How to think about the stadium negotiations?
It's hard to know how to think about football stadium news stories when the numbers are different in nearly every story. I've been working on coming up with a framework that I'll be able to use once the numbers stop moving around on us. At this point, I’m not for or against anything. I’m just fishing around for a frame of reference to understand whatever ultimately gets proposed.
I’ll start with a summary framework and then lay out a rambling set of thoughts behind the summary. Here’s the general framework for how I am thinking about this:
What is the cost of honoring the current lease, which requires providing a “first class stadium”?
Is Nashville fully committed to permanently being a pro football city? How much are we willing to have the city government pay to do that?
Is Nashville interested in being a top 5 sports event destination city for the next generation? How much are we willing to have the city government pay to do that?
What’s the price difference for the city between the two?
To make these decisions, for each approach, we need to know the required upfront Metro spending requirement, the difference in long term tax revenue, and the difference in how much city-owned land will be given away.
Is building a new East Bank neighborhood our top choice for where to spend infrastructure dollars in Nashville?
Different people will have different answers. For me, I want Nashville to have pro football (although not at any price). I’m more ambivalent about whether the city “needs” to be a major sports event destination.
As for the city prioritizing the East Bank for infrastructure spending, it’s a mixed bag. On the one hand, there are many serious, existing needs around the city that could be addressed with a few hundred million dollars of new infrastructure spending. The only reason the East Bank is going to the top of the list is because the new neighborhood supposedly is needed to create new tax revenue for the stadium. How a taxpayer feels about prioritizing the East Bank for infrastructure spending should depend on how badly they want financing in place for a new stadium compared to other things the infrastructure money could buy.
Without knowing the actual numbers, it’s hard to dig any deeper into this analysis. I don’t know when we’ll know actual numbers.
________________________________________________________________________________
YOU CAN STOP READING NOW IF YOU WANT…
To get to my 300 word summary, it took way more pondering and thinking than it should have. What follows is the first draft of this blog post. It reaches the same conclusions with a lot more words and, well, it is basically me thinking out loud. I spent too much time on it to delete it. So here it is…
With the caveat that this is a work-in-progress because the terms of a deal are not fully negotiated yet, here's how I am thinking about it:
Metro is currently obligated under the existing lease to provide a "first class stadium." It looks like the minimum cost to honor that commitment through the current lease is in the hundreds of millions of dollars. To me, in comparing options for the stadium, it really doesn't matter what this number is. Whether Metro plays out the current lease or renovates the stadium or builds a new stadium, it seems very likely that the Titans will want Metro to at least pay the amount required for repair and maintenance under the existing lease.
Building the rest of the new East Bank neighborhood comes with a large price tag for infrastructure. It's a parking lot now. To become a neighborhood, it needs roads, power, water, sewer, and communications. I expect that any deal will require Metro to pay this cost, probably by using at least 50% of the property tax revenue from the area. Here too, in comparing deals, this factor may be a wash because infrastructure costs for the surrounding neighborhood should be about the same no matter what happens with the stadium.
I'm assuming that a renovation or a new stadium will require at least 50% of the sales tax generated by the new East Bank neighborhood. In fact, as I understand it, the new neighborhood is a mandatory feature of any stadium deal. I’m told that the new neighborhood is necessary to create sales tax revenue to help finance the stadium.
One of the major public relations talking points is that the goal is to make sure Metro doesn't have to spend general fund dollars on a renovated or new stadium. Every time you hear that talking point, know that it means "no general fund dollars will be spent, but half of Metro’s sales tax revenue from the new East Bank neighborhood will be set aside before it gets to the general fund to pay for the stadium."
I'm assuming that having a major stadium in the neighborhood helps generate more property and sales tax revenue than if there were not a stadium there. I am guessing that reasonable people could disagree about how much extra juice there is with a stadium present. I have no idea, but for the sake of argument and until I learn more, I'm assuming that a renovated stadium increases the gross tax revenue (before any special financing arrangements) from the neighborhood by 10% and a new stadium would add 20%. Again, I’m using guesses to help me understand the dynamics at play.
Right now, Metro owns all the land. I think the Titans want to own some of the land surrounding the stadium. That would have some cost to Metro. I'm also assuming that any new stadium would have to be built on a different footprint. Would that make the land Metro keeps be in the flood plain, or allow for less height? If so, that would have some cost to Metro too.
Note that Metro owns the land and controls zoning and height rules. The land is potentially the most valuable aspect of any East Bank development. If someone wanted to use a Metro asset to build a modern mega-stadium, capturing and using East Bank land value is the most obvious way to do it.
As an exercise, it is worth comparing whether investing infrastructure dollars in other parts of Nashville would drive more or less tax revenue. This is another place where I need to make up a number pending learning more. For now, I'm assuming that investing the same amount of infrastructure dollars in other parts of the city would generate only 40% of the tax revenue for Metro that the East Bank is capable of generating.
Using these assumptions, I am thinking through several scenarios:
1A: Perform current lease; no East Bank development
1B: Perform current lease and invest infrastructure money in other places; no East Bank development
2: Perform current lease and build East Bank
3: Renovate stadium and build East Bank
4: Build new stadium and build East Bank
My sense is that the amount that Metro will have to spend directly upfront on the stadium and East Bank community infrastructure is about the same regardless of which approach we take (unless we decide to not develop the East Bank at all and just perform the current lease). Graphically, this looks like:
This reflects two of my assumptions. First, the overall area infrastructure costs to build a new neighborhood from scratch is about the same no matter what you do with the stadium. Second, Metro owes some amount of money now to provide a "first class stadium" and I don't imagine that Metro is magically going to make that obligation go away — so that is the least amount we can expect to spend on the football stadium.
On this chart, please remember to ignore the numbers. They are for illustration only. My point here is that these costs may be similar regardless of scenario.
Moving to tax revenue: the scenarios are very different because a renovation or a new stadium would require so much of the tax revenue.
In scenario 2, where Metro would honor the existing lease and build the East Bank anyway, Metro keeps more of the overall tax revenue. In scenarios 3 and 4 (major renovation, and new stadium), Metro gives up more tax revenue for stadium financing.
There is also a difference in what assets Metro retains under the different scenarios:
What are my takeaways at this stage?
First, it is hard to reach firm conclusions in the absence of actual data.
Second, it is clear that scenario 1A (perform the current lease) is the worst financially for Metro. This is not an earth-shattering revelation. This is the core leverage that the team has in negotiating with Metro.
Third, in trying to capture the cost to Metro for a major renovation or a new stadium, it looks like the costs are: (a) reduced tax revenue compared to building the East Bank without a major stadium renovation or rebuild; (b) loss in value of any real estate conveyed to the team or sold to finance the stadium; and (c) any direct upfront spending on the stadium greater than the minimum amount required to provide a "first class stadium" under the existing lease.
Again, these thoughts are a work-in-progress that tries to discern some general principles because actual numbers aren't available now.
Based on these general principles, some people might conclude that a major renovation or a new stadium will be hundreds of millions of dollars worse for taxpayers than simply building the East Bank and honoring the current lease to its conclusion. Others might say that Nashville has to be a pro football city and that we need a new facility to be all that we can be.
This coming debate makes me think about my Where are we going? post from January. It would help us think through the stadium economics if there were a consensus about our goals as a city.
For example, if it were a primary civic goal to be a top 5 destination city for major sporting events for the next generation, then the extra cost to Metro from building a new stadium might be worth it? But if Nashville's main goals are something else, then property and sales tax revenue should be protected more and perhaps Metro should retain ownership of all of the land?
As for next steps, your guess is as good as mine about the timing of whatever happens next. In a lot of ways, this post is premature because most of us are still just reading tea leaves about what the final deal will be. I mostly am sharing my thoughts about the general principles while they were fresh in my mind. I hope you find them helpful.