By Joseph M. Hanna of Goldberg Segalla LLP
and S. Phillip Unwin of Goldberg Segalla LLP
The New York metropolitan area has seen a tremendous boom in stadium construction in recent years. Of the nine franchises that play in the traditional four major pro sports leagues, three have opened new stadiums (New Jersey Devils, New York Mets and New York Yankees) since 2007, two more will be opening a new stadium in September 2010 (New York Giants and New York Jets), another plans to opens a new stadium in 2012 (New Jersey Nets1), and another is actively looking for a new stadium (New York Islanders). The New York Knicks and New York Rangers, tenants of venerable Madison Square Garden (“MSG”), are staying in their building, but MSG is getting a massive renovation with completion tentatively slated for 2013.
A significant amount of the cost of this construction has been publicly funded, and a debate has raged over the years about whether such cost is worthwhile.
Prudential Arena (New Jersey Devils)
Built: 2007
Estimated Cost: $310 million2
Final Cost: $467.5 million3
Public Financing: $311.5 million.4
The Devils’ franchise represents an example of the power of threatened relocation. The franchise itself had two homes before even settling in New Jersey; it began as the Kansas City Scouts, moved to Denver as the Colorado Rockies, and finally made its way to New Jersey in 1982. Shortly after winning the 1995 Stanley Cup, the Devils threatened to move to Nashville, Tennessee. Eventually, a deal was struck to keep the Devils in Brendan Byrne Arena (later Continental Airlines Arena and then the Izod Center), in East Rutherford, through 2007.5 At the expiration of their lease, the Devils moved to the Prudential Center, in Newark.
The initial cost estimate of $310 million likely did not account for infrastructure improvements that were necessary, and further improvements may drive the total cost over $500 million. The City of Newark has already had some buyer’s remorse with regards to the deal. The city owns Prudential Arena, but the Devils have been withholding rent. The team claimed that the city failed to meet numerous construction deadlines, and thus created additional costs.6 In response, the city proposed a 5% tax on all tickets sold at Prudential Arena.7 As of the time of this article, the dispute was still pending, with the city claiming $4 million in unpaid rent.8
Citi Field (New York Mets)
Built: 2009
Estimated Cost: $600 million9
Final Cost: $830.6 million
Public Financing: $614.3 million10
Yankee Stadium (New York Yankees)
Built: 2009
Estimated Cost: $930 million11
Final Cost: $2.3 billion13
Public Financing: $1.19 billion14
These two stadiums need to be considered together. Before leaving office, New York City Mayor Rudy Giuliani announced agreements with the Mets and Yankees to build new stadiums, at a total cost of $1.6 billion, $800 million of which would come from the sale of tax-exempt bonds, and another $390 million in additional infrastructure expenses paid by New York State.15 When Michael Bloomberg took office, he quickly dismissed this as fiscal irresponsibility, but after learning that the deals worked out by the former mayor contained a clause that either team could leave New York with 60 days notice if “the city [did] not intend to proceed with the stadium project”, expressed interest in working out an agreement with both teams. 15
The amount of public financing for the projects varies tremendously, depending on the source cited. One estimate pegs the amount of public money for Citi Field at $164.4 million17, and $220 million for Yankee Stadium.17 In a sense, this is accurate; the amount of direct public funding of these projects is significant, but not nearly as much in light of the overall cost of the projects. However, the Mets and Yankees have both benefited from the tax-exempt status of the bonds sold, from foregone property taxes, forgone sales taxes and rent rebates. The Yankees have also benefited from having a new parking garage constructed, at public expense, and having the land for the stadium granted to them.
Political opposition varied significantly between the plans for the two different stadiums.18 Though both represented a significant public expenditure, albeit in an amount not clear to the casual observer, Yankee Stadium faced far stiffer opposition for a few reasons. First, Yankee Stadium was to be built on parkland, which had to be replaced, at city expense, while Citi Field was built on vacant land right next to the old Shea Stadium.19 Second, the public sector expenditure, as disclosed, was significantly greater, and if the estimates above are accurate, nearly twice the Citi Field expenditure. Third, cost overruns plagued Yankee Stadium; as noted above, the final cost was roughly two-and-a-half times the estimate. The $295 million parking garage was a particular sticking point.20 Citi Field, by contrast, was part of New York City’s unsuccessful 2012 Olympic bid, after the West Side Stadium (see below) fell through.21
Meadowlands Stadium (New York Giants and Jets)
Built: 2010
Estimated Cost: $800 million22
Final Cost: $1.6 billion23
Public Financing: Officially, none. However, the State of New Jersey is funding approximately $400 million in road improvements and rail links, and is paying for the remaining debt on Giants Stadium at a cost of $100 million.24
The Giants had long desired to build a new home in East Rutherford to replace aging Giants Stadium, their home since 1976. The Jets, however, wanted their own stadium, having played in Giants Stadium since 1983 and generally been considered second-class citizens in their own stadium. Plan A for the Jets was a stadium on Manhattan’s West Side, which would double as the centerpiece of New York City’s 2012 Summer Olympics bid. The stadium was to be built on top of the Long Island Railroad train yards, at a cost of $2.2 billion, with $600 million in public financing. The plan was scuttled, however, when Assembly Speaker Sheldon Silver declined to support the project.25 The city shifted their focus to Citi Field as the venue for the Summer Games, and the Jets moved on to Plan B. In an interesting twist, a large part of the opposition to the West Side Stadium came from the owners of Madison Square Garden, a point discussed in greater detail below.
As with the Mets’ and Yankees’ new homes, with the Meadowlands, we see a case of private funding paying most (or in this case, all) of the cost of the stadium, but infrastructure costs being borne by the public. The Giants and Jets secured a $300 million loan from the NFL’s G-3 fund, a fund designed to assist teams in the construction of new stadiums.26 The $300 million loan exhausted the fund. Both teams contributed $650 million, funded by a private bond auction.27
Meadowlands Stadium has been trumpeted as being entirely privately financed, and in a technical sense, this is true. However, its two tenants are exempt from property taxes28. The Giants and Jets pay rent to the New Jersey Sports and Exposition Authority, who, in turn makes Payments In Lieu of Taxes (PILOT) to the city of East Rutherford. The PILOT was initially capped at $1 million per year, but the parties involved reached agreement to increase that sum.29 The final figure was $1.3 million, however, the NJSEA agreed to pay any property taxes over and above that $1.3 million, which could amount to $10 to $15 million per year.30 Over the course of the 15 year lease, the city or state may forego as much as $200 million in lost tax revenue, in addition to the $400 million for infrastructure improvements and $100 million in debt service on Giants Stadium.
Madison Square Garden (New York Knicks and Rangers)
Built: 1968, renovations scheduled to be completed 2013.31
Estimated Cost: $775 to $850 million
Final Cost: n/a
Public Financing: none.
MSG has been intermittently scheduled for renovation for several years, but it appears they are finally serious about proceeding this time. The project is still being worked out, but the plan is for the owners of MSG (Cablevision, an entity that also owns the Knicks and Rangers) to pay for the entire cost of construction. It does not appear that any infrastructure improvements are scheduled at the present time. However, Cablevision benefits from a property tax exemption, which amounts to over $11 million per year.32 The property tax exemption was the product of a deal brokered in 1982, to abate property taxes for 10 years on MSG, at a time when the Knicks and Rangers were threatening to move.33 However, the tax abatement was not rescinded in 1992, or at any time since, despite occasional threats to do so, most recently in 2008, when the City Council voted to repeal the tax34, but the State Legislature has the final say, and the matter never moved forward from there.35
Whether Cablevision was content to not pursue public financing, or whether they felt the political climate had become too toxic to do so, is conjecture. However, a multitude of factors made it likely that any attempt to secure public financing would likely prove unsuccessful. First, the aforementioned tax abatement, which caused some controversy. Second, both the Knicks and Rangers have been extraordinarily unsuccessful in recent years. The Yankees, Giants and Devils have world championships to show for their efforts, and the Mets and Jets have had some success, albeit not on the same level. But both the Knicks and Rangers have become infamous for fielding high-cost, low-performance teams.36 Third, Cablevision has made more than their share of enemies in New York City politics. Apart from the tax abatement controversy, Cablevision was at the forefront of opposition to the ill-fated West Side Stadium. Cablevision felt that a West Side Stadium would have threatened MSG’s position as the pre-eminent sports and entertainment venue in Manhattan. Their opposition was significant enough that the NFL took the step of pulling the NFL draft, a significant media and fan event, from MSG and instead moving it to the Jacob Javits Center.37 Further, Cablevision backed away from plans to integrate a new MSG in with the long-awaited Moynihan Station project, the renovation of the ancient Penn Station.38
So what does all this mean for the future? Tax exempt financing has increasingly become the favored vehicle for publicly funding new stadiums, with lost revenue shared by taxpayers at all three levels of government: local, state and federal. 39 However, by arranging tax-exempt financing, and funding infrastructure costs publicly, political leaders can either escape, or at least minimize, the negative publicity that comes with public financing of a private entity. Contrast the Jets’ ill-fated West Side Stadium with the successful completion of Meadowlands Stadium. The West Side Stadium was perceived as being a giveaway of public funds, and was ultimately not approved, while the Giants, Jets and other stakeholders in Meadowlands Stadium were able to proclaim that it was privately financed, and the stadium was built and approved with only token opposition and no political fallout.40 This is despite the fact that the public financing of infrastructure projects connected to the stadium, and debt service on the old stadium, stand at a total of $500 million, with perhaps another $200 million to come in the form of foregone property taxes. If we take at face value the estimate of a $600 million public contribution for the failed West Side Stadium, it is hard to argue that taxpayers are appreciably better off.41 It is far easier to sell infrastructure costs to the public as a necessary expense than it is stadium construction costs. After all, roads, bridges, and the like are all legitimately accepted public expenditures, yet construction costs are frequently derided as “corporate welfare”.
The New York Islanders are the only franchise in the metropolitan New York area without plans for a new stadium. The Islanders’ owner, Charles Wang, has been seeking a replacement venue for the team for several years. The Islanders’ current home, Nassau Coliseum, is the NHL’s oldest venue, and is almost universally derided as its worst. Wang has been seeking approval for the “Lighthouse Project” off and on since 2003.42 The project would include a mammoth renovation of Nassau Coliseum, along with a shopping center and condominiums. Wang was reportedly seeking an arrangement with the Town of Hempstead and Nassau County where he would pay for a $320 million renovation of the Coliseum, and lease 77 acres of public land for $1, as well as pay $1.5 million in annual rent.43 One assumes that there would be significant infrastructure cost for such a project, given that it involves a major renovation of public land, and that many, if not all, of these costs would be borne by the municipality. The project has been stalled, and Wang has tried to use the threat of relocation in an effort to move matters along. In 2009, the Islanders played an exhibition game in Kansas City, which does not currently have an NHL team, in hopes of sending a less-than-subtle message that he was serious about relocating44. More recently, the Mets have discussed the possibility of building an arena for the Islanders in Queens, though there is not yet a concrete proposal on the table45.
The Islanders face some difficulty that the other New York teams did not. For one, they have been woefully unsuccessful for most of the last 20 years, even by the meager standards of the Knicks and Rangers, and it is much easier to support a winning franchise than a losing one. The threat of relocation to Kansas City was, it seems, not taken all that seriously, and perhaps with good reason. Kansas City has already failed at hosting an NHL franchise once before, and the threat of leaving a huge market like New York for a far smaller market like Kansas City may ring hollow. What’s more, the plans for the other New York stadiums were consummated prior to the 2008 recession. In the current political climate, any perceived public funding might well go over poorly at a time when the state is dealing with a serious budget crisis. We have seen in the case of both the West Side Stadium and with MSG the ever-decreasing willingness of political leaders to open the public’s wallet for these projects. Finally, the NHL as a whole is not on the solid footing of the other three major sports; one franchise is already in bankruptcy, and thus the league is not in a position to support new development the way the NFL was. Wang thus faces a dilemma far worse than any of his fellow owners did, and it is uncertain how it will resolve itself.
What conclusions can we draw from this? There seems to be an increasing reluctance on the part of political leaders to fund stadium projects. The era of direct payments and grants to franchises has likely passed; the costs to the public in most of the above cases were frequently hidden. We have observed the opposition to Yankee Stadium that intensified over time, the buyer’s remorse experienced by those who backed Prudential Arena, the outright veto of a West Side Stadium, an attempt to revoke the property tax abatement for Madison Square Garden, and these point to a tougher case for sports franchises to make in the future, if they want public money for stadium projects, however the funding is couched. Unfortunately for franchises, this goes directly against the trend of ever-increasing costs, which would necessitate a desire for greater public involvement. For example, the Jets and Giants had to commit to amounts of private financing that some other NFL owners were uncomfortable with. If public financing is harder to come by, franchises will either have to dig deeper into their own pockets, or become more spendthrift with their building projects. Since sports leagues generally want to avoid their teams taking on high levels of debt, it seems reasonable to believe that there will be a push to decrease costs in the future.
Joseph M. Hanna is a partner in the Buffalo, New York office of Goldberg Segalla, LLP, which has 10 offices throughout New York, New Jersey, Connecticut, and Pennsylvania. His practice is focused on commercial litigation with an emphasis on sports and entertainment law, construction law and intellectual property litigation. In 2010, Mr. Hanna was awarded the New York State Bar Association Outstanding Young Lawyer Award for his efforts to enhance diversity in the legal profession and effective leadership in community activities. The award is presented annually to a young lawyer who has rendered outstanding service to both the community and the legal profession and has a distinguished record of commitment to the finest traditions of the New York State Bar through public service and professional activities. He was awarded this distinction and honor for his commitment to diversity in organizing various minority bar programs throughout the country, authoring articles on minority attorney retention, and spearheading the creation of a comprehensive database of over 500 minority law organizations throughout the United States. Mr. Hanna is the Chairperson of Success in the City — a diversity networking event and the Founder and President of Bunkers in Baghdad, Inc. — a not-for-profit organization that collects golf equipment for distribution to soldiers stationed in combat zones overseas and to injured veterans throughout the United States. He can be reached at jhanna@goldbergsegalla.com.
Philip Unwin is an associate at Goldberg Segalla, LLP and works out of the firm’s Rochester, New York office. He is a 2002 graduate of the State University of New York at Buffalo Law School and has defended workers compensation insurance carriers and employers since 2005. He can be reached at punwin@goldbergsegalla.com.
1 The New Jersey Nets are moving to Brooklyn, with a planned date of 2012. While it appears the recent litigation surrounding that move has come to an end, the Nets have just been sold to a new owner, so their situation remains in flux, and as such, is beyond the scope of this article.
2 It is unclear whether this initial estimate included costs for infrastructure, but it appears that it did not, per http://www.nj.com/newarkguide/index.ssf/2007/10/
project_pricetag_nears_500m.html.
3 http://devilsdaily.com/node/137. All final costs include necessary infrastructure work, i.e. parking and public transportation renovations. The venue itself is listed at a cost of $375 million, per http://www.prucenter.com/default.asp?prucenter=153
&urlkeyword=Highlights.
4http://www.nj.com/newarkguide/index.ssf/2007/10/
project_pricetag_nears_500m.html. This number is very much up for debate. For the stadium itself, the City of Newark contributed $210 million, revenues from a lawsuit against the Port Authority of New York and New Jersey, and the Devils paid the remainder, per http://www.wcbs880.com/Prudential-Center-Opens-Tonight/1131733. The remainder are infrastructure costs borne by the state of New Jersey and federal government.
5 http://www.nytimes.com/1995/07/14/sports/hockey-devils-and-new-
jersey-call-truce-and-strike-deal.html ?scp=104&sq=nashville+devils&st=nyt
6 http://www.nypost.com/p/sports/devils/report_devils_owe_millions _in_back_TTon4qRyWhY6k5fS0pBY6I
7 http://blog.nj.com/njv_joan_whitlow/2009/12/
nets_or_no_nets_newark_needs_a.html
8 http://www.nj.com/news/index.ssf/2010/05/prudential_center_nj_devils_wo.html
9 http://www.ballparks.com/baseball/national/nymbpk.htm. The stadium was to cost $444.4 million, and the remaining $155.6 million was for infrastructure.
10 http://www.fieldofschemes.com/documents/Yanks-Mets-costs.pdf
11 http://www.nytimes.com/2008/02/08/sports/baseball/08sandomir.html
12 http://www.fieldofschemes.com/documents/Yanks-Mets-costs.pdf
13 Ibid.
14 http://www.nytimes.com/2002/01/17/opinion/bonus-season-for-baseball.html
15 http://www.nytimes.com/2002/01/16/nyregion/bloomberg-says-details-
on-stadiums-were-omitted.html. It should be noted that Yankees owner George Steinbrenner had been intermittently threatening to move the Yankees out of the Bronx since the 1980s, with Manhattan and New Jersey the most commonly mentioned destinations, though it is unclear how serious that threat ever was, nor is it clear that it was ever taken seriously.
16 http://www.ballparks.com/baseball/national/nymbpk.htm
17 http://www.ballparks.com/baseball/american/nyybpk.htm
18 http://www.plannyc.org/taxonomy/term/718
19 http://www.fieldofschemes.com/documents/Yanks-Mets-costs.pdf
20 http://www.allbusiness.com/trends-events/delays-postponements/12223713-1.html
21 http://www.nyc.com/arts__attractions/citi_field_stadium_mets.1001249/
editorial_review.aspx
22 http://www.usatoday.com/sports/football/nfl/2007-01-26-notebook_x.htm
23 http://www.nytimes.com/2010/04/09/sports/football/09stadium.html
24 http://www.nytimes.com/2009/10/11/sports/football/11taxes.html
25 http://www.nytimes.com/2005/06/07/nyregion/07stadium.html?_r=1
26 http://www.washingtonpost.com/wp-dyn/content/article/2006/12/07/AR2006120701484.html. The G3 program is technically a loan, but functions more like a grant. The NFL loans the money to pay for stadium construction costs, but the loan is repaid with the visiting team’s share of club seat revenue, essentially dispersing the costs of the loan to the remaining NFL teams. http://articles.sfgate.com/2007-02-02/sports/17230571_1_stadium-fund-new-stadium-candlestick-point
27 http://sportsbusinessjournal.com/index.cfm?fuseaction=article.main &articleId=54208&requestTimeout=900
28 http://www.fieldofschemes.com/news/archives/2006/02/jersey_mayor_gr.html, original link unavailable
29 http://www.nytimes.com/2006/04/01/nyregion/01stadium.html?_r=1&oref=slogin
30 http://www.fieldofschemes.com/news/archives/2006/12/
3094_giants_jets_get.html, original link unavailable.
31 http://www.nytimes.com/2010/05/06/sports/06garden.html
32 http://www.nydailynews.com/news/2007/11/02/2007-11-02_mayor_bloomberg_ wont_extend_109m_tax_bre-4.html, though as of 2007, the tax break was actually estimated at $11.6 million by the Independent Budget Office, per http://www.fieldofschemes.com/news/archives/2007/11/bloomberg_ill_n.html.
33 http://www.nytimes.com/2002/11/21/nyregion/metro-matters-no-taxes-no-foul-at-the-garden.html
34 http://www.nytimes.com/2008/01/31/nyregion/31garden.html?ref=nyregion
35 See n. 27. See also http://www.nydailynews.com/ny_local/2009/02/22/2009-02-22_end_madison_square_garden_tax_breaks_sez.html
36 http://www.nytimes.com/2008/01/07/nyregion/07garden.html
37 http://www.nytimes.com/2005/02/11/sports/football/11draft.html
38 http://www.nytimes.com/2008/04/04/nyregion/04madison.html
39 http://oversight.house.gov/images/stories/documents/20071010171736.pdf
40 Although Gov. Jon Corzine’s re-election bid failed, to the author’s knowledge, no one has yet attributed this to the financing of Meadowlands Stadium.
41 Of course, if we assume that Meadowlands Stadium would have been built irrespective of the fate of the West Side Stadium, then taxpayers obviously benefit, since they are funding one stadium and not two.
42 http://www.lighthouseli.com/
43 http://www.fieldofschemes.com/news/archives/2009/10/3856_islanders_sign.html
44 http://www.nbcnewyork.com/news/sports/How-Does-Kansas-City-Islanders-Strike-You.html
45 http://gothamist.com/2010/05/12/mets_talk_to_the_islanders_about_mo.php
