Red Wings Generously Agree To Accept Huge Sums Of Money From Public

Red Wings Generously Agree To Accept Huge Sums Of Money From Public

Yesterday, the Detroit Red Wings unveiled plans for their brand new publicly subsidized $450 million arena development. The arena, which promises to include $200 million additional investments in mixed-used development, will break ground in September. The Ilitch family, which owns the Red Wings and Tigers, is calling the new arena district a "bold vision" that will "generate at least $1.8 billion in total economic impact." Renderings were released and neighborhood names coined, because everyone wants sports franchises handling their urban planning.

You might remember the uproar over the arena deal—which includes $284.5 million in public investment—when it was originally announced last summer. Isn't this a terrible idea for a city wading through bankruptcy proceedings, people asked? (Yes, it is.) Couldn't those tax dollars be better spent on other infrastructure improvements in the area instead of lining the pockets of a wealthy pizza magnate? (Yes, they could have.)

You can read an excerpt of my dive into Detroit's arena deal and the absurdity of stadium welfare in America from March below, but first a quick primer on all the numbers getting thrown around.

The arena itself is estimated at $450 million, of which the city is paying $262 million—by way of tax increment financing (TIF)—for construction costs. That's 58 percent, not including any cost overruns. The entire project, including the mysterious promise of ancillary investment within five years of the first puck drop, is pegged at $650 million, with $284.5 million of that coming from the TIF.

Olympia, Ilitch's $2 billion empire, says the development will create 8,300 short-term construction jobs and 1,100 permanent positions. But when City Council approved the land transfer of 39 parcels (for $1!) in February, Council President Brenda Jones, along with two others, voted nay because Olympia balked at guaranteeing a specific percentage of post-construction jobs to actual residents of Detroit.

Not only is the city footing a good portion of the bill for construction (and possibly getting dicked out of jobs for residents), they're going to lose revenue when the Wings move into the new arena. Under Olympia's current deal with the city for Joe Louis, where the Wings have played since 1979, the city receives roughly $7 million annually in revenue from suite sales (7 percent), food and beverage concessions (10 percent), souvenir sales (5 percent), and ticket proceeds (10 percent). But under the new arena deal, they won't have to share any of the revenues with the city. And Olympia will get all the fees from naming rights, which can rack up millions annually.

The Ilitch family's net worth is estimated at $3.6 billion.

Photo via Associated Press

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Original post by Bill Bradley

Detroit Scam City: How The Red Wings Took Hockeytown For All It Had

Detroit Scam City: How The Red Wings Took Hockeytown For All It Had

The following is excerpted from a feature running in Next City's weekly Forefront series on urban issues.

Two days before Christmas, the Detroit Red Wings got booed out of their own arena. The lowly New York Islanders scored three goals in the first period and sucked all the excitement out of the building. Between periods, I strolled from the nosebleeds down to the bathrooms, where I encountered hundreds of half-drunk fans waiting in lines that snaked down the concourse. A man in front of me, dressed in a Steve Yzerman jersey and no doubt angry with the score and daunting line, remarked that the team's new arena "couldn't open soon enough."

Mike Ilitch and his wife Marian bought the Red Wings for $8 million in 1982. Last November, Forbes ranked the team as the ninth-most valuable NHL franchise, at $470 million. The previous July, just a week after the Motor City declared for bankruptcy, it was announced the public would cover nearly 60 percent of the cost for the team's new $450 million, 18,000-seat arena.

The Wings have played at Joe Louis Arena, on the Detroit River, since 1979. What it lacks in modern amenities—a comically large jumbotron, cup holders, abundant restrooms, hand railings—it makes up for in charm. The Joe is a dump, diehard fans will tell you, but it's our dump.

Now the storied franchise is headed due north, where it will set up shop between the downtown core and rapidly developing Midtown neighborhood in a roughly 45-block footprint unimaginatively billed as the "arena and entertainment district." The total price tag, including additional private investments in retail and housing, is an estimated $650 million, $284.5 million of which will come in the form of public investment.

No money will come directly from the city's general fund—something advocates of the deal are quick to point out—but instead the bulk of public funding will come by way of tax increment financing (TIF). Taxes captured in the 615-acre Downtown Development Authority (DDA) district will be poured into the project. The Michigan Strategic Fund, a state economic development agency, will issue 30-year tax-exempt bonds backed by three revenue streams: The aforementioned TIF capture, various other tax revenues from the DDA and Olympia Development, the Ilitch's $2 billion enterprise.

The TIF capture will contribute at least $12.8 million annually, though it can't exceed $15 million. The DDA will contribute about $2.15 million in separate tax collections. Olympia will toss in $11.5 million. And, as Crain's Detroit detailed in July, public money will pay for $261.5 million (58 percent) of the construction costs, while Olympia only has to pay $188.4 million (42 percent).

If you're searching for something particularly craven in the complicated financing structure—that is, something other than the careless use of public money itself—look to where, exactly, the tax capture comes from. In December 2012, the Michigan legislature restored Detroit's ability to levy school-tax funds from the downtown district for economic development purposes. If that $12.8 million annual gift weren't going to the Illitch empire, it would go to the state's School Aid Fund.

This is not to say that the arena will take money out of Detroit Public Schools (DPS) general fund. "The state is making up the shortfalls," said Bob Rossbach, spokesperson for the DDA. "So there is no difference to a student in Detroit Public Schools whether this money is refunding bonds or goes directly into the DPS budget." But it is diminishing the state's School Aid Fund by diverting the taxes for "economic development" purposes. Something, somewhere, is taking a hit.

Nonetheless, the Ilitch family—with its estimated $3.2 billion net worth—will get a new stadium, slated to open for the 2016-2017 season, built off the backs of taxpayers.

Not that this is a particularly new tactic. Mr. I, as supporters fondly call him, also owns the Detroit Tigers. When the Tigers, most recently valued at $643 million, wanted a new stadium, Ilitch—who made his fortune off the Little Caesar's pizza chain—went to City Hall, as would any sports owner in the country. And, as lawmakers are wont to do, they obliged, covering $115 million of the $300 million ballpark's costs.

He Can't Win Without Public Money

Detroit is mired in the country's largest-ever municipal bankruptcy, staring down $18 billion in long-term debt. Many retirees will lose health care on March 1, only to receive a small stipend. Firefighters and police could see their pensions reduced—some have speculated at 16 cents on the dollar. Local bus drivers are being shot at in the middle of the day. Kevyn Orr was appointed the city's emergency manager in March of last year, but he wasn't the first in town: Since 2009 DPS has been under the watch of an emergency financial manager. As part of the district's 2013-2014 budget, 665 jobs were set to be slashed. The DPS deficit ballooned from $76 million to $82 million. And roughly 600 non-union water and sewer department workers are set to lose their jobs.

Somehow, amid all that financial and institutional debris—which neglected to mention the oft-cited bits about the lack of very basic services and 58-minute average police response time in a city where less than half of the 88,000 streetlights work—there's still $284.5 million for a new hockey arena.

"This plan is deeply flawed," one resident said during a community hearing last month at City Hall. "That's arrogant to do that to a city that's bankrupt."

And that doesn't even include the land. On February 4, City Council voted 6-3 to sell Olympia and the DDA, who will own the arena, 39 vacant parcels for $1. An analysis of city records by the Detroit Free Press found that "several private landowners succeeded in netting millions for themselves by selling similarly situated land in the arena's footprint to Ilitch-controlled corporations." Rather than sell the land at market rate, the city is giving them the rest the same way you sell your younger sibling your old car—$1, but just for the title transfer.

Olympia Development's CEO Tom Wilson, without a hint of irony, called it a "once-in-a-generation" deal.

Jerry Belanger, who owns the Park Bar near the proposed new arena, voiced his displeasure with the once-in-a-generation deal. "I'm going to be taxed to buy [Ilitch] bars and restaurants that will be my competitor," he said. "He can't go toe-to-toe with me on a fair playing field. He can't win without public money."

After City Council approved the land transfer a man, in a scene that wouldn't have been out of place in the rafters at a hockey game, yelled, "The citizens of Detroit thank you for selling them out!"

They Kicked Our Asses

Comerica Park opened in 2000, but it never would have happened if Frank Rashid, a lifelong Detroiter and English professor at Marygrove College, had his way. In 1987, Rashid co-founded the Tiger Stadium Fan Club in an attempt to preserve Tiger Stadium, where the team had played since 1912, and stop local sports teams from fleecing taxpayer dollars.

The Tiger Stadium Fan Club may sound like a group of middle-aged men who show up to ballgames early and cut in front of kids for autographs during batting practice, but Rashid and his fellow preservationists were actually hardcore community activists. And, in March 1992, the Fan Club scored a huge victory: A ballot initiative to prohibit the use of public subsidies for stadiums passed and became Ordinance 7-92. If you were, say, a certain local billionaire sports owner looking to build a new ballpark, you'd have to do it on your own dime.

But that was short lived. City Council passed an ordinance in December 1995 that repealed 7-92. In January 1996, the Tiger Stadium Fan Club collected enough signatures to force a referendum that March. It was doomed from the start.

"They kicked our asses," Rashid told me. "We always knew we wouldn't have much of a chance. They had TV ads and mailers. I heard they had between $600,000 and $1 million. We had about $20,000 or $30,000."

It's no coincidence that in October 1995, shortly before 7-92 was repealed, the city and state had agreed to cooperate on a new ballpark in downtown Detroit. Two years later, they broke ground on Comerica Park in the central business district. The old Tiger Stadium languished in various preservation efforts before it was eventually demolished in 2009. All that's left is a massive corner lot in Corktown. A group of volunteers maintain the open field. Nemo's, a revered bar near the old ballpark, shuttles fans to and from Comerica on game days.

"It Passes Off the Cost to Everyone Else"

Between 1909 and 2012, roughly $53 billion—in 2012 dollars—was spent building 186 stadiums across the country, according to research from Judith Grant Long at Rutgers University and Deadspin. Of that, $32.2 billion came from public coffers for a grand total of 61 percent. The public has been footing the bill for stadiums masquerading as economic development for more than a hundred years.

"Few fields of empirical economic research offer virtual unanimity of findings," economist Andrew Zimbalist wrote in 2000. "Yet, independent work on the economic impact of stadiums and arenas has uniformly found there is no statistically positive correlation between sports facility construction and economic development."

In that same paper Zimbalist riffed on years of stadium welfare literature and studies, one of which found "no significant difference in personal income growth from 1958 to 1987 between 36 metropolitan areas that hosted a team in one of the four professional premier sports leagues and 12 otherwise comparable areas that did not." Compare that to the Detroit Lions, whose value skyrocketed from $150 million in 1996 to $839 million in 2006, four years after the franchise moved to its new publicly funded stadium across the street from Comerica Park.

Which is a long way of saying: The franchise owner gets richer, but the city's residents don't. Why hasn't anyone in Washington done anything about it?

"The people who support this stuff have way more power in Congress than the people who oppose it," Neil deMause, whose book Field of Schemes and blog of the same name are the urtext on stadium welfare, told me.

But that hasn't stopped some lawmakers from trying. The same year the ordinance was repealed in Detroit, New York Sen. Daniel Patrick Moynihan introduced a bill that would have eliminated federal tax breaks for professional sports stadiums. The eponymous bill, predictably, went nowhere.

The following year, Minnesota Rep. David Minge introduced the Distorting Subsidies Limitation Act Of 1997. Minge's bill aimed at subsides of all stripes, from Nike to the New York Yankees. It would have created a "federal excise tax on businesses benefitting from these special targeted economic subsidies," Minge said at the time. "The rate of the tax will be the same that applies in determining the regular income tax of a corporation." The bill never made it out of committee.

It's only common sense that you would tax the subsidies. More often than not, the land for the stadiums is not only forked over free of charge—or, in the Ilitch's case, for $1—but the owners live free of property taxes, too. Madison Square Garden, where the New York Knicks and Rangers play, hasn't paid property taxes since 1982, which the city's independent budget office said last fall was worth $17.4 million in fiscal year 2014 alone. The entire premise, from the free land to the tax-free bonds, is an exceptional boondoggle.

"There is no reason on earth for the federal government to be subsidizing these things by allowing tax-exempt bonds to be used for them," deMause said. "It's stupid. It passes off the cost to everybody else."

Minge gave it another shot, though, reintroducing his bill to the Ways and Means Committee in 1999, again to little fanfare. Like the first time around, it didn't make it out of committee.

Beyond Taxation

In 2007, Ohio Rep. Dennis Kucinich organized a congressional hearing on stadium subsidies. "Build It and They Will Come: Do Taxpayer-Financed Sports Stadiums, Convention Centers and Hotels Deliver as Promised for America's Cities?" was a who's who of stadium welfare critics, including testimony from both deMause and Rashid.

I tracked down Kucinich, who now works as a contributor to Fox News and runs a PAC out of his native Ohio, to revisit that hearing back in 2007—why hold it? Was it because the Cleveland Browns bolted for Baltimore?—and see what he thinks can be done about stadium subsidies now.

"I'd been interested for decades in the issues attendant to public resources going to sports franchises," he told me. "And the sheer amount of money, the purpose of the expenditures, the underlying threats from owners to leave communities and the cost-benefit analysis. There's a very serious public policy issue here, and I felt it was important to at least call it to the attention of Congress and the American people."

Kucinich said he felt like the hearing, though it had no measurable effect on policy, at least brought forward a subject "that doesn't often get discussed." These days he's more bullish on how municipalities should handle stadium welfare: Like the big business it is. He wants the city or state to have a stake in the franchise.

"Any time you're talking about massive investment of public resources, it ought to be treated in the same way that a venture capitalist would treat it," Kucinich said. "There's no business in the world—no bank, no venture capital fund—that would give money to an entity without asking for anything in return. Negotiate a position in the same way that a venture capitalist would. You become a partner, not simply someone who is playing Santa Claus with taxpayer money."

It's not a crazy idea. Orlando is set to get a Major League Soccer franchise, and when the owners lobbied for a new stadium last August, Orange County Commissioner Pete Clarke proposed a deal that echoed Kucinich's approach: In exchange for $20 million to fund your new soccer stadium, the taxpayers get a stake in the team.

"I do not want another example of the county expending millions of dollars watching from the sidelines, as our investment climbs in value without the prospects of our taxpayers benefiting," Clarke wrote in a memo at the time.

He backed off after Orlando Mayor Buddy Dyer rejected his proposal and the team offered to invest $2.5 million over the next 10 years in recreation programs. The county commission voted 5-2 in October to shell out $20 million from a tourist tax without any sort of equity stake in the franchise.

"They just want to get tax dollars. That's what this is about," Kucinich continued. "And I'm really talking about applying business and investment principles to sports entrepreneurship. I don't see why anyone should have any problems with that whatsoever."


Bill Bradley is a columnist at Next City and freelance writer. His work has appeared in GQ, Outside Online, Pacific Standard, Runner's World, and Vanity Fair, among others. Follow him on Twitter @billbradley3.

Photo via Getty

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