Opinion: PawSox Stadium Proposal: Rushed and Opaque

By far the most disturbing aspect of the proposal by the new owners of the Pawtucket Red Sox minor league baseball team to relocate to a stadium on the Providence waterfront is the time pressure and urgency resulting from a veiled threat to move the team out of Rhode Island if the General Assembly does not approve the plan during the current legislative session expected to end in June. Despite giving state government only about eight weeks to act, the plan is so complicated and multifaceted that it is very difficult to understand.

At first, the proposal seemed to be that the team owners would invest about $60 million to construct the new stadium on about $40 million of public land purchased as part of the I-195 relocation project that is nearing completion. That land was previously purchased in substantial part with public bonds that were to be paid off by proceeds from the sale of some of the land to create a “knowledge district” in co-operation with Brown University, Rhode Island School of Design, Johnson and Wales University, Rhode Island Hospital, and other large employers already present in the area. Part of the land that was originally intended as a public park, a component of federal highway financing for the project, would also have to be diverted to the stadium.

It turned out that this was not the proposal at all. As I understand what is currently on the table, rather than put $60 million of their own money into building the stadium, the team owners would use a guaranteed income stream from the state, structured as two offsetting reciprocal leases, to insulate themselves from risk. In addition to providing $40 million in land for free and exempting the stadium from about $3 million per year in city property taxes, the state would promise to pay the team $5 million per year for 30 years to lease the stadium that the team owners would then pay the state to lease back (to play baseball) for $1 million per year. In turn, the team would use the guaranteed lease income from the state to secure a commercial mortgage of about $85 million to build the stadium, relocate utilities and construct parking.

The opacity and complexity of this plan cannot be an accident. It is a reasonable inference that the primary purpose of structuring the deal this way is to prevent the team owners from having to put up their own money, allowing them to create what amounts to a shell entity that would build and own the stadium, while circumventing the requirement in the Rhode Island Constitution that the state government cannot incur long-term debts without approval by voter referendum. If the state itself wanted to borrow money by issuing bonds to build the stadium in the usual way that the state pays for roads, parks and other public works, it would need to ask the taxpayers for permission, but then the state would at least end up owning the stadium. If, instead, a private entity borrows the money, no voter approval would be required because in theory the private entity and not the state is on the hook for the debt, and the private entity would end up owning the stadium. The problem is that by promising to lease the stadium from the private entity for 30 years, the state would be paying essentially what it would if it borrowed the money itself, so in practice the state is assuming the debt and the risk, exactly opposite to the intent and spirit of the constitutional restriction.

To recap, it seems that the team owners are asking for $40 million in land up-front, plus cash from the state of $4 million (net) per year for 30 years, plus cash equivalents in property tax abatement from the city of $3 million per year forever. The team owners would put up none of their own money, would borrow money secured by the state payments and would end up owning the stadium. No one would have to ask the voters for permission.

What would the state get in return? There is no reason to expect that the team would contribute any more to the economy in Providence than in Pawtucket: It would not employ more people or pay them higher wages, and the team has repeatedly asserted that ticket prices would stay more or less the same. Although the team is private and does not disclose its financial information, it is really an ordinary small business with net profit likely around $1.5 million per year – “Opinion: Questions Surround the PawSox Sale,” Motif, March 2, 2015 – and other published estimates are lower than that. The new owners have ruled out keeping the team in Pawtucket, but it is hard to see where else they could go. Would Massachusetts be willing to commit over $100 million to move them to Worcester or Springfield?

There is real risk: Professional sports can be a ruthless business, especially when trying to make predictions three or more decades into the future. Remember the Providence Steamrollers team in the NBA? Remember the Providence Steam Roller team in the NFL? Remember the Providence Grays baseball team in the National League? What, you didn’t even know that Providence used to have major league teams in basketball, football and baseball? Where are they now?

No matter what the terms of the stadium deal, there is enormous public skepticism and little support from the voters and taxpayers for a massive government subsidy on this scale. The simplified math is that $100 million is more than $100 from each person in Rhode Island. How many people are willing to pay $100 of their own money to keep a minor league baseball team around?