THE BUSINESS AND POLITICS OF SPORTS
If and when the Atlanta Thrashers National Hockey League franchise is sold and moved to Winnipeg, Manitoba, there will be those who will analyze the failure of the business to catch on in Georgia. Yes, the Thrashers ownership was bad, and there is enough evidence to completely convict the ownership of being thoroughly incompetent as a court proceeding proved.
But it is far more than just bad ownership that doomed the Atlanta Thrashers franchise and after a quarter of a century it is time to place the finger of blame on the real culprit on the potential Thrashers move along with the National Football League lockout, the potential National Basketball Association lockout and the struggles of various franchises to succeed economically in the sports arena.
It was the 99th Congress that revised the 1986 tax code and President Ronald Reagan who signed those changes into law.
A good number of cities should never have had "major league" sports franchises but those cities decided to go into the sports business by building stadiums and arenas and handing out leases to owners that became an albatross around the necks of taxpayers.
The smaller market cities went after teams to show other businesses that their city was a great area for business. Memphis, Nashville, Jacksonville and other smaller towns all of a sudden became big league and paid handsomely for the “title."
The 1986 tax code revision redistributed the wealth and shifted the burden of paying for new facilities from team owners to taxpayers. Only eight cents of every dollar generated in new facilities could go to pay down the debt of the municipally built facility unless a local government got tough and negotiated a better deal.
In most cities, the local governments who were so desperate to build "major league" structures rolled over and gave owners whatever they wanted in an attempt to be "major league" and forced all sorts of tax hikes on local residents. The stadiums and arenas were peddled to voters as "economic engines" that would provide first construction jobs then build up an area. Local residents who had to vote on the expenditure were told that they would pay nothing (in some cities) that the money would come from hikes in hotel and motel taxes and car rentals. Other tax hikes were imposed on beer, alcohol, cigarettes, cigars, tobacco, water, sewer and a general sales tax hike to fund facilities. There were breaks given on property tax payments (the combined Giants-Jets real estate holding pays East Rutherford, NJ about $6 million a year in combined rent and taxes on the Meadowlands facility on a property that is probably worth about $13 million a year on the tax roll.)
Sports owners jumped on the 1986 Congressional act which Ronald Reagan approved. This is what the change in the tax code has brought. A 2011 NFL Lockout, the probable move of the Atlanta hockey team to Winnipeg, the Glendale, Arizona government paying the National Hockey League $25 million to keep a franchise in the city, the delay of a move of the National Basketball Association's Sacramento Kings to Anaheim, California until cash-poor Sacramento along with other local governments in the area find an arena funding formula. The move of the New Jersey Nets to Brooklyn has New York City and New York State politicians fingerprints all over it. The building will be heavily subsidized by New York taxpayers as are the new Yankees Stadium, the Mets ballpark in Flushing (complete with the logos of the taxpayers bailed out corporate sponsor--Citibank) and New Jersey kicked in well over $300 million for infrastructure for the Giants-Jets new stadium. New Jersey still owes hundreds of millions of dollars in paying down the debt at the departed Giants Stadium. New Jersey is not alone in paying for sports facilities that were blown up. Pittsburgh was paying off the debt at Three Rivers Stadium for years, Seattle and King County will be paying off the bonds on the long gone Kingdome until 2014. Those stadiums were replaced after the changes in the 1986 tax code.
The NFL lockout's roots can be directly traced to Ronald Reagan's signature in 1986. It is no coincidence that the majority of NFL cities built new venues after the 1986 legislation. As more and more stadiums were opening on the public dime, revenues kept rising. By the late 1990s, the New Orleans Saints ownership claimed it could no longer compete in the NFL unless they got a new stadium in the city because the team no longer was in the top of the NFL in stadium revenues and fell to the bottom.
Eventually the state of Louisiana came up with a $186.5 million deal to satisfy the owner, Tom Benson, and handed him direct checks every July 1 between 2002 and 2010 to make him happy and keep the team in town. As far as anyone could tell, it was the first time a state gave money to a team. New York State gives $3 million annually to make Ralph Wilson elated in Orchard Park, New York. Indianapolis virtually gives away the new football facility and all of the revenues generated inside the place to Colts owner Jim Irsay. Small market owners need help from governments.
In places like Cincinnati, the local government has to take money from other services to pay down the debt at the football stadium. The new stadiums have helped the owners but in cities like Minneapolis, Oakland and San Diego where the stadiums are old (although renovated in Oakland and San Diego) and cannot produce the revenues that are found in Arlington, Texas (Dallas Cowboys), East Rutherford, Philadelphia, Houston, Foxboro and Washington (Landover, Maryland) and that has hurt the franchises in Minneapolis, San Diego and Oakland. Those teams cannot keep up with the salary floor as NFL revenues rose. The old stadium franchises cannot keep up with the Joneses, Maras-Tischs, Johnsons, Krafts, Snyders, Laniers and the other big boys in revenues.
The NFL lockout is designed to help the old stadium owners who don't have the revenue sources in the local market that new stadium owners have. That's the whole reason behind the NFL lockout strategy. It's not a difficult concept to grasp even though the league and players continue to slug it out in the judicial system. The NFL has been reluctant to spell out the real reason it has locked out the players. They need taxpayers dollars to fix the problem in Minneapolis, Oakland, San Diego, San Francisco (Santa Clara) possibly Buffalo and certainly in Los Angeles and it is a tough sell for the prosperous NFL to beg for tax dollars to build stadiums to help the lower revenue teams. But the league needs taxpayers dollars to make everyone equal.
The National Hockey League came up with a grand plan to expand the business in 1990 from 21 franchises to 30 with most of the nine franchises to take root in the United States. The expansion scheme was hatched long before Gary Bettman became National Hockey League commissioner, something that seems to be conveniently forgotten by sportswriters who don't have any understanding of business and politics and sports.
The official line was the NHL needed to expand their United States footprint for television purposes and the unofficial line was that Wayne Gretzky popularized the NHL because he was in Los Angeles and attracted the Hollywood crowd to Los Angeles Kings games. But the truth was that cities were building arenas and ready to give away the house in exchange for a franchise. In Anaheim, the Walt Disney Company decided to capitalize on the success of the Mighty Ducks movie franchise and bought a team from the league after securing a sweetheart lease in the new Anaheim arena. Disney ended up with everything at the arena and apparently would not share revenues with say Donald Sterling and his National Basketball Association Clippers. Sterling and other potential NBA owners could not get into Anaheim because there was not enough money available for an NBA team to be financially successful thanks to the Disney lease.
Before Bettman got to the NHL, the league split the Minnesota North Stars franchise with some players staying in Bloomington, Minnesota and the rest ended up with an expansion team in San Jose although the franchise started at the Cow Palace in Daly City south of San Franchise. The league expanded into Ottawa and Tampa and then Anaheim and Miami. The NHL owners began splitting a lot of money, $50 million per new franchise. Bettman joined when they league had 26 teams. Bettman came into the league in 1993 when Norman Green was attempting to move his Minnesota North Stars franchise to either Anaheim or Dallas. Green moved to Dallas. In 1995, Quebec City officials refused to provide funding for a new arena and the franchise moved to Denver. Winnipeg officials did not build a new arena and the Winnipeg Jets franchise ended up in Phoenix in a poor conceived arena that was built to satisfy Phoenix Suns owner Jerry Colangelo need for a new basketball arena for his team. The facility was built in such a way that it had thousands of obstructed seats making it unusable for anything but basketball.
In 1997, the NHL expanded to planned new buildings in Nashville and Atlanta (two cities that could hardly be called hockey mad cities), along with St. Paul, Minnesota and Columbus. St. Paul Mayor Norman Coleman pushed heavily to build a taxpayers subsidized arena in St. Paul while private money was found to build a venue in Columbus, Ohio. Also in 1997, Hartford Whalers owner Peter Karmanos moved his franchise to Raleigh, North Carolina. That deal also came with Karmanos promising to move a piece of his Compuware business to the Raleigh area. Connecticut Governor John Rowland was too busy trying to get Robert Kraft to move his New England Patriots NFL franchise to Hartford. Kraft listened said yes and then got a deal in Massachusetts abandoning Rowland.
The NHL expansion gave owners $450 million which was split between 21 owners. That was not Gary Bettman's plan but it was the NHL's business plan was developed by league owners in 1990.
The NBA added four franchises after Reagan changed the tax code but those arenas in Orlando, Charlotte, Miami and Minneapolis were online prior to the change in the law. All four cities became problems for NBA Commissioner David Stern and the league. The buildings were not state of the art 21st century buildings as they were designed in the 1980s. Orlando, Charlotte and Miami didn't have the real revenue producers, club seats and luxury boxes for corporate customers. All three cities replaced arenas that were 20 year old or less. Minneapolis's building was funded by private money---which nearly snuck the franchise---and by the mid 1990s the building was taken over by the government.
The NBA lockout of 2011 will be caused by reckless spending. The NBA went into markets that cannot compete with New York, Los Angeles, Chicago, Boston and other large markets without a real revenue sharing plan. Those markets would never have had franchises without the Reagan signature. Memphis, Charlotte, New Orleans, Oklahoma City, Salt Lake City, San Antonio have teams because of new arenas, Seattle lost a team because local politicians would not spend money for a new build some 12 years after renovating the city's arena bringing the building up to 1990s standards. Despite giving all the revenues away at the arena in Indianapolis, Pacers owner Herb Simon may eventually move his team. Indianapolis cannot make money even though the city has given away the building.
Major League Baseball went through the same dance. New stadiums, great leases and broken promises of stadiums being an economic engine.
Major League Soccer owners learned their lessons well as they sold local politicians on the benefits of new stadiums starting with the failed economic engine theory.
The NHL is still playing the arena game. Charles Wang's New York Islanders franchise needs a new building and Nassau County voters will be asked on August 1 to sell bonds for a building. Edmonton is seeking a new arena, Columbus wants the city to take over the building, and Calgary is looking for a new building. Major League Baseball wants new venues for the Tampa Bay Rays and Oakland A's. The NBA could become a league with three New York area teams, three Los Angeles area franchises and two franchises in the San Francisco Bay Area.
Taxpayers are on the hook for billions thanks to Ronald Reagan's signature. Reagan supporters and apologists will probably try to debunk the impact of the 1986 tax code changes on sports. It would be a futile argument. There is plenty of blame to go around starting with the House and then the Senate. Two Senators, New York's Daniel Patrick Moynihan, a Democrat, and then Republican Arlen Specter of Pennsylvania (before he switched parties) tried to close the 92 percent loophole in the tax code but to no avail.
Reagan and Congress changed sports in 1986. A quarter of a century later the impact is astounding. The NFL lockout, the NBA lockout, the Sacramento arena problems, the Glendale subsidies, the Louisiana subsidies which continue to this day for Benson's NFL Saints and the NBA Hornets, Nassau County's vote, the Atlanta relocation, baseball's "Bay" problems in St. Petersburg and Oakland. It goes on and on with no relief in sight for sports fans.
Evan Weiner, the winner of the United States Sports Academy's 2010 Ronald Reagan Media Award, is an author, radio-TV commentator and speaker on "The Politics of Sports Business." His book, The Business and Politics of Sports, Second Edition is available at bickley.com, Barnes and Noble or amazonkindle.