Red Sox Give Crony Capitalism The Finger

[Dreadnaught]

Beautiful.

http://online.wsj.com/article/SB1000...05482494.html?

SPORTS JULY 13, 2010
The Green Monster Goes It Alone
By MARK YOST

Boston

Baseball fans will be tuning in for Tuesday's All Star Game, but as taxpayers they should be fuming. Nearly every one of the teams represented has gone to its local government and asked for hundreds of millions of dollars to build a gleaming new stadium.

One of the few exceptions: the Boston Red Sox, who have taken Fenway Park, which turns 100 in 2012, and transformed it into one of the most fan-friendly ballparks in the country. Moreover, they've mostly done it within the historic confines of the original ballpark, kept ticket prices affordable and haven't taken a dime of taxpayer money. The net result is that the Red Sox still play in the smallest ballpark in baseball, have capped season-ticket sales at 20,000 seats out of about 40,000, and yet, according to Forbes magazine, remain the team with the third-highest revenue in all of baseball.


What the Red Sox have done with Fenway Park should be a lesson for every sports franchise and municipality in the country. The argument from pro sports teams is always the same: We need a new billion-dollar stadium (paid for with your tax dollars) to remain "economically competitive." The Red Sox have not only turned that argument on its head, but shown how truly disingenuous it is.

The credit for what I'd call the Tax-Free Miracle of Yawkey Way goes to the Red Sox ownership group, which bought the team in 2002 and pledged to stay in Fenway. "We knew the perils of asking for public money," Red Sox CEO Larry Lucchino said. Namely, that fans get annoyed when teams ask taxpayers to build a stadium, and then raise ticket and concession prices on the very people who paid for it.

The key to transforming Fenway, a hemmed-in urban ballpark last renovated in 1934, was to build out as well as up. "What we perceived to be constraints were more elastic than we thought," Mr. Lucchino said.

The result is wider concourses, more concession stands, more club and patio seating, picnic areas and an atmosphere on the streets around Fenway unlike any in baseball. All without alienating the average fan.

The renovations began in 2002-03, when dugout seats were added to both the first and third base lines and seats were built atop the famed Green Monster in left field. The Red Sox could have asked almost anything for the Green Monster seats, but instead they kept them remarkably democratic. There are no season tickets. Instead, tickets are awarded through an annual random drawing—and cost about $100, making them one of the best bargains in baseball.

The Red Sox also took an area behind right field where the dumpsters used to be and added what they call "the Big Concourse." It doubled the size of the walkways, and now features picnic tables and concession stands instead of garbage.

"The right-field bleachers used to be notorious for rowdy behavior," said John Giluia, executive vice president for business affairs. "But we've found that open concourses equal better behavior."

In 2004, the Red Sox added the Budweiser Right Field Roof Deck, an upper-deck patio area that features small cocktail tables for four that cost $460. Standing-room tickets for the deck are $30.

In 2006 the team created the State Street Pavilion, a $170-per-person upper-deck club level that has a buffet with lobster rolls, crab cakes and a raw bar. A year later, the team renovated the EMC Club, its $320-a-seat sit-down restaurant (food not included).

In 2008 the club added a left-field upper-deck pavilion and a year later another right-field terrace box.

All of this has increased seating to slightly more than 36,000 today from about 34,000 in 2001 (and attendance to 39,900 from 37,400, if you include standing-room tickets, the Red Sox said). Revenue has grown to $266 million today from about $180 million in 2002. The team's market value has also risen, to $870 million from $617 million in 2005. All without building a new stadium or asking for a dime of taxpayer money.

So far, the Red Sox have spent "north of two hundred million" on the renovations, Mr. Lucchino said. The team has one more year of renovations to complete before Fenway's 100th anniversary. More important, designers and engineers have told the Red Sox that with proper maintenance the stadium can last 30 or 40 more years.

So the next time a sports franchise goes begging for taxpayer funding for a new stadium, politicians should have the guts to tell them: "Pay for it yourself." The Red Sox did, and increased their revenue and market value along the way.

[Loki]

That's a rather disingenuous argument. As the article makes clear, the Red Sox are an exception, not the rule. The Red Sox make most of their money from a brand built through a decade of winning (and of being the anti-Yankee team). Gate receipts (especially if you exclude luxury boxes, which the article doesn't mention) aren't their main source of income. In fact, the piece mentions that revenue has gone up about 50%, while the number of seats (and their price) hasn't risen much. This isn't a model that's easy to replicate and doesn't really address the problems facing teams which rely heavier on ticket sales, particularly for luxury boxes.

[Dreadnaught]

It is the exception. That doesn't mean it's not a functional model.

I'd be curious to see their historical revenues and ticket sales as a franchise, but have you known about the Red Sox running in the red for decades? After all, they haven't been winning for quite a long time.

Given that all of these local stadium tax incentives are usually bullshit and tied-in with over borrowing, I'm leaning towards the idea that that many local team could generate revenues without them.

[']['ear]

I'm all for this. The usual pro sports extortion is horse shit, and economic studies in the 90s showed that the quid pro quo of "economic growth" for publicly funded stadiums is minimal. None of this stops the extortionists from tooting that same horn, however.

My home town STL Cardinals are now unaffordable to anybody below upper middle class, but they've got a shiny new stadium, don't they? Wankers.

[Loki]

It is the exception. That doesn't mean it's not a functional model.

I'd be curious to see their historical revenues and ticket sales as a franchise, but have you known about the Red Sox running in the red for decades? After all, they haven't been winning for quite a long time.

Given that all of these local stadium tax incentives are usually bullshit and tied-in with over borrowing, I'm leaning towards the idea that that many local team could generate revenues without them.

You think other teams haven't tried to turn a profit with outdated facilities? I can't believe you're seriously suggesting that just because one team, in exceptional circumstances, succeeded, that all others must have the same ability. Sorry, but there are probably half a dozen teams (in all major sports combined) in the country that could get away with the Red Sox strategy. It's highly dishonest to pretend that this applies to all teams.

Just because teams try to suck cities dry with stadium funding doesn't mean that they don't need the stadiums.

[']['ear]

You think other teams haven't tried to turn a profit with outdated facilities? I can't believe you're seriously suggesting that just because one team, in exceptional circumstances, succeeded, that all others must have the same ability. Sorry, but there are probably half a dozen teams (in all major sports combined) in the country that could get away with the Red Sox strategy. It's highly dishonest to pretend that this applies to all teams.

Just because teams try to suck cities dry with stadium funding doesn't mean that they don't need the stadiums.

What evidence do you have that teams can't make money with an older stadium? Just because so many have extorted a new stadium out of local communities, is means that this must be the only viable option? Busch stadium in STL was a beautiful old stadium. You're telling me that the only way a baseball team could make a profit was by tearing it down and dropping half a billion (or whatever the hell it cost) on a new one? This also addresses the small market issue, and also the winning issue (STL periodically appears in World Series, and occasionally wins one, and they did so before they had a new stadium).

[Loki]

What evidence do you have that teams can't make money with an older stadium? Just because so many have extorted a new stadium out of local communities, is means that this must be the only viable option? Busch stadium in STL was a beautiful old stadium. You're telling me that the only way a baseball team could make a profit was by tearing it down and dropping half a billion (or whatever the hell it cost) on a new one? This also addresses the small market issue, and also the winning issue (STL periodically appears in World Series, and occasionally wins one, and they did so before they had a new stadium).

Are you denying that larger stadiums bring in more revenue? Teams can make money in three main ways: gate receipts, TV deals, and merchandise. Teams have to compete against other teams in their league. So even if a league like the NFL makes a fortune on TV deals, teams that don't make as much on gate receipts are at a competitive disadvantage. In baseball, only the Yankees and Red Sox make substantial revenue from TV and merchandise. Every other team has to make the money from gate receipts (and even then, they can't match the Red Sox and Yankees in spending, though a handful of teams try). Sure, a team with a consistently lower payroll can still win, if they draft well, make good trades, and get lucky, but they're still at a severe disadvantage. For example, Minnesota was able to resign their top player only because they're moving into a new stadium that should substantially boost their earnings. They might occasionally make noise in the playoffs without the stadium, but they can't compete every year without one. And then you have hockey, where virtually all revenue comes from gate receipts. In the NHL, a new stadium is the difference between spending at the cap floor (minimum allowed) and the cap ceiling (maximum allowed), which makes a huge difference in a team's ability to compete.

[']['ear]

1) Actually, the biggest source of receipts profits are luxury boxes (which, I'd add, could usually be added post hoc for tens of millions, rather than hundreds of millions for a new stadium).

2) Why should cities pay for it?

3) Poor league structure. The NBA has a) revenue sharing, which ensures viability of smaller market teams, as well as a more steady revenue stream regardless how far you go in the playoffs, but still incentives for good performance. b) Salary caps, so you can't buy championships. Consequently, small market San Antonio is nearly as successful as mega market LA over the last decade or so.

4) So if every city has new stadiums extorted out of them, the big cities still win far more championships because of their markets and revenues. Wow, great incentive for the little guys: all the cities have been jobbed out of stadiums, and they're all in the same relative positions. Sounds like a racket.

[Aimless]

I've been wondering about this... is the situation for baseball teams kinda like the situation for musicians signed to major labels, in terms of where the regular money comes from?

[Loki]

1) Actually, the biggest source of receipts profits are luxury boxes (which, I'd add, could usually be added post hoc for tens of millions, rather than hundreds of millions for a new stadium).

I already mentioned this. New stadiums have more and better luxury boxes.

2) Why should cities pay for it?

How is this relevant to anything I said? I didn't say cities should pay for it; simply that teams without new stadiums are at a severe competitive disadvantage.

3) Poor league structure. The NBA has a) revenue sharing, which ensures viability of smaller market teams, as well as a more steady revenue stream regardless how far you go in the playoffs, but still incentives for good performance. b) Salary caps, so you can't buy championships. Consequently, small market San Antonio is nearly as successful as mega market LA over the last decade or so.

http://thehoopdoctors.com/online2/20...team-payrolls/ Look at the teams that spend the most and teams that spend the least and then tell me that revenue doesn't really matter.

4) So if every city has new stadiums extorted out of them, the big cities still win far more championships because of their markets and revenues. Wow, great incentive for the little guys: all the cities have been jobbed out of stadiums, and they're all in the same relative positions. Sounds like a racket.

Yep. The problem is that if one city doesn't pay for a stadium, other cities will (e.g. Seattle and Oklahoma).

[']['ear]

I already mentioned this. New stadiums have more and better luxury boxes.

You could still retrofit for a tiny fraction of the cost.

How is this relevant to anything I said? I didn't say cities should pay for it; simply that teams without new stadiums are at a severe competitive disadvantage.

So it comes down to some cities fucking their taxpayers, then every other major city in the US having to fuck their taxpayers as well to keep up with the Joneses? Also, small market teams DO succeed without big new stadiums, so we need to bail out poor management by screwing taxpayers to make their corporations more profitable?

http://thehoopdoctors.com/online2/20...team-payrolls/ Look at the teams that spend the most and teams that spend the least and then tell me that revenue doesn't really matter.

Sure, but winning creates revenues. Don't bail out poorly run corporations, let the market solve it. Edit: besides, you need to show revenues, not payrolls. Plus, single year snapshots are poor. A couple of years before, when Isaiah Thomas was running the Knicks, they were the biggest market in the country, the biggest payroll, and finished LAST.

Yep. The problem is that if one city doesn't pay for a stadium, other cities will (e.g. Seattle and Oklahoma).

Comes down to the idiocy of voters, I guess. So much for "rational consumers."

[wiggin]

I'm of two minds about this. Some stadiums really must be replaced, largely due to structural issues that wouldn't be worth the renovations - hell, even in the cases of high profile stadium renovations (e.g. Fenway and Wrigley), the cost of the renovations runs into the hundreds of millions of dollars, not that much less than buying a new stadium (with the attendant better planning for parking, larger seating, technological improvements, etc.). Retractable roofs are often a worthwhile reason as well, given the lifetime cost of rain delays and double headers.

Nevertheless, I'm largely opposed to large taxpayer-funded stadium improvements. These franchises have quite large revenue streams (even the worst baseball teams gross $50-100 million a year) and rich backers - there's no reason they couldn't do capital investment just like any other company. I can see a place for government support in financing (e.g. loan guarantees) but that's about it. Remember the Mariners' incredibly expensive stadium that was only worthwhile back when Suzuki was backed by an amazing team - now, it's half empty.

I was also disappointed with the new Cowboys Stadium - sure, Jerry Jones covered a lot of the cost, but he still got a few hundred million dollars from an increased sales tax in Arlington. More so, the old Texas stadium was less than 40 years old and perfectly serviceable. (I also was thoroughly unimpressed when I went there for a game, but that's just a personal opinion.) The Cowboys, like many major sports brands (Yankees, anyone?) have plenty of money to throw around, and can probably secure pretty decent loans on their own as well. Why should new stadiums be built on the taxpayer dime? It can even get complicated when public and private interests clash - there was a huge political mess with the new Soldier Field design, for sure.

That being said, smaller markets might find it difficult to manage capital costs without some external support. I'm undecided whether they should get any, though.

[Loki]

Tear, do you oppose public financing for the arts? If yes, why do you oppose public funding of sports? In fact, I'm fairly sure more people enjoy football/baseball/hockey/basketball than art.

[']['ear]

National Endowment for the Arts = 161 million

So, like a quarter or third of one new stadium in one city? Many cities have separate baseball and football stadiums? Basketball/hockey arenas separate? How many pro sports arenas in the US?

Besides, sports franchises are very profitable. And even if you break even, they have been one of the best investments over the last 20+ years. Donald Sterling of the LA Clippers won't sell the franchise because it has appreciated such a ridiculous amount. So even if you run in the red, as long as you have enough capital to keep it going, you're doing great on your investment. {Note: hockey is probably an exeption}

[Dreadnaught]

You think other teams haven't tried to turn a profit with outdated facilities? I can't believe you're seriously suggesting that just because one team, in exceptional circumstances, succeeded, that all others must have the same ability. Sorry, but there are probably half a dozen teams (in all major sports combined) in the country that could get away with the Red Sox strategy. It's highly dishonest to pretend that this applies to all teams.

Just because teams try to suck cities dry with stadium funding doesn't mean that they don't need the stadiums.

Have these teams really tried? This veritable racket of taxpayer-supported stadium development has been going on for decades. Did the Yankees really need a pile of tax breaks (including paying no taxes for operating primarily on city-owned land)?

This is why it's crony capitalism -- maybe some sports could have failed without this kind of support. But so what? It can't be a competitive industry in that sense if tax breaks and government partnerships are always on the horizon.

[Loki]

I think there are two separate arguments here. First, can major league teams compete without new stadiums? The answer to that is mostly no, despite what the article claims. The second question is whether cities should be funding sports teams? The answer to that is up in the air, though you should keep in mind that people do place a certain value to having a major league team in their city and haven't exactly punished politicians who provided funding for these stadiums.

[Dreadnaught]

Why can't they compete with existing stadiums? I gotta question that assumption.

[Loki]

Why can't they compete with existing stadiums? I gotta question that assumption.

Because gate receipts are responsible for a substantial portion of teams' revenue (more in some sports than in others). You simply can't have the same quantity and quality of luxury boxes in old stadiums and you often don't have enough seats in general. It's dishonest to point to a team that has a global brand and pretend that other teams can use the same model.

[Dreadnaught]

But does a brand build itself with a bigger stadium? Not really.

Any business like that is going to be a balance between cheaper (and more plentiful) seats versus "nicer" seating areas. But as the new Yankees and Mets stadiums have shown, coupling more luxury boxes with higher-priced regular seats leaves a pretty empty stadium.

You're ultimately not working with any numbers here. The fact that the Red Sox is an exception doesn't mean it's methods are unrepeatable, but they do suggest no one is trying to repeat them.

[Loki]

But does a brand build itself with a bigger stadium? Not really.

Any business like that is going to be a balance between cheaper (and more plentiful) seats versus "nicer" seating areas. But as the new Yankees and Mets stadiums have shown, coupling more luxury boxes with higher-priced regular seats leaves a pretty empty stadium.

You're ultimately not working with any numbers here. The fact that the Red Sox is an exception doesn't mean it's methods are unrepeatable, but they do suggest no one is trying to repeat them.

A brand is built by winning, and teams with more revenue are more likely to win.

What the new stadiums in New York have shown is that you don't sell out games during a major recession. Coincidentally, the Yankees have the highest attendance in the league this season.

You can't just point to one example and pretend it's a model many teams can follow. And what exactly do you mean by no one trying to copy them? There are plenty of teams playing in old stadiums. Most of them suck, if not every year, then most years. There's a reason the author chose to focus on the Red Sox: it's because they're the only team that manages to generate a lot of revenue in a crappy stadium.

[Dreadnaught]

They haven't been able to even sell season tickets they started marketing before the recession when they were planning the stadium. No one could justify spending tens of thousands for season tickets.

But more importantly, you're making assumptions about things that are chicken-and-egg. A team can win with more revenue? But if they aren't winning, how will they make revenue? Are crappy teams bad because of their stadiums, or does their suckitude inhibit their ability to raise money and build a new stadium?

My point about no one going it alone is that there don't seem to be many stadiums in the US that weren't built without some kind of extensive tax break, low-interest loan, etc. from the government. These things aren't bridges, so what's going on?

[Loki]

They haven't been able to even sell season tickets they started marketing before the recession when they were planning the stadium. No one could justify spending tens of thousands for season tickets.

But more importantly, you're making assumptions about things that are chicken-and-egg. A team can win with more revenue? But if they aren't winning, how will they make revenue? Are crappy teams bad because of their stadiums, or does their suckitude inhibit their ability to raise money and build a new stadium?

My point about no one going it alone is that there don't seem to be many stadiums in the US that weren't built without some kind of extensive tax break, low-interest loan, etc. from the government. These things aren't bridges, so what's going on?

Most of the luxury boxes are rented by corporations, so the Yankees can pretty much charge whatever they want when the economy is doing fine. They just got unlucky with the timing. Not that it really matters. As I mentioned, they still have the highest attendance in the league (by a decent margin).

I'm not actually sure how the Red Sox manage to generate as much money as they do; I assume it has to do with corporate sponsorship in Massachusetts. The point is that the Red Sox have the second highest payroll in baseball, which means they're one of the few teams that don't need a new stadium (then again, this weakens their ability to compete with the Yankees). Other teams can't afford to sacrifice potential revenue from a new stadium if they want to field a competitive team.

People get attached to sports teams. I think it's pretty obvious that when cities fund the stadiums, there's a very weak economic rationale for it.

[Dreadnaught]

Wha...?

First of all, I can tell you firsthand that companies aren't going to just pay whatever for a corporate box seat.

Second, why does a new stadium guarantee new revenue? This is a circular point.

Finally, if you agree there is a weak economic rationale for municipal funding of stadiums, why is there a strong rationale for teams to build new stadiums?

[Loki]

Wha...?

First of all, I can tell you firsthand that companies aren't going to just pay whatever for a corporate box seat.

Second, why does a new stadium guarantee new revenue? This is a circular point.

Finally, if you agree there is a weak economic rationale for municipal funding of stadiums, why is there a strong rationale for teams to build new stadiums?

And yet they do. If you're in a large corporate market, you can always find some companies that are willing to pay ridiculous prices for luxury boxes.

I already answered that. New stadiums have more and better luxury boxes, and generally more seats. They also have better amenities, which can be used to extract more money from ticket holders.

Your last point is a non sequitur. There's no economic argument for state-funding of stadiums because new stadiums usually cost the city far more than they generate in economic activity. That has nothing to do with the fact that new stadiums increase revenues for teams. I don't see why you continue to conflate these two points.

[wiggin]

A brand is built by winning, and teams with more revenue are more likely to win.

What the new stadiums in New York have shown is that you don't sell out games during a major recession. Coincidentally, the Yankees have the highest attendance in the league this season.

You can't just point to one example and pretend it's a model many teams can follow. And what exactly do you mean by no one trying to copy them? There are plenty of teams playing in old stadiums. Most of them suck, if not every year, then most years. There's a reason the author chose to focus on the Red Sox: it's because they're the only team that manages to generate a lot of revenue in a crappy stadium.

Ahem. Have you heard of the Cubs? They don't win, and their ballpark is nearly as old as Fenway (2 year difference) - yet they are quite comfortable financially and have one of the largest budgets in MLB.

[']['ear]

Loki apparently doesn't believe in free markets in sports.

It is the operation of a franchise that determines its success, not how much fat they've gorged from the local trough. The Knicks are the classic example. Former great franchise, now terrible franchise. And at one point recently they had the highest payroll in the league with the worst record. And most fans and players consider NYC the best basketball city in the US. It's just a matter of poor management, and the city should never bail out a team for that reason. {disclaimer: the Knicks cleared a ton of salary cap space for LeBronapalooza, so their payroll is now much lower.}

We can also name small market teams that do well over time. Plus, like I said, there is the high appreciating value of a franchise. Several owners have said that if they loses money, they still gain net money because of how much franchises appreciate, not to mention the local business clout from being a civic giant.


Look, I understand there are old stadiums that need to be replaced, and some that can't be upgraded. But that doesn't fit for many of these boondoggles. Certainly wasn't he case in STL, which could have been upgraded. But what is typical is to take public money, build a new stadium, then charge double the price when you re-open. It's horse shit, since the owners didn't pay for the new stadium in the first place. Just an excuse to double profits, sort of like the record industry did in the record-CD switch (cheaper to make, but prices almost doubled). The consumers don't know better, and those who can afford it will shell out more money.

Oops, I forgot. Markets are always maximally efficient.

[Loki]

Ahem. Have you heard of the Cubs? They don't win, and their ballpark is nearly as old as Fenway (2 year difference) - yet they are quite comfortable financially and have one of the largest budgets in MLB.

The Cubs are in the second largest market in baseball (maybe third).

Loki apparently doesn't believe in free markets in sports.

It is the operation of a franchise that determines its success, not how much fat they've gorged from the local trough. The Knicks are the classic example. Former great franchise, now terrible franchise. And at one point recently they had the highest payroll in the league with the worst record. And most fans and players consider NYC the best basketball city in the US. It's just a matter of poor management, and the city should never bail out a team for that reason. {disclaimer: the Knicks cleared a ton of salary cap space for LeBronapalooza, so their payroll is now much lower.}

We can also name small market teams that do well over time. Plus, like I said, there is the high appreciating value of a franchise. Several owners have said that if they loses money, they still gain net money because of how much franchises appreciate, not to mention the local business clout from being a civic giant.


Look, I understand there are old stadiums that need to be replaced, and some that can't be upgraded. But that doesn't fit for many of these boondoggles. Certainly wasn't he case in STL, which could have been upgraded. But what is typical is to take public money, build a new stadium, then charge double the price when you re-open. It's horse shit, since the owners didn't pay for the new stadium in the first place. Just an excuse to double profits, sort of like the record industry did in the record-CD switch (cheaper to make, but prices almost doubled). The consumers don't know better, and those who can afford it will shell out more money.

Oops, I forgot. Markets are always maximally efficient.

I swear you're incapable of reading. I didn't say I support cities subsidizing teams; merely that people attach a high value to having sports teams in their cities. If we had a free market in baseball (i.e. no public funding for stadiums, no revenue sharing, no salary caps), then the Yankees would dominate to an even larger degree than they do. Since most people wouldn't be too happy to allow such market dominance, they call for intervention of some kind.

Whether the value of a franchise increases is irrelevant. The only way one can make money in that scenario is by selling the franchise. Whether a small market team can occasionally succeed is also irrelevant. It takes exceptional luck and skill for that to occur, and that simply can't be maintained. The two small market teams that have traditionally done well, Oakland and Minnesota, have also missed the playoffs quite a few times and rarely get past the first round of the playoffs.