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Convention 2010
June 23-26
Marriott City Center,
Salt Lake City

For information:
Garry D. Howard:
E-mail | 414-224-2306

Jack Berninger:
E-mail | 804-741-1565

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Judging 2010
March 6-10
Radisson WorldGate,
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Mandatory dates:
Sunday: April 5
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Over 250,000 circulation
Enterprise story
Fourth place

Building NFL fortunes
Across the U.S., the NFL has touted public/private partnerships to build or renovate stadiums. But the deals largely rest on the backs of taxpayers and fans

New Orleans Times-Picayune

The sales pitch came straight out of the NFL's playbook.

It was November 2000, and the Chicago Bears wanted $400 million from taxpayers to help pay for the renovation of Soldier Field. But there was little support among state lawmakers, who questioned the wisdom of giving a private company so much public money for a project that would further enrich the team's ultrawealthy owners.

The Bears prevailed, thanks to a familiar promise.

Like NFL teams across the country, the Bears proposed a public/private partnership, and pledged to pay their fair share – $200 million – toward the $632 million stadium project. Chicago Mayor Richard Daley heralded the Bears' generosity.

"Really remarkable," he told a local newspaper. "Unheard of."

Under pressure from the team to act, the Illinois legislature approved the deal within 72 hours, and the NFL stadium boom surged on. So did a myth about taxpayer-financed stadium deals. What's truly remarkable about the Bears' $200 million contribution is that less than $30 million will come directly from the team's owners.

Yet the Bears aren't alone.

Trumpeting the concept of partnership to win public support, NFL owners have secured $4.4 billion in taxpayer dollars since 1995 for 21 new or renovated stadiums. Though teams have represented their combined contribution as about $2 billion, a Times-Picayune study shows their actual out-of-pocket expenses were no more than half that.

Here's why:

1. Building NFL fortunes

2. Bank of NFL; Sure, if teams can secure taxpayer money

3. Critics question league's tax-exempt activities

• An NFL program loans teams up to $150 million for a new stadium. A key component of the program is the business model driving each loan: Most of it is not repaid by the borrowing team, but from the visiting team's cut of club-seat money. The visiting team still makes more money, for a simple reason: Once the public pays for a new stadium, the team charges fans significantly more to get in. The loan program virtually mandates it, according to NFL documents obtained by the newspaper. One condition of loan approval requires the borrowing team to show that the visiting team will enjoy increased revenue in the new stadium, the documents reveal.

• Teams raise millions by selling personal seat licenses, a one-time fee many clubs charge fans for the right to purchase premium season tickets. PSLs have been used to generate more than $70 million that teams count as their contribution to new stadium deals. Yet while NFL clubs ask taxpayers to help pay for stadiums, the teams do not pay taxes on PSL sales. The deals are constructed so that the PSL money is collected through tax-exempt government agencies. The agencies are public entities, but the money they collect counts toward the teams' share of stadium costs.

• Though the public owns the stadiums, teams on average control more than 90 percent of the revenue through long-term leases. Once the stadium opens, the amount of money directly invested by NFL teams is quickly recouped, often within a few years – thanks to lucrative luxury boxes, club seats and considerably higher ticket prices. Taxpayers, however, typically are committed to up to 30 years of debt payments.

To critics, the NFL stadium deals place too much financial burden on taxpayers and fans.

"I'm not anti-Chicago Bears, but look," said William Black, an Illinois state representative from Danville who opposed the deal. "The taxpayers are building a stadium for a family of millionaires, so millionaire players can play, and the average taxpayer can't even afford a seat. There's something wrong with this picture."

The NFL views the picture differently.

"Stadium projects are the result of public/private partnerships and not club requests for taxpayer money," league spokesman Greg Aiello said. "The clubs and their communities sit down and discuss what makes sense in their particular market, based on their respective assessment of the benefits and the burdens."

Responding to criticism that owners overstate their financial contribution and much of the money comes from ticket-buying fans, the league said the source of private money is not an issue.

"All NFL revenue is ultimately derived from the fans," Aiello said.

One stadium finance expert agreed with that assessment but said that when teams are seeking taxpayer support, they aren't so forthright about where the private portion will come from.

"Teams don't pay anywhere near what the public sector is paying, and there's all kind of accounting shenanigans that really disguise and misrepresent their actual contribution," said Robert Baade, an economics professor at Lake Forest (Ill.) College who has done extensive studies of stadium finance. "It's part of the apparatus of persuasion to convince the skeptical public that it is a good thing, that the team is shouldering a fair portion of the financial burden, which we know is inaccurate."

Scared cities

In the feverish push for stadium deals – 21 new or renovated stadiums have won approval since 1995 – the details behind the numbers often go overlooked in the face of the NFL's popularity.

Owners threaten to move franchises unless they get a new stadium. Competing cities hungry for an NFL franchise drive up the ante with taxpayer dollars. No market is immune from the forces at the heart of the league's $6 billion stadium-building run.

The Los Angeles area saw two teams, the Rams and Raiders, leave after refusing to bend on new stadium proposals. Minneapolis and San Diego are under pressure to build new facilities or risk losing their franchises. The Indianapolis Colts agreed to back off demands for a new stadium in exchange for a deal similar to what the New Orleans Saints got last year. The state of Louisiana bought time to study the stadium issue when it agreed to give the Saints $186 million over 10 years to stay in the Superdome.

Even Chicago, a vital television market to the NFL, buckled. Citing new stadiums across the league, the Bears said they needed one to compete – or they might be forced to leave town.

"Which is just pure baloney," said Black, who pointed out the team's long history in a city the size of Chicago makes it unlikely the franchise ever would move.

"The team's late owner, George Halas, is widely regarded as the father of the NFL," he said.

But according to Black, when anybody suggested public meetings, or a referendum, or simply slowing down for analysis, the Bears said there wasn't time. The NFL loan money might dry up, Black said he recalls hearing.

"Well, I've been in the General Assembly for 15 years," he said, "and any time I hear that malarkey, nine times out of 10 the plan will not stand scrutiny."

Scrutiny reveals why the Bears were so eager for the $632 million renovation that will include two major parking garages and 17 acres of parkland.

The largest part of the team's $200 million share is a $100 million loan from the NFL – although very little of the money will be repaid by the Bears.

Essentially functioning as a bank, the NFL has raised money for the loan program by issuing league-backed bonds, which has led some experts to raise questions. The NFL is a nonprofit organization exempt from federal taxes, and Internal Revenue Service rules restrict such groups from profiting their members or holding an unfair advantage over taxpaying businesses offering the same services.

"It's taking advantage of the generosity of the IRS," said Neil deMause, co-author of "Field of Schemes," a book showing how public funding of stadiums results in private gain.

The NFL counters by saying all taxable revenue is taxed at the team level. The league's loan program does not compete with other businesses, such as banks, because the NFL lends money to its members only, Aiello said.

The program, called G-3, began in 1999 – in part to keep the New England Patriots from moving to Hartford, Conn. – and borrowing owners couldn't ask for a better repayment plan. Most of the loan is repaid with money from the visiting team's 34-percent share of club-seat money. Sports economist Andrew Zimbalist referred to the loans as "almost free money" for the borrowing owner.

The second-largest part of the Bears' contribution is $70 million from personal seat licenses, which are sold to fans at prices ranging from $900 to $10,000 each. The money from the PSLs counts as the Bears' contribution, but the team does not collect the money – or pay taxes on it. Fans are told to make checks payable to a public agency, the Lakefront Improvement Fund, an arrangement that saves the Bears millions of dollars.

While the NFL is tax-exempt, its teams are not. If the Bears, for example, collected the PSL money directly, the team could owe roughly $25 million in taxes based on the standard corporate tax rate of 35 percent.

The balance of the Bears' contribution to the $632 million project is about $30 million. When the renovation is complete, stadium experts estimate, the team will enjoy about $35 million more per year in revenue. Based on that figure, it will take only one season for the Bears to recoup their actual investment in the stadium.

That stands in contrast to the public, which will be paying off $400 million in bonds for the next 30 years.

Bears spokesman Scott Hagel defended the team's contribution. The PSL money should count as part of the Bears' share, since the team agreed to dedicate the money toward the stadium, he said.

"To people who say the team isn't paying anything, that's where I say, 'Baloney,' " he said. "Every revenue stream the team has, if you're giving that up, you're giving up money, from the organization's standpoint."

Hagel also said the Bears assumed the project's greatest risk because the team must sell advertising, luxury suites and tickets to generate the projected income.

Yet the team benefits from remarkable fan interest that reduces such risk. The Bears have sold out every home game since 1984 – despite eight losing seasons during that stretch – and thousands of fans are on the waiting list for season tickets.

Illinois taxpayers aren't alone in facing long-term stadium debt. Over the next 30 years, taxpayers in NFL cities face more than $2 billion in interest payments on bonds used to raise public money for NFL stadiums. That figure does not include the $4.4 billion in tax money dedicated to the projects.

Meanwhile, of the $2 billion the teams say they're investing in stadiums, about $1 billion comes from NFL loans and PSLs – both derived from revenue collected from fans.

The NFL says it's irrelevant to break down money generated by its loan program and PSLs. "Those are monies that, if not contributed to the stadium projects, could otherwise be kept by the clubs and should be viewed as the equivalent of club contribution," Aiello said.

Stadium-finance experts dispute that point, saying it is the substantial increase in revenue from the new stadiums that repays the loans and produces the PSL money. Without the new facilities, they say, there would be no such revenue for the teams to keep.

Path to millions

To get their stadium deals, NFL teams simply follow the blueprint developed over the past decade. No team altered stadium financing as significantly as the Carolina Panthers.

In 1993, the Panthers became the first team to sell personal seat licenses – and raised $160 million. NFL owners took notice of the whopping dollars and something else: The federal government hit the team with a $50 million tax bill.

Said one NFL executive, who requested anonymity: "A critical financial component had to be addressed."

The challenge Figure out a way to sell PSLs to fans without having to pay taxes on the money.

The blueprint emerged in St. Louis, where in 1995 the city sold $75 million in PSLs in an effort to lure the Rams from Los Angeles. Because the government sold the PSLs, taxes were avoided – even though the money directly benefited the Rams by paying for the team's relocation costs.

The IRS scrutinized the deal. It passed muster, and the word was out: Taxes were a nonissue as long as the money flowed through a government agency and was spent on a publicly owned stadium or relocation costs.

A golden goose was born.

"The Rams model is the one everyone focuses on," the NFL executive said.

More than $600 million in PSL money has been raised for stadium projects on behalf of NFL teams. Applying a federal tax rate of 35 percent, those teams have avoided more than $200 million in federal taxes, according to tax experts. While teams could recoup the tax payment, it would require 30 years of deductions, experts said.

No matter how the NFL does the math, it's clear who's shouldering stadium costs: The public pays one huge share, and fans pay another.

Paul Allen, the Microsoft billionaire who owns the Seattle Seahawks, pledged $100 million toward the team's new stadium and persuaded the public to pick up the difference: $300 million.

When stadium costs exceeded estimates, Allen's share increased to $130 million – less than half of it from his own pocket. The Seahawks received a $60 million loan from the NFL and $20 million in PSL money, reducing Allen's direct share to $50 million. Revenue estimates show he'll recoup that within a few seasons in the new stadium, while the public faces debt payments of almost $600 million over 20 years.

The Seahawks referred questions to a public-relations firm, which did not respond to requests for comment.

In Philadelphia, Eagles owner Jeffrey Lurie promised to pay $255 million, while getting taxpayers to pay $245 million for the team's new stadium. The Eagles' portion includes a $130 million NFL loan and $70 million in PSL money, reducing Lurie's out-of-pocket costs to $55 million.

Eagles spokesman Ron Howard declined to comment on the Philadelphia deal but pointed out the Baltimore Ravens contributed even less for their new stadium.

Aiello said the NFL's proof that the deals are fair is "based on the fact that more than 21 new or substantially renovated stadiums have been built or are on line to be built as the result of successful public/private partnerships."

In each new stadium, increased ticket prices will play a key role in repaying an NFL loan, while still guaranteeing a net increase in money for visiting owners. "Increases in the visiting-team share generated by the new or renovated stadium must meet the standards set forth in the guidelines" governing the loan program, according to league documents.

Players also benefit, since the salary cap is tied to league revenue.

"The owners win and the players win," said Tom DePaso, staff counsel for the NFL Players Association. "When there's more money, everybody wins."

Big winners

No one wins bigger than NFL owners.

New stadiums not only bring a substantial jump in cash flow, they also dramatically increase the value of a franchise – sometimes doubling it.

Art Modell, owner of the Baltimore Ravens, cashed in on a publicly-financed stadium. In 1996, the year after Modell moved the Browns from Cleveland to Baltimore for the promise of a new stadium, Financial World magazine estimated the team's value increased 23 percent to $201 million.

Three years later Modell reportedly got $275 million for less than half of the team. Modell sold 49 percent to businessman Stephen Bisciotti, along with the option to buy the remaining 51 percent after the 2003 season. Bisciotti plans to use that option, which reportedly will cost him another $325 million.

Modell's total take: $600 million for a team he bought in 1961 for less than $4 million ($23.7 million in 2002 dollars, adjusted for inflation).

Such astonishing profits that stem from publicly-financed stadiums have drawn scrutiny from political leaders such as Sen. Arlen Specter, R-Pa., and Rep. Barney Frank, D-Mass. But so far, legislative efforts aimed at increasing the NFL's contribution to new stadiums have been blocked. That, according to critics, has left taxpayers vulnerable to deals that heavily favor NFL owners.

"The way stadium deals are financed, this is not illegal," said Allen Sanderson, an economics professor at the University of Chicago. "It's just these guys are very clever in terms of being able to take full advantage of the tax laws and in some cases favorable legislation.

"I wish it didn't happen."

© 2009 The Dallas Morning News