This is all painfully familiar…

blog.svconline.com

The trials of the Phoenix Coyotes, the least popular hockey team in the NHL, offer a lesson in public debt and defeat.

### theatlantic.com Sep 7 2012, 2:37 PM ET
Business
If You Build It, They Might Not Come: The Risky Economics of Sports Stadiums
By Pat Garofalo and Travis Waldron
In June, the city council of Glendale, Arizona, decided to spend $324 million on the Phoenix Coyotes, an ice hockey team that plays in Glendale’s Jobing.com Arena. The team has been owned by the league itself since its former owner, Jerry Moyes, declared bankruptcy in 2009. For each of the past two seasons, Glendale has paid $25 million to the league to manage the Coyotes, even as the city faced millions of dollars in budget deficits. Now, Greg Jamison, who is also part of the organization that owns the NHL’s San Jose Sharks, is making a bid for the team, and would therefore be the beneficiary of the subsidies.

“Take whatever number the sports promoter says and move the decimal one place to the left. Divide it by ten. That’s a pretty good estimate of the actual economic impact.”

To put the deal in perspective, Glendale’s budget gap for 2012 is about $35 million. As the city voted to give a future Coyotes owner hundreds of millions of taxpayer dollars, it laid off 49 public workers, and even considered putting its city hall and police station up as collateral to obtain a loan, according to the Arizona Republic. (The latter plan was ultimately scrapped.) Overall, Glendale is not only on the hook for $15 million per year over two decades to a potential Coyotes owner, but also a $12 million annual debt payment for construction of its arena. In return, according to the Republic, the city receives a measly “$2.2 million in annual rent payments, ticket surcharges, sales taxes and other fees.” Even if the Coyotes were to dominate the league like no other in recent memory and return to the Stanley Cup Finals year after year, the city would still lose $9 million annually.

“It’s kind of a perverse argument that taxpayers should subsidize this because businesses depend on this deal that isn’t viable.”

This is an altogether too common problem in professional sports. Across the country, franchises are able to extract taxpayer funding to build and maintain private facilities, promising huge returns for the public in the form of economic development.
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Posted by Elizabeth Kerr

25 Comments

Filed under Architecture, Business, Construction, Design, Economics, Events, Geography, Media, Project management, Property, Site, Sport, Stadiums, Urban design

25 responses to “This is all painfully familiar…

  1. Phil

    The fools. Have they not heard that it only works if you do it “The Southern Way” ?

  2. Anonymous

    I still believe criminal charges need to be brought against the people who commit their city to this type and scale of non-essential debt. Clearly they have put down their role of working in the bests interests of the city and conspired to benefit its Stakeholders.

    This should apply to the 20 or so individuals involved in the rort of Dunedin and Gerry Brownlee who, after so much hindsight, is promoting a half billion dollar stadium ahead of the needs of the wider community.

    It is people like these who should be immediately ejected from office.

  3. Peter

    Yes, Phil, so blessed have we been with ‘The Southern Way’. As Malcolm The Great has said, ‘Every dollar, every cent was sweated over’ to build our stadium. I don’t know what people are complaining about.

  4. Mike

    It’s easy for him to say that, it’s you and I doing the sweating , all he had to do was blow it on fripperies

  5. Rob Hamlin

    Posting to ODT article ‘Stadium’s big test: We have it covered‘:

    I am mystified why you would design a roofed facility to leak onto its main arena. Not only does this damage the pitch and compromise its primary rugger use – but it also makes it unusable for a number of the other purposes for which it was touted. I would not enjoy watching a concert with water dribbling at high velocity down my neck, nor would I like to see my trade convention stand being reduced to a soggy wreck, or to see wet patches that I was not expecting appear on my motorcycle jumping ramps – Would you?

    As to the state of the pitch, I had reason to be in the Forsyth Barr Stadium last Saturday morning, and I had a good look at the surface. My observations were as follows:

    “The grass in the Foobar was far worse than I expected it to be. There is a completely bald patch of several square metres in the North East corner, but this is not on the field of play.

    More seriously, there are regular areas of baldness at the ten, the twenty two, halfway and in front of the posts. These bald patches come in pairs about 25% in from the touchline on either side of the pitch. Whether this highly regular wear patternis due to patterns of play, a design issue with the Stadium itself, or the effect to the paint-on advertising that they are presumably compelled to put onto specific areas of the pitch I do not know.

    In the worst of these bald patches visible from the North Stand (the twenty two on the North West side of the pitch), the grass looks to be in very marginal condition over perhaps 10 square metres. Large completely bald patches are present within this area, with sad little tufts of natural grass showing here and there. A similar pattern is repeated on a smaller scale in the other patches noted above.

    The small pitch stand lights were playing on two of these bald patches and a sort of exposure meter thing was set up in the middle of the pitch. Several people have also noted that the main lights have been on in the Stadium recently for no apparent reason. The areas in front of the posts were also worn. Some of these bald patches appear to have been resown at some point as they were a slightly different colour (these areas of differing colour were square and encompassed the visible areas of deterioration noted previously).

    Little yellow/bald patches are present all the way along the northern touchline and evidence of divoting/skid marks was present all over the pitch. Desso, I believe is supposed to pretty much entirely eliminate this divoting – just as long as the grass is strong enough to hold the individual and unconnected tufts of Desso steady within its matrix. The grass generally looked overgreen, squishy, generally tender, and most certainly not tight.

    My call would be that this surface might make it through to the end of the Rugby season, but looks like it will need to spend the summer in intensive care and rehab. This would imply a low chance of any serious off rugby season use. I would suspect that the deterioration next season may be even more severe and it may become unplayable at some point then. This pitch appears to be in a very marginal state, and it has arrived in this condition via a pattern of very light usage – primarily for professional rugby.”

    I can find no references on how a damaged pitch that incorporates an artificial fibre component can be satisfactorily rehabilitated short of digging it out in its entirety – and presumably dumping the unusably fibrous soil in a landfill, and then replacing it with something entirely artificial that works.

    Were this to happen the community would be left with a highly compromised facility. A Stadium that had been designed for an artificial surface from the outset would be fully weatherproof – unlike this one, which both blows and leaks (this second failing has been known about for a while by some of us, but is now public and ‘official’ as of today). Any facility designed for general use that was fully weatherproof would almost certainly have a roof that would exclude the majority of the radiant heat falling upon it. The holes in the walls and roof of this Stadium, through which the wind currently howls, cannot simply be ‘stuffed up’ – it would get too hot – courtesy of the grass-growing ETFE roof. My calculations, submitted to the DCC in 2008, indicated that an ETFE roof would generate around 4 megawatts of heat on a sunny day – Sweaty.

    My call is that professional rugby will be re-established in Carisbrook before this failure becomes manifest and ‘unspinnable’ in PR terms – and probably enjoying a ratepayer funded upgrade of the ‘rugby heritage’ facility into the bargain. If it does eventually occur, this complete technical failure of the Forsyth Barr facility, could then be concealed via the installation of a ratepayer funded artificial surface as a replacement to ‘increase its utility’ with attendant PR spin from several sources. Including attention to the ‘sacrifices’ made by those codes forced out by the new artificial surface! This complete technical failure of the FB facility would of course complement its complete commercial failure relative to the claims made for it at the time of this project’s approval.

    When I predicted a per seat cost of $12,500 for the FB facility, this prediction was dismissed as ‘rubbish’. When I predicted that the FB facility would only have 17,500 permanent seats, this was also dismissed as ‘rubbish’ – I was eventually proved to be almost precisely right on both occasions. I have no doubt that this prediction of the re-migration of professional rugby back to Carisbrook at considerable public expense will also be dismissed by official sources as ‘rubbish’ – We shall see how things turn out this time, and if I’m on for the hat-trick.

    Carisbrook, as I noted in an earlier posting, remains in immaculate condition with its rugby posts in, a year after it officially ceased to be a public facility – rugby or otherwise. No public and specific explanation from the DCC (the responsible body) for this bizarre and expensive state of affairs has been forthcoming despite extensive comment about it.

    • Elizabeth

      ### ODT Online Tue, 11 Sep 2012
      Stadium’s big test: we have it covered
      By Chris Morris
      The man tasked with running Dunedin’s Forsyth Barr Stadium is in the final stages of trying to plan for every eventuality just days before the All Blacks run out under the roof for the first time.

      ‘…a southerly storm was forecast to bring snow to low levels today, and, with it, the possibility of water draining through the plastic roof and on to the playing surface below. The roof was designed to drain that way…’

      Read more

      • Elizabeth

        ### ODT Online Tue, 11 Sep 2012
        Carisbrook pristine for training
        By Debbie Porteous
        Dunedin’s supposedly mothballed Carisbrook stadium has been spruced up and the grounds are looking fit to host an All Blacks test match. The turf at the stadium, which is for sale, is immaculately groomed[…]the council had done nothing special to prepare the ground for the training.
        Read more

  6. Peter

    My God. What a farce this whole stadium is becoming. Now they are trying to tell us that they designed the roof so it could piss rain down on the pitch for it to drain away.Incredulous. This is ‘making the stadium work’?
    I initially wondered, Rob, if your third prediction was overstated, but after today’s report on the merits of a specially designed leaking roof, anything is possible now. They will have to set the groundwork for a possible return to Carisbrook. Maybe this is it? Imagine the ridicule to come.

  7. Peter

    Q. Who reassured the public that everything was OK with the turf?
    A. Darren Burden
    http://www.odt.co.nz/news/dunedin/67133/039grass-will-grow-stadium039

  8. Anonymous

    I posted several times that the roof leaked during construction. The explanation given at the time was that this was because it had not yet been fully sealed. The roof still leaks after construction. The guttering on the North stand cascades with water after heavy rain as it cannot cope with the large volume of water gushing off the roof.

  9. Calvin Oaten

    Rob; I think you are absolutely on the money with your summation of the stadium situation. I also have suggested that Council should bite the bullet and give Carisbrook back to the ORFU for a dollar and tell them they are on their own. With the sale of the houses, reputably for a $1m and the Neville St car park possibly for $0.5m the council would be absorbing a loss of around $3.5m, $2m had already been lost, being the debt the ORFU owed and was never going to pay. So $3.5m ($5.5m) is a small price to pay to get rid of the “huge Tar Baby” What then to do with the stadium? The ‘known’ fixed costs are capital and interest amounting to between $11.5 and $12 million pa. The ‘unknown’ costs are the operating costs plus the health costs of keeping the terminal ORFU on life support. This could quite easily result in raising the total annual costs to somewhere around $20+ million pa. And that is only based on the assumption that interest rates remain at their historically low levels. A highly unlikely scenario. No, the best option would be to turn the lights off, close down and terminate the whole DVML operation, and wear the ‘known’ $12m pa until such time as an alternative use can be found for it. Hopefully the University would pick it up at a discount for some faculty purpose. I have already previously suggested what that could be, so no point in going over that again. But what is the most likely outcome? I suspect the same as is, with an ever increasing financial hole being dug, until one day when reality kicks in and the bankruptcy process is put into action. Then we will all sit back and watch the remaining miscreants quietly fade away to Queenstown, Wanaka and places further distant. Dunedin will be left a broken city.

    • Elizabeth

      Calvin, let me remove understatement. Dunedin IS broken. Now. The financial wiz-boys never were. OK some of them have creamed public funds before they go to jail. They have flash personal assets and property. We All have the names, and Some (whom you would least expect) have documentary evidence not locked in a room at the Stadium.
      Fun times ahead.

  10. Mike

    Rob, I bet it comes out as:

    I had reason to be in the Forsyth Barr Stadium last Saturday morning, primarily for professional rugby. We shall see how things turn out this time, and if I’m on for the hat-trick.
    [abridged]

  11. Peter

    I think the miscreants should consider going further than Queenstown and Wanaka. Not far enough to escape the odium. I would suggest a country like Russia where the business climate there would suit them far better. Hell, they could even get themselves a beautiful dacha by the Black Sea and a Russian bride to boot.

  12. Calvin Oaten

    Elizabeth/ “Dunedin IS broken”. Possibly, probably, but who of the ‘movers and shakers’ at the moment are going to admit that? None that I can see. Certainly not Mayor Dave Cull or his councillors. Though to be fair to them, they probably don’t know. Why? Too thick, I suspect. Those that do, are just covering their “arses” till they can get the hell out of it. They will continue to suck on the ‘hind teat’ of the city till they do. You will be able to see them all poncing around ‘brown nosing’ at the stadium on Saturday night if any of you are interested enough to go there. I won’t be, it’d be rude to ‘throw up’ on the turf.

    • Elizabeth

      That would be a stadium with ultra patchy turf and a leaking roof onto the main pitch. See Rob’s comment above.

      ### ch9.co.nz September 11, 2012 – 5:52pm
      Cold snap forces training venue change
      With a cold snap hitting the city this morning, the All Blacks were forced to change the venue of their training. And back, Conrad Smith, says having the luxury of a covered stadium to train in makes it all the more enjoyable.
      Video [to be uploaded]

    • Elizabeth

      That would be a stadium with ultra patchy turf and a leaking roof over the main pitch. See Rob’s comment above.

      ### ch9.co.nz September 11, 2012 – 5:52pm
      Cold snap forces training venue change
      With a cold snap hitting the city this morning, the All Blacks were forced to change the venue of their training. And back, Conrad Smith, says having the luxury of a covered stadium to train in makes it all the more enjoyable.
      Video [to be uploaded]

  13. Anonymous

    Re “Carisbrook pristine for training” = another slap in the face for ratepayers by the Otago Rugby Times. And “spokesman” for the Dunedin City Council? Oh, I see what you did there, all very funny and nothing serious about this rugby business. Only hundreds of thousands of dollars on top of the hundreds of millions of debt… that Oddity, aye? Bunch of funny ones they are.

  14. Peter

    By the sounds of it they might need to train, and play, in slippers.

    • Elizabeth

      Yes, Edgar Centre needs a sponsor. (has Eion got any dimes left)
      Hey DCC, help your REAL community asset out: pay NOT ONE CENT MORE to ORFU/DVML, the money-grubbing professional rugby set.

      Must be hell just now being responsible for a competing council-owned venue like Edgar Centre, under the DVML umbrella. Like we didn’t see this coming.

      ### ODT Online Wed, 12 Sep 2012
      Sponsor sought for Edgar Centre
      By Debbie Porteous
      The Edgar Centre is seeking a major naming-rights sponsor and millions of dollars worth of sponsorship to help solve its financial challenges. The centre “scraped by” and was breaking even, but did not have enough money to do things it really wanted – and in some cases needed – to do, such as replacing turf, lighting and other equipment; adding new programmes and attracting more events, general manager Blair Crawford said.
      Read more

  15. Rob Hamlin

    Posted on the ODT website about 5 minutes before being posted here. No sign on the ODT website of the earlier posting on the FB pitch put here and there a day or so ago – I am not holding my breath given that they are now appear to be claiming via supposedly serious informative articles that the FB roof was designed to leak deliberately and that the DCC has been maintaining a 28,000 seat stadium for over a year in pristine condition just so that the AB’s can have a couple of practice runs on it – Incredible.

    Article follows:

    I am aware of the work that has gone into the recent press release by Bev and the work (aggravation) and documentation that backs it up. It has been obtained in the face of vigorous and sometimes desperate resistance – but not, I believe, from the DCC end of things since Mr Orders took over. I feel that it is best to stick detailed analysis of specific indicative incidents. The signing of the CST/TMB contract is one such.

    The $200k paid out at the end of the contract that is not related to the provision of specific services is clearly related to contingent fees – how the eventual severance amount was worked out would be interesting. However, I doubt that these details would ever have been committed to paper or electronic media and will thus never be known/revealed. I don’t recall seeing a marketing consultancy deal that involves contingencies before – but I have not operated extensively as a consultant in the entertainment industry (and not at all on behalf of the CST – at least on a paid basis!).

    It is interesting that the agreement could be terminated by either party by giving notice, but that the contingency payments were unaffected by any such termination even if this occurred before or mid-execution. The relevant sections are given below:

    5.2.1
    The client shall pay to the Consultant 2% (two per cent) of the gross proceeds (capital and revenue streams) generated by the following projects and products developed and or implemented by the Consultants under the terms of this agreement:
    Ground memberships
    Naming rights
    Auxiliary naming rights
    The Roaring Forties
    Founders Club

    5.2.7
    Notwithstanding any other provisions in the agreement, contingent fees will continue to accrue to The Consultants for a period commencing upon execution of this agreement and continuing for a period 24 months [sic] following the [sic] either the opening of the Stadium or the commencement of revenue flows where this is later.

    7.1.1
    This agreement may be cancelled by either party providing to the other not less than 30 days notice, in writing, of its intention to do so, providing such notice is issued not later than 28 February 2008. Such termination shall not have an effect on the Contingent fees provisions in this agreement.

    7.1.2
    This agreement may be cancelled by either party providing to the other not less than 90 days notice, in writing, of its intention to do so, providing such notice is not issued prior to 29 February 2008. Such termination shall not have an effect on the Contingent fees provisions in this agreement.

    The clauses governing contingency fees appear to allow ‘The Consultant’ to collect on this potentially substantial sum regardless of their actual performance or contribution to the products concerned – they could have served notice the day after the deal was signed, then delivered ‘something’ during the notice period to minimally justify a claim of development or delivery, and still been legally entitled to collect on that part of the deal while other parties did the work. This could have been challenged in court, I presume, but I would also presume that such a challenge would be sufficiently expensive to make a negotiated deal involving some significant payment a more attractive option once the client was committed to the agreement.

    The key issue is not what moneys were eventually paid by the ratepayer to the Marketing Bureau, but that a contract was signed that made it possible to create a substantial liability for the ratepayer for which nothing comparable had to be delivered in return. I am not a trained lawyer, nor am I a professional executive – but it took me about five minutes to read this contract and about five seconds to identify the clauses that eventually ended up costing the ratepayer some $200,000 – there is no attempt at concealment or deception within the contract. Given this, it is reasonable for Ms Butler and others to ask why this contract was still signed in this form after having been scrutinised by Mr Burden, the business mandarins on the CST board and presumably their legal advisors.

    What we seem to have here is a process of transferring existing contracted rugby related activities at Carisbrook with some light modifications to an equivalent (supposedly superior) structure less than two kilometres away. It eventually turned out that these memberships, while zippily dressed up in the contract as various lounges and clubs etc, were still contingent upon the ORFU and Highlanders performing at the Stadium. Many may recall the sudden public revelation of this rugby hook/poison pill in the ‘private funding’ being revealed earlier this year when the future of the ORFU was being considered.

    Given this specific requirement, it is reasonable to presume that these ‘products’ were not radically removed from various forms of a straight rugby season ticket already that were available at the older venue. The degree of commonality of clientele between the Carisbrook product portfolio and the FB Stadium portfolio would also be interesting to know, as the differences between them could be used to give some indication of commonality of market and of incremental delivery performance of these TMB products, and thus their actual value – but we don’t have that information. However, as 80% plus of the major events held at this supposedly multi-purpose Stadium have been rugby matches it is reasonable to assume that the level of commonality of the clientele with Carisbrook broadly matches the level of commonality of the entertainment offered.

    Therefore, exactly why you need to spend $600,000 on marketing services to achieve this transfer of existing business, and what this particular Auckland based group brought to the process in terms of effort and relevant assets is a bit of a mystery. There were two or three small reports written I believe. But, beyond that we know little of what was done. The vast majority of the product holders are local as far as I know. The eventual naming sponsors were eventually nearly all local too (Forsyth Barr, Mitre10 Mega, ODT Ticket Direct etc), so how much input TMB in Auckland had into negotiating these arrangements is also not known.

    It seems an awful lot to pay for very little tangible delivery that could be identified as incremental to the straight transfer of the existing business noted above. Bev Butler is justified in asking questions of those involved – The Mayor should be asking too, and he should have been asking for a while as he announced this to be ‘old news’ during the course of his ‘infuriation event’. Perhaps the answers that he and his Council are in a position to acquire might cause him to become infuriated all over again – Poor fellow.

  16. amanda

    I love how the ODT is very careful to include the quote about how Eion Edgar “graciously” decided to include corporate sponsorship rights. Typical of the cringingly grovelly regard the ODT holds for the stakeholders in this town. But entertaining nonetheless, so good on them for that. Sadly, while grovelling to the Great and the Good it often means giving a shove to those down in the rank and file. Which explains the disinterest in the dismal experience of Museum staff under Shim. After all, he is paid over a quarter of a million so he must be Good right? Also explains the ODT’s looking the other way when holding ANYBODY to account for the fiscal failure of the stadium.

  17. Anonymous

    I am contemplating incorporating the “Fuk Yu Restaurant” and applying for naming rights, if the “Edgar’s Centre” is to be appended.

  18. Phil

    So the DCC has been paying the Edgar Centre a subsidy to help offset their annual losses, and then turns around and charges them rent which is contributing to those same losses. I thought that Paul Orders was supposed to be putting a stop to these ridiculous Monopoly money schemes which serve only to falsely inflate the so called “profits” generated by certain DCC departments.

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