Not every idea is a good one
Over the weekend, the Santa Rosa Press Democrat’s sports columnist Lowell Cohn entertained a concept for privately-financed stadia at the Coliseum for both the A’s and Raiders. Put together by Sacramento developer Rick Tripp, the plan is neither new nor novel. In fact, we’ve heard it here several years ago, when the Lew Wolff trying to build a ballpark first north of the Coliseum and later in Fremont. The venue(s) would be paid for by a combination of surrounding area development entitlements and stadium revenues such as naming rights and concessions. During the housing bubble in 2005, it sounded like a decent plan since it wouldn’t have required a bond issue or new taxes on Fremont’s or Oakland’s part. Of course, once that bubble burst, such a plan was no longer feasible.
Tripp revives that plan and adds a wrinkle in that “unconventional” sources such as real estate brokerage fees are also used. Tripp admits that he hasn’t lined up all of the necessary money, some of which could come from Middle East financiers. He has also pitched his plan unsuccessfully twice – first in San Diego for the Chargers, then in his hometown, Sacramento, for the Kings’ railyards arena. In both cases, his respective bids were rejected. No explanation is given as to why, but I have a few guesses as to why which I’ll get to in a minute.
Before that analysis, first let me turn your attention to a small article which also surfaced over the weekend. The Arizona Diamondbacks are pushing to have ownership of Chase Field changed from one public entity (Maricopa County) to another (City of Phoenix). The point? To allow the D-backs to exert more control over Chase Field’s revenue streams, which are currently somewhat split between the team and Maricopa County. The team pays $4 million per year in rent and maintenance costs, a decent amount compared to other leases throughout baseball. No new money is being raised by virtue of the D-backs’ proposal, and it might net the team a few more million per year. That’s enough to make the request worthwhile. It’s of utmost importance to team ownership that it gain control over as much of its local revenue stream as possible.
It’s in that light that if you read Tripp Development’s San Diego stadium proposal that you can see why it didn’t pass muster. The plan, which included a $900 million NFL stadium and a $400 million arena, would charge $15 million per year to the Chargers and $10 million per year to a relocated NBA team. Given the somewhat similar cost between a ballpark and an arena, let’s suppose that the A’s would lease a new ballpark from Tripp for $10-12 million a year. That’s three times as much as the D-backs, a team that is at best a mid-market franchise and is trying to scrape up every bit of revenue it can. Worse, the terms have the A’s (or Raiders) with precious little control of stadium revenue except for games. While it sounds nice that the A’s would get a “free stadium”, their inability to control revenue streams would leave them only marginally better than they are now, especially in years when attendance isn’t impressive. It’s a deal that, if presented to either Lew Wolff or Mark Davis, would be politely declined by both. It’s not something that would be approved by either the NFL or MLB. Similar lease terms helped allow the Seattle Supersonics to leave the Emerald City, and they’re making it easy for the Warriors to look across the Bay towards San Francisco – even though the price tage for a new arena will be huge.
Now, that isn’t to say that Tripp’s concept is bad. If you’re an Oakland-only partisan or someone who doesn’t scratch the surface like Cohn, it might sound great. And at least Tripp is being fairly transparent about the substance of the deal, whereas we have few clues about Oakland Mayor Jean Quan’s Coliseum City plan other than federal transit money or the exotic EB-5 visa program (neither of which will provide much money to build any stadia). The problem is that so much revenue has to go towards paying off the project that it severely limits the amount that can go to the tenant teams. That puts the teams at a handicap relative to their division and league competitors. Both owners and the leagues are going to agree to deals that give them the highest levels of revenue and control. A large mortgage for the A’s is somewhat mitigated by the fact that it can be deducted against revenue sharing. Any deal that doesn’t give the team revenue control is inferior, even if a high-revenue/control deal means creating greater risk (see: 49ers).
Moreover, while the plan doesn’t say redevelopment explicitly, it’s effectively a redevelopment plan when it talks about entitlements. That may be the most risky thing of all. Tripp and his investors probably have a target in terms of real estate sales and fees associated with those sales that will help pay back the debt ($90-100 million per year if separate football and baseball stadia are built). If they don’t hit those targets because of an Oakland real estate market that trails the rest of the Bay Area, what does it mean for the teams? Investors want to counterbalance risk with return and protection if possible. With limited government help, the risk may be excessive. Remember that former New Jersey Nets owner Bruce Ratner faced several delays in trying to move the team to Brooklyn, which eventually forced him to sell the team and the development to Russian billionaire tycoon Mikhail Prokhorov. Bailout guys like Prokhorov don’t grow on trees.
Tripp’s plan is the first of many such proposals for Coliseum City, and he admits that he’ll know if it’s workable in 18 months, around the time several studies regarding Coliseum City are due. If nothing else, his proposal should stimulate discussion within Oakland about how Coliseum City can get accomplished – not just to keep the teams in place, but to allow them to thrive. For any team to stay in Oakland the financial terms need to make the teams more than merely competitive. As long as the teams face revenue limitations from any proposal, they’ll keep looking for better deals elsewhere. That said, if Tripp is able to successfully get commitments from one or both teams, he’ll deserve extreme kudos. Third time would be the charm, I guess.