this legislation were enacted, there would be a serious risk that the
entire settlement agreement and collective bargaining agreement between
the owners and the players could collapse, because the players and the
owners would have to start all over again to reconstruct the
fundamental economic compromises that formed the foundation of their
agreements. This would jeopardize the many years of labor peace that
has benefited all NFL fans.
At the same time, NFL players are already supportive of Senator
Specter's idea that teams and players should collectively make private
contributions to help localities build new or improved stadiums. Such
stadiums benefit both local communities and the NFL and its players,
making a public/private partnership the fair way to provide funding.
That is why the first time the White settlement agreement and CBA were
extended in 1996, the NFL players agreed to exclude from the salary cap
revenues certain money from personal seat licenses, and premium charges
on ``club'' seats, in order to help fund stadium construction and
improvements. Importantly, however, these funding agreements by the
players were made in bargaining as part of complex trade-offs of
numerous issues. These agreements have already resulted in hundreds of
millions of dollars being made available and used to help build new or
improved stadiums all around America. Further, the NFL and the players
are currently discussing new ways to jointly contribute even more money
to these projects under the terms of the White settlement agreement and
the collective bargaining agreement. These private sector agreements
are a far better vehicle than new government regulation as a means of
providing the public/private partnerships required to fund new stadium
projects.
In fact, I don't understand why the NFL and its players are being
singled out in this legislation, since I believe we have done far more
than any other sport to contribute to the building of new or improved
facilities, and we have had more labor peace than any other
professional team sport in the 1990's. I think the Committee will find
out that the NFL players and the owners are doing a pretty good job of
meeting our responsibilities in this area, and I believe we will
continue to do so in the future.
Apart from the stadium financing aspect of the legislation, S. 952
also would give NFL owners a new antitrust exemption on franchise
relocations. I think this would be a mistake. Under current law, the
antitrust laws apply to the NFL's restrictions on franchise relocation,
but, under the ``rule of reason,'' any restrictions that the NFL
imposes that are reasonable and procompetitive are legal. On the other
hand, if the NFL owners were to act arbitrarily in an anticompetitive
way, they would be subject to antitrust consequences just like any
other business. The NFL is not a regulatory agency. It is a private
association of competing businessmen who sometimes act reasonably, but
who also have been repeatedly found to have violated the antitrust laws
in a wide variety of areas, including franchise relocation. I don't see
any reason to grant the NFL owners a new antitrust exemption in this
area, which is unnecessary, and which can only lead to mischief.
Finally, while the players do not object to updating the Sports
Broadcasting Act to make it clear that it applies to new technology,
such as satellite television, we do think it is very dangerous to
condition the grant of this limited antitrust exemption on the NFL
making a specified level of contributions for stadium financing. The
very limited antitrust exemption provided by the Sports Broadcasting
Act has generally worked well, because it has made every NFL game
available on over-the-air television and enabled the NFL to equally
share television revenues, which has provided the economic foundation
for the current free agency/salary cap system. If this exemption were
suddenly ended, chaos in the broadcasting of America's favorite team
sport would result, and the agreements between players and owners--
which have brought labor peace--would be jeopardized.
I thank the committee for its time, and I'd be happy to answer any
questions you have.
Senator Specter. We turn now to Commissioner Paul
Tagliabue. He has been there for 9 years, took over in November
1989, succeeding Commissioner Rozelle. At the time of his
election, Commissioner Tagliabue was a partner in the Covington
and Burling law firm, which was the NFL's principal counsel,
and appeared before the committee on many occasions as counsel.
Earlier, he served as defense policy analyst in European and
North Atlantic Affairs at the Department of Defense. There has
been substantial expansion during his tenure and he has
provided very vigorous leadership.
Commissioner Tagliabue, thank you for joining us and the
floor is yours.
STATEMENT OF PAUL TAGLIABUE
Mr. Tagliabue. Mr. Chairman and members of the committee,
thank you for inviting me to appear today on behalf of the
league to testify in respect of Senate bill 952.
The core element of S. 952 is its proposed requirement that
each NFL club and each club from Major League Baseball, alone
among professional sports teams, contribute 10 percent of its
national television revenues each year to a fund that would
finance 50 percent of the cost of any new or renovated stadium.
Indeed, the bill would impose such a requirement retroactively
to all stadium projects that had not been completed on the day
the bill was introduced.
We strongly oppose these provisions. The provisions are
unnecessary, in our judgment, and would have significant
negative, unintended effects. They unfairly ignore the very
substantial contributions that NFL clubs today make toward
stadium construction. They would improperly interfere with
State and local decisionmaking on sports facilities, and by
decreasing the amount of equally shared revenue received by
each NFL team, they would threaten lower-revenue clubs.
Finally, if enacted into law, these provisions would risk
undoing what is currently the most successful labor-management
partnership in professional sports.
Needless to say, it is both prudent and common for soundly-
managed businesses to use increased current revenues which may
or may not be recurring over the long term to invest in new
facilities that will help to secure the business' success for
the long term. The NFL and its clubs, together with the NFL
Players Association, have been doing just that with respect to
the investment of current revenues into new stadiums.
We have been working in numerous communities with State and
local governments and business leaders to resolve stadium
issues on a win-win basis. The league and its teams, together
with the Players Association, have implemented programs for
league-wide financial support to individual clubs seeking to
construct new stadiums or make major improvements in existing
stadiums.
In this decade alone, NFL club and league representatives
have worked with State, county and city governments in 17
different States on 23 successful projects for the
construction, renovation or improvement of stadiums used
principally by NFL teams. Each of these projects involved in
one measure or another public and private sector cost-sharing
and financing partnerships.
These 23 successful projects involve not only a wide range
of types of stadiums, but also a wide variety of arrangements
for allocating stadium and related infrastructure costs among
public and private parties. Each tailored to the specific needs
of the involved community, they range from the largely
privately financed Washington Redskins stadium and the Carolina
Panthers stadium, to the largely publicly financed multi-
purpose domed facilities used by the Atlanta Falcons and the
St. Louis Rams. And they include new or renovated stadiums in
communities as diverse as Denver, Detroit, Jacksonville,
Nashville, New York, Oakland, Pittsburgh, Seattle, Tampa, and
elsewhere that involve public-private sector sharing of
construction and financing costs.
The success of these efforts and the diversity of cost-
sharing and financing arrangements involved in these projects
demonstrate, in our judgment, why the rigid stadium financing
features of S. 952 would not serve any necessary purpose and
should not be enacted.
Second, by forcing all NFL clubs annually to contribute 10
percent of their equally shared national television revenues to
a stadium fund, the bill would seriously disadvantage the
lower-revenue clubs that are already struggling to make their
revenues meet their expenses. The bill would exacerbate
existing pressures on teams whose revenues in 1998 were
anywhere from $10 to $20 million below the league-wide average.
These clubs, which would experience no corresponding
decrease in their fixed operating costs, depend on equally
shared revenues to remain competitive. Far from promoting
stability and competitive balance, the bill would therefore
sacrifice the interests of the weaker teams and communities,
and undermine the NFL's longstanding and successful revenue-
sharing policies.
Indeed, by reducing the equally shared television revenue
of all teams, the bill would sharply magnify a serious problem
for the league--the substantial disparity in overall revenues
between the league's higher-revenue and lower-revenue clubs.
Despite our revenue-sharing efforts, these disparities result
from a variety of factors, including differences in market size
and market demographics, adequacy of stadiums, team
performance, and the extent of other competitive sports and
entertainment offerings.
League-wide efforts to address this issue include a
supplemental revenue-sharing pool by which the league
distributes revenue to the lower-revenue teams in order to
assist them in dealing with player and other costs. There
nonetheless continues to be a very substantial gap between the
unshared revenues of the better-situated and performing teams
and the bottom quarter of the league which this bill would
seriously aggravate.
In contrast to S. 952, the league's program for
contributing financial assistance to individual teams for
stadium construction directly ties the largest portion of the
contributed assistance to revenues generated in the new stadium
itself. Thus, the focus of our current program has been to use
revenues that are not equally shared as a source of private
funding for stadiums and to avoid undermining the effectiveness
of the league's television revenue-sharing arrangements.
I think Mr. Richardson and Mr. Upshaw have both spoken
about the local governmental prerogatives and the labor
relations aspects of this. On the local government point, I
would simply mention that we have worked for several years with
the U.S. Conference of Mayors and come to an understanding on
issues of franchise movement.
Mr. Chairman, I ask to insert in the hearing record a
recent exchange of correspondence between the league and the
Conference of Mayors that reflects this working relationship.
Senator Specter. Without objection, it will be made part of
the record.
[The information referred to follows:]
National Football League,
Communications & Government Affairs, June 11, 1999.
Hon. Marc Morial,
Mayor of New Orleans,
New Orleans, LA.
Dear Mayor Morial: The National Football League and the United
States Conference of Mayors both wish to maintain the stability of
economically viable franchises and to ensure a fair process to consider
requests for franchise relocations. The NFL and the Conference have
worked for many months to develop an approach to address these common
concerns. A draft Statement of Principles was written to set forth our
understanding.
Consistent with those discussions, and grounded in sound business
policies, the NFL has amended its franchise movement guidelines. The
amendments bring to reality our mutual ideas on these issues, and are
the direct result of our discussions.
The amended guidelines balance and protect the interest of the
cities, the League and individual teams. They establish an orderly
process, ensuring municipal interests will be heard and addressed, and
that franchise moves occur only after exhausting all reasonable options
in a team's existing home territory. They assert an active and
appropriate role for the League in managing possible relocations. They
affirm the League's commitment that all obligations under stadium
leases be fully honored.
We highly value our relationships with the Conference and with the
communities that host NFL football. The amended guidelines, and the
cooperative discussions that preceded them, reflect the strengthened
partnership between our two organizations.
Apart from addressing franchise movement, the draft Statement of
Principles also discussed stadium financing. It provided:
To reflect their commitment to public-private partnerships in
stadium development, the USCM and the League will build upon
existing financing mechanisms and will work together to seek
financing avenues as feasible and appropriate, including
through negotiated arrangements with the National Football
League Players Association.
In addition to honoring our understanding on franchise movement,
the NFL has also acted to redeem our agreement on stadium financing. I
am pleased to report that at its League meeting in March, and following
discussions with the NFLPA, the NFL passed Resolution G3 to enhance
League contributions to stadium construction. Under the resolution, the
League will support up to 50 percent of the private portion of stadium
construction costs, and will do so with upfront money that will reduce
financing costs associated with stadium projects. A copy of Resolution
G3 is attached. As recommended in the draft statement of Principles,
our new policy builds upon existing financing mechanisms. It
strengthens the NFL's commitment to partnership with public entities on
stadium construction.
The draft Statement of Principles concludes:
Both parties commit themselves to implementing a structure of
communications that will facilitate and build upon the
cooperation that underlies this Statement of Principles.
Amended franchise movement guidelines and a new stadium financing
policy are among the fruits of our regular and cooperative
communications. The NFL will continue to work closely with the
Conference on matters of mutual interest.
Sincerely,
Joe Browne.
______
City of New Orleans,
June 21, 1999.
Paul Tagliabue, Commissioner,
National Football League,
New York, NY.
Dear Commissioner: The United States Conference of Mayors has
worked closely with the National Football League to develop mutual
positions on matters such as franchise movement and stadium financing.
Our discussions led to a draft Statement of Principles on these and
related subjects. Underlying these discussions was the idea that both
cities and the League would be well served by open, frequent, and
cooperative communications.
Accordingly, we are pleased to receive the news that the League has
amended its franchise movement guidelines in a fashion consistent with
our discussions. We believe these amendments improve upon past policies
and should give city interests a greater measure of recognition and
protection.
Similarly, we are gratified that the League has adopted stadium
financing mechanisms that will lead to increased private contributions
to stadium construction. The draft Statement of Principles acknowledged
the importance of a public-private partnership in stadium financing. It
called for exploring new funding mechanisms upon which to expand that
partnership. The League's new stadium financing program is helpful to
taxpayers and consistent with our mutual discussions and
understandings.
We appreciate the League's good faith response to municipal and
taxpayer concerns. We look forward to a continuation of this very
constructive atmosphere as we work together on matters of common
interest.
With best regards, I remain.
Yours very truly,
Marc H. Morial,
Mayor.
______
Mr. Tagliabue. I will be prepared to take any questions
that committee members may have. Thank you very much.
Senator Specter. Thank you, Commissioner.
[The prepared statement of Mr. Tagliabue follows:]
Prepared Statement of Paul Tagliabue
Mr. Chairman, and members of the Committee, thank you for the
opportunity to appear today to offer the views of the National Football
League on Senate Bill 952. This bill addresses two very different
matters that, in my judgment, warrant very different responses from
Congress. On the one hand, the bill proposes sensible provisions to
clarify the application of the federal antitrust laws to decisions on
the location and relocation of teams in professional sports leagues.
These antitrust issues have, over the past two decades, been the
subject of considerable study by this Committee, by other Senate
Committees, and by committees in the House of Representatives.
On the other hand, S. 952 also would impose requirements as to how
stadium facilities used by professional football and baseball teams are
to be financed. In our judgment, the bill would establish a rigid and
misguided federal approach to a particularly local issue. For reasons
that I will explain, we believe that this is inappropriate and that the
``solution'' imposed by the bill is not only unnecessary, but would
have serious and negative consequences for local communities, for state
and local governments, for sports fans, and for sports teams
themselves.
I last appeared before this Committee in January of 1996, almost
3\1/2\ years ago. At that time, the Committee was focused primarily on
a series of team relocations that had occurred over the preceding 12
months, culminating in the November, 1995, announcement that the
Cleveland Browns would move to Baltimore. In commenting on those moves,
I told the Antitrust Subcommittee:
Today, there is a widespread perception--and sometimes deep
concern--that professional sports involve unprecedented levels
of financial stress and conflict, often reflected in
complicated court battles or other dizzying legal disputes. The
controversies include impasses as to planned or proposed new
stadiums; concerns about ``bidding wars'' pitting community
against community or ``franchise hopping'' in the location and
relocation of teams; prolonged conflicts (including work
stoppages) between leagues and their players' unions; and a
steady diet of sports, business, and legal debate on related
issues. * * *
Since I offered that testimony, the National Football League has
seen many positive developments in those areas, particularly with
regard to its relationships with its fans and with the communities in
which NFL member clubs are located. For example, our last two expansion
teams, the Carolina Panthers and Jacksonville Jaguars, have continued
their progress both on the field and in their communities. The Panthers
owner, Mr. Jerry Richardson, has accompanied me here today. As another
example, we returned the NFL to Cleveland, where the new Cleveland
Browns franchise--the NFL's 31st--will take the field this summer. And
we will decide this fall whether to add another new team, to be located
in either Los Angeles or Houston.
We have extended our Collective Bargaining Agreement on two
occasions, thus ensuring labor peace well into the next decade. And we
have expanded the range of community and charitable programs that
benefit our fans and the public, including a new $100 million effort to
support youth football programs in communities throughout the country.
Finally, we have addressed issues of team stability in a number of
ways, including by working with state and local governments and
business leaders to resolve stadium issues on a win-win basis in a
number of communities.
Specifically, the League and its teams, together with the NFL
Players Association, have implemented programs for League-wide
financial support and assistance to individual teams seeking to
construct new stadiums or to make major improvements in existing
stadiums. Thus, in this decade, NFL team and League representatives
have worked with state, county and city governments in 17 different
states on 23 successful projects for the construction of new stadiums
principally though not exclusively for the use of NFL teams \1\ or for
major renovations and improvement of stadiums used by NFL teams.\2\
Each of these projects involved, in one measure or another, public and
private sector cost sharing and financing partnerships.
---------------------------------------------------------------------------
\1\ Specifically, 17 new stadiums (in 12 different states), with 10
already completed or in advanced stages of construction and another 6
stadiums committed to be built.
\2\ Specifically, 6 stadium renovation or improvement projects at
various stages of completion (in 5 different states).
---------------------------------------------------------------------------
These 23 successful projects involve a wide range of different
types of stadiums and a variety of arrangements for allocating both
stadium and related infrastructure costs among public and private
parties, with each project tailored to local team and/or community
needs, expected patterns of usage, and cost factors. These range from
the largely privately financed Washington Redskins' and Carolina
Panthers' stadiums (in Prince George's County, Maryland, and Charlotte,
North Carolina, respectively); through the largely publicly financed,
multi-purpose domed stadium/convention facilities used by the Atlanta
Falcons and St. Louis Rams; to a variety of other renovated (e.g., in
Buffalo, New York, and Oakland, California) or new stadiums in
communities as diverse as Denver, Detroit, Jacksonville, Nashville,
Pittsburgh, Seattle, Tampa and elsewhere that involve public-private
sector sharing of construction and financing costs.
In our judgment, both the success of these efforts and the
diversity of cost-sharing and financing arrangements involved in these
projects demonstrate why the stadium financing features of S. 952 would
not serve any necessary purpose and should not be enacted.
The Nature of NFL Operations
A professional sports league is a unique business entity because it
creates and markets a single, jointly produced entertainment product.
The NFL, for example, produces athletic competition among its 31 member
clubs, none of which can produce and present that product on its own.
The NFL's sports entertainment product competes in the marketplace with
the jointly produced entertainment products of other sports leagues,
and with other entertainment products of all kinds. In the context of
Major League Baseball, George Will recently said that even championship
baseball teams would hold little appeal for fans if they simply played
162 intra-squad games. The same of course is true in football or any
other league sport.
NFL clubs operate in a broad and highly competitive entertainment
market. In the current decade alone, the four major professional
leagues have added a total of 16 new teams, with more scheduled to
begin play in the next few years. Several new leagues have been
started, including Major League Soccer and two women's basketball
leagues, while numerous other sports have grown substantially in
popularity. Some cities, like Denver, Miami, Phoenix, and Tampa-St.
Petersburg, now are home to three or four major league teams, in
contrast to the only one or two that were located there in the 1980s.
All of this has led to vigorous competition for the interest and
spending of consumers on sports entertainment, a competition that is
often intensified in particular communities by the construction of new
facilities with attractive fan amenities.
Apart from this competition, sports teams compete in a broader
entertainment marketplace. This Committee has examined closely the
explosion in entertainment options over the past ten to fifteen years
and what those extraordinary changes have meant for national
communication and competition policies. Consumers now have as many as
four or five dedicated sports channels on television, along with an
array of choices on network, cable and satellite television that grows
by the day. Add to this mix movies, video rental, other live
entertainment and the Internet, and it should be apparent to any
observer that sports teams can no longer simply open the ticket window
and expect to fill the house. We must earn the attention and loyalty of
our fans, both in the stadium and on television. We must do that by
providing exciting games in attractive, readily-accessed stadiums,
well-designed and constructed for football, by providing outstanding
stadium services in fan-friendly settings, by reciprocating loyalty
shown to us by fans and communities, by becoming broadly involved in
community affairs, and by actively addressing both fan interests and
the issues that alienate fans.
Stadium Construction in the NFL
Over the past ten years, we as a nation have seen a generally
strong economy and a boom in the construction of facilities for both
college and professional sports teams throughout the country. By no
means has this program of building stadiums and arenas been confined to
football. Nor are NFL teams alone in seeking to join with the public
sector in public-private partnerships to support stadium construction.
The number of stadium and arena projects sought or undertaken is
directly related to several factors. One is the competitive environment
that I discussed earlier. Fans want cleaner, more comfortable
facilities with greater amenities. An NFL team is clearly disadvantaged
if it must operate in an obsolete, decades old stadium when other teams
that directly compete with the NFL team in the same community play in
modern, comfortable, fan-friendly venues.
Second, many of the stadiums in which NFL teams have played were
constructed as dual purpose stadiums--for both football and baseball--
during the 1960s and early 1970s, when the nation experienced an
explosion of interest in professional sports. Many of those facilities
are now near the end of their useful lives and in need of extensive
renovation or replacement.
Third, many local and state governments have been investing in
infrastructure and facilities for a wide range of public purposes, and
this investment has included arenas and stadiums financed in a variety
of different ways.
Finally, for better or worse, sports leagues live in an era of
player free agency, forced upon the NFL by an antitrust court, and the
League and its member clubs have been required to cope with the
economic consequences of a drastically changed player selection,
allocation and contracting environment. Without question, this new
economic reality has caused clubs to seek to upgrade their stadium
facilities and enhance their local revenues so that they can have the
means to provide high-quality entertainment and retain the support of
their fans.
As both the need for and the cost of stadium construction has
increased, NFL clubs and local and state governments have sought to
develop public-private partnerships to meet the challenges of providing
proper facilities. These partnerships have been based on the
recognition that an NFL team, and a modern stadium facility, generates
substantial benefits for the team, the fans, and the community at
large.
Detractors of these efforts have suggested to this Committee and
elsewhere that there is something nefarious or unlawful about the
circumstances leading to the growth of public-private partnerships to
fund stadium construction. One example is Professor Andrew Zimbalist,
whose testimony against the NFL in one recent lawsuit was rejected by
both the federal district judge and the Court of Appeals as without
foundation and contrary to the antitrust laws. He has also argued to
this Committee that it is the NFL's ``monopoly power'' that allows it
to ``extort'' publicly financed facilities from communities. The facts
and the marketplace realities are quite to the contrary.
In the 1960s, the NFL faced competition in a variety of areas from
the American Football League. Yet I know of no instance during that
period--and Professor Zimbalist identifies none--where a stadium built
for either an NFL or an AFL team was financed through means other than
public funding. That period of inter-league competition thus suggests
that a variety of factors--and not simply whether there is one or more
than one league in a particular sport--influences both public and
private decisions to finance and construct new stadiums. Moreover, in
the decades since 1970 when the NFL has often operated as the sole
major professional football league in the United States, there has been
a steady growth in private investment in NFL stadiums, by individual
NFL owners, NFL teams, and the League itself. In the 1990s alone, over
a billion dollars in private capital has been committed to NFL stadium
projects, and the NFL has revised its revenue sharing policies to
support the private portion of the financing of stadiums.
Others have argued that the operations of NFL teams in new stadiums
do not generate economic activity or enhance local economies, a
conclusory academic argument rejected by any city official who has
experienced first hand the benefits of having an NFL team. For example,
Jacksonville Mayor John Delaney credits the Jaguars with an annual
contribution to his community of over $130 million, and with great
positive influence in attracting jobs to the Jacksonville area. In St.
Louis, the new Trans World Dome is not only the home of the Rams, but
is used virtually daily for other events as well. It will host the NCAA
Final Four in 2005, an event projected to generate over $90 million in
total economic impact for the community, but which would not be
possible if the stadium had not been built with the goal of obtaining
an NFL team. And in Baltimore, even skeptical analysts have credited
the new Ravens stadium with an annual economic impact in excess of $60
million. A number of other studies similarly confirm that team and
related stadium operations can have a major positive economic impact on
a community.
As I will describe in more detail shortly, the League has in recent
years successfully identified means of enhancing private contributions
to stadium projects and implemented a program to do so.
Antitrust Law and the Relocation Issue
I have previously testified about the inappropriateness of treating
the member teams of a league as independent business competitors whose
joint decisions represent a ``contract, combination or conspiracy''
under Section 1 of the Sherman Act. Such an approach to the antitrust
laws clearly ignores the fundamental, unique structure of sports league
operations, because an individual team in a league cannot produce or
sell anything of value and therefore does not represent a separate
source of economic power, and also because NFL operations reinforce in
every respect the partnership aspects of the business enterprise.
Approximately 60 percent of the revenues of the average NFL club
today come from the joint presentation of NFL games on national
television networks. These revenues are shared equally among all clubs
without regard to any club's market size or revenue potential. As a
result of the sharing of these and other revenues (including, for
example, gate receipts that are divided between the home and visiting
teams), the economic advantages of the clubs in the better-situated
markets are balanced, albeit not always fully offset, by revenue
sharing with the clubs in smaller less well situated communities, such
as Buffalo, Cincinnati, Green Bay, Indianapolis, Kansas City, or New
Orleans. We have also instituted supplemental revenue sharing policies
to give additional direct financial support to clubs whose revenues may
otherwise be insufficient to field a competitive team. This kind of
revenue sharing is inconsistent with the manner in which independent
economic competitors conduct themselves. It is the way business
partners conduct themselves, seeking to compete not with each other,
but with other outside independent competitors in the marketplace,
including other sports leagues and other sports and non-sports
entertainment.
In recent years, the NFL member clubs have twice modified and
focused their revenue-sharing policies to support new stadium
construction and renovation. I will describe those policies, and
particularly the program of direct financial support approved earlier
this year, later in my testimony. By agreeing to waive a portion of the
game receipts that would otherwise be shared with visiting teams, and
by taking the further step of directly subsidizing construction costs
through assessments against television revenue, all League clubs are
now contributing to the costs of stadium construction or renovation.
Ordinary business competitors do not subsidize the construction of
another company's manufacturing facilities or retail stores. In such a
league context, to say that an internal decision of a sports league--
whether it relates to funding stadium construction or determining where
to present the members' joint product and locate teams--somehow
resembles a ``contract, combination or conspiracy'' among independent
economic competitors simply ignores economic realities and elevates
business form over business substance.
Under the NFL's Constitution and By-Laws, the relocation of a team
requires a three-fourth's vote of the League's membership. This
reflects the formal commitment of each League franchise to all other
member clubs to operate in a particular home location, defined as ``the
city in which such club is located and for which it holds a franchise
and plays its home games. * * * ''
The Judiciary Committee's consideration of this issue in the 1980s
was prompted by the Raiders litigation against the NFL, in which a
federal court determined that Section 1 of the Sherman Act should apply
to an internal league decision that a team should remain in its
existing, League-franchised home market. In that case, a Los Angeles
jury eventually found that the NFL had acted ``unreasonably'' in
reciprocating the loyalty of Oakland fans (reflected in twelve
consecutive sell-out seasons) and denying the Raiders permission to
move the NFL's Oakland franchise to Los Angeles. As a result of that
decision, the Raiders were allowed, over the NFL's objection, to
abandon Oakland and a new weapon --``antitrust brinkmanship''--was
given to sports teams that wished to act independently of their leagues
in determining where to operate.
Prior to the Raiders litigation, a sports league franchise was
viewed as a license to serve the league's fans and to play league games
in a prescribed geographical area. A franchise was the means by which
the league created a stable, continuous relationship with a community,
subject to change only by league decision, ordinarily through a supra-
majority vote.
The place of the Raiders' litigation in sports antitrust matters
has, however, been thoroughly misdescribed in the prior hearings before
this Committee. Perhaps no testimony was more striking for its
disregard of this history than that of Professor Rosentraub last week.
He referred to Commissioner Rozelle's pledge, at the time of the merger
of the NFL and the AFL, to retain teams in their current locations and
not to relocate teams as a result of the Congressionally-approved
consolidation of the two leagues. The NFL lived up to that pledge in
implementing the merger in the 1960s and 1970s. And in seeking to have
the Raiders continue their operations in Oakland, the NFL paid a heavy
price by litigating with the Raiders in the 1980s. Indeed, Commissioner
Rozelle testified in the Los Angeles court that his pledge to Congress
with respect to team stability was an important reason for his
opposition to the Raiders' proposed move. In these circumstances, for
Professor Rosentraub to testify that the NFL ``reneged'' on Pete
Rozelle's commitment is both a serious misapprehension of the rulings
in the Raiders' case and the kind of half-truth that does not form the
basis for sensible legislative action.
The concept that sports leagues can properly determine the
locations of their member teams prior to the Raiders' case reflected
the recognition that, in determining the location of a league's
franchises, league members ``are not competitors in the economic sense.
* * * They are, in fact, all members of a single unit competing as such
with other similar professional leagues.'' \3\ Not coincidentally,
prior to the Raiders decision, NFL clubs had been committed to and
stable in their home territories for decades.
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\3\ San Francisco Seals, Ltd. v. National Hockey League, 379 F.
Supp. 966, 969-70 (C.D. Cal. 1974) (rejecting on summary judgement
antitrust challenge to the NHL's denial of the Seal's request to move
its NHL franchise from San Francisco to Vancouver).
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Since the Raiders decision, federal courts, applying the Raiders
precedent, have often failed to recognize (and potential litigants have
elected to ignore) the economic reality of a sports league--that league
members are co-producers of a joint product and thus together
constitute a single league enterprise in competition with other
entertainment providers. Instead, certain courts have tended to raise
form over substance, viewing each team franchise as an independent
business competitor that is portable and transient without regard to
its commitments as a member of the league enterprise, the needs and
preferences of the league, or the interests of the league's fans or
their communities.
As a result, some clubs--all of which had agreed by contract to be
bound by the league's internal procedures for determining franchise
location--have been persuaded to abandon their commitments to the
league and their fans, and unilaterally to move the club, and thereby
move the league's operations, to a new location. If a league (other
than Major League Baseball) seeks to enforce its contractual rights
against such moves, it faces substantial antitrust risks.
The antitrust weapon has been claimed not only by clubs that seek
greener pastures elsewhere; it has also been brandished by governmental
agencies (including state attorneys general), stadium landlords (who
assert that they compete in a ``market'' for club tenants), and former
club owners as well. All such parties purport to find a basis in the
Raiders experience to threaten antitrust litigation to influence or
prevent the League's exercise of its business judgment--for or
against--a proposed franchise move.
These risks and antitrust uncertainties have necessarily had a
negative effect on League decisionmaking with respect to potential team
moves. Regardless of its merit, each such threat raises the specter of
burdensome, divisive, and costly litigation, similar to the Raiders
case in the 1980s, that inevitably takes years to resolve. If claims
that teams are entitled to move irrespective of league decisions are
sustained--a possibility that exists especially when the issues are
litigated before a ``home-town'' jury (as in the Raiders case)--
plaintiffs automatically receive punitive treble damages, three times
the ``injury'' that a fact-finder may believe has been experienced.
The National Football League has faced such threats numerous times
over the last two decades, and it has paid the price, in litigation
expenses and/or settlements, on several occasions. In an effort to keep
the Raiders in Oakland, during the 1980s the NFL spent almost $50
million in legal fees and in ultimate settlement of the antitrust
judgment.
In 1995, the Rams and the City of St. Louis used the threat of
antitrust litigation in seeking to secure NFL acquiescence in the Rams'
move from Southern California to St. Louis, even though the League's
member clubs had originally determined that the proposed move did not
satisfy the specific criteria of the League's guidelines for franchise
relocation. That initial League decision was immediately met with
public and private threats from both the Rams and the State's Attorney
General. Faced with such threats of very large (``billions'' of
dollars) in antitrust damages in suits to be filed in St. Louis, the
membership reversed its initial decision and voted to permit the Rams
to move.
Even though we believed that we should have prevailed in any
lawsuit, the League's judgment was understandably influenced by a
preference for antitrust peace rather than war. And once the Rams were
permitted to move from Los Angeles to St. Louis, St. Louis interests
nonetheless filed suit in Federal Court, asserting that the terms of
the League-approved move violated the antitrust laws. After years of
litigation, the federal district court and a unanimous federal appeals
court confirmed that the NFL had done nothing wrong.
In 1984, reviewing the trial court decision favoring the Raiders, a
federal court of appeals suggested changes intended to enable the NFL's
rules and procedures governing franchise relocation--and the NFL's
reliance upon those rules--to pass muster under the antitrust ``rule of
reason.'' The NFL adopted the court's suggestions, as well as a set of
objective, business criteria for evaluating proposed franchise moves in
the future. The League, in short, has followed the court's advice and
developed such procedures, but those have been attacked under the
antitrust laws as well.\4\
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\4\ More recently, in conjunction with the U.S. Conference of
Mayors, we have developed a ``Statement of Principles'' relating to
relocations of NFL teams. Last week, I issued an updated set of
relocation policies and procedures that incorporates the terms of that
Statement of Principles and reflects the procedural framework sought by
the Conference of Mayors. A copy of those updated relocation procedures
is attached at Tab 1.
---------------------------------------------------------------------------
Despite these provisions, and despite the fact that they have been
updated to reflect the specific concerns expressed by the U.S.
Conference of Mayors, misguided treatment of League members as
independent economic competitors continues to confuse the antitrust
analysis and to make any League decision susceptible to being
characterized as an unreasonable restraint on ``competition.'' Thus, we
know that if we rely on those criteria to bar a proposed franchise
move, the NFL can be involved for years in expensive and internally
divisive antitrust litigation. The dispute would likely be litigated in
an interested forum, as was the Raiders' case; and the potential damage
exposure associated with a court or jury's second-guessing of the
League's internal decision can be prohibitive.
One further point that is often overlooked in the antitrust debate
is of special import here. If the antitrust laws are to be applied to
strip leagues of their ability to decide about team location, they will
necessarily give that authority to individual teams. Not only leagues
but communities as well have been prejudiced by the misapplication of
the Sherman Act.
A Statutory Approach to the Relocation Issue
My predecessor Pete Rozelle coined the phrase ``franchise free
agency'' in the early 1980s in predicting the long-term consequences of
the Raiders decision. He was only one of many observers who recognized
at an early stage the inappropriateness of treating internal league
decisions on franchise relocation as ``contracts, combinations, or
conspiracies'' subject to the restrictions and penalties of the
antitrust laws.
In August 1982, for example, Senator Heflin addressed the Judiciary
Committee on this subject. He began by recognizing that the NFL ``is
not composed of economic competitors. They are engaged in a common
business operation.'' He made clear that ``[a]ntitrust policies which
permit individual team owners to ignore the leagues relationship and
act as if they were sole proprietors do not reflect free enterprise
principles, and they do not serve the public interest.'' Senator Heflin
concluded, ``league agreements voluntarily entered into by league
members should be enforced according to their terms'' and not subjected
to the antitrust laws.
In June 1985, the Antitrust Division of the Department of Justice
presented its views before this Committee on the same subject.
Supporting ``an antitrust exemption for league decisions to block
franchise relocations,'' the Department of Justice urged that ``a
league's franchise relocation rule should be deemed per se lawful
unless if adversely affects competition with other leagues or is merely
a subterfuge to disguise some other egregious anticompetitive
conduct.'' A copy of that testimony is attached to my statement at Tab
2.
Today there is an ample record demonstrating that uncertainty over
this narrow antitrust issue has had a substantial and deleterious
effect. Congress now has an opportunity--and an ample record--to
address this problem and to end the antitrust brinkmanship that (1)
impedes a professional sports league's ability to make rational
internal decisions and reasonable business judgments about its own
affairs and (2) subjects communities to the vagaries of individual team
decisions on the next best stadium offer without regard to a league's
enforceable evaluation and decision on the proposed move.
Such legislation--to treat sports leagues as a single enterprise
for internal decisions on such matters as franchise relocation--would
not freeze the status quo. It simply would allow a sports league to
exercise its reasonable business judgment without the threat of treble
damage litigation and, in doing so, to take appropriate account of
community interests and fan loyalties.
S. 952 and Stadium Financing
The core element of S. 952 is its requirement that the clubs in the
NFL and Major League Baseball--alone among professional sports teams--
contribute ten percent of their national television revenues each year
to a stadium construction fund, with those revenues being used to
finance 50 percent of the cost of any new or renovated stadium. Indeed,
the bill goes further and imposes that requirement on a retroactive
basis for all stadium projects that have not been completed as of the
day that S. 952 was introduced.
We strongly oppose these provisions of S. 952. We believe that
these provisions are unnecessary and would have negative, unintended
effects; that the provisions unfairly ignore the very substantial
contributions that NFL clubs make today toward stadium construction;
that mandatory use of television revenues in this manner would unwisely
decrease the amount of equally shared revenue received by each of the
teams in the League and thereby threaten smaller market clubs; that the
provisions improperly interfere with state and local decision making on
sports facilities; and that they risk undoing what is currently the
most successful labor partnership in professional sports.
First, the bill is unnecessary. Needless to say, it is both prudent
and common in most soundly-managed businesses to use increased current
revenues--which may or may not be recurring over the long term--to
invest in new facilities that will help to secure a business's success
for the long term. And the NFL and its teams, together with the NFL
Players Association through collective bargaining, have been doing just
that with respect to the investment of current revenues into new
stadiums.
In his introductory statement, Senator Specter noted the growth in
television revenues and said that ``[o]ne would think some of that
giant revenue windfall might trickle down and be used to help finance
new ballparks and stadiums. * * * '' The terms ``windfall,'' and
``trickle down'' are both inappropriate here. The fact is that in the
past 10 years, the NFL and its member clubs have directly contributed
over $1.5 billion to the construction and renovation of stadiums
throughout the country. And we have recently put into place an enhanced
program that increases the common funding of stadium projects,
especially in major markets. A copy of that resolution is attached to
this testimony at Tab 3.\5\
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\5\ At our League meeting last month, we approved loans for three
specific projects in Denver, New England and Philadelphia. Those will
directly fund construction of the stadiums in those three communities,
and will enhance the already-substantial private contributions to those
projects.
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Second, by forcing all NFL clubs to contribute 10 percent of their
national television revenues each year to a stadium fund, S. 952 would
seriously disadvantage the lower revenue NFL clubs that are already
struggling to make their revenues meet their expenses. The bill would,
in short, exacerbate the existing pressures on teams whose revenues are
anywhere from $6-$8 million below the League-wide average and who
depend on equally shared revenues to remain competitive. Those teams
would experience no corresponding decrease in their fixed operating
costs, but would have substantially less ability to make up the revenue
taxed away by S. 952. Far from promoting stability and competitive
balance, this bill would sacrifice the interests of the weaker
communities and undermine the NFL's longstanding and successful revenue
sharing policies.
Indeed, by reducing the equally shared television revenue of all
NFL clubs and leaving the unshared revenues of every club untouched and
unchanged, S. 952 sharply magnifies one of the most difficult problems
faced by a number of NFL clubs--namely, the substantial disparity in
overall revenues between the League's higher revenue and lower revenue
clubs. Despite league-wide efforts to address this issue, these
disparities result from a variety of factors, including differences in
market size (e.g., New York with 6.8 million households vs. New Orleans
with 628,000 or Green Bay with 385,000 and market demographics,
adequacy of stadiums, team performance, and other competitive sports
and entertainment offerings. In this light, the NFL today operates with
a supplemental revenue sharing ``pool'' by which the League
redistributes revenue to the lower revenue teams in order to assist
them in dealing with player and other costs--with the lowest revenue
team eligible to receive as much as $4 million annually from this
League source.
Yet, there continues to be a very substantial gap between the
unshared revenues of the better-situated and performing teams, with the
top quarter of the high revenue teams having unshared revenues (e.g.,
from certain stadium sources, advertising, and marketing opportunities)
averaging more than $55 million in 1998 and the bottom quarter of the
lower revenue teams averaging some $45 million from those sources.
Further, because of the financial pressures created by player free
agency and other player costs under the League's Collective Bargaining
Agreement with the NFL players union, some lower revenue teams have in
recent seasons been forced to spend 75 percent or more of their total
revenues on player contracts and other player expenses. Obviously, this
puts such teams under great financial and on-field competitive
pressures--and is one of the prices being paid by NFL clubs for ``labor
peace,'' but S. 952 would simply increase these financial instabilities
rather than take account of them.
In contrast to S. 952, the League's program for contributing
financial assistance to individual teams for stadium construction
directly ties the largest portion of the contributed assistance to
those revenues (such as the premiums paid by ticketholders for
preferred seating) that are generated in the new stadium itself. Thus,
the focus of the current League program has been to use those unshared
revenues as a source of private funding, and avoid undermining the
effectiveness of the League's revenue sharing arrangements.
Third, the bill would impose a uniform national standard in
derogation of local public decisions about how to use community
resources. As mentioned at the outset, we have worked very closely in
recent years with state and local authorities throughout the country to
seek to ensure win-win solutions to the problem of obsolete stadium
facilities, which solutions in turn promote franchise stability.
Stadium projects have received the most searching evaluations and have
often been the subject of specific referenda. We have sought to develop
public-private partnerships that fairly apportion the costs of stadium-
related projects and that distribute the benefits of those projects
throughout the community. In each of these cases, city and state
officials made exactly the kind of decision they were elected to make--
namely, how to allocate public resources. There is no reason for
Congress to step in and second-guess either the decisions themselves,
or the ability of state and local officials to make them.
Fourth, S. 952 would seriously threaten the League's collective
bargaining agreement, a point that I know Gene Upshaw will discuss in
more detail. Our current labor agreement, which includes substantial
court-ordered free agency, is based on a sharing of revenues, including
television, between clubs and players, and required spending in certain
amounts. This structure was reached only after work stoppages, lengthy
antitrust litigation, and intensive bargaining. As noted above, it has
created some significant economic challenges for the League, which we
have worked hard to address. But it has largely worked for both the
clubs and the players and has been extended on two occasions. As a
result, the NFL is the only major sports league not to have a strike or
lockout during the 1990s. If key premises of this collective bargaining
agreement are negated, as S. 952 would do, this carefully negotiated
economic balance will be upset, and labor strife will be much more
likely in the future.
The players recognize that they benefit from new and improved
stadium facilities and the Union has worked with us in a constructive
way to assist in funding individual projects. The Union has properly
agreed to exclude certain amounts from the sharing formula to assist in
funding stadiums and I am confident that we can continue successfully
to negotiate such arrangements in the future. But those arrangements
should be reached through negotiation between the parties and within
the framework of the overall collective agreement.
Television Policy and the 1961 Statute
S. 952 would amend federal law in two respects insofar as it bears
on NFL television policy. First, it would condition the continued
effectiveness of the 1961 statute on establishing a fund for stadium
construction out of national television revenues. Second, it would
ensure that the provisions of the 1961 Act apply to forms of television
such as cable and satellite telecasts, but not including pay-per-view
telecasts. We believe that the latter provision is constructive,
consistent with changes in technology and viewing patterns over the
past 40 years, as well as the original intent of the Act, and that such
a clarification of Federal law would serve the public interest.
The 1961 Act was passed because Congress recognized that without
it, many teams and their fans would be unable to make effective use of
television. Under that Act, the NFL has created the most pro-consumer
television plan in sports today. Every regular season and playoff game
is televised on free over-the-air television. Even the League's Sunday
night game televised nationally each week on the cable network ESPN,
are shown on over-the-air stations in the home communities of the
participating teams. The NFL has maintained this strong commitment to
broadcast television even while it has grown from 12 teams in 1960 to
31 teams today and even though network television has experienced
dramatic changes as a result of competition from cable, satellite, and
other options. No other professional league is today similarly
committed to broadcast television.
Earlier this decade, Congress directed the Federal Communications
Commission to study, among other matters, the NFL's operations under
the 1961 statute. The FCC's final report in 1994 found that the NFL's
television policies were consistent with the public interest and
recommended no amendments to limit the application of the 1961 Act.
It is of course true that the NFL clubs will earn very substantial
revenues from our network television contracts. These revenues, a
substantial portion of which must be paid to NFL players, are equally
shared among the member clubs and enable teams in communities varying
widely in size and circumstances to compete successfully on the playing
field. In addition, they represent a substantial infusion of new funds
into NFL communities and contribute directly to the economic well being
of those cities and their residents. Over the life of the current
contracts, each NFL team will receive over $500 million in television
revenues. That money is spent directly in the home community in the
form of taxes, salaries paid to employees (who in turn buy homes, pay
taxes, and the like) and purchases of goods and local services. The
economic impact of the League's television contracts extends well
beyond the team itself.
Simply put, the Sports Broadcasting Act has worked precisely the
way Congress intended, and there is no justification for tampering with
it.
* * * * *
Thank you for the opportunity to appear today and I look forward to
responding to any questions.
______
TAB 1
Policy and Procedures for Proposed Franchise Relocations
Article 8.5 of the NFL Constitution and Bylaws vests in the
Commissioner the authority to ``interpret and from time to time
establish policy and procedure in respect to the provisions of the
Constitution and Bylaws and any enforcement thereof.'' Set forth below
are policy and procedures to apply to future League consideration,
pursuant to Section 4.3 of the Constitution and Bylaws, of any proposed
transfer of a club's home territory.
Article 4.3 requires prior approval by the affirmative vote of
three-fourths of the member clubs before a club may transfer its
franchise or playing site to a different city either within or outside
its existing home territory. Article 4.3 confirms that each club's
primary obligation to the League and to all other member clubs is to
advance the interests of the League in its home territory. This primary
obligation includes, but is not limited to, maximizing fan support,
including attendance, in its home territory. Article 4.3 also confirms
that no club has an ``entitlement'' to relocate simply because it
perceives an opportunity for enhanced club revenues in another
location. Indeed, League traditions disfavor relocations if a club has
been well-supported and financially successful and is expected to
remain so. Relocation pursuant to Article 4.3 may be available,
however, if a club's viability in its home territory is threatened by
circumstances that cannot be remedied by diligent efforts of the club
working, as appropriate, in conjunction with the League Office, or if
compelling League interests warrant a franchise relocation.
Article 4.3 also reflects the League's collective judgment that
unassigned franchise opportunities (including ``second franchise''
opportunities in the home territory of a member club) are owned by the
League's members as a collective whole and, by definition, that no club
has rights to more than a single ``home territory.'' Such collective
League opportunities may be acquired by an individual club only by an
assignment reflecting the consent of the League and subject to its
generally applicable voting requirements.
a. negotiations prior to league consideration
1. Because League policy favors stable team-community relations,
clubs are obligated to work diligently and in good faith to obtain and
to maintain suitable stadium facilities in their home territories, and
to operate in a manner that maximizes fan support in their current home
community. A club may not, however, grant exclusive negotiating rights
to a community or potential stadium landlord other than one in its
current home territory.
2. All clubs, at any time during their stadium negotiations, are
free to seek the assistance of the League Office and the Stadium
Committee, on either a formal or informal basis. If, having diligently
engaged in good faith efforts, a club concludes that it cannot obtain a
satisfactory resolution of its stadium needs, it may inform the League
Office and the stadium landlord or other relevant public authorities
that it has reached a stalemate in those negotiations. Upon such a
declaration, the League may elect to become directly involved in the
negotiations.
3. The League's policy and procedures on franchise relocation do
not restrict any club's ability to discuss a possible relocation, or to
negotiate a proposed lease or other arrangements, with a community
outside its home territory. Nor do they restrict the ability of
multiple clubs to negotiate terms of a proposed relocation with a
single community.
In evaluating a proposed franchise relocation and making the
business judgment inherent in such consideration, the membership is
entitled to consider a wide range of appropriate factors. Each club
should consider whether the League's collective interests (which
include, for example, the League's television interests, the League's
interest in strong and geographically distributed franchises, the
League's interest in securing attractive stadium facilities in which to
play its games, and the League's interest in having financially viable
franchises) would be advanced or harmed by allowing a club to leave its
assigned home territory to assume a League owned opportunity in another
community. These collective interests generally include having clubs in
the country's most populous areas, taking into account competitive
entertainment alternatives, stadium options, and other factors.
Like proposed transfers to a different home territory, a transfer
of a club's playing site to a different location within its home
territory may also raise issues of League-wide significance.
Accordingly, while these procedures apply to any proposed move to a new
home territory, the Commissioner may also require that some or all of
these procedures be followed with respect to a proposed move within a
club's existing home territory.
b. procedures relating to notice and evaluation of the proposed
transfer
Before any club may transfer its franchise or playing site outside
its current home territory, the club must submit a proposal for such
transfer to the League on the following basis:
1. The club must give the Commissioner written notice of the
proposed transfer, including the date on which the proposed relocation
is to become effective, and publish the notice in newspapers of general
circulation within the incumbent community. The notice must be filed no
later than February 15 of the year in which the move is scheduled to
occur. The League will provide copies of the notice to governmental and
business representatives of both the incumbent community and the
community to which the team proposes to move, as well as the stadium
authority (if any) in the incumbent community (the ``interested
parties'').
2. The notice must be accompanied by a ``statement of reasons'' in
support of the proposed transfer. The statement must address each of
the factors outlined in Part C below, and may also identify and discuss
any other relevant business factors that the club believes support its
request to move. The Statement must also include all of the material
noted in Appendix One.
3. With the assistance of appropriate League committees, the
Commissioner will evaluate the proposed transfer and report to the
membership. The Commissioner may also convene a special committee to
perform factfinding or other functions with respect to any such
proposed transfer.
4. Interested parties will have an opportunity to provide oral and/
or written comments regarding the proposed transfer, including at a
public hearing conducted by the League in the community from which the
team seeks to relocate; written comments may be submitted within 15
days of the conclusion of such hearing.
5. Following the Commissioner's report on the proposed transfer,
the proposal will be presented to the membership for action in
accordance with the Constitution and Bylaws, either at a Special
Meeting of the League held for that purpose or at the Annual Meeting.
6. After any League vote on a proposed relocation, the League will:
i. Publish, within 30 days of any relocation decision, a written
statement of reasons in newspapers of general circulation within the
incumbent community setting forth the basis of its decision in light of
the League's rules and procedures for evaluating franchise relocation;
and
ii. Deliver copies of its written statement of reasons to the local
governments of the community from which the club seeks to relocate and
any sports authority or similar entity with jurisdiction over the
stadium or facility from which the club seeks to relocate.
c. factors that may be considered in evaluating the proposed transfer
The League has analyzed many factors in making prior business
judgments concerning proposed franchise relocations. Such business
judgments may be informed through consideration of the factors listed
below, as well as other appropriate factors that are considered
relevant by the Commissioner or the membership.\1\
---------------------------------------------------------------------------
\1\ Most of the factors were contained in a bill reported by a
Senate committee in 1984; they essentially restate matters that the
League has considered important in connection with team location
decisions in the past. Certain factors included in the Senate bill have
been modified, and certain new factors have been added, to reflect
changed circumstances and the League's historical experience since
1984. These factors are also contained in a ``Statement of Principles''
relating to franchise location developed by the League in consultation
with the U.S. Conference of Mayors.
---------------------------------------------------------------------------
Any club proposing to transfer should, in its submission to the
Commissioner, present the club's position as to the bearing of these
factors on its proposed transfer, stating specifically why such a move
would be justified with reference to these considerations. In reporting
to the membership, the Commissioner will also address these factors.
In considering a proposed relocation, the Member Clubs are making a
business judgment concerning how best to advance their collective
interests. Guidelines and factors such as those identified below are
useful ways to organize data and to inform that business judgment. They
are intended to assist the clubs in making a decision based on their
judgment and experience, and taking into account those factors deemed
relevant to and appropriate with regard to each proposed move. Those
factors include:
1. The extent to which the club has satisfied, particularly in the
last 4 years, its principal obligation of effectively representing the
NFL and serving the fans in its current community; whether the club has
previously relocated and the circumstances of such prior relocation;
2. The extent to which fan loyalty to and support for the club has
been demonstrated during the team's tenure in the current community;
3. The adequacy of the stadium in which the club played its home
games in the previous season; the willingness of the stadium authority
or the community to remedy any deficiencies in or to replace such
facility, including whether there are legislative or referenda
proposals pending to address these issues; and the characteristics of
the stadium in the proposed new community;
4. The extent to which the club, directly or indirectly, received
public financial support by means of any publicly financed playing
facility, special tax treatment, or any other form of public financial
support and the views of the stadium authority (if public) in the
current community;
5. The club's financial performance, particularly whether the club
has incurred net operating losses (on an accrual basis of accounting),
exclusive of depreciation and amortization, sufficient to threaten the
continued financial viability of the club, as well as the club's
financial prospects in its current community;
6. The degree to which the club has engaged in good faith
negotiations (and enlisted the League office to assist in such
negotiations) with appropriate persons concerning terms and conditions
under which the club would remain in its current home territory and
afforded that community a reasonable amount of time to address
pertinent proposals;
7. The degree to which the owners or managers of the club have
contributed to circumstances which might demonstrate the need for such
relocation;
8. Whether any other member club of the League is located in the
community in which the club is currently located;
9. Whether the club proposes to relocate to a community or region
in which no other member club of the League is located; and the
demographics of the community to which the team proposes to move;
10. The degree to which the interests reflected in the League's
collectively negotiated contracts and obligations (e.g., labor
agreements, broadcast agreements) might be advanced or adversely
affected by the proposed relocation, either standing alone or
considered on a cumulative basis with other completed or proposed
relocations;
11. The effect of the proposed relocation on NFL scheduling
patterns, travel requirements, divisional alignments, traditional
rivalries, and fan and public perceptions of the NFL and its member
clubs; and
12. Whether the proposed relocation, for example, from a larger to
a smaller television market, would adversely affect a current or
anticipated League revenue or expense stream (for example, network
television) and, if so, the extent to which the club proposing to
transfer is prepared to remedy that adverse effect.
d. existing leases
1. No request to relocate shall be unconditionally approved, nor
shall a relocation be allowed to take effect, if it would result in a
breach of the club's current stadium lease. This provision shall not
apply if the club and its landlord agree to terminate the lease or if
there is a final court order terminating the lease or concluding that
the lease does not preclude a relocation.
2. A decision by the league conditionally or unconditionally
authorizing a member club to relocate shall not affect the
enforceability under state law of a stadium lease to which that member
club is a party.
e. payments associated with an approved transfer
If a club's proposal to relocate to a new home territory is
approved, the relocating club will ordinarily be expected to pay a
transfer fee to the League. The transfer fee will compensate other
member clubs of the League for the loss of the opportunity appropriated
by the relocating club and/or the enhancement (if any) in the value of
the franchise resulting from the move.
The Commissioner may recommend a transfer fee to the membership and
Finance Committee for consideration in connection with any proposed
transfer that he recommends be approved. Among the factors to be
considered in the recommendation of such fee will be:
1. The income streams available to the club in its new location and
the likelihood that they will be realized (which may be affected by
community or business guarantees or similar undertakings);
2. The income streams historically available to the club in its
previous location, and the incremental income streams (if any) that
could reasonably be expected to be made available to the club in its
old location;
3. The expenses to be borne by the club in its current and proposed
locations;
4. The expenses that could reasonably be expected to be assumed by
parties other than the club if the relocation does not take place;
5. The desirability of the club's current and proposed stadia as
locations for professional football games;
6. The club's current status under any revenue sharing plans then
in effect and its anticipated status if the move were approved;
7. The effect of the proposed relocation on current or anticipated
League-level revenue and expense streams; and
8. The demographics of the club's old and new markets.
The Commissioner's recommendation of a transfer fee will not be
based on any effect that the proposed move would have on any salary cap
or similar player-employment arrangements.
The membership will determine the transfer fee (or, in the
alternative, a recommended, binding method for determining the transfer
fee), if any, at the time it approves any proposed club relocation. The
terms on which the transfer fee will be paid will be set forth in the
resolution itself, and will be reflected in appropriate documentation
acceptable to the commissioner and the Finance Committee.
In addition, in certain circumstances, the League's collective
interests may depend upon the maintenance of quality franchises in
specific geographic areas. If a team proposes to relocate into, or to
relocate from, such an area, in evaluating the proposed relocation, the
Commissioner will and the membership may take into account, in
determining the appropriate transfer fee (if any), the League's
interest in encouraging the proposed relocation, discouraging the
proposed relocation, or permitting the relocation on terms that would
permit the League to restore a meaningful presence in the area being
vacated by the relocating club.
Finally, if League-level revenue or expense streams or visiting
team shares are projected to be adversely affected by a proposed
relocation, on either a short-term or long-term basis, based upon a
recommendation by the Commissioner and Finance Committee the relocating
club will be required to indemnify other members of the League for
adverse effects that could result from the proposed relocation. If such
recommendation is included by the membership in the resolution
authorizing the move, the Commissioner will, in consultation with the
Finance Committee, negotiate with the relocating club appropriate
indemnification arrangements, including the extent to which the
relocating club may participate in League revenue sharing pools, to be
reflected in documentation acceptable to the Commissioner and the
Finance Committee.
[Editor's note: Tab 2 referred to in the text appears in S. Hrg.
99-496, ``Professional Sports Antitrust Immunity,'' Committee on the
Judiciary, dates February 6, March 6, and June 12, 1985.]
______
TAB 3
1999 Resolution G-3.--As Amended
Whereas, it is appropriate to improve the League's current policies
to support new stadium construction through club seat sharing
exemptions, as reflected in the club seat sharing exemption guidelines
adopted by the League in 1994 (the ``Guidelines''), and through PSL
sharing exemptions;
Whereas, a revised policy can facilitate new stadium construction
projects by (1) making upfront League loans in support of Clubs'
private contributions to such projects (rather than annually exempting
from sharing the visiting team share (``VTS'') of club seat premiums
over a period up to 15 years), and (2) assuring that League loans will
amount to at least 34 percent of an affected Club's private
contribution to a project;
Whereas, such League loans should be subject to member club
approval on a case-by-case basis;
Be it Resolved:
(1) That for any stadium construction project involving a private
investment for which an affected Club makes a binding commitment from
now through the 2002 NFL season (through March 31, 2003), the League
shall make a loan to the affected Club to support such project based on
the amount that the affected Club has committed to such project as a
private contribution (the ``Private Contribution'');
(2) That the amount of such League loan shall range from 34 percent
to 50 percent of the Private Contribution, determined on a case-by-case
basis based on the size of the Private Contribution, with incremental
League loans in excess of 34 percent generally to be made available to
facilitate stadium construction projects in the largest markets that
are home to an NFL Club, and with the League loans in smaller markets
generally limited to 34 percent of the Private Contribution;
(3) That the Commissioner is authorized to make arrangements for
the League to borrow from commercial or institutional lenders funds to
make such League loans, with the funds to be repaid to such lenders
over an appropriate time period (10 years or such other period as may
be determined by the Finance Committee):
(4) That the specific borrowings from commercial or institutional
lenders related to any stadium construction project must be approved as
part of the League's approval of a League loan to such project, with
the borrowings to be repaid principally from the VTS of club seat
premiums generated by such project, and, to the extent that the VTS of
club seat premiums is insufficient to repay such loans, with any
incremental funds needed for repayment to be assessed against the
League's network television revenues:
Further Resolved:
(1) That if PSL's are sold with respect to a particular stadium
construction project, such PSL's shall be eligible for an exemption
from sharing in accordance with current policies;
(2) That the amount of VTS exempted in respect of PSL's sold shall
be offset against the principal amount of League loans available for
the project; and
(3) That for purposes of determining whether a project is eligible
for incremental League loans, only the first $75 million of PSL
proceeds shall be treated as a portion of the Private Contribution;
Further Resolved:
(1) That any League loan under the League policy adopted by this
resolution, as between an affected Club and the League, shall be
forgiven over the term of the aforementioned League borrowing on an
equal annual basis; and
(2) That, if an affected Club that receives a League loan under the
League policy adopted by this resolution (or a controlling interest
therein) is subsequently sold other than to a member or members of an
owner's immediate family (as defined in the NFL Constitution and
Bylaws) before the final maturity date of the League loan, then the
selling party shall repay to the League from the sale proceeds at
closing an amount equal to the outstanding principal balance on the
League loan; and
Further Resolved, that in order for a stadium construction project
involving a Private Contribution to qualify for a League loan, the
conditions set forth in Attachment A to this resolution must be
satisfied.
submitted by finance committee and stadium committee
Reason and Effect: To modify and simplify the League's policies
with respect to stadium construction projects to provide for, among
other things, (1) a standard 34 percent League loan towards the private
contribution to such projects, (2) such League loan to be made upfront
at the beginning of such projects from funds to be borrowed by the
League, and (3) an incremental League loan (in excess of 34 percent) in
respect of such projects in the largest markets.
------------------------------------------------------------------------
VOTE DISPOSITION
------------------------------------------------------------------------
For 29 ................................ Adopted
Against 2 (Cincinnati, Oakland)......... .............................
Abstain 0............................... .............................
------------------------------------------------------------------------
Attachment A
(a) The League must approve a resolution specifically directing the
making of a loan in respect of a particular stadium construction
project, following an evaluation of (1) the necessity of a new or
renovated stadium in a market in terms of the suitability, economic
competitiveness, and physical condition of the existing facility, the
stadium's importance to League franchise stability, the League's
concerns regarding its national image and presence, the importance of
an affected market to the League's national television ratings, and
other League business priorities, and (2) the specific attributes of
the project, including the scope and cost of the project relative to
the economics in a market and the League as a whole, the balance of
projected shareable and non-shareable revenue streams and the
construction costs associated with each, whether a renovation project
is a ``qualifying'' project (as defined in the Guidelines), and similar
factors:
(b) Such resolution must be adopted and the stadium construction
project must be committed to by both public and private parties, from
now through the 2002 NFL season (through March 31, 2003);
(c) The stadium construction project must be a ``public-private
partnership'' to which public authorities and an affected Club each
have committed funds;
(d) The project must not involve any relocation of or change in an
affected Club's ``home territory'' (as defined in the Constitution and
By-laws);
(e) Increases in the visiting team share generated by the new or
renovated stadium must meet the standards set forth in the Guidelines;
and
(f) The NFL Players Association must agree to exclude from DGR,
over a reasonable period of time on a straight-line amortization basis,
the entire amount of the Private Contribution, together with an amount
equal to the imputed interest on the Private Contribution at a
commercially reasonable interest rate.
Senator Specter. Our final witness is Mr. Rick Horrow,
president of Horrow Sports Ventures, a Miami-based sports
consulting firm. He coordinated the creation of the Miami
Sports Authority and the NBA expansion Miami Heat, as well as
the early stages of Joe Robbie Stadium. He has been involved in
facility development in many cities, is a contributing author
to the book The Law of Professional and Amateur Sports, and
hosts a weekly TV show, ``Sports Report.''
Thank you for joining us, Mr. Horrow, and the floor is
yours.
STATEMENT OF RICHARD HORROW
Mr. Horrow. Thank you, Senator, and thank you for the
opportunity to address the committee on this bill. I would also
like to take the opportunity to provide a general overview of
the facility development industry based on my experience of
putting together public-private partnerships.
The decade of the 1990s has produced unprecedented
development of entertainment infrastructure, both nationally
and internationally--all told, 79 major league stadiums and
arenas modernized or developed. This is in addition to 70 minor
league facilities; 12 motor sports facilities; 30 convention
centers; as the Commissioner has mentioned, 23 NFL facilities;
and 18 Major League Baseball facilities; overall, 256 sports,
arts, convention and entertainment facilities developed in the
United States this decade at a total cost of over $19.4
billion.
Very importantly, though, there have been 25 public
facility referenda submitted for voter approval since 1993. Of
those, 21 have been successfully approved by the voters,
including the largest single-issue public development facility
referendum, a nine-facility package in Oklahoma City. Clearly,
regional leaders now understand that the development of
stadiums, arenas, motor sports facilities, convention
facilities, performing arts centers and other entertainment
infrastructure is a critical component of the ongoing
maturation of any region. And in all cases, creative, flexible
and locally-based public-private partnerships are absolutely
necessary in developing these types of facilities.
The public financing components are primarily focused on
bonds, supported by multiple public tourist and user-oriented
revenue streams directly and indirectly linked to economic
development, job creation and long-term community growth, just
like local business financial formulas for other types of
industrial relocation competitions. And examples of this model
abound.
The State of Florida pioneered the passage of a sales tax
rebate legislation in the mid-1980s, diverting nearly $2
million annually per project from sales taxes generated from
the economic impact of stadiums, arenas and other Florida
infrastructure. The legislation has been used to develop
facilities in Miami, Fort Lauderdale, Tampa, Orlando,
Jacksonville, and other Florida regions in the last 15 years.
Texas has created a series of enterprise zones which allow
for user-oriented revenue streams to assist in the development
of entertainment infrastructure as well. And Seattle user
assessments on stadium-related restaurants, car rentals, vanity
license plates and other sources allowed for facility
construction in that region.
Now, while each situation is primarily driven by local and
State financing, development and legal concerns, it is clear
that successful public-private partnerships have been viewed as
long-term community and regional investments consistent with a
generational obligation to retool and to modernize critical
infrastructure. There are a number of quantifiable and
intangible benefits that have been accepted by over 100 regions
that have successfully implemented major and minor league
sports and entertainment facilities during this decade.
First, the facilities have been perceived to generate
substantial economic impact during construction. The successful
November 1998 campaign coordinated by the city of San Diego and
the Padres introduced a Deloitte and Touche study indicating
that stadium construction alone would result in $1.1 billion in
spending and create 17,000 jobs.
Second, successful projects have also generated substantial
retail, sales and development activities surrounding these
facilities. As Jacobs Field opened in Cleveland in 1995, more
than 20 restaurants or retail establishments have opened after
that. And more than 85 store fronts have been renovated, at a
cost of $1.2 million. The downtown development-oriented Gateway
Project has created 6,200 permanent jobs since 1994, generating
$6.5 million in payroll taxes.
The third major impact involves the major and special
events that will occasionally be attracted to a new facility.
Recent Super Bowls in San Diego, Arizona, New Orleans and Miami
have each generated over $250 million of new spending to their
respective local economies.
Fourth, many communities will identify the intangible
impact of a sports franchise and corresponding facility on its
marketability and potential to attract new business. The
Jacksonville Chamber of Commerce spoke about the Jacksonville
Jaguars and Alltel Stadium as being indirectly responsible for
creation of upwards of 50,000 new jobs by virtue of companies
expanding or relocating to Jacksonville as a consequence of a
successful marketing campaign.
And, finally, although more difficult to quantify, many
community leaders have advocated a franchise facility as a
critical component of image enhancement and community pride. In
fact, the Florida Supreme Court, in Poe v. Hillsborough County,
validated the Raymond James Stadium bond, saying, ``The Court
finds the Buccaneers instill civic pride and camaraderie in the
community, and that Buccaneer games and other stadium events
also serve a commendable public purpose by enhancing the
community image on a nationwide basis and providing recreation,
entertainment and cultural activities to its citizens.''
In conclusion, these types of public-private partnership
funding of entertainment infrastructure facilities, like any
visionary public asset, is inherently controversial and
complex. However, once these facilities are developed, they
provide substantial economic, tangible and psychological
benefits for the entire region for years to come.
Thank you very much.
Senator Specter. Thank you very much, Mr. Horrow.
[The prepared statement of Mr. Horrow follows:]
Prepared statement of Richard Horrow
Good morning. Thank you for the opportunity to address the
Committee on Senate Bill 952, the Stadium Financing and Franchise
Relocation Act of 1999. I would also like to take the opportunity to
provide a general overview of the facility development industry based
on my experience of developing public/private partnerships.
The decade of the 1990's has produced unprecedented development of
``entertainment infrastructure'' both nationally and internationally.
All told, there have been 79 major league stadiums and arenas
modernized or developed (at a cost of $12 billion). This is in addition
to 70 minor league facilities, 12 motorsports facilities, and 30
convention centers. There have been 20 facilities developed or
modernized for National Football League teams, at a cost of $4.5
billion. In Major League Baseball, facilities have opened in Chicago,
Baltimore, Texas, Atlanta, Colorado, Arizona, Tampa Bay, Anaheim, and
Cleveland. Additionally, as of mid-1999, there are baseball facilities
under construction in Seattle, Houston, Milwaukee, San Francisco,
Detroit, Pittsburgh, San Diego, and Cincinnati. As for convention
facilities, the United States Department of Commerce estimates that by
2008 there will be 251 million annual convention and trade show
attendees at 5,970 exhibitions, using 912 million square feet of
exhibition space. Also, according to the National Golf Foundation,
there have also been over 2,627 golf courses opened and developed this
decade, most of which included public and private participation.
Overall, there have been 256 sports, arts, convention, and
entertainment facilities developed in the United States this decade at
a total cost of over $19.4 billion. While many have been developed in
large metropolitan areas such as Chicago (Comiskey Park), Atlanta
(Turner Field), Los Angeles (Staples Center), and otherwise, most have
been developed in smaller areas such as the Mercer County Arena in
Trenton, Bi Lo Center in Greenville, and convention facilities in
Houma, Louisiana and Savannah, Georgia. There have also been 25 public
facility referenda submitted for voter approval since 1993. Of these,
21 have been successfully approved by the voters, including the largest
single issue public facility referendum (a nine-facility five-year
sales tax initiative) in Oklahoma City.
Clearly, regional leaders now understand that the development of
stadiums, arenas, motorsports facilities, convention facilities,
performing arts centers, public golf centers, and other ``entertainment
infrastructure'' is a critical component of the ongoing maturation of a
region. This overview will focus on three components: (i) financial
characteristics of the public/private partnership model; (ii) community
impacts and justifications for ``entertainment infrastructure''
development; and (iii) overall guidelines and parameters concerning the
development process.
i. financial characteristics of the public/private partnership model
There has been considerable discussion and debate surrounding the
amount and extent of public participation in ``entertainment
infrastructure'' facilities. Concerning the National Football League,
of the 20 facilities developed and modernized since 1992, roughly $3
billion has been public funding, with approximately $1.5 billion of
private equity and risk capital. Of the $2.5 billion contributed to
Major League Baseball facilities since 1992, roughly 84 percent has
been public investment. With facilities that have not been driven by
major league or minor league sports tenants (arenas in Oklahoma City,
New Orleans, and Grand Rapids, for example) the amount of public
contribution is substantially greater. In all cases, however, creative
and flexible public/private partnerships are absolutely necessary in
developing these types of facilities.
The most recent models are characterized by a number of elements.
First, the facilities are designed with as much flexibility for as many
different types of events as architecturally and aesthetically
possible. Second, negotiations with anchor tenants have included at
least the long-term lease commitment parallel to the length of the
financing, coupled with an appropriate allocation of risks and rewards
based on predictable revenue streams such as PSL's, skyboxes, club
seats, naming rights, and the like. Third, facility development
initiatives have attempted to ``bundle'' as many infrastructure needs
as possible in respective comprehensive initiatives. Fourth, facility
financing structures have involved the private business sector, coupled
with multi-level governmental cooperation from the city, county, and
state. Fifth, the public financing components have primarily focused on
bonds supported by multiple public tourist and user-oriented revenue
streams directly and indirectly linked to economic development, job
creation, and long-term community growth.
Examples of this new model abound. Oklahoma City packaged nine
facilities in a ``MAPSN (Metropolitan Area Projects Strategies)
referendum, raising $262 million from a one cent, five-year,
``sunsetted'' sales tax. Twice approved by the voters (1993 and 1998),
this process has also generated nearly $300 million of verifiable
private investment, as well as over $1.1 billion of economic activity.
International Speedway Corporation recently broke ground for-a
major league motorsports facility in Wyandotte County, Kansas. The
financing model contemplates a public commitment of approximately $147
million, with the private developer committing $81.5 million of equity
and risk. The State of Kansas will receive more than $200 million of
predictable annual benefit over an extended period through the
promotion and marketing of NASCAR races.
The State of Florida pioneered the passage of ``sales tax rebate''
legislation in the mid-1980's, diverting nearly $2 million annually
from sales taxes generated from the economic impact of stadiums,
arenas, and other Florida infrastructure. The legislation has been used
to develop facilities in Miami, Ft. Lauderdale, Tampa, Orlando,
Jacksonville, and other Florida regions in the last 15 years.
Texas has created a series of ``enterprise zones'' which allow for
``user-oriented'' revenue streams to assist in the development of
entertainment infrastructure. The Ballpark at Arlington generated $274
million in construction by 1997; the increase from $122 million five
years earlier allowed the facility bonds to be retired nearly 10 years
early.
Seattle ``user assessments'' on stadium-related restaurants, car
rentals, vanity license plates, and other sources allowed for facility
construction in that region. The sales impact has exceeded projections
by nearly $20 million over a 10-year period, allowing for financial
restructuring.
Finally, the Province of Quebec and the City of Montreal have been
creating a financing plan based on an Ernst & Young study identifying
C$14-21 million of annual publicity generated by a new baseball
facility. The public sector has been developing a plan that identifies
at least $8 million annually for stadium development based on the
recurring regional and national publicity.
While each situation is primarily driven by local and state
financing, development, and legal considerations, it is clear that
successful public/private partnerships have been viewed as long-term
community and regional investments consistent with the generational
obligation to retool and modernize critical infrastructure.
ii. community impacts and justifications for ``entertainment
infrastructure'' development
There are a number of quantifiable and intangible benefits that
have been accepted by the over 100 regions that have successfully
implemented major and minor league sports and entertainment facilities
during this decade. First, the facilities have been perceived to
generate substantial economic impact during construction. The
successful November 3, 1998 campaign coordinated by the City of San
Diego and the Padres introduced a study by Deloitte & Touche indicating
that stadium construction alone would result in $1.1 billion in
spending and would create 17,000 full-time temporary jobs, as well as
$1.8 million in new ancillary development revenue per year. The plan
primarily focused on the complementary spin-off development from the
adjacent convention center, Gaslamp, and Waterfront Districts. Other
economic impact studies have been developed along similar lines. An
analysis prepared for the Maryland Stadium Authority suggests that an
average Baltimore Orioles season will generate $117 million in gross
sales, $44 million in earnings, and over 1,500 full-time jobs. Total
statewide economic impact amounts to $226 million in gross sales, $77
million in earnings, and 2,340 full-time jobs. The study also suggests
that 1.6 million out-of-town fans, or 46 percent of all fans, were
attracted to Baltimore from outside the area. These visitors spend $46
million in the Baltimore area representing new economic growth in the
regional economy.
Second, successful projects have also generated substantial retail,
sales, and development activity surrounding the facility. As Jacobs
Field opened in Cleveland in 1995, more than 20 restaurants or retail
establishments have opened after that; and more than 85 storefronts
have been renovated at a cost of $1.2 million. The downtown development
oriented Gateway Project has created 6,269 permanent jobs since 1994,
generating $6.5 million in payroll taxes. Representative downtown
Cleveland business organizations have suggested that the facility
complex has provided over 300 active dates and four million additional
visitors to Cleveland after the opening of the stadium.
As a consequence of the 1995 opening of Coors Field in Denver,
studies point to an increase of over $40 million in taxable sales from
the previous year; $20 million was spent in new downtown business; and
more than 25 restaurants have opened. Land adjacent to Coors Field,
previously assessed at $1.77 per square foot, recently sold for
approximately $27 per square foot. Many converted old warehouses have
loft units that are selling for $200,000 to $300,000 per unit. One in
every three tourists visiting Denver mentioned that they had attended
or would like to have attended a Rockies game. Further, a report by the
Phoenix Finance Department demonstrates that fans attracted to Bank One
Ballpark during its first year of operation helped contribute to a 34.1
percent increase in City sales tax revenue in the downtown area. Retail
sales through the Summer of 1998 in the Phoenix downtown core were up
93.8 percent over the same period in 1997. Restaurants and bars
downtown saw an increase from $40.3 million to $52.4 million over one
year. Hotels and motels in the 1-square mile contiguous area
demonstrated a 6.6 percent increase, compared with a 4.3 percent
increase city wide.
The third major impact and justification involves the major and
special events that will occasionally be attracted to a new facility.
In 1997, the Greater Cleveland Convention & Visitors Bureau suggested
that the nine post-season home games and All-Star Game for the
Cleveland Indians had a direct $121.3 million impact on the economy of
the region. Similarly, the Office of the New York City Comptroller
indicating that Games One and Two of the 1998 World Series have added
$31 million to the New York economy. Additionally, recent Super Bowls
in San Diego, Arizona, New Orleans, and Miami have each generated over
$250 million to their respective local economies. A study conducted by
Sports Management Research Institute suggested the impact of Super Bowl
XXXIII to the Miami area was $396 million, with 110,700 visitors
spending an average of $400.03 per day over a 4.52 day average visit.
Similarly, the Arizona State University College of Business indicated
that the 1992 Tostitos Fiesta Bowl generated an overall economic impact
of $133 million for the State of Arizona.
Fourth, many communities will identify the intangible impact of a
sports franchise and corresponding facility on its marketability and
potential to attract business. The Jacksonville Sports Development
Authority and Chamber of Commerce suggests that the Jacksonville
Jaguars and Alltel Stadium enrich the local economy by an estimated
$131 million a year from visitors buying tickets, eating at
restaurants, and staying at hotels. Additionally, they believe that the
new team and facility have been indirectly responsible for the creation
of upwards of 50,000 new jobs by virtue of companies expanding or
relocating to Jacksonville as a consequence of a successful marketing
campaign. In 1997, Money magazine ranked it as the ninth best place to
live in America, and the city grew more than any other city in Florida
(with its metropolitan area population at only one million residents).
Finally, while more difficult to quantify, many community leaders
have advocated a franchise and facility as a critical component of
image enhancement and community pride. In its May, 1997 report, the
Economic Analysis Corporation provided a perspective on the 1996
Congressional Research Service study on facility development. It
concluded the following:
``Sports teams provide valuable consumption benefits to a
local community. These benefits include the ability of local
residents to follow and enjoy a home team, an increase in
community spirit, and a potential means to draw people to
downtown areas. In many respects, local government support of
new stadium construction is similar to local government
subsidization of other valuable local consumption activities,
such as concert halls, zoos, parks, and golf courses. * * *
Sports teams are a unique type of consumption good in that they
provide substantial benefits to many local citizens who do not
attend the team's games. These citizens in the local community
receive valuable consumption benefits merely from the presence
of a professional sports team. Since these citizens cannot be
charged directly by the team for the benefits they receive,
there is a stronger economic rationale for local government
subsidization of professional sports teams than for most other
publicly subsidized consumption activity.''
In fact, the Florida Supreme Court described the public benefits of
stadium facility construction in Poe v. Hillsborough County, 695 So.2d
672 (the 1997 case validating the bonds to construct Raymond James
Stadium in Tampa). The Court explained:
``(T)he Court finds that the Buccaneers instill civic pride
and camaraderie into the community and that the Buccaneer games
and other stadium events also serve a commendable public
purpose by enhancing the community image on a nationwide basis
and providing recreation, entertainment and cultural activities
to its citizens.''
iii. overall guidelines and parameters concerning the development
process
As we enter the new millennium, the following four guidelines and
parameters are critical to successful public/private facility
development for ``entertainment infrastructure.''
First, with public/private facility partnerships coming under
increasing public scrutiny and with local electorates constantly
reassessing priorities, communities must be creative, flexible, and
consistent in their facility goals and objectives. Cooperation between
and among business, political, and civic leadership is an absolute
necessity. Further, a Master Facility Development Process that is
inclusive of all tourism, entertainment, development, and community
constituencies should be undertaken. In short, a consensus building
process necessarily includes the following interests: business,
political, private risk capital, city government, county government,
state government, site entrepreneurs, and technical analysts.
Second, public facilities of the new millennium will be designed as
diverse entertainment and activity centers. As such, these facilities
should be viewed as critical components of long-term regional
infrastructure development, independent of any desire to attract major
league franchises.
Third, all new facilities require development of creative public/
private financing partnerships where the public sector provides
investment capital to ``jump start'' the project, especially if no
major league anchor tenant is contemplated. In these cases, the
tangible linkage between specific public revenue sources and realistic,
quantifiable return on the public investment is an absolute political
and economic necessity.
Finally, these types of ``entertainment infrastructure''
facilities--like any visionary public assets--are inherently
controversial and complex. Therefore, their implementation requires
significant (and, potentially, unprecedented) regional support from
respective business, political, and civic leadership. However, once
these facilities are developed, they provide substantial economic,
tangible, and psychological benefits for the entire region for years to
come.
* * * * *
Rick Horrow is the Facility Development Consultant for the National
Football League, working on successful public-private stadium
referendum partnerships with the Detroit Lions, the Cincinnati Bengals,
and the San Francisco 49ers. In addition, he has been involved in
facility development for the Baltimore Orioles, the Cleveland Indians,
the New York Mets, and a speedway in Kansas City, Kansas. Among
Horrow's other accomplishments was the coordination of the largest
single-issue public-facility-development referendum ever--a $250
million sales tax levy for nine sports and recreational facilities for
Oklahoma City, Oklahoma. He is coordinating similar initiatives in
Birmingham, Alabama; Hampton Roads, Virginia; and Richmond, Virginia. A
sports lawyer, Horrow has worked with the International Speedway
Corporation, Ladies Professional Golf Association, the Major League
Baseball Players Association, the Continental Basketball Association,
and the Canadian Football League. He is Visiting Expert of Sports Law
at Harvard Law School, and is the Sports Business and Law Expert for
Fox Sports and ``The Sports Professor'' on CBS SportsLine Internet
Radio.
Senator Specter. Beginning the questions with Mr.
Richardson, when I commended you for financing your own
stadium, I think that is the way to do it. And when I said I
wouldn't expect any money from you, I really meant if your
example were followed. The stadiums which are going up in
Pennsylvania, four of them for $1 billion, are not being
subjected to bonds or any referendum.
When Commissioner Tagliabue talks about interfering with
State and local decisions by this bill, the State and local
decisions are driven largely by the threat of the team moving.
Maryland and Baltimore put up the money to bring the Browns
from Cleveland. That is why I have been very blunt about what I
consider to be legalized extortion, where the cities put up a
lot of money to build the stadiums to keep the teams there.
But you are very successful businessman; you have proved
that. Would you object to the removal of the antitrust
exemption which allows the NFL teams to share TV revenues?
Mr. Richardson. Well, in our particular case sharing of TV
revenue is critical in our particular financial formula, so
that is an important component to us.
Senator Specter. Well, I agree with you. I think it is, and
I wouldn't like to see it eliminated because it has provided
stability and it has provided teams with revenues. But it seems
to me that it is just the other side of the coin to say that if
you are the beneficiary of that kind of special governmental
treatment--listen, if you are a business and you want to
function in a free enterprise, capitalistic system, let the
Government keep hands off. Go ahead and do whatever you want to
do, laissez-faire free enterprise.
But when you are the beneficiary of this special exemption,
then I come to the point of why should the Pennsylvania
taxpayers pay two-thirds of the cost of the construction of the
Eagles new stadium. Mr. Richardson, why?
Mr. Richardson. Well, I think it might be helpful if I
could just talk about the situation in the Carolinas first.
Senator Specter. First.
Mr. Richardson. As we have stated, a number of us here
today, our judgment is that we have seen firsthand, Senator,
when we go into communities, we talk about what is the right
blend to deal with the stadium issue. Let's use the Carolinas
as an example. In our case, we had a unique community in that
we had a very aggressive business community that was willing to
buy club seats, boxes, and premium seating that helped offset
the mortgage payments that we had for building our stadium.
Second, we had an unusual situation in that our fan base,
potential fan base, was willing to buy what we call a permanent
seat license. When you take the combination of the fact that
the city and the county were willing to provide the land for
us, which they did on a long-term lease, the business was very
aggressive in their support of us in the purchasing of tickets
and advertising, and we had a community that was willing to buy
an unprecedented amount of PSL's, it would work for us. But if
the PSL concept and the business community had not worked in
our particular case, we wouldn't have been able to be
competitive with the other cities that were interested in an
NFL team.
Senator Specter. Well, you have made it work, but come back
to my question about the Philadelphia Eagles. Why should the
taxpayers of Pennsylvania pay two-thirds of the cost of the
Eagles stadium when the Eagles are the beneficiary of a special
exemption that nobody else enjoys, except for baseball?
Mr. Richardson. Well, here again, we are talking about, as
I see it, the community itself has to decide what, in fact,
they have an appetite for. And it appears to me, based on what
I know about the Philadelphia situation, that the blending of
the local and the State and the waivers the NFL is willing to
give through our ticket revenues--and that is a result of the
relationship that the Commissioner has with Mr. Upshaw, and the
union and the players are willing to give up part of their
revenue to collectively get a stadium built.
Senator Specter. Well, the people of Pennsylvania and the
people of Philadelphia are moving to pay two-thirds of the
stadium construction costs for the Eagles because we do not
want to lose the Eagles. There was a threat to lose the Eagles
back in 1984, when there was a move to go to Arizona, and all
hell broke loose. The owner of the Eagles couldn't go to a
restaurant, couldn't go out publicly. There was enormous public
indignation.
When Mr. Horrow and Professor Klein talk about the benefits
for a team, they are real. Senator Feinstein talks about the
city coming together. It is enormous. There is no doubt about
that. I have long believed that these sports franchises are
affected with the public interest, that the fans have an
interest. The fans had an interest in the Dodgers. The fans
have an interest in the Eagles. It diminishes everybody who is
an enthusiast--and Professor Klein is right; you don't have to
go to the game, you can read about it or you talk about it. You
are a big-league city.
So there really is no choice when the team comes and
threatens to move, or you have got this phenomenal bidding war
between Hartford and Massachusetts over the Patriots, $375
million, but that is only the starter. The State senator was
here last week testifying that the aggregate was about $1
billion. No price is too much to bring the Patriots down. And
then the league worked out an arrangement. I am going to come
to that as to what they did to help out a little bit on the
construction.
But I come down to this very basic fairness point. If you
are going to have that public exemption, if you are going to
have that ability to do what no other business does, why should
the public subsidize the stadium?
Do you want to try again, Mr. Richardson?
Mr. Richardson. Well, as I have stated earlier, what has
happened, in my judgment, is the public has made the decision
that they are willing to make the investment to have the most
popular sports franchise in the country in their community. And
that is the decision that has been made in a number of cities
across the country.
Senator Specter. Well, decisions are made under blackmail
and extortion. Those are pretty tough terms. I know a little
bit about that. I don't know much about antitrust law. I really
practiced a fair amount of it when I was a lawyer, but I used
to be district attorney and when you hold a gun to the head of
somebody, it is not a voluntary decision. When you are
threatening to take the team away, it is not a voluntary
decision.
When you are saying we will move there if Baltimore will
put up $200 million for the stadium, it is extortion. It is
legalized extortion. There is really no choice that the people
have in trying to stop the team from moving. But I don't know
that further discussion will get us too far. That is where I
come down.
Let me move to Mr. Upshaw on the players. Mr. Upshaw calls
this an unprecedented intrusion by Congress. I think it was an
unprecedented extrusion by Congress to give you the antitrust
exemption, Mr. Upshaw, to allow you to have revenue-sharing.
I am prepared to leave football as a free enterprise
proposition, but I am not prepared, speaking for myself, to let
you have the antitrust exemption and let you move the teams
around or have a system in place which results in my State
paying two-thirds of $1 billion in stadium construction costs.
I agree with the proposition that the old reserve clauses
were unfair, that they gave too much power to the ball teams,
and now we have gone to free agency in a very complex way. And
when I look at the football salaries, Deion Sanders makes more
than $7.5 million. And I look at the baseball salaries, and
Kevin Brown just signed a $105 million contract over 7 years,
which gives him $15 million. I saw him pitch in Philadelphia a
couple of weeks ago and I saw him on television pitch in Los
Angeles.
I believe in laissez-faire and free enterprise, but I am
troubled with the fact that when I turned on the Phillies last
year--I could tell who is at bat this year, but last year I
couldn't tell who was at bat. The players were all new, whether
it was the Cubs at bat or the Phillies at bat.
Is there some middle ground somewhere between free agency--
I was talking to you earlier about the Eagles having some great
football players, a Super Bowl team--Reggie White and Bill
Romanowski and Clyde Simmons and Keith Byars. The problem is
that White is playing for Green Bay and Romanowski is playing
for Denver and Simmons is playing for Arizona and Byars was
playing for Miami. I am not sure where he is playing now.
Is there some middle ground between having all the fan
interest in their teams affected by this and preserving fair
compensation for these athletes who are at high risk, at least
in football?
Mr. Upshaw. Of course, there is a middle ground. The middle
ground is already there. The collective bargaining agreement
specifies the middle ground. What a club owner has--and Mr.
Richardson faces this every year. When he goes to evaluate his
roster, he decides who he wants to keep and who he wants to let
go, and it is based basically on, can the player contribute to
that team.
It becomes an economic decision. It becomes a planned
decision. It becomes a long-range decision on what is in the
best interests of the team. That is what free agency is. It
gives the player a choice and it gives the club owner a choice.
And within the set of rules that we have, a club can keep the
players that they want.
If they wanted to keep Reggie White in Philadelphia, they
could have done that. They had a chance to do that. They could
have kept Bill Romanowski. They could have kept any player that
they wanted to have on their roster because the system allows
them to do it. Now, the club owner then makes the decision
based on that player's ability to play and what he can
contribute to that team if he wants to keep him or not. So it
is there. That is the middle ground.
Senator Specter. Well, it is a definition as to where you
are on middle ground. I understand that is the system and I
understand that is where we are at the present time, but the
consequence seems to me just extraordinary.
Commissioner Tagliabue, you and I have been talking about
this legislation for a long time, and I just introduced it a
few months ago and I had been tracking what the NFL was doing
by way of some stadium construction costs. Was the pendency of
this legislation in any way responsible for the help which you
extended to, say, the Patriots?
Mr. Tagliabue. No, I don't think so.
Senator Specter. Just coincidental?
Mr. Tagliabue. I believe it was, yes, and I think Mr.
Upshaw would be able to recite with me the genesis of this
which goes back 2 years. Two years ago, in October-November, we
were discussing an extension of our collective bargaining
agreement, and one of the reasons that Mr. Upshaw and the
Players Association were willing to consider that extension is
that we were anticipating at that time a substantial increase
in television revenue.
And we agreed at that time, and the provision is reflected
in our collective bargaining agreement, that we would expand
our support for stadium construction if there were a good
television contract or set of contracts. And that was really
the genesis of this expansion of the program that goes back to
October and November, I think, of 1997, if I have the----
Mr. Upshaw. 1996.
Mr. Tagliabue [continuing]. October and November 1996, when
we had these extensive discussions about TV and the
relationship of that to the league support for stadiums.
Beyond that, the original policy goes back to 1986-87, with
the league's support for the Miami Dolphins stadium. The league
supported the construction of the Jack Kent Cooke Stadium here
in Maryland with moneys that, over the first 15 years of the
Redskins operation, we will be contributing $90 million to the
construction of the Jack Kent Cooke Stadium. So all of those
efforts considerably preceded this specific legislation.
You know, I think you and I had a conversation maybe back
at the time of the Browns relocation when we talked about the
idea of wouldn't it be sensible, if you have got growing
revenues, to try to invest not just in the present, but in the
future. And I think that is what is reflected in all of these
efforts that go back to policies that we adopted in 1986, 1987,
expanded in the early 1990's and the re-expanded here in the
mid- and late 1990's.
Senator Specter. Well, our conversations go back to the
early 1980s. I believe it was August 1982 when the Rooneys came
to me. I was the only Senator, aside from Senator Matthias, on
the Judiciary Committee, and Senator Thurmond agreed to
hearings. We got you hearings in 10 days. We had one of the
classic debates of all time with Commissioner Pete Rozelle and
Al Davis here debating the subject of the franchise moves.
I have been in favor of giving you an antitrust exemption
on the franchise; I was until Mr. Upshaw objected to it today.
I am going to have to rethink that, but I would like to see
that stability. You and I have talked about the odd-shaped
stadiums housing both football and baseball and the issue of
stadium construction costs for a long time.
How much help will there be by the NFL to the Patriots and
the stadium construction there?
Mr. Tagliabue. Well, I believe the latest figures that we
have which are tied to the total project cost are about a $150
million contribution from the league, which would match the
$150 million private contribution by the owner of the team, Mr.
Kraft.
Senator Specter. Are you prepared to do that with the
Eagles?
Mr. Tagliabue. With the Eagles, I think we did a very
similar number.
Senator Specter. $150 million?
Mr. Tagliabue. The contribution is ultimately scaled to a
matching of the owner's private sector contribution. The
stadium cost--
Senator Specter. So if the owner had to put up more--if
Pennsylvania and Philadelphia weren't putting up two-thirds and
the Philadelphia Eagles owner put up more, you would put up
more? You are about to give us some incentives here,
Commissioner.
Mr. Tagliabue. Well, I don't want to renegotiate a deal
that has already been negotiated by the mayor and Mr. Lurie,
but one of the differences in Philadelphia was that the
projected cost of the stadium in Philadelphia was over $400
million, whereas the cost of the stadium in New England was
only $300 million. But basically we applied the same set of
principles to those two projects.
Senator Specter. Did you do a little better for
Massachusetts because of the Hartford threat?
Mr. Tagliabue. No. We applied the same set of principles to
both projects and--
Senator Specter. That was irrelevant? You weren't concerned
about Hartford being the 24th market team compared to the 6th
market team for the Patriots?
Mr. Tagliabue. Of course, we were. That is a major part of
our concern here, is that we keep the teams in the large
markets where they have had large and supportive fan bases for
many years and in those markets where we draw the television
audience that gives us the broad base--you know, the really
unprecedented broad base of support from the public for our
game and for our teams.
Senator Specter. To what extent will the NFL help on the
construction of the Steelers stadium?
Mr. Tagliabue. We are making a contribution there. We
approved that league contribution to the Steelers stadium at
our meeting last October, and I would have to get that
resolution and submit that to you. I am not able to recite that
off the top of my head.
Senator Specter. But with the Patriots stadium, you say the
league contribution will be in the range of $150 million?
Mr. Tagliabue. If that is the owner's contribution, then we
would basically be matching, yes.
Senator Specter. Well, I don't know that the Eagles have a
deal. Certainly, the Phillies don't. They are still talking
about where the stadium is going to be located, so that perhaps
if we can get the Eagles owner's contribution up, we can get
the NFL contribution up. We will take a look at that.
Mr. Tagliabue. If I could, I would like to speak to the
television point that you asked Mr. Richardson about because I
think it is very important, as you suggest. You know, I think
the 1961 television statute has really served the purposes that
Congress envisioned at the time.
One of the key purposes was to keep cities such as Green
Bay and teams such as the packers and the Steelers, the Chiefs
and the Bills, which were then in the new league, operating.
The 1961 statute, the national sale of television, free,
broadcast television primarily, has given us the basis to keep
those teams in existence.
But beyond that, I think there is a direct relationship
between the statute and the willingness of the public to
support stadium construction through fairly-based taxes.
Specifically, the statute has created an unprecedented broad
base of fans for our sport through our commitment to free,
broadcast television.
In my experience, that is one of the reasons why the public
is willing to accept a broad-based tax, sales taxes and other
broad-based taxes of the type that Mr. Horrow mentions to
support a new stadium. And I will give you an example in Denver
and their tax, which would contrast their situation to what Mr.
Richardson faced in the Carolinas.
In the Carolinas, it was a very narrowly-based tax, if you
will, user fee, on the fans and on the business community to
build the Panthers stadium. They used these PSL's, which had
never been used before to any extent in professional sports,
and $180 million was paid basically by the fans and the
businesses who would be using the stadium, that narrow group of
roughly 68,000 people.
In Denver, in contrast, they considered that approach, but
there was an unwillingness for the fans to accept the PSL's.
There wasn't as much willingness in the business community to
go and make the kind of commitments that NationsBank and Duke
Power and others made to the Carolina stadium. So they adopted
the model which had proved successful on Coors Field, and that
model was a one-tenth of 1 cent incremental sales tax; in other
words, a dime on $100 of purchases, which the public through
referendum concluded was a fair and very minimal, incremental
tax that had paid off Coors Field for baseball in 7 to 8 years.
And what they did was extend that tax to the Broncos, in
recognition----
Senator Specter. How much money was involved in that?
Mr. Tagliabue. In the Broncos stadium, the tax is projected
to raise $278 million for the public contribution to the
stadium. But the key point from the public standpoint is that
it is a dime on $100 of sales, which the public viewed as a way
of distributing across a 6-county area with 1.8 million people
who are supporting the Broncos--and they are getting the
Broncos through free, broadcast television under the 1961
statute. All of those people now pay that minimal tax, as
opposed to having the total cost of the stadium go, as Mr.
Richardson's costs did, on 68,000 fans.
Senator Specter. Was there any discussion at all about the
Broncos leaving if they didn't get the new stadium?
Mr. Tagliabue. You know, there was inevitably that kind of
discussion----
Senator Specter. I know.
Mr. Tagliabue [continuing]. Which was not promoted by the
owner. It was promoted by talk radio and other things. The
critical thing was that the tax had already been used and
proven successful on Coors Field for baseball. When they
adopted it for baseball, it was regarded as a minimal tax, a
dime on $100 of sales, a penny on $10 of sales.
Senator Specter. Well, you have repeated that three times
now, and I understand how much it is.
Mr. Tagliabue. But I want to emphasize why the public
regards it as fair. And instead of taking 20 years to pay off
Coors Field, it was paid off in 7 to 8 years. So when the
choice came between these PSL's and other things which focus on
a narrowly-based group of fans as opposed to a broad-based
group of fans that watch and get the Broncos on TV, they made
the choice through referendum. I think it is very important to
understand that because it is an explanation in a specific case
of how the public is viewing these stadium investments.
Senator Specter. I do understand it and I don't have to
hear three times as to how much it is, a tenth of a percent,
but it adds up. It adds up to $270 million, as you point out,
and that comes out of the taxpayer's pocket. It may come out
slowly, but it comes out of the taxpayer's pocket. And if it
comes out as a sales tax, it is a very regressive tax and it is
a lot of money.
And if you have the Carolina model where the people who are
paying for it are the ones who use it going to the stadium,
that is very different, or the business community which sees a
direct result. And if you have a referendum, maybe so; maybe we
will get a referendum on the Eagles stadium. Maybe we will do
that and we will see if it passes or if the Eagles stay if they
don't get themselves a new stadium at taxpayer expense.
Mr. Upshaw, I want to come to Mr. Klein for a question, and
Mr. Horrow, and then I will come back to you. A vote is in
process now. We are trying to decide the issue of steel
consumption in America and steel imports, as well as this
issue.
Professor Klein, the suggestion has been made that the 1922
decision by Oliver Wendell Holmes in the baseball case was
incorrectly decided, where they worked out that baseball, the
American League and the National League, could cooperate. And
the suggestion has been made that we ought to eliminate the
baseball antitrust exemption.
You wouldn't object to that, would you, Mr. Upshaw?
Mr. Upshaw. Well, I am not going to get into what is good
for baseball. I am interested in what is basically good for
football, but the antitrust----
Senator Specter. I am just jesting with you on that
question.
Mr. Upshaw. I know, but it gives me a chance to talk to----
Senator Specter. I am going to ask the baseball people if
they are willing to give up the players' rights when they are
here.
Mr. Upshaw. Oh, no, they are not willing to do that. I can
guarantee you Don Fehr is not willing to do that.
Senator Specter. Go ahead. You had a point you wanted to
make.
Mr. Upshaw. The point I wanted to make is this, and it is a
very simple point. I think what we are doing in the NFL with
the loans and advancement that we are making to owners on
construction will go a heck of a long way to increase stability
in the current market. If New England or Boston had the $150
million, there would not have been an incentive to look
elsewhere for it. They would have been there. That is what is
going to happen in Denver. That is what is going to happen in
Philadelphia. It is already going on in Pittsburgh.
So what we are already doing is creating stability because
we have taken away an incentive that an owner would be looking
for outside of his own community. That is the only point I
wanted to make.
Senator Specter. Well, thank you, Mr. Upshaw.
Professor Klein, the question that I am in the process of
postulating is if we reverse the 1922 Supreme Court decision
and Congress does that, then I have heard the economic theory
advanced that baseball teams will go to the cities which want
them the most, which will be the free market.
Now, I worry about that, frankly, for the Pittsburgh
Pirates as to what will happen to the Pirates if you have the
elimination of the antitrust exemption. And I thanked baseball
last week and do again for their help in keeping the Pirates in
Pittsburgh. They have control over franchise relocation.
But if you reverse that Supreme Court decision, then you
wouldn't have a decision made as to where the baseball teams
were located by a group of men in a back room somewhere, which
is what we would be getting if we have the franchise relocation
exemption which Mr. Upshaw doesn't like and a lot of people
don't like. The players part company with the owners on that.
But what would be wrong with that? What would happen there
economically? And, Mr. Horrow, I have the same question for
you.
Mr. Klein. Well, the 1922 Supreme Court decision with
regard to Major League Baseball is a much broader exemption
than the particular antitrust exemption that you have placed in
this proposed legislation, and I am very much in favor of it.
It would permit the league to prevent individual teams to
decide on the basis of their own narrow financial decisions
where to locate rather than leaving it up to the league to
decide what was best for the group and for the communities
involved. So I am very much in favor of that aspect of the
legislation.
Senator Specter. Well, if we took away the baseball--this
is a different issue now, taking away the baseball antitrust
exemption, and then you would have the market determining where
those baseball teams ought to be located. So if the Seattle
Mariners were--there was a contrary bid from another city, the
Mariners would go to the other city. That would be the
economics of the situation, whichever city wanted to build them
the best stadium, make the best deals. How about that? What
would you think of that sort of a situation?
Mr. Klein. I think that it is economically efficient to let
the league decide whether the individual----
Senator Specter. As opposed to the market?
Mr. Klein. Well, the league is making its decisions on the
basis of the market.
Senator Specter. Well, maybe yes and maybe no.
Mr. Klein. Well, but they are putting things into balance,
for example, the loyalty of the fans, and you don't want to
destroy the loyalty of the fans because that might decrease the
demand for the----
Senator Specter. Well, those are other factors, but that is
not the market. The market would say whichever city wants to
get the Mariners, let them get it.
Mr. Horrow, what do you think about that?
Mr. Horrow. Well, I think it needs to be put in the context
of fair competition in normal industrial relocation features,
as localities do when they compete for industries today, as I
mentioned before.
I think I made the point that in a number of ways, these
facilities, which is what we are really focusing on today, need
to be treated as important components of public infrastructure,
regardless of the franchise that plays in it, which is why we
have 256 of these facilities that have been developed this
decade and why there have been a number of referendums and a
number of public-private partnerships that have been put
together.
So when you look at the Denver situation, as the
Commissioner mentioned, one of the reasons why the referendum
succeeded to continue the financing using that sales tax method
was the tremendous success in a downtown and urban
redevelopment context of Coors Field. And, really, it was a
mandate and a history on whether or not the voters of that
five-county region saw it as appropriate to do a public-private
partnership, and it was a good laboratory to test whether or
not that was an appropriate way to deal with the football
stadium because the baseball facility had been up and running
and they could test the impact of it.
So I am suggesting that ultimately there are a number of
impacts, and these facilities need to be characterized as
important investments in public infrastructure that serve other
purposes beyond just the teams as well.
Senator Specter. As I said earlier, a vote started and
there are just a few minutes left, so I have to go to the
floor. And it would take me 10, 12 minutes to come and go, and
I don't want to keep you all here. I think we have had a good
hearing and a good discussion.
The issue is one which does fester. There is just a lot of
concern in the Congress about the pressure which a team puts on
a city to build a new stadium and the consequence of another
city making a big bid. And you have a wonderful sport, there is
just no doubt about it, and we all want to see the NFL thrive.
And I agree with you, Commissioner Tagliabue, that the
revenue-sharing worked out to provide a competitive league and
a great sport. I agree with you about that, but as a Senator
looking at a State with four stadiums going up at $1 billion,
and about $700 million coming out of the taxpayers, I just
wonder about it. And I think there is a tremendous break which
the Congress has given to football with this revenue-sharing on
TV receipts, and I think just as a matter of basic equities.
And when you look at what has happened with free agency, it
is our system and I don't know that there is any way to
unscramble the egg. I have been talking to a lot of people
about it and working on it for a long time. And in America, we
do muddle through somehow, so perhaps we will. And it has to
get pretty bad before the Congress is going to step in. But if
there are very many States which face $1 billion in stadium
construction, with $700 million at the taxpayer's expense, you
can expect to see more foment down here.
Well, we appreciate your coming. You are a good group of
witnesses and I am sorry there is so much else going on. We had
China espionage competing in another hearing room, and we had
Mary Tyler Moore and Tony Bennett competing in another hearing
room, and Y2K competing in a third hearing room. And the steel
workers are having a big rally and we are about to vote on a
quota bill. And that is only the start of it.
So thank you very much.
[Whereupon, at 12:48 p.m., the committee was adjourned.]
STADIUM FENCING AND FRANCHISE RELOCATION ACT OF 1999
----------
SEPTEMBER 13, 1999
U.S. Senate,
Committee on the Judiciary,
Philadelphia, PA.
The committee met, pursuant to notice, at 9:18 a.m., in the
Ceremonial Courtroom, Federal Courthouse, 6th and Market
Street, Philadelphia, PA, Hon. Arlen Specter, presiding.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Senator Specter. Good morning, ladies and gentlemen. The
starting time having arrived, we will start this hearing on
legislation which would require the National Football League
and major league baseball to pay for half of the construction
cost of new stadiums, with a quarter to be provided by the team
owners, leaving the balance of only a quarter to be paid for by
public funding.
This is an issue of great national importance with special
concern to the Commonwealth of Pennsylvania, where two stadiums
are now under construction in Pittsburgh and two more are
contemplated in the immediate future in Philadelphia, for a
total cost of $1 billion plus, with about two-thirds of that,
close to $700 million, to be paid for by the taxpayers.
The National Football League has a multiyear television
contract which brings $17.6 billion as a result of special
antitrust exemption, which the NFL has. This legislation would
condition the continuation of that antitrust exemption on the
National Football League contributing to stadium construction
costs, which we believe is only a matter of very, very basic
fairness.
The construction of stadiums across the country is moving
forward in an unprecedented way. Nearly half of U.S.
professional sports teams either are playing in a new facility
or expect to have one in the next few years. During 1999 and
2000 the National Football League and major league baseball
teams will move into 11 new stadiums, costing $3\1/2\ billion,
and a third of that is being paid for by the taxpayers.
Industry experts estimate that more than $7 billion will be
spent on new facilities for professional teams before the year
2006, and most of that $7 billion will come from the taxpayers.
We have seen teams stolen, the Browns from Cleveland to
Baltimore, with some $200 million plus being paid by the city
of Baltimore and State of Maryland. Hartford has offered $375
million to take the Patriots from a location near Boston to
Hartford, unsuccessfully, and what we have is legalized
extortion, legalized blackmail, where cities are forced to pay
exorbitant sums of money from the taxpayers in order to keep
their teams, or exorbitant sums in order to lure teams to their
cities.
We have a distinguished array of witnesses this morning,
but before turning to the witnesses, it is a distinct pleasure
to welcome a close friend and colleague for some almost 20
years. Of course, he's been in the Senate for 28 years, since
he was 29, and probably ought to have an explanation of the
constitutionality of being elected a Senator younger than the
constitutional age.
Formerly chairman of the Judiciary Committee, now Ranking
Member on Foreign Relations, a cosponsor of this legislation
and a very strong United States Senator, Senator Joseph Biden.
STATEMENT OF HON. JOSEPH R. BIDEN, JR., A U.S. SENATOR FROM THE
STATE OF DELAWARE
Senator Biden. Thank you, Mr. Chairman. I would be
delighted to defer to Senator Santorum. I am his guest.
Senator Santorum. Go right ahead.
Senator Biden. Thank you. I have a brief statement beyond
stating that I am obviously pleased to be here with my
colleagues from Pennsylvania. It is no secret that Senator
Specter and I have seriously damaged each other's reputations,
because everyone in the Senate, and I think everyone else,
knows we are close, close personal friends, and as you probably
have observed, all of you in this State, that it is just easier
to say ``yes'' to Specter than ``no'' and have to say ``yes''
later, because he never stops.
He has been extremely concerned about the behavior of
professional sports teams around our States and cities for not
just the last years. We have had this discussion as far back as
10 or 11 years ago, and so when he drafted the legislation that
we are going to be talking about today, he asked whether I
would cosponsor it, and my staff and I spent a great deal of
time looking at it. There were some changes we suggested that
were made, and I am happy to be here today in Philadelphia to
begin discussions on this legislation.
I have never been fully able to get out from under, nor do
I want to--in Delaware the bad news is they think I spend too
much time in Pennsylvania. They know that I am from Scranton,
PA, and there is very seldom anything, I think it is fair to
say, that Senator Santorum or Senator Specter ask me to do that
affect Pennsylvania positively that I am not happy to do.
I consider it my home State. It is my home State, but I am
going to make it clear that I know very little compared to my
new colleagues about what is happening in this State, the State
legislature, as it relates to the stadium financing. I just do
whatever Mayor Rendell tells me. [Laughter.]
But I am glad we are here taking this opportunity to
discuss the Stadium Financing and Franchise Relocation Act of
1999 and the implications on taxpayers of publicly financed
stadiums, and in that vein I look forward today to hearing
comments and suggestions from our distinguished witnesses so
that we can move forward in accomplishing our primary goal
here.
And our primary goal here is to make sure taxpayers are
treated fairly, because that is what this is about to me,
making certain that the people who cannot afford to pay do not
have to pay, and those who can afford to pay, pay, in making
certain that taxpayer's money is spent on things that--I think
presumptuous of me to say--that cities need most, like cops and
teachers and healthcare and a lot of other things.
Senator Specter I think should be commended for taking this
issue seriously on behalf of his constituents and making others
examine carefully the potential impact on taxpayers and the
leagues alike, yet I do not think that the Federal Government
has to take an active role all the time on issues like this,
especially when it comes to issues that local governments and
the private sector can handle on their own.
The NFL has gone to great lengths of late to make loans
available to those teams that need them to help finance stadium
construction, and I commend the NFL for their efforts, and to
suggest that we might take a closer look at what the NFL has
done and see that they are on the right track.
This legislation, of course, will have no direct effect on
the State of Delaware. There are no pro football teams or no
major league baseball teams in Wilmington, although based on
the Phillies record--and I'm a Phillies fan, but based upon the
Phillies record and the Wilmington Blue Rocks' record I think
we might be able to take them this year. [Laughter.]
We won the Carolina League. At any rate, this legislation
will not have any direct effect on major league baseball teams
in this country or in my home State, so it seems to me that,
though we have to strike a balance here, that this certainly
goes a long way--the bill in my view goes a long way toward
striking that balance, but we have to continue this discussion
and dialog.
And I want to make sure that the cities and States are able
to spend taxpayers' dollars, as I said, in their important
investments, and I am not suggesting these are not important,
but on more important investments like law enforcement,
education, and health care, while still maintaining the pride
their cities have and the States have in their professional
teams.
We need to keep cops on the street, put more teachers in
schools, and we all want our ball teams to stay at home, and I
believe we can have all of this if we just do it right. I
believe that my colleagues, Senator Santorum and Senator
Specter, are on the right track here, thinking about how
cities' moneys are best to be spent and State moneys, and I
certainly come down on the side of this legislation at this
time, and I am open and I am anxious to hear from those who
would be most affected by the legislation and hear their points
of view.
So again I thank my colleagues for inviting me to be here
today, and I point out that in my experience nothing has
changed. Federal judges still have not turned on the air
conditioning, if they do the same thing at home--and my second
thing I am going to do is go introduce legislation to cut money
for the Federal judiciary when I get back--[Laughter.]
Unless they turn on the air conditioning. Are you all hot,
or is it just me? I do not know what it is.
But anyway, thank you very much, Senator, for having me
here. I look forward to hearing the testimony.
Senator Specter. Thank you very much, Senator Biden.
The word is that the air conditioning has been turned on. I
felt a tiny bit of it here, but it is pretty hard, with as much
hot air as we will be generating.
I am delighted to introduce now my distinguished colleague,
Senator Rick Santorum, who has become practically Philadelphia
with his many trips into the city dealing with a wide variety
of city problems on replacing the shipyard and mass transit,
and other projects that deal with vital issues to the city and
his active participation on the stadium issues, obviously, in
our State.
Senator Santorum.
STATEMENT OF HON. RICK SANTORUM, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Santorum. Thank you, Mr. Chairman, and I join
Senator Biden in congratulating you on holding this hearing and
introducing this legislation, which gets at a very serious
problem that confronts cities in this country with respect to
their sports franchises, and we have had to go through this
whole ordeal of stadiums and stadium construction from really
interesting perspectives.
From the way I look at it we have a small market team and
we have a large market area. Philadelphia is a large market,
Pittsburgh is a small market, and it puts enormous pressure on
both, both from a football and baseball perspective, and you
really address the larger issue, which is the impact of
professional sports and the pressure they put on taxpayers to
fund stadiums, to provide other kinds of services, and the
impact of that decision on the game itself.
If we look at the NFL, I think they have done it wrong.
They have done it wrong. They have moved franchises as a result
of this. They have destroyed, really destroyed communities in
many respects, in the sense of whether it is the tradition of
whether it is the Cleveland Browns or the L.A. Rams, or you can
go on down the list. Had the NFL moved franchises based on
these kind of economics, in some cases artificial economics, it
is not good for the sport, certainly it is not good for the
communities, and I think it is something that needs to be
addressed.
Major league baseball has done it wrong the other way.
While teams have not moved I do not think we have had a team
moved since the Rangers, but what has affected major league
baseball is that the parity has affected it. The Pittsburgh
Pirates cannot be competitive in the environment today. They
simply cannot be.
They cannot compete with the New York Yankees or the
Atlanta Braves, and you can go on down the list, and so while
the NFL has dealt with their problem by moving franchises,
major league baseball has done the right thing in keeping
franchises, but they have kept them in a position where they
cannot compete.
So we are faced with a very serious problem in sports, and
while there is great parity in the NFL, we have teams moving
helter skelter, and while there is stability in major league
baseball, there is a lack of parity, and so at some place we
hope to find a happy medium, and I commend the Senator for his
attempt to try to deal with that issue.
But as the Senator knows, because he has also been a very
strong advocate of holding the professional sports accountable,
not just in the area of stadium construction and other areas, I
think this is a problem we need to look at in a broader
context, and the context of the antitrust exemption of how we
are going to deal with both stability from the standpoint of
keeping teams in the cities in which they belong.
And second, if we do that and are successful in doing that,
having a system in place that provides some sort of parity so
we do not have New York Yankees and the Atlanta Braves in the
World Series every year, because that simply is not going to be
in the best interests of baseball, and certainly is not in the
best interests of taxpayers, who spend lots of money in keeping
their teams to see them finish in last place, if they do.
So I thank the Senator.
Senator Specter. Thank you very much, Senator Santorum.
The legislation, in addition to the provision that the NFL
and major league baseball will pay for 50 percent of stadium
construction cost grants, the NFL, an exemption to be able to
control franchise moves to provide the stability that Senator
Santorum accurately calls for.
The provisions of the bill would apply to any stadium which
is not finished by the time the bill would be enacted, so that
it could be applied to the two stadiums under construction in
Pittsburgh if enacted in time, and the legislation addresses a
national problem, and did not seek to interfere with the
stadiums in Pittsburgh or with whatever plans are projected for
the city of Philadelphia, but if it would be enacted, as I say,
before those stadiums were completed, it would apply to them.
We are now going to move to our distinguished panel of
witnesses. For ease and simplicity we have asked all the
witnesses to be seated at the same time. Our first witness is
going to be our distinguished mayor, America's mayor, Mayor
Rendell. City Controller Jonathan Saidel is to be our next
witness, State Representative Andrew Carn is to be our third
witness, and Mr. Sam Katz is to be our fourth witness.
Mr. Katz will not be able to arrive until shortly after 10
o'clock, and we had extended an invitation to the former
president of the city council, John Street, who declined, and
we also invited major league baseball and the National Football
League. Commissioner Tagliabue has testified already in one of
two hearings already held in Washington, and so at this time it
is a great pleasure to welcome a longstanding colleague, Mayor
Ed Rendell, who is a famous mayor and was a more famous
district attorney, and even a much more famous assistant
district attorney. [Laughter.]
Mayor Rendell, would you come forward, and Controller
Saidel, would you step forward, and Representative Carn.
I find it hard to understand why, after my speech--why in
the middle of my speech they moved the microphone to you, Mayor
Rendell. Perhaps you can explain that.
Senator Biden. Welcome to Philadelphia. [Laughter.]
STATEMENT OF HON. ED RENDELL
Mr. Rendell. Good morning. If I could ask, Senator, the
panel's indulgence, it is always a pleasure to be here with the
Controller and Representative Carn. If I could give my 5-minute
presentation and answer any questions you have, I did not
schedule to be on the panel. I apologize. I have to be back in
the office fairly soon, but I am sure you will not have too
many questions.
Senator Specter. Mayor, you are not on a panel. You can
proceed to testify and we will let you go by noon. [Laughter.]
Mr. Rendell. Let me begin by saying I agree with a lot of
what all three of you said in your presentations. No. 1, I join
with Senator Biden and Senator Santorum in congratulating you,
Senator. This is an issue that deserves to be looked at, both
the issue of franchise relocation and the issue of how we pay
for new stadiums has to be looked at. I wish that it had been
looked at by the Congress a half a decade ago. I think it would
have been beneficial.
We have seen in the last decade an explosion in stadium
construction and demands on cities for stadium construction,
but it would have been great to have this hearing a half-decade
ago, but I congratulate you for your persistence and your
insight in having these hearings, and I also agree with Senator
Santorum that there are problems in professional sports that go
beyond even the fairly wide-reaching scope of this bill.
It is almost unconscionable that baseball careens down
these paths without any sort of spending cap that can equalize
parity among the teams as the NFL has, and I do not know if
there is anything that can be done to legislate in that area.
Probably not, but clearly it is the major sport that does not
have a spending cap, and without a spending cap, you will find
not only large markets but large markets with wealthy owners,
or owners who have ties into their cable companies or
entertainment companies who will always be better financed and
the Pittsburghs and the Minnesotas and a city like
Philadelphia, where there is private ownership and not tied
into a megastructure will be at a competitive disadvantage.
You will see a spectacle like the Florida Marlins going
from the best team in baseball to the worst team in baseball
simply because of the owner's whim on revenues, and that has to
stop, and again that is probably for a forum other than this.
I certainly agree with Senator Biden that municipal
resources need to be used for more important things, for
police, for schools, for construction of buildings that are
essential to the quality of life of every day Philadelphians,
or every day citizens of any city, and toward that end,
clearly, Senator Specter's bill, were it to become effective
and were it to be workable, could, in fact, be an important
step toward doing that.
I am happy to tell you, and I do not know the situation
exactly in Pittsburgh, but I am happy to tell you that in
Philadelphia, and as you know the stadiums, if they are to be
constructed, originally it was said in the press it would be
one-thirds debt, one-third local government, and one-third
teams. That is not going to be the way it breaks down.
The State is going to be below a third. The city is going
to be slightly above a third, and the teams are going to be
significantly higher than a third, with the teams assuming all
of the risk for cost overruns by very specific and clearly
delineated parts of the basic lease structure.
I am happy to tell you that from the standpoint of the city
of Philadelphia we are going to be able to construct two
stadiums without an impact, Senator Biden, on city funds that
could otherwise be used for police, for fire, for any of the
things--for schools, for any of the things that you said.
We are basically going to make this stadium pay for itself.
The four basic means for financing the debt service and the
bonds necessary to participate in our share of the stadiums
will come from, No. 1, a ticket surcharge, and that ticket
surcharge is essential for us, because it is a user fee,
basically.
It puts a little bit of a cost on people who follow sports
and are going to get the value of that stadium. A little older
lady from Northeast Philadelphia who does not like sports will
not pay the surcharge and will not pay the user fee.
It is also a way for us as a city to capture revenues from
people from the State of New Jersey and the State of Delaware
and the Philadelphia suburbs who attend the stadiums. Far less
than half the people who attend Eagles and Phillies games are
Philadelphia residents, and it will allow us to capture some of
the revenue from those people.
Second, we will pay for the stadium from a rental car tax,
and the rental car tax will fall 75 to 80 percent on visitors
to the Philadelphia Airport. Of all of the cars rented in the
Philadelphia area, somewhere between 75 and 80 percent are
rented at the Philadelphia Airport, they are rented by
visitors, they are rented by business people. The rental car
tax is an additional 2 percent and is relatively negligible on
people's choices to rent cars or come to an area.
The third area of financing that we will use is the
deferred
stadium maintenance. As you know, we pay a significant amount
of money, roughly averaged about $6 million a year over the
last decade for maintaining Veterans Stadium. When you have a
municipally-owned stadium, as it gets older the maintenance
cost increased dramatically. Our consultants tell us that those
costs will go up incrementally as the stadium gets older and
older and older and, as all of you, I think, know, teams are
assigned to a lease until 2011 for the use of the current
stadium.
In the succeeding 11 or 12 years those costs will go up,
but using the current revenue stream from our capital budget,
not touching any other capital moneys, but just the moneys we
use to maintain the stadium now, that is our third source of
payment, and our fourth is tax increments.
We have established with the teams that again no leases
have been signed, and there is still some pulling and tugging
here, but we have established with the team the baseline of
what taxes they are producing now that go into the general fund
revenue of the city of Philadelphia.
We have held that general fund revenue secure. Those taxes
will continue to go into the revenues of the city, but
incremental taxes, incremental sales tax, incremental amusement
tax, incremental wage tax, incremental business taxes are used
for the additional revenue stream. A complaint we always get
from citizens and often from elected officials, why don't we
let these rich players, who are getting so much money on these
multimillion dollar contracts, why aren't they paying for some
of the stadium construction?
Well, in fact, in Philadelphia they will be, because the
increase in NFL salaries, as you know, the cap, the spending
cap in the NFL is going to double in the next 3 or 4 years.
That increase, the incremental wage tax that the players will
be paying from those increasingly inflated salaries is going to
pay for the new stadium, so I would love to have had a plan
like Senator Specter's in place.
It would have meant that we could have probably kept some
more of the increment as opposed to putting it into the stadium
construction itself, but the good news is, not $1 of capital or
operating cost will be affected by the leases that I believe we
are going to sign. Not $1 will be diverted from the capital
operating budgets of the city of Philadelphia.
And Senator, I always hear, well, why don't we use this
money for something else. Well, in our case--the State money is
a different question, but in our case the moneys we are using
would not exist were we not to have a stadium. We would not
have a surcharge without a new stadium, we would not have a
rental car tax without a new stadium, we would not have tax
increments without a new stadium, and so it is not like we are
taking revenues that would potentially exist for other causes
and diverting them to building stadiums for sports teams.
We are basically using what the new stadiums will kick off
to fund the stadiums on the city share. On the State side, I
understand the argument, shouldn't those State dollars be used
for something else. Obviously, people have to understand the
distinction between capital and operating dollars.
They could not be used to fund, for example, what I believe
is a significant deficit in moneys that the city of
Philadelphia gets from the State for schools, because they
would be one-shot infusions, which would not help over the long
run on the operating budget.
Could they have been used for school construction? Yes.
They could have been used as a one-shot ability to help us
rehabilitate some of our schools. But on the city side we have
been able to fashion it in a way that, again, it is basically
the revenues that the new stadiums kick off, the surcharge tax
incremental revenues, etc., and the deferred or transferred
revenue that is used to maintain the current stadium, to pay
for the stadium.
Having said that, it would still be great to have Senator
Specter's bill. I only raise two caveats to Senator Specter's
bill. One is, there are no guarantees that every city could tap
into the trust fund, because, as the bill correctly says, it is
trust funds as available, and so let us assume four cities
decide they want to build new stadiums.
Let us assume those four cities use up the trust funds. We
are the fifth city. Philadelphia or Pittsburgh is the fifth
city to come along. What happens to us? We have to wait until a
new contract is signed for TV revenues. It may not be workable.
We have a system in sports where even when there is a
salary cap, as there is in the NFL, the Dallas Cowboys produce
$50 million a year more in stadium revenue than the
Philadelphia Eagles do, $50 million a year more, and that is an
unconscionable situation, and so I worry about just the
question of availability of trust funds. Do the swift get it,
and those who are not so swift as they crop up later, are they
left out in the cold, and that is a worry, Senator.
I think that can probably be addressed. We obviously cannot
dictate how much money is going to be in the trust fund, since
it is cued into the TV contracts. I would suggest maybe we
could go even a little lower than a half, which would create
more available funds for a greater number of stadiums, and
second, on the baseball side, where they do not produce those
type of TV revenues, I am not sure baseball would ever be able
to meet the obligation of a half for any stadiums, No. 1.
And No. 2, I read the letter from the Phillies ownership to
you, Senator, which was a thoughtful letter, where they say
that small market teams would get hurt by using the TV
revenues, because the national TV revenues are pooled, unlike
the regional TV revenues. The Yankees, Senator, get so much
more out of their regional TV revenues than the Pirates do. The
one place where the Pirates and the Yankees share equally is in
the national TV revenues, and deferring some of that for
stadium construction would take away one of the few weapons
that small market teams have.
Again, those are problems that I think need to be tweaked
and thought about, but I commend you, Senator, and all three of
you, for your interest in this. It is something that for the
long-term health of sports and the long-term relationship
between cities and sports has to be dealt with.
Senator Specter. Thank you very much, Mayor Rendell. We
will have a round of questioning now, we realize your crowded
schedule, and we will move through your participation as soon
as we can.
When you talk about the limitation on the 10 percent, it is
a start. We are trying to structure it at the outset. When you
talk about the TV revenues, there is a big disparity between
football and baseball. No. 1, the football certainly has the
wherewithal to make a very significant contribution. The issue
of salary caps and the issue of revenue-sharing, those issues
are being taken up by professional sports.
Government necessarily has a very limited role, and should
not interfere or go into the marketplace on the private
transactions at all, but where, however, you have the antitrust
exemption which produces the TV contract, that's another
matter, and where you have baseball's antitrust exemption and
teams move--Brooklyn has not recovered, although it is 41 years
since the Dodgers moved to Los Angeles, and the Giants moved
from New York City to San Francisco, and it has decimated
communities, as Senator Santorum has pointed out.
We really have a situation with the salaries, $12 million a
year. They have a goose which lays the golden egg, and it may
expire, but where so many cities are hurt by the transfers we
have tried to stabilize it with proposed legislation, and where
the taxpayers are called for to pay big tax dollars, that is
obviously a matter of public concern.
I am pleased to hear you say with such emphasis that
overruns will be borne by the sports teams. When you gave the
percentages, would the city's share be less than one-third for
the new Philadelphia stadiums?
Mr. Rendell. No, because the State share is considerably
less than one-third. We will be slightly higher than a third,
and the teams will approach 40 percent.
Senator Specter. What is the status of the new stadium for
the Phillies?
Mr. Rendell. There will be legislation introduced in the
city council hopefully the first week in October. As to both
stadiums, the local decisions will have to be made by then. The
Phillies are still dealing with the question of whether the
proposed stadium will be in Spring Garden or the sports complex
down in Philadelphia. Those issues are going on right now.
There are more public hearings this week.
Senator Specter. And what is the status of the new stadium
for the Eagles?
Mr. Rendell. And the Eagles have indicated they do want to
be in the sports complex itself, so that location decision is
slightly dependent on what the Phillies choose. We have not
signed leases with either team, and as I have indicated, we are
heavy into the negotiations, but we have not signed a lease.
But I can tell you, I can make this commitment as I have
publicly in many forums, but before the three of you we will
not sign a lease that requires us to violate the basic
principle that I set forth. There will not be any impact on the
capital or operating budget of the city of Philadelphia. We
have told the teams that over and over again.
I do not know how serious they thought we were at the
outset of this a year ago, but I think they understand that we
are keenly serious, and the funding scheme that we have
outlined accomplishes that goal, and we are not backing off of
that. If the teams are unwilling to sign a lease that lives up
to those goals, Senator, I can assure you there will not be a
leased signed in the next 4 months.
Senator Specter. I have seen interpretations of the
existing Eagles, Phillies--Eagles city contract which obligates
the Eagles to stay in Philadelphia until the year 2011. I would
be interested in your view on that.
Mr. Rendell. I think we are secure in both with the
Phillies and the Eagles on the lease. If there are breaches
because of--and you read the newspapers periodically--the
condition of the stadium, the condition of the stands, there is
a provision in the lease that requires the teams, if they
believe there is a breach as to the condition of the stadium,
to cure it, and, in fact, the Phillies did that during the
Goode administration, they withheld rent and used that rent to
cure a defect in the stadium, or maintenance of the stadium,
and then just deducted that from their rent, and so no one has
done that in the last 8 years, and so I believe no one, neither
team would have any standing to move.
Senator Specter. One final question before yielding to
Senator Biden. There were two problems with the Eagles
yesterday, one I will not mention. [Laughter.]
It needs no additional mention. But there was another
problem, and that was the blackout, and that is a matter for
the parties, in a sense, but if all of this taxpayer's money is
going to go into a new stadium, it is going to be paid for by a
lot of taxpayers who will be out of money by the time they pay
their taxes for the new stadium.
They may not be able to afford a ticket, and you have the
blackout, which is something that is inexplicable, where the
Eagles need every bit of public interest and enthusiasm, which
is generated by television, and people who have dishes all
around the country can flip in and see the Eagles, and you can
see it in Arizona, and on this state of the record I do not
know that there is a public way to express for the city or the
State or the Federal Government, but if we are going to put all
of this taxpayer's money in, that may be another matter. Is
there a way before that comes by jawboning or by logic that
there could be some impact?
I know that none of the TV stations will pick this up
except Fox, but how about it?
Mr. Rendell. I think you are correct, Senator, the Eagles
did have the right to join with the local affiliate, the local
Fox affiliate to purchase those tickets. Now, at the time the
blackout decision was made there were 7,000 available tickets.
Once the blackout was announced, they sold four, and we were up
to 64,000.
But I agree with you, No. 1, because there are public
dollars that go into the operation of the sport, No. 2, because
of the salaries and the stadium construction costs the average
ticket price has gotten beyond some citizens' ability to pay
for a ticket.
I would like to see--and I do not know if this can be done
through Federal legislation, but I would like to see it
addressed. The Eagles had the option to join with the
television station and buy the tickets, the 7,000 tickets, and
then take the risk, and I think as a management tool you are
probably correct, given the need, and I think the Eagles showed
some very, very exciting play. I think they have a very
aggressive defense. If I were the management, I would have
liked for that to have been seen by as many Philadelphians as
possible.
But that is something I think should be addressed. If we
are going to pay, the taxpayers, through these type of methods,
if we are going to pay substantially for this, and if the
ticket price gets beyond what the low-income family can afford,
I would take a look at that blackout legislation. But the local
affiliate had the opportunity to buy the tickets. They felt
7,000 was too many for them to buy, and the club could have
turned them over.
Senator Specter. Thank you very much, Mayor Rendell.
Senator Biden.
Senator Biden. Mr. Chairman, your last question was my
first question, because it seemed counter intuitive to me that
that decision was made, but I think that if Federal legislation
goes forward I cannot understand--I would have great
difficulty, even though I am not in a State or a city that
bears the burden of having to construct a stadium, as you well
know--it is going to sound strange to some people, but
Delawareans and Wilmingtonians, they kind of think these teams
are their teams as well, and I know they are not, and when
Carpenter owned the Phillies we did think it was our team.
But the truth of the matter is, it gets harder and harder
to explain to people. This is all very complicated. To you and
to us, and to you particularly, Mr. Mayor, you are so
knowledgeable about it. You deal with it every day as the rest
of the panel does, and you understand all the financing
implications, but for the average person out there it is
getting more and more difficult.
I mean, if I can be anecdotal for just a moment, one of the
reasons why this little stadium they built in Wilmington, DE
for the Blue Rocks, minor league stadium is sold out every
single time, you can still take your kid to the game, you can
go to the game, you can pay $8, you can sit there and you can
have good hot dogs and you do not have to pay $400 for it, and
you can actually go to a game.
It is very, very difficult for, not low-income wage
earners, it is--this has become a significant--and I am not
criticizing, but it is a significant business. Most of the good
seats in good stadiums are purchased by businesses and
businesspeople, and people with significant amounts of money
who are not your average middle class sports fan, and so it
gets harder to explain this.
But again, I do not have the burden, nor do I, as a
resident of the State of Delaware, do I have the risk that is
incumbent upon you and the city council and the people of the
State of Pennsylvania to take, Mr. Mayor.
One of the things that I have observed--and again, this is
anecdotal--is for years being chairman of the Judiciary
Committee and dealing tangentially and sometimes directly with
sports-related issues for the major leagues franchises in all
sports, it used to be that 10 years ago you would contact the
owners of the league and if they got around to it they would
call you back. Now, they are contacting us before we get to
them, and I get a sense that they have an increasing sense that
their situation is tenuous.
It is not so automatic that they can just--let me put it
this way. Is there any difference--and this is a very difficult
question to answer, I suspect, and you are so good at this you
may be able to help me frame my question as well as the answer.
Had you been mayor of this city 20 years ago, and one of
the two major league, or any of the major league teams here--
let us stick with football and baseball--came to you and said,
unless you do such-and-such with regard to stadium financing
and doing renovating or building a new stadium or finding me a
place, I am going to go to New Jersey, or I am going to go
somewhere else, and the same thing happened today, is there any
difference in the leverage that the teams possessed then and
now? Is it greater or is it less?
Are the things that they have to calculate also more
complicated now in terms of being a slam dunk, and do you
understand what I am trying to get at?
Mr. Rendell. I think you are, Senator, and I think the cost
of operating the major league franchise has become so great
that there is a level of desperation on their part that is more
significant than it was 20 years ago.
Second, you do not find too many Ruly Carpenters any more
who can absorb a price of operating and owning a major league
franchise. The Ruly Carpenters, they were not interested in
making money. They were sportsmen, and the people of that
generation, the Mara's, where I grew up in New York, the
Stoneham's in New York, they were sportsmen. They wanted to do
this because it was their love. It was why some people invest
in racehorses, even though they lose money every year on those
racehorses. It was a love of theirs.
That is gone. Most of the ownership now, particularly in
the big markets, or the places that are doing well, most of
that ownership is corporate. The WGN's, the Turner Broadcasting
System give the Cubs and the Braves enormous advantages. The
Madison Square Garden owns cable companies and owns the Nicks
and the Rangers.
It has all changed, and it has changed dramatically, but
the one lesson that we can take from modern day is, if you
look--and I have studied stadium financing for the last 10
years, and if you wait until there is a year or two to go on
the lease, the State and city government winds up paying a far
greater share than they do when you can make a deal, when you
have got, like we do, 10, 11, 12 years to go on the lease.
That is the one thing that is clear. The midnight deal that
kept the White Sox from moving to Florida cost the State of
Illinois dearly. Dearly. The same thing happened with the
Ravens, the same thing. As Senator Specter pointed out, when
you are seeking a team for anew market, the same thing happened
there, so it is best to make these decisions not under the gun.
People forget, the city of Cleveland went to court to
enjoin the Browns from leaving under the lease, and they won,
and they won in the local court, but since there was only 2\1/
2\ years to go on the lease, Mayor White did what I think he
had to do and made a deal with the NFL, and that deal resulted
in the Browns having a brand new stadium with NFL funds. Not
alone, those were grant funds, but with NFL funds, and of
course that stadium opened for the first time last night. Mayor
White could have enforced the lease and then had the Browns for
2\1/2\ more years and then had nothing at the end.
But the closer you get to when that lease deadline is up,
the pressure that is on major sports franchises to keep abreast
of the revenue because of salaries that are out of control,
those things create an atmosphere that good decisions are not
made, in my judgment. But yes, in 20 years we have seen the
Carpenter's and the Mara's and the Stoneham's basically depart
from sports. There are a few left, but not many.
Senator Biden. I find it somewhat disingenuous that owners
will tell me how they are, and they are, many of them, losing
money, but then when they sell the teams, I find, for example,
an outfit that has significant Delaware and Wilmington
connections, bought the Browns for almost $\3/4\ million, and
it seems to me the rationale for investing has changed. My last
question----
Mr. Rendell. Well, understand, in that instance they got
stadium ownership as well, so they got an asset above and
beyond the team itself.
Senator Biden. Could you explain, as briefly as you can,
what the consequences--not the psychological consequences, but
what practical consequences would be for the city of
Philadelphia in your view if, in fact, the Eagles or the
Phillies picked up and left?
Mr. Rendell. Well, the tax consequence for the Eagles and
Phillies leaving would be the equivalent, because of the salary
ranges the equivalent of us losing one business that had 2,500
workers averaging $32, $33, $34,000 a year, or two businesses
having 1,250 workers that do that, plus there is a lot of
indirect business that supplies all of the food that goes into
the stadium. You can imagine how many hot dogs are consumed.
All of that comes from local vendors, and so there is a
tremendous amount of supply side, as Senator Specter knows,
because he was integrally involved in this.
When we computed the loss figures for the Navy Yard we just
did not compute the 12\1/2\ thousand workers that were there in
1991 and the tax consequences for losing their jobs and their
salaries. We computed all of the vendors that fed the operation
of the Navy Yard.
Now, the two teams do not produce anywhere close to what
the Navy Yard did in vendor supply purchases, but there are a
lot of supply purchases that go into the teams. Could we absorb
on an economic basis the loss of these teams in direct and even
indirect revenue? Of course we could. There is no question
about that.
If you look at this as a transaction--and by the way, it is
an economic development transaction, and the city council of
Philadelphia at my urging has instituted a number of developing
deals that call for tax increment financing, where basically
the taxes of the development are plowed back into the deal
itself, and there is always some gnashing of teeth in those
deals, because people say, well, you are giving away taxes.
One of the things I have tried to say is, given the
competitive disadvantage that a city like ours has earned
compared to the suburbs or South Jersey or even the Sun Belt,
because of our high tax structure, because we deal with 75 to
80, 85 percent of the region's poor, because of all the demands
that that puts on our budget and our high tax structure which
we are trying to bring down as fast as we can, but given all of
that, if we do not do tax increment financing we do not have
the deal. It is as plain and simple as that.
So you are not giving up any existing tax revenues and, of
course, you have a limited period, and after that period the
tax revenues continue to start to kick in, and the same is true
here, so in one sense it is an economic development deal with
2,500 workers, the equivalent of 2,500 workers because of the
tax structure, because of the salaries, and the indirect vendor
sales. But I do not think you can--I do not think you can
eliminate the emotional and psychological damage.
Senator Biden. I am not suggesting you can. I was just
curious.
Mr. Rendell. There are things we do as a city, all of the
time having nothing to do with sports, that generate a feel of
vibrancy for cities. Cities have to have soul. They have to
have a pulse to them. They have to have a sense of vibrancy, a
dynamism, or they will not exist economically. With mass
communications, with the changes in technology and the changes
in the type of work that is done in America today, there is no
rationale for cities.
It is in places to come that have all sorts of
entertainment alternatives. There is all sorts of different
experiences. If there is not a common bond that ties a city and
a region together, and you said it best, Wilmingtonians think
of themselves as Eagles fans and Phillies fans, there is no
question about it, and there is nothing like sports that binds
a community together, that take someone on the lower end of the
economic spectrum and someone at the highest end of the
economic spectrum and gives them a commonality of interest.
And again, if we started running cities purely on the
bottom lines, they would not exist very long, because the
economic rationale for cities that we had at the beginning when
people had to gather together in a central district to do
commerce, when only a city could support manufacturing, that is
gone, so if we take away those nontangible factors, if we take
away the psychological and emotional factors, I am not sure
there is a raison d'etre for cities.
Senator Biden. Thank you very much. Thank you, Mr.
Chairman.
Senator Specter. Thank you, Senator Biden.
Senator Santorum.
Senator Santorum. I think the point you made is a terrific
one, Mr. Mayor. Having gone through the psychological trauma of
almost losing, well, two teams, not only a major league
baseball franchise in Pittsburgh, nearly just a few weeks ago a
national hockey league team----
Mr. Rendell. Senator, can I interject, and you know this
better than anyone in this room, what would the city of
Pittsburgh's feeling have been, and what would their viability,
as a first class city able to attract major corporations, have
been if they lost the Steelers, the Pirates, and the Penguins?
Senator Santorum. The whole discussion is, this would have
been a city with a proud tradition and proud heritage that had
an identity. I mean, you talked about an identity. Those
places, those teams gave the city an identity, brought us
together as a community. I thought it was very, very important.
It would have had a deep psychological impact on our region, no
question about it, and I think it would have sent a message to
the business community that this is a city that has given up.
This is a city that is not going to fight for what it has,
much less try to attract what it could, and I think there are
many in Pittsburgh, and I know there are many in Philadelphia
to say, ``Well, it is not important. It is bottom line
economics.'' It is not bottom line economics. There is a lot
more to it, and the reason I bring this up is, it is
importance, you do know that major league baseball and the
National Football League understand that, and understand the
leverage they have in their negotiations.
This is not a cold business deal that you are sitting
across the table negotiating. This goes far beyond that, and
that gives a huge leverage to those negotiators, and that is
why it is important that we look at ways to try to balance that
leverage a little bit with local governments who do not find
themselves as an equal partner here in this negotiation.
Because they have this whole emotional side that goes as
well as real economic--you talk about intangibles, but they are
intangible in the sense that they are goodwill and other
things, but they result in tangible economic benefits to the
community, and cities realize that, and they realize the
importance of these franchises, and to me it is something that
Senator Specter, I guess, for years has been trying to get at,
is how we try to level the playing field from a negotiating
point of view with team owners and with the leagues.
I am very interested in what the Senator has come up with
here, and I hope, and I know we will, that we continue to look
as to how we can structure, use the power that Congress has
with the antitrust exemptions to try to get some relief from
what I see as real problems with parity in major league
baseball, and again, the problems with moves in the National
Football League.
Mr. Rendell. I agree, Senator, and I think what Senator
Specter is doing here is extremely commendable if it can be
worked out, and as Senator Specter said, it is a start, what we
proposed here today, if it can be worked out. You used the
right terminology. It increases the leverage. It increases our
leverage. Not only does it balance the playing field in terms
of dollars, but it does increase the leverage, no question
about it. It creates a different dynamic when you sit across
the table with a sports team.
Senator Santorum. Thank you. No questions, and I, too, have
to run, but thank you.
Senator Specter. Well, Thank you, Senator Santorum, and
thank you, Mayor Rendell, for taking time to be here. We thank
you.
Mr. Rendell. Thank you. I do not know if I will get a
chance publicly to say this. This may be my last congressional
hearing. But I want to thank you and Senator Santorum as well
for your incredible support for this city over the last 8
years. You have been terrific, and you are demanding and you
want the facts, and you hold us to a high standard, but you
have been terrific in your support.
Senator Specter. Well, thank you very much for those good
words, Mayor Rendell, and we thank you for your tremendous
contribution. This is only September 13. We might see you back
between now and the first Monday in January.
We now turn to the distinguished city controller, Jonathan
Saidel, now serving his third consecutive 4-year term as
Philadelphia's City Controller, graduate of Temple University
and Delaware Law School, and in addition to being attorney-at-
law is a certified public accountant.
He has taken some very important, courageous stands on
fiscal matters for the city, and he has some very distinct
views, we know, on the financial abilities of teams to pay
their own way, and we thank you for joining us, Mr. Controller,
and look forward to your testimony.
STATEMENT OF JONATHAN A. SAIDEL
Mr. Saidel. Thank you, Mr. Chairman. I will quickly run
through our statement. I thank you for the opportunity to
address you today on Senate bill 952, the Stadium Financing and
Franchise Relocation Act of 1999. Thank you for focusing
attention on the important issue of stadium financing, which in
recent years has dominated the minds of citizens, sports fans,
and elected officials in communities all across America.
As you know, sports equals big business, and big business
is largely driven by stadium-generated revenues. Unfortunately,
as team owners seek to maximize these revenues, they are often
doing so at the expense of communities that could ill-afford to
spend scarce tax dollars to subsidize sports teams operations.
Like you, I am a sports fan, and as a fan I look forward to
attending games in the new stadiums. I want to see the Phillies
win a pennant at a ball park with a grass field, and would love
to see the Eagles drive the Cowboys into the mud of a new
stadium. I also recognize the city must offer high quality
entertainment options to engage visitors and provide amenities
to residents to be successful in the future. But as city
controller, I am fiscal watch-dog over city expenditures, and
my job is not to give away city money. It is to make sure city
money is spent in the most efficient and effective manner.
In recent years, many American cities have financed
stadiums, but many of the deals have been poor investments for
taxpayers. The deals struck have been the result of bargaining
under duress as teams threaten to leave town while the public
gets fleeced to enrich millionaire owners and players.
Alternatively, baseball's San Francisco Giants and
football's Washington Redskins proved that teams can build new
stadiums without significant public support. I therefore
believe that when it comes to public money for new stadiums we
must not use scarce tax dollars to enrich team owners.
The city should not used broad-based taxes or cross-subsidy
taxes to fund new stadium construction and to add to team
owners' profits. Instead, we should work to ensure that any
city contribution for new stadium construction results in a
sharing of any direct benefits to the team and to the city and
is directly related to the use of stadiums and the true benefit
the city realizes from these stadiums.
Your focus on stadium financing at the Federal level is a
sound one. Congress has provided the National Football League
with protection from market forces, which has increased team
value, team profits, and players' salaries. Major league
baseball received similar protection through its limited
exemption from antitrust legislation.
By mandating partial league funding for new stadiums,
Senate bill 952 takes an important and necessary step toward
correcting the inequities between communities which drives the
demand for public subsidy of new stadiums. I would like to make
sure that the total project cost as defined in Senate bill 962
includes any infrastructure improvements, land acquisition, and
site remediation which may be necessary as part of the stadium
construction. These expenditures, which can equal perhaps 50
percent of the actual cost of stadium construction, are
additional burdens which should be shared by the leagues, not
left to local taxpayers.
Additionally, in large and lucrative markets like
Philadelphia, local governments should have the option to
finance their share of stadium construction costs through
stadium user fees. Unlike broad-based taxes, which take money
from the citizenry, user fees actually reduce incomes earned by
teams, because team owners will set prices at a level
determined by the market.
Amending Senate bill 952 to expressly allow local
governments to utilize these fees to fund their share of
stadium construction costs would provide communities with full
protection of the bill while giving them the flexibility to
take advantage of the worth of their market.
The Philadelphia market is a lucrative one. Because of the
value of our market and the fact that our teams are committed
to long-term leases, we know that there is no pressure to do a
bad deal just to keep teams from fleeing to the cities so
desperate for major league status that they are willing to
break the public bank to attract a team, therefore there is no
reason that we in Philadelphia cannot work to create a stadium
finance package that benefits the city as well as the teams.
My office has worked for more than 3 years to address the
issue of stadium finance in Philadelphia. We have worked with
Indiana University professor Mark Rosentraub, a nationally
recognized stadium finance expert, to conduct a thorough cost/
benefit analysis, and met with representatives from sports
teams and the Rendell administration in an effort to evaluate
stadium finance proposals.
My staff produced a summary of their work, which is
entitled, ``Stadia Overview. Myths and Realities.'' This
document, which I have attached to my testimony, examines
misconceptions associated with stadium finance and presents a
workable plan for stadium finance in Philadelphia.
The document explains how new stadiums will not necessarily
improve the competitiveness of Phillies and the Eagles in the
future. It challenges the notion that new stadiums will be
significant economic engines for Philadelphia and notes that
every credible economic analyst concludes that savings do not
equal economic development. New stadiums mostly create spending
shifts, not new consumption patterns.
It dismisses the notion that Philadelphia Phillies and
Eagles will leave Philadelphia unless the city funds new
stadiums. It points out the tremendous financial benefit the
Phillies and Eagles will realize from new stadiums.
According to the Controller's Office's analysis, the
Phillies could earn more than $60 million a year and Eagles
more than $37 million a year in the new stadium even if they
paid the city the rent equal to the city's stadium construction
costs. This does not take into account the values of the
respective franchises, which will skyrocket once the teams
receive the new stadiums.
It shows the city stands to lose money in the future if the
Phillies and the Eagles are allowed to break their Veterans
Stadium leases. For example, the city will lose approximately
$6 million a year in luxury box income. This revenue stream,
which is due to begin in 2001, was part of the deal to keep the
Eagles in Philadelphia when they threatened to move to Phoenix,
and the city will never see a dime if we build a new football
stadium. The city could also lose an additional $500,000 each
year in real estate tax revenues, depending on where the new
stadiums are built.
It challenges the idea that rental car taxes increased tax
receipt and avoided Veterans Stadium costs should pay for the
new stadium. It shows how teams will price tickets based on
market demand regardless of any city-imposed user fees.
Finally, the document puts forth the elements of a workable
plan for new stadium construction in Philadelphia. We believe
such a plan represents the best possible deal for the city, and
the best chance for the teams to play in new stadiums in the
near future. Given the new stadium's potential impact to the
team's bottom lines, this should be very desirable.
In a second document, entitled ``Analysis of Stadia Finance
Proposals'', my office examines assumptions related to the
stadium finance in Philadelphia and critiques reported plans to
fund new stadiums for the Phillies and Eagles. The projected
total cost of the new stadiums and resulting infrastructure
improvements could be more than $800 million. Including funding
from the parking authority, the total cost to the city could be
more than $337 million.
I applaud Mayor Rendell for the steps he has taken
privately to reduce public funding for new stadiums. For
example, I certainly endorse the idea of a 5 percent ticket
surcharge. I do believe that more can be done to reduce public
funding through the approach I have outlined in my Analysis of
Stadia Finance Proposals. This document, which is also attached
to my testimony, provides reasonable alternatives which would
encourage teams to field competitive teams, maximize the
stadium-related benefit for the city, and preserve scarce tax
dollars for Philadelphia's pressing needs.
For example, the teams could pay the city rent equal to the
city's debt service costs, or the city could impose a surcharge
on all consumption at the new stadiums which would fund the
city's future debt service costs.
The Philadelphia Metropolitan Region is among the largest
for professional sports and offers team owners an extraordinary
opportunity to earn substantial profits. Broad-based taxes or
taxes that subsidize franchises are not needed to guarantee
profit levels for the owners of Philadelphia teams. The size of
the Philadelphia market dictates that the city should finance
its portion of the cost for both facilities from user fees or
rental charges. Even if this were done, both teams would still
be among the most profitable in their respective leagues.
The worth of large markets was proved in the case of the
New England Patriots. The ownership of the Patriots passed up a
$374 million stadium deal with lavish revenue guarantees in
Connecticut for a deal where the ownership will only receive
$70 million in infrastructure improvements to remain in the
Massachusetts and the lucrative Boston television market.
Philadelphia is an even larger market than Boston, and it
is in the best interests of the National Football League, major
league baseball, and television networks to keep the Phillies
and Eagles where they are.
As I stated, sports equals big business, and the owners of
the Philadelphia Eagles and Philadelphia Phillies stand to
generate significant annual profits from the new stadiums. In
addition, new stadiums will dramatically increase the Phillies
and Eagles franchises.
To be successful in the future, the city of Philadelphia
needs to reduce the cost of living and doing business in the
city. At the same time, we must improve public education,
reduce crime, and improve overall quality of life in all our
neighborhoods. Given these tremendous needs, we cannot afford
to waste a single tax dollar, and we certainly cannot afford to
enhance the wealth of team owners at taxpayer expense or
subsidize stadium construction costs beyond the true benefits
to the city.
As a fan, I look forward to going to games in beautiful new
stadiums that will make Philadelphia the envy of other cities.
As city controller, I look forward to working with the teams
and the city administration to craft a deal that will allow
team owners to enhance their bottom line without wasting the
city's scarce tax dollars.
Again, thank you for your initiative in this case, and I
will answer any questions you have.
Senator Specter. Thank you. Before going to questions, we
will hear from Representative Carn and Mr. Katz. We turn now to
the distinguished State Representative, Andrew J. Carn, a nine-
term Representative first elected in 1982 to represent the
197th Legislative District located in north central
Philadelphia.
A graduate of Thomas Edison High School, Howard University,
Representative Carn has been very active in civic matters as
director of statewide programs for the leadership council,
director of the Neighborhood Housing Services of Allegheny
West, a very vigorous consumer advocate, took a very forceful
stand on the acquisition by First Union of the local bank last
year, and Wall Street is about to agree with the Market Street
and 52d Street, and Representative Carn.
The floor is yours, Mr. Representative.
STATEMENT OF HON. ANDREW CARN
Mr. Carn. Thank you, Senator. I would like to thank you for
affording me this opportunity to speak on the important issue
of stadium financing. I am honored to be joined by such an
esteemed group of panelists, and I hope that our views will
assist our Federal-elected officials in finding solutions to
this problem.
As you are aware, much of the discussion surrounding
potential new stadiums in our city has focused on the issue of
location for a baseball-only stadium. However, today's hearing
examines the equally and perhaps more important issue of
financing. That is to say, how and who are going to pay for it.
I applaud and support Senate bill 952, the Stadium
Financing and Relocation Act. This legislation attempts to
ensure that the sports industry pays its fair share of cost
associated with building new stadiums and arenas. This modest
proposal would require that professional sports teams pay at
least 50 percent of new stadium construction cost. In my view,
Senate bill 952 was developed to achieve the same goals as my
legislative efforts in Harrisburg, which is to guarantee that
any stadium or arena deal is pro-taxpayer and pro-community.
As far back as September 1997, State Representative Bill
Robinson of Pittsburgh and I have been advocating for increased
financial participation from professional sports leagues and
teams to help build new stadiums in Pennsylvania.
It is my understanding that some concerns were raised
during a public hearing in Washington about the effects of
using the television revenues to fund the proposed leagues
construction trust fund under this legislation because of the
possible negative impact on small-market clubs. If television
revenues are not a good source of revenue for the construction
trust fund, I would suggest using other forms of revenue such
as merchandising, a tax on naming rights in the stadium
advertising, concessions, or some other source of money.
I support this legislation for two reasons. First, I
believe that taxpayers should be protected and receive any
benefits from the start of the process. Second, the
relationship between pro teams and communities has changed. it
is now a business relationship, and the taxpayers should be
treated like any other investor.
To understand why the Stadium Financing and Relocation Act
is necessary, we need only look at Pennsylvania's recent
experience with stadium funding. In February, the State
legislature approved $320 million for stadiums in Philadelphia
and Pittsburgh. The State has allocated $170 million for two
stadiums in our city. The measure was publicized as a loan, but
in fact is a grant, or tax increment financing agreement.
Under the State plan, sports teams who receive public
assistance must generate more tax dollars in future years than
they do now. If the teams do not generate more money, then they
must repay the difference. Sounds pretty good.
The problem is that the tax calculations will not be
adjusted for inflation. That means that as the cost of player's
salaries, hot dogs, popcorn or other items rise, the taxes
generated rise. There is no collateral on the loan if the teams
do not generate more taxes.
House Majority Leader John Perzel described this
arrangement as a hybrid between a grant and a loan. His
description prompted one of my colleagues to call the State
stadium financing funding bill a ``groan.'' I offered a loan
proposal on that day, but it was defeated. A copy of the State
funding bill has been included in my testimony for the record.
Furthermore, the assumption of the State stadium funding
bill was flawed. The teams are going to pay taxes anyway. Can
you imagine not having to repay your student loan if you are
making more money and paying more taxes in 10 years? I can tell
you as a father of a college student that my fellow parents and
many students would love to get money for college under this
kind of arrangement.
Under a true loan scenario like a student loan, the teams
would repay the loan and still pay taxes. This is exactly the
type of plan that the State of Massachusetts enacted 1 month
after the Pennsylvania stadium give-away.
On June 15, Senator Specter and other Senators heard from
Massachusetts Speaker of the House Thomas Finneran. Speaker
Finneran courageously stood his ground against excessive public
spending on stadiums in the fight over the Patriots' stadium.
At that hearing, Speaker Finneran said,
In Massachusetts we have declared that the only appropriate
use of taxpayer money is for infrastructure improvements. There
is no State taxpayer money for brick and mortar to build a new
ball park or a stadium. There is no State taxpayer money to
purchase land or engage in any creative land swap or lease-back
scheme.
After the Pennsylvania General Assembly enacted the stadium
funding bill the National Football League announced that it was
loaning money to teams to help them build stadiums. The Eagles
have announced that they intend to utilize this resource.
Sounds good.
How are the Eagles going to repay the loan? The NFL is
going to be repaid from revenues generated by the new stadium.
This means that the NFL will be repaid from the revenues of a
stadium that was constructed with two-thirds taxpayers' money.
You would think it would be only fair that the taxpayers would
be repaid first. In addition, both teams will receive the name
rights to buildings that they will not own, and a $1-a-year
lease.
The final and most disturbing aspects of the Pennsylvania
stadium experience is the exclusion of the public. In 1997, the
people of Pittsburgh and the 10 surrounding counties voted
against public financing for stadiums, yet public money is
being spent on stadiums.
In Philadelphia, some people want to provide school choice
and others want the public to have a choice on riverboat
gambling, yet many of these same proponents of public choices
on issues vehemently oppose public choice in stadium funding.
In fact, I offered southeastern Pennsylvania voters a
choice on stadiums when I offered a referendum measure on the
House floor in June. The Republican Appropriations Committee
indicated the referendum would not cost the State any money,
and the cost to the city was minimal.
My proposal was defeated 101 to 97, with many southeastern
Pennsylvania Representatives, including some Philadelphians
voting against the measure. Some of my colleagues have a lot of
explaining to do, because many of them voted to allow the
Pittsburgh referendum then turned around and voted against
their own constituents having the opportunity to have their say
on this issue.
I share this information to demonstrate that taxpayers in
Philadelphia and across the Nation for the most part are not
being well-served in stadium deals. Senate bill 952 is an
excellent starting point in the effort to ensure that taxpayers
and communities receive better value for their investment in
stadium deals.
Ensuring that half of stadium or arena construction is
covered by sports leagues can only help taxpayers, because it
lessens their financial burden. This legislation would have
saved State taxpayers $120 million and city taxpayers $100
million respectively.
However, I also encourage you to look at other proposals
that are pending in Congress such as the Give-the-Fans a Chance
Act, sponsored by Representative Earl Blumenauer of Oregon,
which would provide for complete or partial public ownership of
franchises.
Another bill by Senator Moynihan of New York would remove
tax-exempt status for stadium financing bonds. In addition, I
recommend that you review the Carn-Robinson stadium legislative
package that was introduced in Harrisburg. We propose some
creative ways to ensure that teams and communities benefit in
stadium deals. For example, we propose that naming rights and
other revenues be shared with the public.
I look forward to working with you, Senator, the mayor, my
fellow panelists and the public to ensure taxpayers and
communities receive the maximum benefit in stadium and arena
deals. Thank you for this opportunity.
Senator Specter. Thank you, Representative Carn. We turn
now to Mr. Sam Katz, investment banker and financial advisor,
who has very specialized experience on financing sports
stadiums, having been involved with the Orioles Market, Camden
Yards, the Joe Robbie Stadium, and the First Union Center, each
built without new taxes.
Other sports projects which Mr. Katz has been involved with
include the Colorado Rockies, the Cleveland Indians, the
Phoenix Suns, the Portland Trail Blazers, the Buffalo Sabers,
the St. Louis Blues, and the Florida Panthers.
In addition, in the public sector he has had extensive
experience with transit authorities at Houston, Washington,
Atlanta, Los Angeles, very active in civic affairs, and trustee
of the Academy of National Sciences, worked as a member of the
board of education in his school district in the past.
And it should be noted that we had also invited former
president of the city council, John Street, who had extensive
experience with the city issues as well, but he declined.
We welcome you here, Mr. Katz, and look forward to your
testimony.
STATEMENT OF SAM KATZ
Mr. Katz. Thank you, Senator. I wanted to talk specifically
about the evolution of stadium financing in the context of your
legislation and make some comments about where I think that
legislation can affect the future of financing.
As you indicated, I spent a substantial portion of my
career working on financing of both football and baseball parks
as well as indoor arenas for hockey and basketball, and as well
as having worked for a number of cities that have presently or
recently been engaged in trying to compete for NFL expansion
both in Los Angeles and Houston.
Just as a way of some background, prior to the development
by Joe Robbie in Miami of the new stadium for that team, the
vast majority of both football and baseball parks in the United
States were funded largely from the proceeds of bonds issued by
counties and cities.
These facilities were then viewed as public assembly
facilities and were often designed to host both baseball and
football and not dissimilar from Veterans and Three Rivers and
Riverfront and Candlestick Park and other stadiums, as well as
dome stadiums like the Metrodome and the Kingdome and the
Astrodome.
They were generally built at a cost whose impact on local
government finances was quite manageable, in part because they
were relatively inexpensive. The repayment of the debts that
were incurred for the construction of those facilities relied
on municipal and not facility income streams.
In 1983, Mr. Robbie pioneered the concept of a privately-
financed sports venue. He believed that such facilities could
be profitable on their own if they were designed to maximize
revenue generation for the team. Working with Mr. Robbie, we
structured a financing program which was predicated on the
marketing of some 230 luxury suites and 10,000 club seats, the
sale of which were subject to multiyear contracts, creating in
effect leases which collectively became financeable.
By pledging the income from suites and from club seats the
Miami Dolphins were able to finance and construct a 73,000-seat
stadium largely from the revenue streams of just 13,000 of
those seats, but it was not simply the uniqueness of the
financing that caught everyone's attention. It was also the
excitement of the design and the amenities of the seating, the
merchandising and the marketing opportunities, that accelerated
stadium and arena construction, a boom that has taken place
over the last decade-and-a-half.
But there was a political story behind the Dolphins
project. In 1983, the Orange Bowl, which then was the home of
the Miami Dolphins and the University of Miami, was in serious
disrepair. Owned by the city of Miami, a refurbishing program
was proposed and a bonding issue put on the ballot. This
initiative was opposed by the Miami Dolphins, which provided
the principal funding to defeat it, and that enabled Mr. Robbie
to privately finance, which he did so as a matter of ego and
pride.
However, from an economic perspective, his stadium, which
was subsequently acquired in the sale of the Miami Dolphins to
Wayne Huizenga, has never achieved the results expected or
produced the benefits to the team that were hoped for, but
throughout the professional sports world Robbie Stadium, which
is now called Pro Player Park, made a tremendous impact and
helped launch a dramatic change in the way the leagues and the
member teams came to view venues as important business lines in
the same way licensed merchandise and broadcast had become.
In some instances the buildings themselves had become
skyline signature projects such as Oriole Park at Camden Yards,
Jacobs Field in Cleveland, and have boosted civic pride and
community image. In almost all cases these projects have
significantly impacted team revenue generation, franchise
values, but unfortunately have also impacted the cost of being
a pro sports fan.
The advent of a generation of modern market-driven high-
end-customer-driven expensive stadiums has also given rise to
another phenomenon, and that is the use of leverage through the
threat to leave by ownerships seeking public investment in such
projects.
In addition, as the leagues themselves have expanded, and
in an age when profitable buildings have become an important
variable in the formula for franchise success, the decision to
expand to a particular city is in part, and not a small part,
influenced by the extent to which a new facility will
strengthen the team's economic standing over the long term.
These two factors, the threat of relocation and the
influence of expansion by the leagues, have created a veritable
bidding war among regions which has diverted an extraordinary
commitment of public resources to these projects. Public funds
have been invested in suites, club seats, restaurants, bars and
clubs, and parking facilities that only businesses and high-
net-worth individuals can afford.
While wonderful new buildings have been built, the vast
majority of the returns from these investments have flowed not
to the source of capital, but to the tenants of the buildings.
In effect, the cost of capital for these projects has also in
many instances been effectively subsidized by the availability,
as Representative Carn pointed out, of tax-exempt debt that
frees the buyers of bonds issued in support of those projects
from Federal income tax issues on the interest income.
And for some sports, as you well know, Senator, an
antitrust exemption has enabled the sports business to operate
free from certain constraints that affect competitiveness in
other sectors of the economy. Very few industries in this
country have enjoyed such favorable treatment from local,
State, and Federal Government.
By far the most effective means of pressuring publics to
invest, as you well know, has been the threat to relocate. This
has been particularly effective in baseball, although more
recently has been seen as a tool in the NFL negotiations. The
Chicago White Sox and the New England Patriots, the Seattle
Seahawks, the NFL St. Louis Cardinals, the Pirates, the Rams,
the Tampa Bay Buccaneers and others have all been effective
with this tactic.
Happily, this threat has not been invoked by either of the
two Philadelphia teams. While we may not like this condition,
it is also not uncommon. Every day, as Mayor Rendell well
knows, cities like Philadelphia are faced with threats by
private companies to leave, and we often engage in pot-
sweetening through tax credits, special zones, job training
initiatives, and other public policy steps designed to keep
those companies here.
Expansion, too, has fueled construction initiatives in
Arizona, Cleveland, Los Angeles, and Houston. In each case, the
deal gets sweeter, the give-ups larger, the revenues reserved
for the team more substantial, the level of public investment
heavier.
It does not have to be this way. A more enlightened and
tougher negotiating stance can and should be taken by the
public's representatives, and although I did not have the
chance to study in detail what Controller Saidel has proposed,
it seems that there is much merit in what he is offering as
well.
In an effort to assist in that regard, your bill, Senator,
Senate bill 952, ties the expansion of the antitrust exemption
for professional sports to the participation by major league
baseball and the National Football League in the financing of
new facilities. I commend you for this initiative. I think it
reflects an honest and understandable frustration with an
unquestionably well-organized effort to leverage scarce public
resources into enterprises that seem well-equipped to support
these projects more extensively with private funds.
Here in Philadelphia, in a city where school buildings are
rapidly becoming outdated and basic infrastructure has been put
on a steady diet of deferred maintenance, the use of $400
million of public funds to construct two new facilities for the
Phillies and the Eagles is met with a healthy level of
skepticism throughout the community, and there can be no
denying that between league-wide broadcast and properties
income, professional baseball and football have become healthy
businesses more than capable of funding new stadium
construction costs here and elsewhere.
However, when we look at the current status of stadium
development, it is also obvious to me that this legislation
would, if enacted, be a very late entry into a game that is
nearing the end of a long construction cycle.
Senator, I will leave with you copies of two schedules I
put together over the weekend, one of which looks at all the
teams in the National Football League and one of which looks at
all of the teams in major league baseball, and on the basis of
that analysis of projects, many of which I have been involved
in or are well aware of, it seems to me we are now at a place
where, of the 31 National Football League teams, only six are
left to develop new stadiums, and of the 30 major league
baseball teams, including Philadelphia and Pittsburgh, which
seem well down the road in their financing, only seven are
presently candidates for developing new ball parks.
The implications for those teams which have not financed
their facilities could in some instances be detrimental.
Consider the case of Boston, which has to compete in a division
with three teams, Toronto, Baltimore, and Tampa Bay, which have
new or relatively new facilities paid for largely with taxpayer
dollars, as well as competing with the New York Yankees, who,
as we pointed out earlier, enjoy extraordinary cable television
income. For Boston to find itself in need of securing 50
percent of its financing privately should it need to build a
new ball park may significantly impact its competitive position
relative to the other teams in its division.
In the final analysis, the decision about whether and how
to publicly invest in new sports facilities is a local
decision. In many instances, the local financial commitment has
been made as a product of public referenda such as the kind of
referenda that Representative Carn would have liked to have
given the voters in Philadelphia.
Those referenda have given those communities the right to
determine whether their local taxes should be used for these
purposes. While academics and some politicians have railed
against the application of these resources and have argued, in
many instances correctly, that the economic benefits do not
support these investments, in fact, the number of successful
referenda have been very surprising.
Those are my thoughts on your legislation, Senator. I
appreciate the opportunity to be here.
I would like to make a couple of other comments, if I
might, in response to some of the comments that were made here.
First of all, I heard for the first time today from Mayor
Rendell that the plan for financing Philadelphia's ball park
included an allocation of taxes generated from within those two
facilities. I would be concerned if there was not an inflation
adjustment factor in considering and holding harmless the city
for its share of incremental tax revenues, and hope that it is
not too late for that to be considered in those negotiations.
Second, as Representative Carn noted, what started out as a
grant, then was talked about as a loan at the State level, with
respect to the repayment by the teams to the State of the funds
invested, Representative Perzel and others were able to get a
provision in that law which requires a 10-year calculation of
the incremental tax benefits to the State from the operations
of the two stadiums and, as I understand it, if the tax revenue
generated to the State is not sufficient over that previous 10-
year period to pay the debt service, the teams have an
obligation to fund the deficit. I would like to see that same
provision built into the Philadelphia arrangements.
Senator Biden asked a question of Mayor Rendell, how has
the leverage changed today versus 20 years ago, and I would
just quickly note that 20 years ago there were an awful lot of
large cities that did not have major league sports teams.
Today, for the Phillies and the Eagles the choices of cities to
relocate to are generally cities that are smaller markets with
less corporate concentration, and therefore I think leverage is
still on our side.
And last, just as an observation, because having worked
both with team owners and on the other side of team owners it
is not uncommon for teams to say that they need new facilities
in order to be competitive, and I made the point with respect
to the Boston Red Sox that their competitive position will be
affected, depending on the kind of financing they have to do.
However, at the end of the next decade, every major league
football team and every major league baseball team will likely
have a new stadium, and believe it or not, one of those teams
will still come in last place, and the argument, I suspect,
that competitiveness is used to justify these investments I
think probably will not come out in the wash.
I like what your bill is intended to do, and the only
concern that I have is, since there are really at this point
only 13 out of the 62 professional baseball and football teams
left looking to develop stadiums, how will it impact them
versus the 48 or so teams, or 47 teams that have already built
those projects.
I thank you for the opportunity to be here, and I hopefully
can answer any questions you might have.
Senator Specter. Thank you very much, Mr. Katz. It is true
that one team will come in last, but it does not have to be the
same team every year. [Laughter.]
Which is getting to be a habit locally. [Laughter.]
I recall as a youngster growing up in Wichita, KS, in the
late thirties. One day, the Wichita Beacon published an article
from a Philadelphia newspaper which had the standings inverted,
and both Philadelphia teams were in first place.
Controller Saidel, the issue of whether the teams can
afford to build their own stadiums is always a paramount
question, and it depends in substantial nature how you make
allocations on the complex accounting formula which you have
some substantial experience in.
In one of our hearings in Washington, one of the experts, a
professor who had consulted with you, made a comment about the
ability of Philadelphia teams to afford their own stadiums. I
would be interested in your observations on that, to the extent
you would care to comment.
Mr. Saidel. I believe, Senator, that overall the teams can
afford to build their own stadiums. The uniqueness of
merchandising, the uniqueness that has cropped up in the last
decade as to naming rights, and a variety of other imaginative
ways that stadiums can generate funds, gives the teams I think
an ability to produce their own stadiums.
What I talk about in my presentation to you, and I have and
will to city council next month, if the mayor brings this
forward for a vote, is that at a minimum we can loan them money
and they can pay back $8 million a year and they can still make
$16 million respectively--$37 million for the Eagles, $16
million for the Phillies--based upon their ability to market
their own merchandise and to create their own ability to sell
their own tickets and not rely strictly upon what you have
correctly talked about is threatening to leave at every
moment's notice, and enjoying scarce tax dollars, so I believe
they have the ability in the long run to make themselves
profitable, to make the stadium profitable with their limited
amounts of ability.
Because of the cap formula, one of the ways that there was
additional cash-flow to most of the major teams in the United
States is through their generation of funding through the
stadiums. The stadiums in and of themselves--and winning teams
does not necessarily mean you are going to do well in the
stadium. The Cincinnati Reds have done much better than the
Philadelphia Phillies, and yet they are in last place as far as
stadium revenues, but you have to be innovative, and I think
they have the availability to be innovative.
What I have talked about is capping our investment at some
minimum range and allowing them to be innovative, to share in
the naming, to share in the use of advertising, which was done
in Baltimore in a variety of other ways that I think they can
be profitable and not use city tax dollars.
Senator Specter. In your answer, Mr. Controller, you talked
about threats to leave. Have there been threats by the
Philadelphia Phillies and the Eagles? Is it below the surface?
How much below the surface? What are the realities?
Mr. Saidel. There is in my conversations, there always is
implied within their conversations, the Eagles, the ability to
go to Houston or Los Angeles. As Mr. Katz mentioned, there are
very few markets left where there are no teams. Twenty years
ago, in response to Senator Biden's question, the teams may
have had 8 teams and now they have 16 as an example, but there
always is an implied threat to move, and that creates a duress
atmosphere under which we have to negotiate.
I believe the Phillies, the Phillies cannot leave. This is
the best market they can ever find, where there is only one
professional team within 7\1/2\ million people. The Eagles may
have a better opportunity to leave in comparison to the
Phillies, but I applaud Cleveland in the sense that they kept
the name Cleveland Browns and now have a new team.
There will always be someone, I believe, in the long run
that will come to Philadelphia because of our fan participation
and our ability to create an atmosphere that is creative and
profitable for the teams.
Senator Specter. With respect to the current lease
arrangements, are there provisions by both the Phillies and the
Eagles to stay in Philadelphia through the year 2011 as a
result of very substantial money put into the Vet when it was
constructed?
Mr. Saidel. Right. The Veterans Stadium at this point
barely breaks even. We have spent $50 million in capital
improvements in which we have a long-term bond issuance of $3
million per year until the year 2022. There is a large penalty
clause if the Eagles or the Phillies break that lease and
leave. My problem with building new stadiums is, who is going
to repay me for the $50 million that I spent on new seats and
the construction and infrastructure improvements in Veterans
Stadium? We are still going to have to pay the loans.
We will lose, as an example, if the Phillies move, about
$500,000 to $1 million in real estate taxes by the use of
eminent domain and the reduction of tax ratables because we
will not be taxing the stadium but we do tax the new building,
so there is a large penalty clause upon which the Eagles or the
Phillies could leave. That has never been exercised.
We also will lose the availability that under the threat to
move to Phoenix a number of years ago we give up 70 percent of
the luxury box income which will begin in 2 years at $6 million
a year if that stadium is destroyed and the new stadium is
built.
So when Mayor Rendell talked about the fact that we will
save capital programs that are involved in Veterans Stadium, he
neglected to mention the income stream that we will, or we
could receive if both teams stayed in Veterans Stadium till the
end of the lease.
Senator Specter. Referring to the issue where the Eagles
threatened to move to Phoenix in 1984, that was----
Mr. Saidel. That was terrible.
Senator Specter. I remember, we had hearings in Washington
and litigation started in Philadelphia. The city was panicked
at the prospect of having the Eagles move. I do not know what
it was like in Baltimore when the Colts left in the middle of
the night, or when the Browns left Cleveland, but it was
something here in Philadelphia.
Mr. Carn, I commend you for what you have done. We have
heard testimony about the serious situation of the public
schools, but how about the other side of the coin? What is your
evaluation of the loss to a city like Philadelphia if the
Eagles were to go, or the Phillies were to go?
Mr. Carn. As a lifelong resident of Philadelphia, I think
it would be devastating on--again, I used to go to Phillies
games as a little boy, and we have carved out our history here,
but the question is, in doing it fast and not doing it right,
it is clear to me that we can accommodate the needs of the
Phillies and the Eagles if we sit down and negotiate from a
better position as Government entities.
Again, my perspective has always been, well, let's make
sure that the taxpayer benefits in this process. I want the
Phillies to be a winner in this process, I want the Eagles to
be a winner, but the taxpayer also needs to be a winner, and in
all the testimony that has been given shows that there is
enough money in the marketplace to assist in the construction
of stadiums but there has not been a policy from our
governmental entities to promote the use of more private
dollars, but clearly there are examples, as Mr. Katz pointed
out, where private financing has been successful in building
stadiums, and I just want to encourage more private investment
in these kind of projects.
We need more resources for our city, and whether the mayor
says it or not, he is asking the taxpayers of Philadelphia to
contribute $200 million of tax revenues. He might say they
might not impact the operating budget or the capital budget.
Those are slick words.
Senator Specter. Why did you wait so long for this photo
opportunity? [Laughter.]
Mr. Carn. I just wanted to make my point that we can use
those dollars for other needs in the city and still through
private investors meet the needs of local stadiums.
Senator Specter. What kind of response do you get from the
up-State members of the House of Representatives and the State
senate to this very substantial subsidy coming from State
revenues for the big cities?
Mr. Carn. Well, they very much are opposed to it. As a
matter of fact, prior to the vote in Harrisburg for the stadium
funding the Republicans had a 70-percent favorable rating.
Right after the vote on stadiums statewide the polls show that
their favorable rating dropped to 50 percent, and so clearly
the voters of Pennsylvania had expressed themselves in 11
counties in the western part of Pennsylvania primarily 4 to 1
against public financing.
We, in our position in Government, ignored that, made money
available, but the public had expressed themselves, and these
are polls taken by the Republican caucus of the House.
Senator Specter. One of the things which is generally not
felt is the up-State concern about funding being directed to
Philadelphia especially, but to some extent Pittsburgh, and
when I was a candidate for the U.S. Senate in 1980 I was
constantly explaining my Philadelphia residency, and I was in a
western county running against former Mayor Flaherty of
Pittsburgh, who was talking about that in a race between
Philadelphia and Pittsburgh the fellows out there should not be
real amorous for the folks running from Philadelphia, and a
reporter said, you are from Philadelphia and he is from
Pittsburgh. We do not like either of you. [Laughter.]
That was the up-State comment, and that is why I press a
little bit as to how they feel about this kind of funding.
Mr. Carn. Senator, I want to say that I was on the
statewide talk show earlier in the debate on this issue, and I
was amazed at how upset up-State or central Pennsylvanians were
over the possibility of State dollars being utilized to build
stadiums in Philadelphia and Pittsburgh. They were livid.
I received so many calls that had really expressed the
sentiment that you just expressed, but that was early in the
debate, and I remember coming back to Harrisburg that Monday
after that broadcast and I had about 10 to 12 of my colleagues
come up to me and say they had changed their position, because
just behind that broadcast they were inundated by phone calls
because I kept saying top the callers, call your State
representative, call your State senator. I said, I am just one.
But they were inundated in central Pennsylvania and the
northern tiers of Pennsylvania. They were inundated by callers.
Senator Specter. Please be explicit when you tell them to
call their State senators. [Laughter.]
Mr. Katz, I appreciate your expertise in the field very
much. There will be a lot of stadiums built in the next 10
years. The statistics I see from Rosentraub on major league
losers refers to about half of the professional sports teams in
new stadiums either now or within the next few years, and a lot
of construction is going to be going on in the next 5 years,
and when you talk about legislation in this field we are facing
some very heavy lobbying interest.
If you were to find a special interest group which has
close knowledge of or access to Members of Congress and the
House of Representatives or Senators, you could not find a more
powerful group than these sports owners. Talk about the world's
most exclusive club, it's not the U.S. Senate. It is the major
sports owners in America. They are very, very powerful and
persuasive, and it is a long-term effort.
I put my first legislation in the hopper on this issue in
the early eighties when I got to the Senate, because I believed
that professional sports were affected by the public interest,
and I am still personally angry about the movement of the
dollars and all the teams which have been relocated, and it is
a long-term battle to deal with baseball's antitrust exemption.
It started off, as you know, in 1922, when Oliver Wendel
Holmes said baseball was a sport, and that was recognized as
being erroneous in the 1970 Supreme Court decision, but it is
still a long way from being able to take any effective action.
I am very much interested in what you say about Joe Robbie
Stadium, and why would that not be a model for private funding
for other stadiums like the Pennsylvania stadiums?
Mr. Katz. Well, first of all, Senator, what I would be
happy to do with your staff is to simply go through the
projects that are in transition. You are correct that in the
next 5 years quite a number of stadiums will be built, but, for
example, two new stadiums in Cincinnati will be built in part
with the proceeds of bonds sold and secured by sales taxes that
are being set up and approved by the voters in the county
around Cincinnati, Hamilton County.
The new stadium is being put up and is now in the process
of Denver taking care of the Denver Broncos based on a
referendum that was passed in 1991, and so all I am saying is
that I just identified 13 out of 61 cities which do not now
have, including the two Philadelphia projects, do not now have
financing locked up, and therefore would be impacted by your
legislation.
Already, as you now know, the National Basketball
Association is virtually completed construction on all the
arenas around the country, and almost every National Basketball
Association team is playing in an arena that is less than 10
years old.
The National Hockey League is in the process of getting to
the same place, and by the end of 2004 or 2005 most of baseball
and football will be there.
Senator Specter. But in hockey and basketball, to what
extent have they looked to the taxpayers?
Mr. Katz. To a much lesser extent, because they are closed
buildings which can house concerts and family shows and lesser
minor league sporting events and all other kinds of civic and
community events.
The arenas like First Union Center, which was principally
financed privately--and by the way, Joe Robbie is not the only
stadium, as you well know. Pacific Telesis Park in downtown San
Francisco is being built 100 percent with private money for the
San Francisco Giants. Jack Kent Cooke Stadium in Washington, or
outside of Washington, 100 percent private money.
Senator Specter. Well, if they are doing that, why not the
Pennsylvania stadiums?
Mr. Katz. Well, I would say that some of it is history. The
Pirates really started the ball rolling in Pennsylvania. When
Kevin Klatchy came to Pennsylvania and bought the Pittsburgh
Pirates he did so with an understanding that by the summer of
1998 there would be in place a finance plan that was clear to
him would produce a new stadium with public funding.
When the referendum that Representative Carn is talking
about was defeated, the Pirates were effectively free to leave,
and what they called Plan B was put in motion in which the
State was asked, and did commit before the legislature acted,
to provide one-third of the money. One-third of the money was
to be provided by a combination of the city of Pittsburgh in
Allegheny County, and one-third by the Pittsburgh Pirates.
While there has never been any discussion here in
Philadelphia about one-third, one-third, one-third, that deal
was across the Allegheny Mountains and arrived on the laps of
the Eagles and the Phillies, so the discussion here started off
with a combination of two-thirds public, one-third private
before anybody even initiated serious conversation.
Let me just say something about the Philadelphia situation,
because I am extremely concerned that what Andy Carn just
talked about, which is public participation, is likely to be
rolled over here in Philadelphia because of the timeframe in
which this transaction appears to be on course to be done.
There is, as the mayor said, a significant disadvantage to
a city that negotiates at the eleventh hour of the expiration
of its lease, but 2011 and 1999 do not put us in the eleventh
hour of the negotiation of these leases, and if we are going to
have an introduction of what will promise to be 1,000-page
documents 4 weeks before a mayoral election, which I would
prefer to see the public's attention focused on that, for
obvious reasons, as opposed to trying to get through all of the
details in a very short period of time of these leases, I think
in the long run the public's interest will not be served.
We have seen in Philadelphia a dismissal of the proposed
site at 30th Street. We have seen a dismissal of a whole series
of other sites which have not been given in my mind very much
serious public consideration. We have had virtually no
conversation, and even today I would say that the mayor did not
provide a lot of information about how the projects are going
to be financed, and Controller Saidel has a proposal to finance
it on a basis different than what is being talked about. It
seems that a couple of weeks is hardly enough time to get that
on the table.
And last but not least, these buildings are public assembly
buildings, and the design of them is something that the public
will have a very strong interest in, and so for me it would be
advantageous to see more time given to this activity so that
the public's input both on financing and on lease terms, onsite
and on design can be more fairly considered, rather than try to
get these things done in a timeframe that would give the public
very little opportunity.
You should know, and I am sure you do, Senator, that the
documentation that was considered by the city council and the
approval of the First Union Center project with the city as the
ground lessor was several hundred pages, and was not rushed
through the city council, and I believe they got the
opportunity for lots of public comment, and I think we may well
be missing that opportunity if we feel compelled to get all of
this done by the end of 1999.
Senator Specter. Well, thank you very much for those
observations, Mr. Katz. I do think this is an area which has
not received sufficient attention, and although we can talk
about what has happened up until this point there is going to
be a lot happening in the future.
This book is in the early chapters of sports moves in
America, and there is a lot happening. When you take a look at
the impact of television and the super stations with the
Braves, what is happening in Chicago and the acquisition by
Rupert Murdoch of the Dodgers and the Fox Network, and the
efforts of Telstar to alter network and local controls, there
is a lot going on, and at the tail end comes the consumer, and
that is why it is necessary for people like Representative Carn
to dig into it, and Controller Saidel to make an analysis, and
the citizens.
You have had a lot of experience, Mr. Katz, in this area,
and we are going to continue to push at it at the national
level, but it is a tough fight, because the people who have the
business interest have much more concrete ideas of where they
are going, and playing defense is very tough. Whoever has the
ball is likely to win the game on the last score.
Thank you all very much.
[Whereupon, at 11.10 a.m., the committee adjourned.]
A P P E N D I X
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Questions and Answers
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Responses of Professor Benjamin Klein to Questions From
Senator Patrick J. Leahy
Thank you for the opportunity to respond to the suggested changes
in the federal tax treatment of professional sports team relocations.
My responses correspond to the numbered questions attached to the
letter from Senator Hatch dated December 17, 1999.
Answer 1A. I do not believe the proposed change in the tax code
would make economic sense. While I believe that several of the
franchise moves in recent decades have not been economically efficient
from the standpoint of local communities and the overall league, I do
not believe that treating team relocations as sales for tax purposes
would be a productive response. As I explained in my written statement,
I believe that providing the leagues with an antitrust exemption over
franchise relocation issues would eliminate most inefficient
relocations, and would be economically superior to the proposed
relocation tax.
Treating a team relocation as a sale for tax purposes would have
several adverse consequences. First, it would impose a large and
essentially arbitrary sanction for moving a team without any regard to
whether the move made any economic sense. Thus, the tax would deter
some relocations that are clearly in the public interest--such as those
from cities with lackluster support for a team to those that would
value it highly.
Second, the severity of the proposed sanction would depend largely
on such extraneous factors as how long the present ownership group had
owned the team, and the particular circumstances of each owner's
individual tax situation. For example, owners that had owned their
teams for many years, and thus had significant appreciation in team
value, would pay a much higher penalty to move than those who had
recently purchased a team. I can see no economic justification for such
a policy.
Third, the proposal would apply federal tax policy in an
illogically discriminatory manner. The rationale of the proposal--
blanket preservation of the local economic status quo--would apply
equally to relocations of factories or other businesses that have some
impact on the local economy. Thus, the relocation tax could not
reasonably be limited to sports businesses.
Fourth, the proposal would interject federal tax policy into
decisions that have traditionally and appropriately been left to local
and state policy makers. As I explained in my Senate testimony and
elsewhere\1\, team relocation decisions and stadium financing projects
do not create a net drain on the federal treasury, and therefore do not
warrant discriminatory treatment under federal tax policy. The relative
value of a sports team to one locale as opposed to another is an issue
that is better resolved by local and state governments without
interference from the IRS.
\1\ A more complete discussion of the impact of stadium projects on
federal tax collections is included in my article with Kevin Green and
Brian Lebowitz ``Using Tax-Exempt Bonds to Finance Professional Sports
Stadiums'', Tax Notes, Vol. 78, No. 13 (March 1998), 1663-1686.
Reprinted in The Exempt Organization Tax Review, Vol. 20, No. 2 (May
1998), 240-259.
Answer 1B. The proposal likely would result in fewer teams seeking
to relocate, except where the relocation accompanied a sale, in which
case the tax consequences would be relatively insubstantial. From an
economic perspective, teams will only seek to relocate if the perceived
benefits to the team from doing so outweigh the costs, which would be
artificially inflated by the proposal. Teams seeking to relocate
without a prior sale could be expected to try to transfer some or all
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of the tax costs to the community to which they propose to move.
Answer 1C. I do not believe that the proposed legislation can be
economically justified based on its ability to alter the relative
bargaining power of the local community and the team. As I explained in
my written statement, I believe that providing the leagues with an
antitrust exemption over franchise relocation issues would
significantly reduce the ability of individual teams to threaten local
communities with relocation. Sports leagues have much stronger economic
incentives than individual teams to avoid the adverse publicity and
loss of fan support associated with team relocations. Hence, state and
local governments in cities with an existing team would generally be in
a significantly improved bargaining position if the league had the
ability to veto franchise relocations that were not in the league's
interest. Such a policy would achieve this benefit without the economic
distortions present in the proposed legislation.
__________
Responses of Jerry Richardson, to Questions From
Senator Russell D. Feingold
Answer 1. As the owner of a small media market team, the Carolina
Panthers, I think your team's experience is similar to another small
market team in my home state, the Green Bay Packers. Please elaborate
on the effect of the bill on small media market teams, like the Packers
and the Panthers.
In my opinion, one of the real strengths of the National Football
League is that teams in small media markets, like the Carolina Panthers
and the Green Bay Packers, can compete effectively on the playing field
with teams from New York, to Chicago, or other larger communities. The
clearest proof of this is the experience of my own team, the Carolina
Panthers. We began to play in 1995, and 1 year later played the
Packers, who were founded in 1919, in the NFC Championship Game, with
the winner representing the National Football Conference in the Super
Bowl. Unfortunately for us, the Packers went to the Super Bowl and won
the Championship.
The NFL's structure is such that all clubs have a fair opportunity
to acquire and retain the player talent necessary to field a
competitive team, regardless of market size. A central element of that
structure is the League's revenue sharing plan, and particularly the
equal sharing of all national television revenue. As you may know, all
of the League's regular season and post season games are televised as
part of our national contracts with ABC, CBS, FOX, and ESPN, with the
revenues shared equally by all NFL member clubs.\1\
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\1\ Those contracts also require that all of a team's road games be
televised back to its home fans. If the home games are sold out, they
are similarly televised to the fans in the home city. All of these
games are shown on free television--even the Sunday night ESPN game is
simultaneously televised on free television in the markets of the
competing teams. These requirements are of great benefit to our fans
and is unique in professional sports.
---------------------------------------------------------------------------
As far as the Carolina Panthers are concerned, that equal sharing
of television revenue is critical to our ability to field a competitive
team and put a first-class product on the playing field each year.
S. 952 would have a serious negative effect on small market teams
like the Panthers and the Green Bay Packers. It would not simply reduce
our share of national television revenue each year by 10 percent, in
itself an unwarranted and adverse consequence, but would
disproportionately affect small market teams like Carolina and Green
Bay. This is because the bill targets a source of shared revenue, which
is critically important to small market clubs. Teams in larger markets,
with their greater access to sponsorship revenue, premium seat buyers,
and other local marketing and revenue opportunities, can more readily
make up reductions in television income than can teams like the
Panthers or Packers. It would be extremely difficult, if not impossible
for our club to offset the loss of 10 percent of its national
television revenue, and doing so would simply impose greater burdens on
our fans. By focusing on equally shared national television revenue,
the bill actually magnifies the problem of revenue disparities between
large market and small market teams, and thereby threatens the
viability of small market teams and competitive balance on the playing
field that has allowed teams like Carolina and Green Bay to be
successful.
A further inequitable consequence of the bill is that the revenue
taxed away from teams like Carolina and Green Bay would be
disproportionately used to fund the construction of stadiums in larger
cities, simply because those projects are generally more costly. In
short, the bill would impose greater burdens on small market clubs,
which I believe is precisely the opposite of what was intended by
Congress when it originally enacted the Sports Broadcasting Act.
Answer 2. I understand that you are the chair of the NFL's Stadium
Committee. Since passage of the March 1999 resolution providing for
League contribution to stadium construction, please tell us about the
financing commitments, if any, the League has made to stadium projects.
The NFL has participated in the financing of stadium costs since
1987 with far reaching policies to create public-private partnerships.
Last March, the member clubs adopted Resolution G-3, a revision and
extension of the initial policy, a copy of which is attached to these
responses. This resolution was adopted after careful study by the
League's Finance and Stadium Committees, the latter of which I chair.
Resolution G-3 enhances the League's participation in the financing of
stadium construction and renovation in three principal respects. First,
it provides for ``up front'' League loans in respect of private
contributions toward construction or renovation costs. Under prior
League policy, the League's contribution was made over time (generally
15 years) and was based on the revenues generated by the leasing of
premium seats or the sale of personal seat licenses. Under the new
resolution, a club is eligible to receive League funding in one or more
lump sums at an early stage in the process, which will reduce financing
costs, lower the overall cost of the project, and allow for enhanced
private contributions.
Second, the amount to be loaned by the League in respect of any
given project can be as much as 50 percent of the private contribution
toward the stadium project, as opposed to 34 percent under prior League
policies. This larger amount is available for any stadium project in
one of the six largest television markets. Thus, in one of those
markets, a private contribution of $200 million would result in a
League financial commitment of up to $100 million. Teams not located in
one of the six largest television markets are eligible for a loan of 34
percent of the private contribution to the project, as was the case
under the previous stadium financing program. However, as previously
stated, it would be paid up front.
The potential for a contribution equal to 50 percent of the private
commitment to stadium projects in the largest television markets
recognizes the League's shared interest in maintaining a strong
presence in those cities, which in turn is of considerable importance
to our network partners. This of course benefits teams like Carolina
and Green Bay, which share equally in the revenues from the national
television agreements.
Third, the loan from the League is not based solely on amounts
generated from premium seats or personal seat licenses. Instead, the
member clubs have agreed to set aside a portion of their national
television revenues to repay a portion of the loan from the League.
This direct assessment of the national television revenues means that
all clubs will contribute to the financing of new and improved stadium
facilities and will reduce the need for clubs to rely on premium
seating or sell personal seat licenses to finance stadium projects.
Following the approval of Resolution G-3, the member clubs approved
requests for League financial assistance relating to stadium projects
in Denver, New England and Philadelphia. Because New England and
Philadelphia are each located in one of the six largest television
markets, they are eligible to receive a loan equal to 50 percent of the
private contribution to those projects. In the case of Denver, the
membership approved a loan equal to 34 percent of the private
contribution to that project. Copies of the resolutions approving those
loans are attached to these responses. The projects in Denver, New
England and Philadelphia will likely result in private contributions of
over $600 million, with a substantial contribution to each being made
by the League. We anticipate that over the next several years League
financing commitments will increase significantly.
Answer 3. It is my understanding that public and economic support
for stadium projects varies considerably from state to state, city to
city. Consequently, I wonder whether local communities, the League and
the teams should be able to decide among themselves, without Federal
intervention, how to finance stadium construction projects. Do you
believe that the local communities, not the Federal Government, are
best equipped to deal with this issue?
I agree completely with the premise underlying your question. In my
years as Chairman of the Stadium Committee, I have worked on stadium
projects in communities throughout the country. Those projects have
been in both large and small markets, have had different mixes of
public and private financing, and have followed different paths leading
to the approval--or in some cases, the rejection--of the project being
considered. I have learned that there are as many different solutions
to stadium issues as there are communities in this country. As a
result, teams and communities have developed a number of creative
public-private financial partnerships to address stadium issues.
Stadium proposals receive a great deal of scrutiny from local
officials and voters, who make decisions that reflect local economics
and community needs. In my judgment, the best way to handle these
issues is to allow the local owner and the elected officials and
taxpayers of that community to address the team's stadium needs and how
they will be financed. That is not to say that the National Football
League cannot play a constructive role, which I believe we have done in
many communities. The resolution approved last March is a further
example of how the NFL can and will contribute in the future. But it is
clear to me, as I testified last summer, that a ``one size fits all''
approach to stadium financing is not only unfair to NFL teams and their
fans, but ignores the particular factors present in each individual
community. Given this reality, I do not think there is any national
interest that calls for Congress to override the carefully considered
judgments of state and local governments, or the results of direct
voter referenda, by imposing a Federal approach to what is a
particularly local issue.
______
1999 Resolution G-3--As Amended
Whereas, it is appropriate to improve the League's current policies
to support new stadium construction through club seat sharing
exemptions, as reflected in the club seat sharing exemption guidelines
adopted by the League in 1994 (the ``Guidelines''), and through PSL
sharing exemptions.
Whereas, a revised policy can facilitate new stadium construction
projects by (1) making upfront League loans in support of Clubs'
private contributions to such projects (rather than annually exempting
from sharing the visiting team share (``VTS'') of club seat premiums
over a period up to 15 years) and (2) assuring that League loans will
amount to at least 34 percent of an affected Club's private
contribution to a project:
Whereas, such League loans should be subject to member club
approval on a case-by-case basis;
Be it Resolved:
(1) That for any stadium construction project involving a private
investment for which an affected Club makes a binding commitment from
now through the 2002 NFL season (through March 31, 2003), the League
shall make a loan to the affected Club to support such project based on
the amount that the affected Club has committed to such project as a
private contribution (the ``Private Contribution'');
(2) That the amount of such League loan shall range from 34 percent
to 50 percent of the Private Contribution, determined on a case-by-case
basis based on the size of the Private Contribution, with incremental
League loans in excess of 34 percent generally to be made available to
facilitate stadium construction projects in the largest markets that
are home to an NFL Club, and with the League loans in smaller markets
generally limited to 34 percent of the Private Contribution;
(3) That the Commissioner is authorized to make arrangements for
the League to borrow from commercial or institutional lenders funds to
make such League loans, with the funds to be repaid to such lenders
over an appropriate time period (10 years of such other period as may
be determined by the Finance Committee);
(4) That the specific borrowings from commercial or institutional
lenders related to any stadium construction project must be approved as
part of the League's approval of a League loan to such project, with
the borrowings to be repaid principally from the VTS of club seat
premiums generated by such project, and, to the extent that the VTS of
club seat premiums is insufficient to repay such loans, with any
incremental funds needed for repayment to be assessed against the
League's network television revenues;
Further Resolved:
(1) that if PSL's are sold with respect to a particular stadium
construction project, such PSL's shall be eligible for an exemption
from sharing in accordance with current policies;
(2) that the amount of VTS exempted in respect of PSL's sold shall
be offset against the principal amount of League loans available for
the project; and
(3) that for purposes of determining whether a project is eligible
for incremental League loans, only the first $75 million of PSL
proceeds shall be treated as a portion of the Private Contribution;
Further Resolved:
(1) That any League loan under the League policy adopted by this
resolution, as between an affected Club and the League, shall be
forgiven over the term of the aforementioned League borrowing on an
equal annual basis, and
(2) That, if an affected Club that receives a League loan under the
League policy adopted by this resolution (or a controlling interest
therein) is subsequently sold other than to a member or members of an
owner's immediate family (as defined in the NFL Constitution and
Bylaws) before the final maturing date of the League loan, then the
selling party shall repay to the League from the sale proceeds at
closing an amount equal to the outstanding principal balance on the
League loan; and
Further Resolved, that in order for a stadium construction project
involving a Private Contribution to qualify for a League loan, the
conditions set forth in Attachment A to this resolution must be
satisfied.
submitted by finance committee and stadium committee
Reason and Effect: To modify and simplify the League's policies
with respect to stadium construction projects to provide for amount
other things, (1) a standard 34 percent League loan towards the private
contribution to such projects, (2) such League loan to be made upfront
a the beginning of such projects from funds to be borrowed by the
League, and (3) an incremental League loan (in excess of 34 percent in
respect of such projects in the largest markets.
______
Attachment A
(a) The League must approve a resolution specifically directing in
the making of a loan in respect of a particular stadium construction
project, following an evaluation of (1) the necessity of a new or
renovated stadium in a market in terms of the suitability, economic
competitiveness, and physical condition of the existing facility, the
stadium's importance to League franchise stability, the League's
concerns regarding its national image and presence, the importance of
an affected market to the League's national television ratings, and
other League business priorities, and (2) the specific attributes of
the project, including the scope and cost of the project relative to
the economics in a market and the League as a whole, the balance of
projected shareable and non-shareable revenue streams and the
construction costs associated with each, whether a renovation project
is a ``qualifying'' project (as defined in the Guidelines), and similar
factors;
(b) Such resolution must be adopted and the stadium construction
project must be committed to by both public and private parties, from
now through the 2002 NFL season (through March 31, 2003);
(c) The stadium construction project must be a ``public-private
partnership'' to which public authorities and an affected Club each
have committed funds;
(d) The project must not involve any relocation of or change in an
affected Club's ``home territory'' (as defined in the Constitution and
By-laws);
(e) Increases in the visiting team share generated by the new or
renovated stadium must meet the standards set forth in the Guidelines;
and
(f) The NFL Players Association must agree to exclude from DGR,
over a reasonable period of time on a straight-line amortization basis,
the entire amount of the Private Contribution, together with an amount
equal to the imputed interest on the Private Contribution at a
commercially reasonable interest rate.
______
1999 Resolution JC-3
Whereas, 1999 Resolution G-3 as amended established a new League
policy to facilitate new stadium construction projects;
Whereas, the Philadelphia Eagles are prepared to participate in a
public-private partnership for the construction of a new stadium in
downtown Philadelphia;
Whereas, the member clubs have determined that the Philadelphia
stadium project, as described to the membership, will serve the
League's interests by creating a new and much needed facility in a
major television market and by increasing Visiting Team Share over that
generated by the Eagles' current stadium;
Whereas, the member clubs have determined that the Philadelphia
stadium project qualifies for a stadium construction contribution from
the League under the criteria set forth in 1999 Resolution G-3.
Be It Resolved, that the League shall make a loan to support the
Philadelphia stadium project, which loan shall be made to the Eagles,
the stadium project, and/or a stadium company that the Eagles may
choose to create in connection with the stadium project, and the amount
of which loan (a) shall be determined based upon guidelines developed
and applied jointly by the finance and Stadium Committees and to be
reviewed by the NFLPA and (b) shall be based on the club's ``Private
Contribution,'' as defined in 1999 Resolution G-3;
Further Resolved, that the amount of such Private Contribution
shall be subject to verification and audit in accordance with
procedures to be determined and approved by the Finance and Stadium
Committees and to review by the NFLPA as contemplated by 1999
Resolution G-3 and related agreements between the NFL Management
Council and the NFLPA);
Further Resolved, that the amount of such League loan shall be 50
percent of the Private Contribution, as so determined;
Further Resolved, that the Commissioner is hereby authorized to
make arrangements for the League (or a League affiliate created to
administer the stadium contribution program) to borrow funds to make
such loan on terms consistent with 1999 Resolution G-3;
Further Resolved, that any such loan shall be repaid first from the
VTS of PSL's and club seat premiums generated by the Philadelphia
stadium project (the amount of which shall be subject to verification
and audit in accordance with procedures to be determined and approved
by the Finance and Stadium Committees), with any incremental funds
needed for repayment to be assessed against the League's network
television revenues;
Further Resolved, that the aforementioned League loan shall be
forgiven over the term of the aforementioned League borrowing in a
manner consistent with 1999, Resolution G-3;
Further Resolved, that if the Eagles, any stadium company that may
be created in connection with the Philadelphia stadium project, or a
controlling interest in either of them, is sold other than to a member
or members of the current owner's immediate family before the final
maturity date of the League loan, the selling party shall repay to the
League from the sale proceeds at closing an amount equal to the
outstanding principal balance on the League loan, computed solely for
purposes of determining such repayment amount by subtracting one-
fifteenth of the initial principal balance of such loan from such
initial principal balance for each year that such loan has been
outstanding;
Further Resolved, that the terms and conditions of the stadium
contribution granted hereby shall be evidenced by agreements with all
relevant parties acceptable in form and substance to the Commissioner,
and that the Commissioner shall execute and deliver such agreements on
behalf of the League, which shall contain such additional specific
terms and conditions as the Commissioner may deem necessary or
appropriate.
submitted by finance and stadium committees
Reason and Effect: To approve in principle a stadium construction
contribution for a new stadium to be constructed in downtown
Philadelphia.
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VOTE DISPOSITION
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For ______
Against ______
Abstain ______
Absent ______
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______
1999 Resolution JC-4
Whereas, a new stadium for the Denver Broncos is being constructed
through a public-private partnership;
Whereas, Pat Bowlen has created a separate company, Stadium
Management Company (``SMC''), which he controls, to borrow monies to
fund the Broncos' private investment in the new stadium, to hold the
master lease for the stadium, and to operate the stadium following its
construction;
Whereas, the final terms of the debt to be incurred by SMC to fund
the Broncos' contribution to the stadium project, the financial terms
of the master lease between SMC and the Denver stadium district, and
the financial terms of the sublease between SMC and the Broncos have
been submitted for Executive Committee approval as required by 1988
Resolution FC-3 and 1988 Resolution FC-5; and
Whereas, as described to the membership, the Broncos' new stadium
project will serve the League's interests by creating a new and much
needed facility in an important League market and by increasing
Visiting Team Share over that generated by the Broncos' current
stadium; and
Whereas, the member clubs have determined that the Denver stadium
project qualifies for a stadium construction contribution from the
League under the new League policy established by 1999 Resolution G-3
(as amended) to facilitate new stadium construction projects;
Be it Resolved, that the terms of the financing agreements to be
entered into by SMC to fund construction of the Broncos' new stadium
(including the required temporary and limited waiver of the debt
ceiling) be, and hereby are, approved;
Further Resolved, that the financial terms of the master lease and
sublease for the new stadium be, and hereby are, approved;
Further Resolved, that the debt and lease approvals granted hereby,
and the terms and conditions thereof (including that if, at any time, a
transaction is proposed after which the Broncos and SMC shall no longer
be commonly owned and controlled, the sublease will be amended, subject
to then-outstanding stadium financing obligations, so that the Broncos
will have the right to receive substantially all football-related asset
streams from the stadium and the obligation to pay SMC a negotiated
arms'-length rent from such revenues), shall be reflected in customary
letter agreements among relevant parties in form and substance
satisfactory to the Commissioner and the Finance Committee;
Further Resolved, that the League shall make a loan to support the
Denver stadium project, which loan shall be made to SMC, the Broncos,
and/or the stadium project, and the amount of which loan (a) shall be
determined based upon guidelines developed and applied jointly by the
Finance and Stadium Committees and to be reviewed by the NFLPA and (b)
shall be based on the club's ``Private Contribution,'' as defined in
1999 Resolution G-3;
Further Resolved, that the amount of such Private Contribution
shall be subject to verification and audit in accordance with
procedures to be determined and approved by the Finance and Stadium
Committees and to review by the NFLPA as contemplated by 1999
Resolution G-3 and related agreements between the NFL Management
Council and the NFLPA);
Further Resolved, that the Commissioner is hereby authorized to
cause funds to be borrowed by the League (or a League affiliate created
to administer the stadium contribution program) on terms consistent
with 1999 Resolution G-3 in order to make such loan in support of the
Denver stadium project;
Further Resolved, that such loan shall be repaid first from the
Visiting Team Share of club seat premiums generated by the Denver
stadium project (the amount of which shall be subject to verification
and audit in accordance with procedures to be determined and approved
by the Finance and Stadium Committees), with any incremental funds
needed for repayment to be assessed against the League's network
television revenues;
Further Resolved, that the aforementioned League loan shall be
forgiven over the term of the aforementioned League borrowing in a
manner consistent with 1999 Resolution G-3;
Further Resolved, that if the Broncos and/or SMC, or a controlling
interest in either of them, is sold other than to a member or members
of the current controlling owner's immediate family (as defined in the
NFL Constitution and Bylaws) before the final maturity date of the
League loan, the selling party shall repay to the League from the sale
proceeds at closing an amount equal to the then-outstanding principal
balance on the League loan, computed solely for purposes of determining
such repayment amount by subtracting one-fifteenth of the initial
principal balance of such loan from such initial principal balance for
each year that such loan has been outstanding; and
Further Resolved, that the terms and conditions of the stadium
contribution granted hereby shall be evidenced by agreements with all
relevant parties acceptable in form and substance to the Commissioner,
and that the Commissioner shall execute and deliver such agreements on
behalf of the League, which shall contain such additional specific
terms and conditions as the Commissioner may deem necessary or
appropriate.
submitted by finance and stadium committees
Reason and Effect: To approve the financial terms of the Broncos'
new stadium lease documents, their stadium construction financing
documents and the related debt ceiling waiver, and a stadium
construction contribution to be made to the Broncos under 1999
Resolution G-3.
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VOTE DISPOSITION
------------------------------------------------------------------------
For ______
Against ______
Abstain ______
Absent ______
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______
1999 Resolution JC-5
Whereas, 1999 Resolution G-3, as amended established a new League
policy to facilitate new stadium construction projects;
Whereas, the New England Patriots have undertaken to participate in
a public-private partnership for the construction of a new stadium in
Foxboro, Massachusetts;
Whereas, the member clubs have determined that the Foxboro stadium
project, as described to the membership, will serve the League's
interests by creating a new and much needed facility in a major
television market and by increasing Visiting Team Share over that
generated by the Patriots' current stadium;
Whereas, the member clubs have determined that the Foxboro stadium
project qualifies for a stadium construction contribution from the
League under the criteria set forth in 1999 Resolution G-3.
Be it Resolved, that the League shall make a loan to support the
Foxboro stadium project, which loan shall be made to the Patriots, the
stadium project, and/or a stadium company that the Patriots may choose
to create in connection with the stadium project, and the amount of
which loan (a) shall be determined based upon guidelines developed and
applied jointly by the Finance and Stadium Committees and to be
reviewed by the NFLPA and (b) shall be based on the club's ``Private
Contribution.'' as defined in 1999 Resolution G-3;
Further Resolved, that the amount of such Private Contribution
shall be subject to verification and audit in accordance with
procedures to be determined and approved by the Finance and Stadium
Committees and to review by the NFLPA as contemplated by 1999
Resolution G-3 and related agreements between the NFL Management
Council and the NFLPA;
Further Resolved, that the amount of such League loan shall be 50
percent of the Private Contribution, as so determined;
Further Resolved, that the Commissioner is hereby authorized to
cause funds to be borrowed by the League (or a League affiliate created
to administer the stadium contribution program) on terms consistent
with 1999 Resolution G-3 in order to make such loan in support of the
Foxboro stadium project;
Further Resolved, that any such loan shall be repaid first from the
VTS of PSL's and club seat premiums generated by the Foxboro stadium
project (the amount of which shall be subject to verification and audit
in accordance with procedures to be determined and approved by the
Finance and Stadium Committees), with any incremental funds needed for
repayment to be assessed against the League's network television
revenues;
Further Resolved, that any such League loan shall be forgiven over
the term of the aforementioned League borrowing in a manner consistent
with 1999 Resolution G-3;
Further Resolved, that if the Patriots, any stadium company created
in connection with the Foxboro stadium project, or a controlling
interest in either of them, is sold other than to a member or members
of the current owner's immediate family before the final maturity date
of the League loan, the selling party shall repay to the League from
the sale proceeds at closing an amount equal to the outstanding
principal balance on the League loan, computed solely for purposes of
determining such repayment amount by subtracting one-fifteenth of the
initial principal balance of such loan from such initial principal
balance for each year that such loan has been outstanding;
Further Resolved, that the terms and conditions of the stadium
contribution granted hereby shall be evidenced by agreements with all
relevant parties acceptable in form and substance to the Commissioner,
and that the Commissioner shall execute and deliver such agreements on
behalf of the League, which shall contain such additional specific
terms and conditions as the Commissioner may deem necessary or
appropriate.
submitted by finance and stadium committees
Reason and Effect: To approve in principle a stadium construction
contribution for a new stadium to be constructed in Foxboro,
Massachusetts.
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VOTE DISPOSITION
------------------------------------------------------------------------
For ______
Against ______
Abstain ______
Absent ______
------------------------------------------------------------------------