The Imbalance Sheet: More on Minnesota

Minnesotans for Major League Baseball member Thomas Lang weighed in
on last
week’s The Imbalance Sheet by pointing me to that committee’s report
on the Twins’ stadium situation:

"The Twins' claims that they can't compete without a new stadium were
obviously fraudulent before this year..."

I object both to your conclusion and particularly strongly to your use of
the term "obviously," as I view the Twins' claims as neither
fraudulent nor obviously so.

Please view the following:

http://www.mn4mlb.com/mncm/reports/committee_report.pdf

So I did. And what I found was a 70-page regurgitation of the same naïve,
self-serving claptrap that has surrounded every "grass-roots"
effort to con voters into funding facilities for privately-owned sports
teams.

The report in question was funded in part by the Minnesota Twins themselves,
and relied heavily on input from Major League Baseball, the NHL’s Minnesota
Wild, and major community development groups. Unsurprisingly, the report
makes no mention of any input from leading economists who have examined the
question of publicly-funded sports facilities, and who are nearly unanimous
in their criticism of such deals.

The report relies on a long list of faulty assumptions and selective use of
data to come to the following conclusion: "The economics of Major
League Baseball dictate that the Twins cannot survive in Minnesota without a
new ballpark." Therefore:

• Minnesotans should cough up 50% of the funding for a $300 million
  stadium project.

• MLB should implement the recommendations of the Blue Ribbon Panel
  Report.

• The team should restrict some seat prices to keep them
  "affordable."

• The team should also expand its charitable and community activities.

• The state should look into public ownership and/or a profit-sharing
  arrangement with the team.

To see why these recommendations are about as insightful as a James Jeffords
speech on the New England Dairy Compact, let’s look at the committee’s
assumptions.

That "the financial structure of Major League Baseball…is
fundamentally broken."

As evidence, the committee offers little. They point out that the Texas
Rangers "saw fit to sign a new shortstop for more than a quarter of a
billion dollars." Of course, if
Alex Rodriguez–clearly the most
valuable player to hit free agency in the game’s history, given his
combination of talent and youth–brings the Rangers postseason success, he
will generate significant revenues for the team, but the committee didn’t
see fit to mention that.

The committee also claims that "chances are slim that the Twins will be
consistently competitive on the field as long as payrolls among the 30 clubs
continue to spiral out of control." Histrionics like this do little to
further the debate around baseball’s parity or lack thereof. Are salaries
"spiraling out of control," or are they, as the report later
states, merely a reflection of rising revenues? Any economist worth his salt
will tell you that it’s the latter. Inputs are paid according to their
marginal revenue products. If A-Rod will bring $253MM in increased revenues
to the Rangers over the life of his contract, then the Rangers got a good
deal.

The report relies heavily on the heavily flawed conclusions of the
"Blue Ribbon" Panel’s Report on Why Baseball Needs Your Sympathy.
That report is notorious for relying on playoff wins as a measure of
success, meaning that the 2000 White Sox and Giants, two very successful
low-payroll teams, were considered complete failures, no better than the
69-win Twins of the same season. The Blue Ribbon report and the Minnesotans
for MLB report both point out that high-payroll teams tend to dominate the
playoffs, which confuses the causality of the relationship and ignores all
the free-spending teams that have missed the playoffs in recent years.

Indeed, the Twins’ continued success this year–still going strong with two
wins against a strong A’s team over the weekend–belies the committee’s
repeated mantra that the team cannot compete with a small payroll. Baseball’s
economic structure isn’t perfect, but it’s quite clear that it isn’t
broken. Low-payroll teams can succeed.

That revenues drive on-field performance, but that on-field performance
does not drive revenues.

The committee has no qualms about repeatedly claiming that the Twins cannot
compete without revenue assistance, but the report does not mention even
once that the Twins’ revenues are depressed because the team has been so
bad.

At one point, the report includes a table, showing the franchise’s
attendance figure in each of its years in Minnesota, and it reveals
something the committee conveniently neglected to address. From 1987 to
1993, the Twins drew more than two million fans in every year but one (1990,
their first year below the 80-win mark after 1987), including more than
three million in 1988. Contrast that with 2000, when the team failed to
reach 70 wins for the second consecutive year and thus barely reached a
million fans. A tripling of attendance would add at least another $12
million to the Twins’ annual revenue, assuming that ticket prices don’t rise
(which they would, obviously) and that other local revenues don’t change.

The committee later bemoans the Twins’ relatively low local revenue totals
since 1996, but omits comparable data from the aforementioned 1987-93
period, when local revenues from advertising, television, and radio
contracts, and other sources, were likely significantly higher relative to
other teams in the majors.

Indeed, the committee repeatedly confuses the direction of the revenue/wins
relationship. In commenting on the success of teams that received new
ballparks in the 1990s, the report makes two mistakes: It only looks at the
attendance total in the first year of the new ballpark, before the novelty
has worn off, and it doesn’t mention the fact that all of the teams that
moved into new ballparks before 2000 were good teams at the time of the
move. We’ll see how crowded PNC Park is next April when Act II of the Cam
Bonifollies opens on the North Side.

That the new stadium will increase local tax revenues and drive economic
development around the ballpark.

There are two separate points here, both equally misleading. Even the
committee itself can’t cook its books enough to make them work.

Local tax-revenue increases around new sports facilities tend to come from
substitution: People who go to baseball games typically do so in lieu of
some other tax-generating activity. There is clearly a segment of the
population that substitutes baseball for non-taxable activities (like
sitting on the couch in one’s underwear watching The XFL’s Greatest
Hits), but economic studies to date have concluded that that segment is
small.

What’s more, the report itself produces a tepid case for these tax revenues.
It relies on a 1997 study by Arthur Andersen that concluded that
construction of a new stadium in St. Paul or Minneapolis would produce $12.8
million in one-time tax gains and $6.5 million in incremental annual taxes
going forward. However, if you assume that the $6.5 million annual revenues
occur in perpetuity and discount them back to today’s dollars, that revenue
stream is only worth about $65 million, putting the total tax gain at $77.8
million–just half of the desired public funding level for the new stadium.
Oops.

The economic development argument is just as hollow. From the report:

Twelve of the 18 ballparks built or renovated since 1989 are located in or
immediately adjacent to downtown central business districts. Frequently,
ballparks are catalysts for redevelopment of a blighted area. Abundant
evidence exists in support of the notion that these projects spur
development and have a positive impact on the area...

The evidence of which they speak is nowhere to be found. Economists like
Brad Humphreys
(University of Maryland) and Stephen Walters (Loyola
University) have looked for such evidence and have come up empty. The report
claims that "abundant evidence exists in support of the notion that
these projects spur development and have a positive impact on the
area," but it only names one study of the subject, and that study was
funded by Major League Baseball itself.

The Target Center fueled ancillary development with 22 restaurants and bars
having opened in the immediate vicinity within one year. The Xcel Energy
Center has spurred the opening of seven new restaurants and bars, as well as
the reopening of a nearby hotel. This arena is part of an emerging
entertainment district.

Restaurants and bars employ small numbers of low-wage, largely unskilled
laborers who pay relatively little in income taxes. Hotels aren’t much
better in either regard.

For example, studies cannot adequately measure the role of Major League
Baseball in attracting and retaining corporate headquarters and talented
employees.

They can’t measure it because it doesn’t exist; even the phrasing here makes
it clear that the authors came to the table with a conclusion already drawn.
Many major-league cities have lost corporate headquarters or local employees
in recent years despite the presence of one or more major-league franchises;
indeed, Seattle just lost Boeing to Chicago, a town with one really awful
baseball stadium and one 80-year-old one. This argument was used to support
public funding for the two new stadiums in Pittsburgh, but repeated studies
of area graduates have shown that the presence of major-league sports can’t
compensate for relatively low salaries or a lack of job opportunities.

A responsible, independent report would have pointed to any of the studies
done on the economic impacts of local stadiums, most of which have pointed
to little if any economic benefit from such developments.

That the Twins are a "valuable state and regional institution whose
departure would constitute a very large loss."

This statement isn’t necessarily wrong, although I have my doubts about the
magnitude of that value. It’s just completely unsubstantiated in the report
and contradicted by loads of economic research conducted by independent
sources, and once one strips away the inane economic arguments around
attendance levels and competitive balance, this claim is all the committee
has left.

The report repeatedly slips into sentimental hyperbole around this point. To
wit:

States and major metropolitan areas need as many healthy avenues and
cultural opportunities as possible for its citizens, from all walks of life,
to rally around. Few institutions do this as well as sports. And no sport,
over a century in our country, has captured so many imaginations--and
enriched so many summer evenings and afternoons--as big-league baseball.

So taxpayers should help build the Twins a new stadium because…baseball is
nice?

The problem with this argument is that there is not a shred of evidence to
indicate that the presence of a major-league sport does anything to help a
city or region economically. The entire first sentence is yet another bold
claim without any support; they presume that these arguments are clearly
true to all readers, when intelligent readers know better.

The authors are saying that baseball fans really like having a baseball team
nearby. Why subsidizing the minority of voters who are baseball fans is a
responsibility of the government is not entirely clear.

In short, Minnesotans for Major League Baseball had an agenda as baseball
fans and a mandate from the Twins themselves to produce a report that
stadium-supporting politicians could wave at the podium, with little concern
that anyone would question the assumptions therein. Voters in Minnesota (and
Florida and Massachusetts), you have been warned.

Keith Law is an author of Baseball Prospectus. Contact him by

clicking here.