Pirates Threaten Legal Action

Summary:  The Pittsburgh Pirates baseball club is threatening legal action over the Sports and Exhibition Authority’s reluctance to grant the team’s request for ballpark repairs and upgrades.  The dispute centers around a video scoreboard which the Authority claims is an improvement and falls outside the stipulations of the lease.  Given that the taxpayers have largely paid for the stadium from which the team earns millions, the team should fund desired “improvements”.

______________________________________________________________________

While spring training is a ways off yet, the Pittsburgh Pirates baseball club is playing hardball with the City-County Sports and Exhibition Authority (SEA) over repairs at PNC Park.  The Pirates are asking the SEA to pay for capital upgrades to the ballpark which opened in 2001.  The requested upgrades include repairs to seats, new carpeting for suites, painting, and new field lighting.  In response, the SEA says it needs to explore whether or not it’s obligated to do so under its lease.  Legal action is being threatened by the team.

Presumably the lease details will determine what happens. PNC Park was built for $216 million and funded mostly with taxpayer money.  Required annual base rent paid by the Pirates for leasing the Park is set at $100,000 per year until 2030.  The team is also required to pay “excess gate” rent as well as “excess concession revenue”, each based on a percentage of benchmarks achieved by the team or its concessionaires.

The lease also stipulates that the team consents to adding a ticket surcharge to the price of admission.  Revenue from the ticket surcharge is divided such that the Pirates retain the first $1.5 million in each year with the next $375,000 going to the SEA (adjusted for cost of living).  This amount is to be deposited into a “capital reserve fund”.  The next $250,000 of the ticket surcharge revenue is to be paid to the SEA as additional rent and “… may be used by the Authority in such manner as it deems appropriate (page 15).”  Any remaining ticket surcharge revenue is retained by the team.

According to the SEA’s most recent audited financial statement (note 17); “In fiscal year 2015, the Authority recognized $100,000 in Base Rent, $750,969 in ticket surcharges, and $0 for Excess Gate and/or Concession Revenues.”  So for a rental payment of just over $850,000 per year, the team plays in a $200 million, mostly taxpayer financed stadium—an extraordinarily sweet deal.  But the deal is made even more generous by the fact that at least $375,000 of this money is placed into the capital reserve fund which is to be spent on the ballpark.  Thus the SEA actually only realizes about $450,000 in rent—certainly nowhere near the rent a $200 million facility would bring in a market transaction.

The capital reserve fund is the source of contention between the SEA and the team.

According to the lease (section 10.3.1) the SEA established a capital reserve fund and had to place an initial $3 million into the fund and then is responsible for placing $650,000 into the fund each year for the duration of the lease.  As of December 31, 2015, the fund held $5.8 million down from $9.1 million at end of December 2014. SEA claims there is currently only $3.3 million in the fund (end of December 2016).  The lease further specifies that if not enough money is in the fund for use, the SEA is required to find the funds for any work that must be done.

These funds are not to be used for ordinary repairs and maintenance, only for capital improvements and repairs.  Capital repairs are defined as extraordinary repairs and replacements that typically have an economic life of greater than seven years or that are needed to maintain the structural integrity of the park.  The lease lists quite a few repairs that are covered by the fund.

For example, the lease does allow for replacement of ballpark seats and “major repairs, replacement, or upgrades of components to the field lighting.”  It also stipulates that painting and carpeting of non-public areas is covered as long as it is done at a minimum every five and seven years respectively.

According to the news reports, the Pirates are seeking repairs to seats, new carpeting for suites, including their exclusive club area, painting, and new field lighting.  Furthermore they are asking to upgrade a secondary scoreboard (to show out-of-town scores) and other video boards.

The biggest disagreement seems to stem from the request over the scoreboard and video boards.  The lease notes that “upgrades to components of the scoreboard more frequently than seven years” does not constitute a capital repair. News reports state the SEA views the Pirates’ request to upgrade the scoreboard as an “improvement” and not a “repair” since it would involve using new technology and not a simple replacement of parts.  An improvement would not be covered by the lease.  The team disagrees.

The SEA claims that there is currently not enough money in the capital reserve fund to pay for the scoreboard improvements, but plenty to cover the Authority’s responsibilities. There are references in news reports to a letter sent from the team president to the head of the SEA in which the team offers to put money into the capital reserve fund as long as the SEA matches those funds with money from a new revenue source.  The head of the SEA is quoted as saying “…our position has always been that the revenue should be generated by operation of the facility and not by the taxpayers generally.”

This is the fundamental point in the argument.  The SEA, as owner, has no source of funds to pay for “improvements” beyond what it can collect from the ballpark. And, the money they currently receive from the team is barely adequate to cover the normal owner expenses of repairs and maintenance, insurance, administration, etc. Where does the team president think the SEA will find more funding?  If they borrow the funds, where will the money come from to repay the loan?  They cannot levy taxes.  The ballpark itself would have to provide the dollars.

Or the SEA could ask the City, the County, or the Commonwealth for the funds.  How will that request be received?  Not very well in the current fiscal environment. That would mean still more tax dollars for the Pirates. There is a political limit, even in Pittsburgh, to the welfare that will be made available for rich owners and players. Finally, the SEA could turn to foundations and ask for grants.  But that seems less viable as a source of funding than the governments.

In short, what is wrong with the team asking luxury suite lessees, game attendees and concessionaires to put in a small percentage more than they are currently paying to fund “improvements” that will be enjoyed by the people at the game? What a novel concept. Tickets and suite leases are already heavily subsidized by taxpayers through the underwriting of the ballpark construction and the fact that there are no property taxes being paid by the facility. Those two factors produce many millions of dollars per year in direct subsidy to the team.

It is bad enough that taxpayers are on the hook for the construction of the ballpark. They should not be fleeced to provide the team with extras like secondary scoreboards.  If rents were close to a more normal market rate for a property of the ballpark’s value, the owner would be able to fund the repair budget and needed improvements easily.

The team makes many tens of millions from PNC Park through ticket sales, concessions, parking, naming rights, advertising,  radio and TV, etc.  If the team wants extras, they should pay for them and stop asking taxpayers for even more assistance.

Some Hart Comment Surgery Needed

In his attempt to present the "real" facts in response to a Tribune Review commentary regarding North Shore parking, Mark Hart of the Steelers offers up a litany of purported benefits stemming from the efforts of the Pirates, Steelers and Continental Real Estate.

The most salient point is the claim that, "The money this development has returned to the City far exceeds the investment of public dollars that helped to fuel this growth." The development referred to includes two sports venues, a hotel, office buildings, and a concert venue all of which, it is claimed, have created thousands of new jobs. Mr. Hart also states "that through the efforts of many, including limited support from the public, we have taken an area that held only Three Rivers Stadium and a plot of vacant land-and completely transformed it into a destination area".

Limited public support? Total state, local and Federal tax dollars to build new stadiums and reconfigure the street patterns is close $400 million. The return on the $125 million in claimed private development will never come close to paying back the taxpayers. Total real estate taxes will run about $3 million per year assuming the property is valued close to the development costs. The office buildings referred to did not significantly add new jobs; they were predominantly employees who were moved from other parts of the City. New restaurants are not necessarily producing net jobs or income. Much of their business is likely being taken from other restaurants in the City and County.

Moreover, the Hart comment claims the North Shore transformation is producing millions in amusement taxes, parking taxes, real estate taxes and payroll taxes. Sorry. Three Rivers Stadium was also producing amusement taxes and parking taxes. Mr. Hart needs to show how much additional amusement and parking tax can be attributed to the new stadiums over and above what would have been collected if games were still in that facility. Then too, he needs to take into account the fact that several acres of the near North Shore are now taken up with a tax exempt baseball park that was previously occupied by taxable or potentially taxable property.

As is too often the case, Mr. Hart looks only at what can be seen and does not take into account the unseen: Taxable development that could have occurred absent the new ballparks, the removal of taxable property from the tax rolls, and the opportunity cost for taxpayers for the hundreds of millions spent to build non-taxable facilities.

Finally, it should be noted that absent the two new stadiums, the extraordinary wasteful use of $535 million to build the North Shore connector would never have happened-a project that has not a ghost of a chance to repay the taxpayers for their investment.

Another Year, Another Weak Start for Pirates Attendance

Welcome to another installment of “Where are the fans?”   As we have reported in Policy Briefs or Blogs since 2007, Pittsburgh Pirates’ attendance languishes among the lowest in the league. Since 2007, attendance has ranked 28th out of 30 teams.  So far this season, attendance is still holding two spots above the worst level. Unless fireworks and special promotions over this summer boost attendance sharply from the current pace of 17,170 per game, the 2010 season will see only 1.4 million fans push through the turnstiles.  In previous years, there has been a pickup after school is out and game attendance gradually moved up to lift the season total to around 1.6 million. 

 

 

Continue reading

Real Tragedy of Pirates Losing Season Record

Here’s where we rather impolitely say "told you so." Back during the debate over funding for new stadiums, we pointed out that Pittsburgh was a small market team with little television revenue and did not have a history of being a "baseball" town in the manner of St. Louis with its strong attendance record in the old Busch Stadium or, to a lesser extent, Cincinnati. Thus, we argued that a new ballpark in Pittsburgh would not end the Pirates’ weak attendance or generate significant gains in TV money. So, unless the team owners showed a willingness to roll the dice and spend a lot of money beyond the team’s near term earning potential, mediocrity or futility on the field would continue.

And as it turns out, that has been the result.

But what is worse, during the debate over spending hundreds of million in tax dollars for the new ballpark, we were told that great economic benefits would accrue to the region with stronger job and income gains. That claim turned out to be as fatuous as the assurance that the team would be pennant contenders in the new ballpark. Indeed, private sector jobs in the region are now 30,000 below their 2001 level. Jobs remained below the 2001 level until 2008 when they barely managed to struggle back to the seven year earlier reading.

So much for engendering economic dynamism in the region.

The City of Pittsburgh has been placed in distressed status by the state and remains a financial basket case because of legacy costs and overspending.

The real tragedy of the Pirates arises from the bill of goods taxpayers were sold and had rammed down their throats despite strong opposition by politicians and civic leaders who were certain the corporate welfare involved in keeping the Pirates would pay dividends for the City and region. The greatest irony is the Pirates had nowhere to go. There was no place other than Washington, D.C. big enough to support a major league franchise. And the Orioles were successfully blocking any team moving there. Only years later after Montreal collapsed did Major League Baseball overcome that resistance.

In sum, taxpayers ended up paying for a new ballpark under false pretenses and have received none of the promised returns on their investment. Can public policy be any worse?

Pirates’ Attendance Two Leagues Down

Attendance at Pittsburgh Pirate home games has slipped to the lowest level among the 30 teams comprising the National and American Leagues. So far in 2009, home attendance is averaging around 15,600, well under the 17,000 plus average in Tampa Bay, which ranks as the second worst attendance. The Pirates are filling just 40 percent of the seats in the highly touted PNC Park that was supposed to attract 30,000 fans per game and provide the revenue to make the team competitive. What a bill of goods that was. The taxpayers will never get a positive return on their investment-an investment they did not want to make.

Meanwhile, the St. Louis Cardinals who play in a similar sized market are drawing over 40,000 per game and in Milwaukee (a smaller metro area than Pittsburgh) the team is pulling over 36,000 per game.

What is the difference? Milwaukee has spent enough money to build a competitive team. St. Louis is simply a far better baseball town. Their attendance was over 40,000 per game for years even in the old Three Rivers Stadium look alike ballpark. Pittsburgh has not been a baseball town in the way St. Louis has been and the owners have chosen for years not to have the kind of payroll of teams who are perennially competitive.

All this was known at the time of the Plan B that sought and got approval for state funds and the allocation of RAD dollars to build PNC Park. The civic and political leadership wanted the new park and despite overwhelming opposition by the public went ahead with Plan B. Ten years later we are now wasting far more additional dollars putting in a subway so people can get to ball games. Preposterous does not begin to describe how wrongheaded these decisions were.