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10 September 2009

Cutting through the B.S.

The Merc's Tracy Seipel has a new article featuring quotes from economists questioning some of the projections in the San Jose Economic Impact Report. Here's one of the better takeaways from the article:

But experts who study the economics of ballparks reviewed the numbers for the Mercury News and raised plenty of concerns. Chief among them: The cost for the city land the ballpark would be built upon is significant, they said. With three more parcels to buy, acquiring the land for the stadium over the years could amount to at least $42 million, according to a Mercury News analysis.

"You can't come out saying that this doesn't have a cost if all we're supplying them (the A's) is the land," said Victor Matheson, associate professor of economics at the College of the Holy Cross in Worcester, Mass. "The land is very valuable real estate."

Rather than be redundant, I'm reposting the "Cutting through the B.S." entry from last week, which covers much of the same ground.

First, I'll start off with some context on the report. The media has published several figures that sound good, but further understanding is in order.

  • $130 million per year in direct spending in San Jose. This is based on what's called a "stabilized" year, which for the purposes of the report is 2018. This acknowledges that much of the newness of the ballpark will wear off over time, allowing attendance to settle just under 2 million/year (24,300/game). This breaks down to $82.8 million of spending in the ballpark, $40.5 million outside the ballpark, $1.8 million by the various visiting teams, and $5.2 million for non-MLB events. There are some odd ratios used to get to these totals. For instance, the study assumes that 10% of players will live in San Jose, and that 10% will spend 50% of their income in the city. What? The other 90% will live outside San Jose and will spend only 5% of their income in the city. All-in-all, some 5.1 million (7%) will be spent within the city. Another $50 million would come from spending directly related to ballpark and team operations. Compare the $130 million figure to projections for the 49ers stadium, which were $72 million and $160 million for the City and County, respectively. I'm skeptical about these numbers, but CSLI claims they're based on information from MLB teams, other sports franchises, and surveys. There must be some correlation, but the numbers described within the text don't always match up with what's in the tables.
  • Nearly 1000 jobs will be created outside of construction. Granted, moving team operations from Oakland to San Jose will net dozens, if not hundreds of new jobs. From a greater regional standpoint, it's really just displacement. Moreover, there will be displacement of the low-paying jobs. Many of the Aramark-sourced vendors in Oakland will lose a seasonal baseball gig, while Aramark-sourced vendors in San Jose will gain one. For years many of these vendors have worked multiple venues to help make ends meet, which makes sense since we have the luxury of having six local pro sports teams combining to cover the entire calendar year. And if the 49ers and/or Raiders move to Santa Clara, there will be even more displacement. Many vendors won't be willing to travel 40 miles to work food or janitorial service. So it's great for South Bay workers, terrible for East Bay workers. Not that I needed to explain that in great detail.
  • Per capita spending. The study separates fans into different groups in order to properly establish their spending patterns. For A's games, in-ballpark spending is projected to be $49 per person per game. That sounds high until you break it down into its components: $30 for a ticket, $15 for food and beverage ($6 nachos + $7 beer + $3 dessert = $16), $3 merchandise (part of more expensive item spread out over multiple visits), $1 parking (3 people per car, 30% of fans using available parking). The Coliseum's 2009 Fan Cost Index is $46.81 per person per game, and that includes a child discount on tickets. Many fans (including myself) go quite cheap by finding free parking, or by bringing in outside food. Still, I pay $13 for a bleacher seat, $7.20 roundtrip from Fremont BART to the Coliseum, $3 in gas, plus $7 for a large sandwich and drink from somewhere else. It adds up.
  • That hint. In the afternoon post, I mentioned there was a hint at the deal. In the general fund revenue section is this sentence, "Under the Ballpark Development Scenario, the hard
    construction costs of the stadium are used as a proxy for the assessed value." Assuming there are no appraisal shenanigans like the kind the Giants pulled in SF, the figure points to an assessment of the ballpark only, which means that the land will remain City property while the A's will lease it for the stadium. In other words, it's a repeat of the Giants' land deal.
What you, gentle reader, want to know is: Are these realistic numbers? The strange breakdown of player spending and the projections of property tax pass throughs to school districts are specious. Other numbers appear to be realistic, in some cases conservative. The study projects $1.5 million in tax revenue. It's not high, and there's a good reference point in HP Pavilion. Sharks games produce between $1.2 and $2 million per year in taxes with fewer games and less overall attendance (though greater ticket prices). That said, $1.5 million is a drop in the bucket for a city of 1 million people. Claims of making money from the deal are key for Mayor Chuck Reed, as he wants to uphold his fiscal conservative credentials. Given the litany of bad stadium deals listed in the last appendix in the report, it would be a great victory if the project were simply revenue neutral. Not sexy, but a little more realistic.

Media coverage of the economic impact report and reactions:
The money: Wolff connects the dots @ Bloomberg, talks T-rights @ Forbes
The lede @ the Merc and SFGate
The tube: KTVU and KGO stories

24 comments:

hamachi said...

will MLB have an official response to this? or do they ignore it till they decide what to do about T-rights?

Marine Layer said...

It isn't for MLB's consumption. It's for the San Jose voter. MLB has its own criteria.

Anonymous said...

Thanks for the thorough analysis, ML.

Like you, I doubt too many players will live in SJ proper. Those that do decide to live in the South Bay are much more likely to end up in Saratoga, Monte Sereno or Los Gatos.

Paul said...

...one thing that scares me: Wait till MLB hears about the San Jose airport curfew.

"Just so your players can wax nostalgic, we're going to make you land in Oakland after 11:30 pm since our airport is closed. The other teams, too."

The Sharks and the NHL have had to deal with this nuisance since 1993 and don't like it much.

Dan said...

Paul, they could always find a way to get an exception like Oracle's CEO.

Tony D. said...

Now your reaching Paul.

Paul said...

Dan: The Sharks tried and failed to get an exemption from the curfew. They have had to learn to live with it.

I don't think the curfew is a deal-breaker for San Jose but it's certainly something that would go in the "negative" column when looking at the good and bad of letting the A's move south.

Tony D. said...

By the way R.M.,
Noticed ancillary development isn't part of this whole EIR equation. That will show the true benefit of bringing MLB to downtown San Jose. Think $2-$5 billion in private investment around Petco Park.

cbg015 said...

Thanks for the analysis ML.

I'm an A's fan who doesn't care where the A's end up as long as it is in the Bay Area.

What I find troubling is the last paragraph of the forbes.com article. The piece conveys that SJ is the last option for Northern California. What happens if SJ falls through?

It makes so much sense for MLB to have the A's in San Jose but it bugs the heck out of me that there's still a possibility it won't happen and the A's will leave the Bay Area.

When talking to people about this issue many believe that the A's moving to San Jose is a formality, while others think it it'll never happen due to t-rights, MLB owners voting against it, etc. I know many who post here are biased but, I guess my question is, what are the realistic chances that the A's will move to San Jose?

Paul said...

cbg: If baseball looks at San Jose from a realistic business perspective, it's a slam-dunk. If baseball looks at San Jose as an inconsequential suburb of San Francisco and is more concerned with nonsensical "territorial rights," then it won't happen. As I said in another thread, one owner reportedly was led to believe San Jose was "right next door" to San Francisco. This mega-millionaire didn't even know (or bother to research for himself) that San Jose is 48 miles from Frisco.

So that's what we're up against here.

Anonymous said...

0%

Jeffrey said...

0%? What the heck?

Anonymous said...

@ anon 2:08,

An Oakland-only partisan finally surfaced. Hopefully this doesn't open up the floodgates of delusion and B.S.!

Jeffrey said...

Marine Layer clone Jeff here... Over on Field of Schemes and in the Economic Impact Report there is a reference to 23 acres for the stadium... What are the extra 9 acres?

I am a head scratching on this one.

Marine Layer said...

The original 2004 plan included the fire training site and the land across Autumn St, adjacent to Los Gatos Creek. The current study area only includes the 14 acres bounded by W San Fernando, Autumn, and Park.

Davy Jones said...

Will any of the A's players want to live on waterfront property in Alviso?

Anonymous said...

Do any of them want to live in waterfront property in Oakland? Nope. They all live in Black Hawk, Danville and Walnut Creek. Fortunately for them, Los Gatos, Monte Sereno, etc will be a nice step up.

gojohn10 said...

50% of the ballpark attendees coming from San Jose seemed like a really big number to me. So I took the Oakland advanced ticket sales numbers provided by ML (by way of the Fremont study) and extrapolated to the SJ situation. First, I graphed the ticket sales based upon the approximate distance of the buyers from the Coliseum (distances based on the home county of the buyer). I normalized for county population since that obvious is a huge factor. I then took the slope of that line and applied it to the Diridon ballpark.

If this method is not totally flawed, San Jose citizens will constitute only ~22% of attendees at Cisco Field (The number below the county/city name is the yearly contribution to attendance). If 1 million fans truly end up coming from San Jose alone, this is going to be a very popular venue. I realize I’m beating a dead horse here, but one would think that would justify adding more than the 32K seats. I know my estimate makes a bunch of assumptions, but so does the reports issued by San Jose. At least I tell you how I got my numbers.

Anonymous said...

I guess based upon these analyses than no city benefits from having a professional sports franchise--

What's missing for me based upon these "expert analyses" is the benefit of having a diverse set of entertainment options that make your city an attractive area to live, locate a business or to visit. These are key to the economic prosperity of a region.

From this perspective I can't imagine a bunch of additional office towers would have the same impact as a ballpark in that area--adding to the "atmosphere" of San Jose and making it a more attractive place to work, live and play--

Marine Layer said...

These types of analyses don't go into qualitative matters such as quality-of-life. There's no doubt that having a local MLB franchise improves this, but that benefit is impossible to measure. For that reason, it's left out.

What this all comes down to is whether or not a below-market land lease from the city is worth having the A's for the next 30-40 years.

Anonymous said...

ML,
Who would determine what is a "below-market land lease?" Especially in this economy?

I'm sure even if the city and A's agree to a market-rate land lease for Diridon South, someone could complain it's to little (or even to much I suppose).

What do you foresee as the going rate for leasing Diridon South?

Tony D. said...

R.M.,
Prof. Matheson's suggestion that the $42 million in city money used to buy Diridon South is a form of "public subsidy" is absurd! That would only be the case if the city were to just hand over the plots to A's/Lew Wolff AT NO COST. While I personally would not object to that, it hasn't been mentioned as an option and would be very controversial. Even claiming a below-market rate lease is a form of "public subsidy" is a reach.

What gets me is this: the city has been land-banking across downtown and the rest of the city for years. The city then sells or leases the banked land to private company's for an assortment of purposes: residential, retail, commercial developments. Yet throw in "sports facility" as a purpose, and all of a sudden there's controversy. HUHH!?

By the way, that's all we need at Diridon South are a couple of empty "Sobrato Tower-like" office high-rises.

Tony D. said...

Oh yah!

Anon 10:20 nailed it! That's what bringing MLB to San Jose is all about!

To answer your question R.M. regarding the land lease: of course it's worth it!

All The Way Ray said...

I see that the situation in the Bay Area is similar to what we faced in Minneapolis. Eventually, the politicians will bite the bullet and anti up in the form of a sales tax like they did here. Remember that the Coliseum is still baseball OUTDOORS and the Metrodome may be the worst ballpark ever conceived. This may be a little off topic but hopefully it makes some sense.