Editor's Note: This blog is written by Minnesota School of Business Program Chair, Dick Anderson. Says Dick, "My sincere hope is that this Blog will elicit comments and dialog on multiple business, marketing, economics, finance and management issues that affect us all. Somemay agree and some will disagree, but all are welcomed with comments, but must be supported with facts."
Question of the week: Can anyone tell me what the moon is worth?
So I thought the inaugural blog should deal with a topic that I know we will all agree on – building the Vikings stadium. Gov. Mark Dayton signed the Vikings Stadium bill on May 14, 2012, committing the good people of Minnesota to $498 million (including the City of Minneapolis) to be financed over 30 years, meaning with interest, the cost just for the construction will be $785.2 million.
This assumes no overruns, which because of the keen negotiating skills of our legislators; the Minnesota taxpayer is on the hook for. The average stadium built in the last 10 years has typically overrun its original projections by 15 percent to 20 percent (based on two studies done by Raymond J Keating “We wuz robbed!: The subsidized stadium scam.”) pushing our costs to nearly $1 billion. That’s a “B” for billion.
Of course we are told that “electronic pull tabs” will be our path to revenue nirvana, raising $42.7 million in revenue a year. Here’s the catch – paper pull tabs have declined by 40 percent in 2011 from a high of $36.6 million (State Auditor’s report 2011). This means, revenues of $22 million in 2012 are most likely. That brings the taxpayers cost to $57.3 Million a year for the stadium.
How is that going to be paid, you might ask? Great question!
Here’s the answer: $8 million will be paid by the Vikings (don’t let this $13M that’s quoted fool you, $5M is rebated back to Vikes in future years) and $42.7 from pull tabs. Let me see now, $8M plus $42.7M equals $57.3M. Got it. Only in Minnesota.
So we have a shortfall of $6.6 million a year, which more likely will be a $12 mill shortfall since pull tabs are fading faster than Bodemeister in the Kentucky Derby and Preakness this year. And remember students, this does not include capital improvements of probably 25 percent of the original cost to be incurred at least 7 years from now. Thank heavens that the Vikings will pay for that since it will benefit them – oh wait, that’s right the Minnesota taxpayer has to pay for those, 100 percent. I’m getting dizzy just thinking about the numbers and I haven’t even talked about the effect of “substitution” on pull tabs and the cost of the new machines for 3500 establishments. OMG!!
So why do this – well here are the typical arguments
Benefits of Public Funding of Sports Stadiums
- Job creation and increased incomes
- Tax revenue increases
- Fan happiness
- Civic pride
As we say, gag me with a wooden spoon! Fan happiness, you got to be kidding. Yea, I would be happy too if I knew my Vikes tickets were subsidized by $100 each time I bought one. That’s like saying gasoline is $4 a gallon, but for you I am only going to charge $1.20 and your good neighbor will pay the other $2.80 on your behalf. I tell you what; I’m driving to Alaska and maybe even Australia.
But then there is Civic pride – like this is going to get me to cut my lawn once a week rather than once a month – forget it. It must be all about creating jobs. Hmm? It is estimated that it will create 200 jobs for the duration of the construction – well so much for that concept.
So it is all riding on the “tax revenue increases” from pull tabs. Let me see, oh yeah, were losing $15 million a year that needs to be offset somewhere else, ah I bet it will come from Vikings property taxes –nope tax free, maybe parking taxes –nope tax free, gate receipts, concessions, ticket sales – nope tax free. I’m starting to see a pattern here. This must mean the revenues will go up when we levy the new state wide tax increase they haven’t told us about until next year to cover the shortfall. Yeah, I see the big benefit there!
Finally, I would be remiss to ignore the opportunity costs here. All good economic students know that any decision has to be weighed against the next best alternative. Fixing our roads, lowering our tax rates, assisting college students, lowering our tax rates, helping the poor (I tossed that normative statement in just to show you I do have a heart, maybe), did I mention lowering our tax rates or just plain reducing our overall debt.
Don’t get me wrong, I am a huge Viking fan, just realllllly cheap. I just wouldn’t mind if Los Angeles paid for all of this. Kinda like they subsidize the stadium but keep it here. I’m sure they will go for that. You know Californians! So, for all of you Stadium fans…buy those pull tabs.
By the way, the moon is worth one dollar because it has four quarters.