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09/08/2010 00 Agenda and Packet
Micah Cawley, Mayor ` � Kathy Coffey, Assistant Mayor ` 1 Yakima Maureen Adkison Dave Edler ° h, • '�': > City Council Rick Ense ,�� RP�anT • Agenda Dave Ettl I29 N. 2nd Street,Yakima,WA.98901 Bill Lover Phone: (509) 575 -6000 • Fax (509) 576 -6614 City Manager Email: ccouncil @ci.yakima.wa.us • www.ci.yakima.wa.us Richard A. Zais, Jr. Anyone wishing to address the Council, please fill out the form found on the tables and give it to the City Clerk YAKIMA CITY COUNCIL ADJOURNED MEETING — STUDY SESSION - SEPTEMBER 8, 2010 — 9:00 — 10:30 A.M. COUNCIL CHAMBERS — YAKIMA CITY HALL 1. Roll Call 2. New Yakima Bears Stadium • Review interest in opportunities for supporting the proposed Yakima Bears stadium • Request for direction regarding economic feasibility analysis regarding the proposed Yakima Bears stadium 3. Audience Comments (10:15 — 10:30 a.m.) 4. Adjournment to September 9, 2010 at 7:00 p.m. for a public hearing regarding Council- Manager / Mayor - Council forms of government in City Hall Council Chambers Yakima kalkal Ail-aacnr City of YakimaVision Statement: To create a culturally diverse, economically vibrant, safe, and strongYakima community. t I I I I ' Adopted March 2008 1994 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. �- For Meeting Of Sept. 8, 2010 ITEM TITLE: Request for Direction regarding City of Yakima Economic, Legal & Fiduciary Feasibility Analysis of Proposed Yakima Bears Stadium and Multi- Purpose Facility. SUBMITTED BY: City Management CONTACT PERSON/TELEPHONE: Michael Morales, Director CED ( #575 -6113) SUMMARY EXPLANATION: The Yakima Bears have requested City participation for the development and construction of a new stadium at the former Boise Cascade Mill site. The Bears ownership and consultant have presented the idea to the Council Economic Development Committee, and a Study Session has been scheduled for September 8 to brief the full Council of the proposal and deliberate whether or not the Council wants to pursue the proposal further, and if so to discuss the steps and costs of preparing a complete analysis of the economic viability, construction, maintenance, operational costs and financing options for a city owned stadium that is leased to a private operator. Resolution Ordinance Other (Specify) _Report Contract Mail to (name and address): Phone: Funding Source APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: This is a Council decision BOARD /COMMISSION /COMMITTEE RECOMMENDATION: COUNCIL ACTION: • MEMORANDUM • September 3, 2010 • TO:. Honorable Mayor Micah Cawley • • Members of City Council • • FR: Dick Zais, City Manager Rita DeBord, Finance Director • Michael Morales, Director CED RE: Request for Direction regarding City of Yakima Economic, Legal & Fiduciary • Feasibility Analysis of Proposed Yakima Bears Stadium and Multi - Purpose Facility The Yakima .Bears have requested city participation for the development of a new stadium at the former Boise Cascade Mill site. The Bears ownership and consultant have presented the idea to the council Economic Development Committee, and the.September 8th Study Session has been set for the full council to be informed of the proposal and deliberate the steps and costs of preparing a complete analysis of the economic viability, construction, maintenance and operational costs, and financing options for a city owned stadium that is leased to a private operator. STADIUM STUDIES AND PROPOSALS In 2009, the Yakima County Development Association (YCDA) conducted a market and feasibility analysis, funded by a $40,000 Yakima County SIED grant (Attached). While the 2009 study analyzed several aspects of development and financing plans for either a $20,000,000 stadium reconstruction at the current site or a $28,000,000 new stadium at another site, the study only served to gauge market feasibility estimate construction costs, and identify financing options (including new taxes) for the Yakima Bears to determine if they should and could pursue a new stadium in the Yakima market. However, the 2009 study does not include several other components necessary to finance a publicly owned, privately operated facility, such as: • A long term financial operating pro forma (necessary to underwrite any financing option); • Financial information on the principal owners of the Yakima Bears; • Commitments and obligations for repayment of debt issuance (payment guarantee); • Detailed uses of facility and projected revenues of Bears and City (affects financing options); • Requirements / restrictions, for public /private financings; • Terms and conditions of Tong term lease that protects the taxpayer investment / interests (the City has requested a proposed lease agreement from the Bears, none has been • received to date.) • Example - Operating Lease As an example of the magnitude of the yet to be addressed items on the above list, some of the more significant requirements for an operating lease (which is just one item on the above list) include the items listed below: (Additionally, refer to Attachment "E" for a copy of a Lease Agreement drafted for the proposed Big League Dreams project; it provides a good example of the types of issues that need to be addressed.);' • Amount and basis of annual lease payments over term of Agreement (example of some options: flat amount, increasing amount over time, percentage of gross or net revenues); Page 1 of 6 • September 8,2010 Council Study Session • • Acceptable / Disallowed uses of facility; • Days of Use by Bears; Days available to City for public us; • City's construction obligations (that would obligate Bears to accept and utilize facility); • Obligations of either party for the on -going operation and maintenance of facility; • How will City cover repair and maintenance costs should the Bears become insolvent; • How will City protect its investment in event of a breach of contract; • What is Bear's and City's responsibilities in event of damage and /or destruction of facility should insurance not be sufficient to repair /replace facility; • Bonding requirements to ensure payment obligations to City are met; • Required / anticipated condition of property at end of lease term (any remaining useful life ?); • Regulatory requirements / limits on private activity and related revenues of publicly owned facility and /or tax - exempt financing relative to the Bears operating plans; • Furthermore, there are a number of statements, positions and assumptions in the Bears' 2009 • study.that have changed and /or require further explanation by the Yakima Bears ownership group for this proposal to move forward. Some of the statements made in the study that require further discussion / investigation include: • • "For the purposes of this analysis, it is anticipated that a reconstructed or new ballpark would host an average of one concert each year, similar to the average hosted by comparable ballparks." o The Bears recent proposal calls a number of these events to generate revenue. • "It is important to note that several of the comparable ballparks host full season Class A baseball, whose schedule consists of 70 home games." o The Bears are a short season club with 38 home season games — how does this impact the economics and feasibility of the proposed stadium. • "Based on the current statutes and limitations surrounding LIFT, it does not appear that LIFT represents a likely source of funding for stadium reconstruction or development." o The Bears current proposal calls for $10 million of LIFT funds. • The Bears have stated publicly that they do not support a tax increase t� finance the stadium: o Their 2009 study describes a stadium funded almost entirely with public tax dollars, all of which are either new or increased, including • Admission Tax • Ticket Surcharge • Sales Tax • Hotel /Motel Tax • Gambling Tax. • Utility Tax • Local Business and Occupation (B &O) Tax In July 2010, the Yakima Bears also prepared a brief financing plan for the stadium (attached), which attempted to exclude general tax increases by crafting a budget that included significant amounts of funding from the Mill District Local Infrastructure Financing Tool (LIFT) program, SIED funds, New Markets Tax Credits and environmental mitigation funds. However, since the time of its presentation several factors have eliminated or significantly reduced most of the identified funding sources, including: • Yakima County has indicated that no SIED funds, either grant or loan, Would be available for this project; Page2of September 8, 2010 Council Study Session • The environmentalmitigation funds from the city's landfill cleanup on the mill site are still unknown, and likely will not be structured in a manner that provides an economic benefit that could be made available to the Bears project; • • LIFT funding for this project is problematic for the redevelopment of.the mill site project, and to the financing issues for the stadium (this is further address below); • New Markets Tax. Credits could be available, but would be limited to a modest equity contribution (10 %), and may bring stringent investor /owner requirements that make the public financing options extremely challenging. Staff's Brief Preliminary Review of Bear's-Financial Proposal: Although staff has not had time to review the Bears proposal in any significant depth, we did perform a very simple projection of the financial impacts to the city of a proposed bond issue, based on information provided to the city by the Bears in their July 7, 2010 meeting. Staff did not perform sufficient work to verify or confirm any of the underlying numbers or assumptions utilized in by the Bears and, therefore, provide no opinion regarding the accuracy of the financial impact assessment enclosed. • In the materials provided to the City, the Bears proposal provides a total facility cost (for construction, FFE, insurance, contingency, and soft costs) of approximately $23 M, and possible • funding sources are: Bears contribution - $2.5M; Landfill redevelopment funds - $5.0M; LIFT funds - $10.0M and SIED funding - $6.0M. Since this report was submitted to the City, additional information indicates that neither the landfill funding nor the SIED funding is a viable option for financing the Bears stadium. Additionally, the $10.0M in possible LIFT funding, if available, is on a reimbursement basis over many years — thus the only funding source identified that could reduce the amount of a debt financing is the $2.5M upfront contribution from the Bears. Based on this information, the city would need to bond for approximately $20.5M dollars (or nearly 40% of current available non -voted debt capacity of the city). The debt service on this amount ranges from an estimated $1.2M to nearly $2M annually, depending on how the bonds are structured (the most advantageous structure can not be determined without considerably more information regarding various components of the stadium proposal). Refer to Attachment "A" for more information regarding the bonding scenarios addressed in this very preliminary estimate of annual debt service requirements. • LOCAL INFRASTRUCTURE FINANCING TOOL (LIFT) The City was awarded up to $25 M in matching LIFT funds from the State of Washington Community Economic Revitalization Board (CERB) and Department of Revenue (DOR) for the Mill District Redevelopment Project. The utilization of these funds requires the expenditures to be made upfront — with reimbursement from the state (at a maximum of up to $1 M p /year), and an equal contribution amount (i.e.: up to $25 M) from the City. Additionally, consideration of LIFT funds for a stadium project will likely require a complete review, vetting and • reconsideration of the city's entire LIFT award by CERB and DOR for many reasons, including: • The successful LIFT application, for which then Mayor Edler testified, did not include any reference to the stadium as an economic impact driver. While the Aquatics Center was mentioned in the application, it was not to be financed by LIFT and was not a contributing factor to the overall economic impact of the redevelopment project. The driver of economic impact has always been private sector commercial, light industrial Page3of6 September 8, 2010 Council Study Session and retail development. That development will not happen without adequate infrastructure. • All funds in the LIFT application budget were identified to the Washington State CERB Board for road and utility improvements to the RDA area. While the amount allocated to each specific infrastructure component may change over time due to various factors, $10,000,000 for the stadium reflects.a significant change in the package that would need • to be presented to CERB because it could have affected the competitiveness of our application. As you may recall, there was significant controversy over the scoring of applications, and Yakima ultimately prevailed as the. #1 rated application in the state. Only three applications were funded in 2008, the last year of the program. • LIFT is not a grant. LIFT is a conservative form of state -local Tax Increment Financing (TIF) that allows cities to finance public infrastructure based on the projected increased sales and property tax revenue from the resulting development of commercial, industrial• and retail facilities. The state of Washington has committed up to $25,000,000 at no more than $1,000,000 per year to pay half of the debt service on bonds that finance infrastructure within the Mill District Revenue Development Area. These funds must be matched dollar for dollar and will be committed based on the overall increase in sales and property tax revenues that the state receives - from activity in the City of Yakima (thus, no advance guarantee as to how much the City may receive from the state each year). The city's match must be pledged to the debt service, and may come from any other tax or grant source contributing to the project financing. In any case, the city is the guarantor and the state is a "committed funding stream" for repayment, provided that they commit to the underwriting of a specific project. • Because a public facility will not generate any property tax and minimal sales tax, the Department of Revenue would factor this into its underwriting and estimate of the states contribution, as the risk to both the state and city would be increased. While other stadiums around the country have used TIF•as a financing mechanism, they are in states that have Tess restrictive forms of TIF than the state of Washington. • The stadium would more than double the amount of the initial LIFT infrastructure bond (debt issuance) because the basic road and utility infrastructure needed for a stadium is not included in the stadium cost estimates utilized by the Bears in their construction funding proposal; however this is an essential element of a fully functioning stadium. • While public recreational facilities are an eligible use of LIFT funds, qualifying a publicly owned stadium operated by a private, for profit entity is not a certainty. Should Council agree to consider the utilization of LIFT funding for a baseball stadium, or any other project proposals the City receive, the council, in cooperation with the developers, should .determine what components of the overall infrastructure will be eliminated from the LIFT budget for the mill site redevelopment should LIFT funds be used for the Bears stadium, and assess the related impact this funding reduction may have the overall redevelopment project. Page 4 of 6 September 8, 2010 Council Study Session Necessary Steps and Analysis • Staff requests direction and approval from the council on (1) Whether or not to proceed with the complete economic, fiduciary and legal analysis that will present complete financing, construction and operational options for a new stadium, and (2) Should council recommend further study and analysis of the Bears proposal be • conducted, staff recommends that, at a minimum, the issues below must be addressed: 1. Financial Underwriting of the Yakima Bears' ownership group that demonstrates their capacity to partially finance, operate and maintain the stadium, and potentially guarantee • financial shortfalls and legacy costs that could be incurred; 2. Econometric analysis of the entire project and team operation to determine sufficient capacity to generate revenue necessary to sustain such an operation; 3. Draft and negotiate terms of the long term operating lease that spells out the financial obligations of the city and the Bears, including construction related issues such as. cost • overruns, responsibility for operating deficits, maintenance and operations budget, etc.; 4. Projection of city's future indebtedness relative to other capital needs throughout the city; 5. Cost - Benefit and Risk analysis; . 6. Preparation of a revenue package sufficient to cover up to $20 million of public debt; 7. Secure professional legal and financial opinions of the viability, marketability and risks of the city issuing bonds for this project. This type of analysis cannot be completed by our in house staff alone due to the specialized nature of some of and expertise required for some of the work and due to the current workload of critical staff members. Even with expert external assistance, senior management staff time will still be necessary to work with the consultants and manage the contract performance. Based on conversations with several financial advisors, this level of analysis will cost a minimum of $75,000, in addition to the cost of senior management staff time (this does not include the costs of bond underwriting, bond counsel legal opinion, rating agency fees or other financing related costs that will be incurred in the event that Council approves the project). To deliver on this package in the time frame that the Bears have indicated will also mean that, it needs to be prioritized above other issues and projects. In addition, the initiation of this study may also defer the SEPA Planned Action Application of the Mill District ownership group, the remediation negotiations related to the landfill cleanup, and the design of infrastructure improvements for Phase 1 of the development. Further, council direction is also requested in regards to the allocation of financial resources to support this effort. Options to pay for study 1. City could request contribution from Yakima Bears and the Mill District owners to pay for part or all of the study. 2. Secure other private contributions. 3. City funds could be provided from two internal sources that will not affect the current General Fund budget: • $50,000 from the General Contingency Fund • $25,000 from the Economic Development Fund Page5of September 8, 2010 Council Study Session Attachments include: A Sample Stadium Bonding Scenarios and Revenue Options B Feasibility Study C Development Options D Article Submitted by Councilman Ensey E Sample Lease Agreement • • • Page6of September 8, 2010 Council Study Session ATTACHMENT A BEARS STADIUM PROJECT PROPOSAL FINANCING/BONDING SCENARIOS LIST OF REVENUE SOURCES AVAILABLE TO CITY - NOT CURRENTLY UTILIZED Attachment A Bears Stadium Project Proposal Financing / Bonding Scenarios (09 -08 -10 Council Study Session) Estimated Annual Debt Service Pymts. Constr. ; Bond 1 Est. Annual State (5) City Scenario Costs (1) (2) (3) (4) Amount Term Debt Service Bears City (With LIFT) (With LIFT) I. $2.5 M Bears Contribution; Level Debt Service: (a) $23 M $20.5 M 20 yrs. $1,500,000 100,000 $1,400,000 250,000 $1,150,000 (b)i $23 M $20.5 M 25 yrs. $1,300,000 100,000 $1,200,000 200,000 $1,000,000 II. $2.5 M Bears Contribution, $6M SIED Contribution; Level Debt Service: (a) j $23 M $14.5 M 25 yrs. $1,200,000 100,000 $1,100,000 200,000 $900,000 III.1$2.5 M Bears Contribution; Zero Coupon (pymt) 1st - 5 years: (a) $23 M $20.5 M 1 20 yrs. $1,900,000 100,000 $1,800,000 250,000 $1,550,000 ( Construction Costs per Bears 7 -7 -10 proposal (2) (a) If New Market Tax Credits are available for project, may be able to reduce amount of borrowing by up to $2 M; (b) $20.5 million equates to approximately 38% of the total available debt capacity ($53.5 M) of the City for Non -Voted General Obligation Bonds, and approximately 19% of the City's available debt capacity ($106.3M) for Voted General Obligation Bonds, as of 12- 31 -09. (3) The City of Yakima will be soley resoponsible to the bond holders for 100% of debt service - regardless of other contributing sources that may comit to payment of some portion thereof. (4) Assumes the Bears' stated contribution of $2.5 M for annual lease payments is paid in 25 equal annual installments of $100,000 p /year for 2 years. (5) These are very rough estimates and likely on the high end in the early years. Assumes utilization of $10M of LIFT for the Stadium Project; State pays their portion ($5M) to City over 25 years. (Actual annual pymt to City would be determined by State) \ \apollo\ users \ranson \PROJECTS \Fin.Div \Bears Ball Field \09 -01 -10 Bears Dbt Svc.xlsx 9/2/2010 Major Sources of Revenue Authorized for Municipal General Government Operations . [This chart presents some options provided by existing state law. No recommendation pro_ or con or prioritization is intended to be suggested by inclusion of or sequence of items in•this chart.] , REVENUE PURPOSES AUTHORIZED POTENTIAL YIELD. AUTHORITY HOW ESTABLISHED OPTION LIMITATIONS [2010 • estimate] Property Tax —Levy General Government $0.20/ thousand raises By Voter Approval $1,075 000 annually Lid Lift RCW 84.55:050 To bring the levy to the statutory max. -2 Simple Majority Election options, both can be. multi -year $20 /yr on $100,000 AV Property Tax -Voted $0.20/ thousand raises Bond Issue General Government - Capital By Voter Approval $1,075 annually - RCW 39.36,020 Available Debt Capacity 40% Voter Turnout -60% super- majority $20 /yr on $100,000 AV Tax > 6.0% on Private By Voter Approval Utilities , i.e. RCW 35.21.870 $1,300,000 annually General Government Electricity, Telephone 5.50.050:060. YMC Simple Majority Election per each 1% • Natural Gas to exceed 6% Tax > 6.0% on Cable Cable Rate is not restricted, but must not be Ordinance passed by City Council TV (rate currently at Communications $130,000 annually, 6% -the same as other Policy Act of 1984 unduly. discriminatory against cable (may require voter approval if deemed private utilities) • 5.50.065 YMC operators and subscribers." `.`discriminatory')_ per each 1 %- Local Business and $3,000,000 annually Occupation Tax [$1,500,000 per each '.1 %] Tax < 0.2% of gross Ordinance passed by City Council (less $500 -loss of receipts RCW 35.21.710 General Government Business License Fees) Subject to Referendum (needs $200,000 in new admin.cost for collection) 5.52 YMC Ordinance Passed by City Council Business License Fee Fees increased in 1988 for Sundome Debt Currently sliding scale (can only be imposed and increased as increase RCW 35.22.280 (32) Service. (about 22% currently obligated based on employee count -- ( ) • long as no B &O tax is enacted see . (no cap in RCW) for this purpose) . above) 10% _ $52,000 Cj e new revenue chart 9/2/20104:41 PM Page 1 of 2 REVENUE . PURPOSES AUTHORIZED POTENTIAL YIELD AUTHORITY HOW ESTABLISHED OPTION LIMITATIONS [2010 estimate] In Lieu Tax on Public General Government - Utilities, i.e.Refuse, Water, Wastewater Current rates -14% Water and Ch. 7:64 YMC Wastewater, 9% City Refuse, 10% Ordinances Passed by City Council $330,000 annually (No cap in RCVV) per each 1% Yakima Waste (Parks now receives 3.5 %) Tax < 6.0% on Private $580,000 annually (affects Utilities, i.e. RCW by City 35.21.870 Ordinance b Ci Council to Remove Electricity, Telephone 060 YMC General Government primarily larger mfg: ty , p 5.50.050 - $4,000 /customer /mo.lid businesses) Natural Gas Admissions Tax $420,000 annually RCW 35.21.280 General Government . Ordinance Passed by. City Council (estimate based on similar Max 5% cities) Gambling Taxes- RCW 9.46.110 Primarily for law enforcement $740,000 annually ($74,000 Social Card Games Ordinance Passed by City Council each 1%) (from 10% to 20 %) 5.49.020 YMC Maximum 20% of gross receipts Public Facilities Simple Majority Election in Yakima, 0.1% raises $1,900,000 Capital and Operating expenses of a District Sales Tax Selah and Union Gap annually Option —up to 0.2% RCW 82.14.048 Regional Center All 3 City Councils must approve 0.2% raises $3,800,000 recommendation for election annually • • Metropolitan Park District Parks, Parkways, Boulevards, and . Simple Majority Election to establish Junior Taxing District RCW 35.61.210 Recreational Facilities District subject to the $5.90 /.$1,000 Property tax up to maximum $0.75/$1,000 A.V. (capital and operating) District Board sets annual levy $2,695,000 annually assuming $0.50/$1,000 Cje new revenue chart 9/2/2010 4:41 PM Page 2 of 2 ATTACHMENT B DECEMBER 2009 FEASIBILITY ASSESSMENT: BALLPARK DEVELOPMENT OPTIONS CHAPTERS7,8,9 BY CSL CONSULTING HKS CONSULTING FOR YAKIMA COUNTY • Executive Summary • 1. Introduction 2. Historical Operations 3. Local Market Characteristics 4. Comparable Facilities . 5. Survey Results 7. Bu Program 6. Estimated Demand • and Cost 7. Building Program and Cost • 8. Financial Operations 9. Funding Options Appendix: Open -Ended Comments • • • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost Subject to Change In developing a building program for a reconstructed Yakima County Stadium or new ballpark in Yakima, it is important to consider the capacity and premium seating inventories that are supportable in the marketplace, as well a the level of amenities and • support spaces that are needed to provide a high quality facility for the Bears and their fans. The purpose of this section is to develop recommendations regarding key program elements that should be incorporated into a reconstructed Yakima County Stadium or new ballpark in Yakima. In addition, renovation/construction cost estimates developed by architecture firm HKS, Inc. are presented herein. The analysis of building program elements and potential project costs is presented in the following sections: • Existing Stadium Conditions; • Seating Capacity; • Premium Seating; • Parking; • Detailed Building Program; • Potential Reconstruction Impacts; and, • Estimated Cost. It is important to note that the building•program and cost analysis presented herein is • considered preliminary in nature and is intended to provide project representatives with an analysis of the scope of each potential ballpark development option. Further work, outside the scope of this study, would be required to provide detailed building program specifications, conceptual designs and more detailed cost estimates. Further, additional costs may be attributable to a new ballpark development near downtown. However, those costs remain undetermined at this time due to the lack of a specific site. Existing Stadium Conditions The modern era of ballpark development is widely considered to have begun in 1992 with the opening of Oriole Park at Camden Yards. Although Yakima County Stadium was constructed in the early stages of the modern era of ballpark development, it lacks many of the features and amenities associated with ballparks built during this period, which adversely affects the amount of revenue that can be generated from the facility and the quality of fan experience. Minor League Baseball's bi- annual facility evaluation conducted in August 2008 concluded that Yakima County Stadium does not meet the many of the requirements for new facilities, including seating capacity, team facilities, handicapped accessibility, concessions and vending, media facilities, administrative facilities and playing field. • 110 • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change - Team facilities such as the clubhouse, training room and manager's room do not meet minimum size standards, requiring the Bears to receive structural variances from MiLB. Should MiLB no longer grant these variances in the future, substantial improvements would be required. Further, deficiencies such as seating capacity, handicapped accessibility, concessions and vending, media facilities and administrative facilities will require substantial renovations. . The following is a brief description of some of the areas that the biennial facility evaluation recommended for further study: , • There is a shortage of training equipment and meeting space in both the home and visitor's clubhouse. Separate areas for trainers and coach's lockers are also recommended. Upgrades to team facilities include designated areas for player parking with clubhouse access and covered hitting and pitching tunnels with access to clubhouse facilities. • • Phone lines connecting bullpens to the dugouts are recommended, along with phone lines 'connecting dugouts and the press box. Water coolers are required for all dugouts and there should be direct access to restroom facilities from all dugouts. • Restrooms on all levels of the stadium should be wheelchair accessible. It is recommended that there be one unisex handicapped accessible restroom on each level of the facility. Deficiencies of this nature should be corrected immediately due to the legal ramifications to the County, Fairgrounds and the Bears. • Recommendations for improved media facilities include, separate media personnel and van parking areas, separate media restroom facilities and work space for print media to accommodate six to 10 individuals. • There are an inadequate number of concession and vending areas, including minimal square footage space. • Administrative facilities also need improvement. There is no office space, locker facilities or separate restrooms for facility and maintenance and concession personnel. . • Administrative space for team officials should be increased, including the addition of separate restroom facilities. In addition to Minor League Baseball's facility evaluation, an architectural assessment of Yakima County Stadium was conducted by HKS, Inc. in July 2008. The evaluation identified several operational and aesthetic shortcomings of the facility, including: E ft 111 CONFIDENTIAL DRAFT • For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change Patron Amenities: • Exterior appearance provides an uninviting setting and negative first impression for patrons.. • Inadequate and unattractive sun screen. • Poor sightlines due to high field wall at front row of seating and obstructions caused by foul ball screen, outfield foul lines in corners of stadium, seating bowl rake and cross -aisle conditions. • Restrooms are poorly located and are utilitarian and unattractive in nature. • Retail store is inadequate in location and size. • Size and visibility of scoreboard and video board are lacking, while sound system is antiquated and provides insufficient coverage to all areas of the ballpark. ADA Deficiencies: • • • Ramps providing access to the seating bowl do not meet the requirements of the Americans with Disabilities Act (ADA), do not provide handrails and are poorly integrated into the stadium design. • Concessions areas do not offer a view of the field and feature inadequate storage, queuing areas and separation between cooking areas and points of sale. Further, concession counter heights exceed the 34 -inch ADA requirement. • Beer Garden, Picnic Deck, game area and free - standing food service pavilions are not accessible and do not have appropriate seating per ADA requirements. • Distribution and quantity of accessible seating'does not meet ADA requirements. • Player Provisions: • • Hitting and pitching tunnels are poor in both quality and location. • Locker room facilities are utilitarian and unattractive. • Size of dugouts is insufficient to accommodate the quantity of players on team rosters. • Player safety concerns are present due to rigid outfield wall construction, unprotected bullpen conditions, chain link outfield fencing and gates that are void of protective padding. Other: • Unfulfilled opportunities to maximize branding and advertising on the exterior of the stadium and the concessions areas. • Lack of a permanent and well- integrated staging area for pre- and post -game events and attractions. • Provisions for media are incomplete and inadequate. 112 CONFIDENTIAL DRAFT • For Discussion Purposes Only 7. Building Program and Cost (cont d) subject to Change • • The scoreboard control room lacks sufficient air conditioning, which creates concern regarding impacts to the electronic equipment present within the room. • Field and general stadium maintenance storage is inadequate and poorly located. • Building materials used in construction of stadium are not conducive to long -term maintenance and durability. Based on the assessment of existing conditions and the expressed needs of the Yakima Bears, HKS, Inc: determined that a major reconstruction of Yakima County Stadium would be required to address stadium deficiencies. • Seating Capacity The primary consideration in determining an appropriate capacity for a reconstructed Yakima County Stadium or new ballpark in Yakima is the anticipated future attendance level of the Bears. The facility should be large enough to accommodate ticket demand for opening day, weekends, holidays, special promotional days and other such games that typically represent the most highly attended games at a minor league ballpark. However, the facility should be small enough to provide an intimate .setting for minor league baseball and to maintain a perception of ticket scarcity. In evaluating the market supportable seating for a reconstructed or new ballpark in Yakima, it is useful to understand the standards set forth by MiLB, the needs of the primary tenant and the seating capacities of ballparks located in similar -sized markets. Minor League Baseball Standards In 1991, MiLB implemented certain standards with respect to new ballpark development. These standards were last revised in 2005. According to the Minor League Facility Standards & Compliance Inspection Procedures, seating capacities of new ballparks shall "be appropriate for the size of the minor league club's market ". The recommended minimum capacity set forth by MiLB for short - season Class A baseball as of the 2005 revisions is 2,500 seats. Yakima County Stadium's current capacity of 2,654 meets this minimum threshold, but is among the smallest ballparks hosting Class A baseball. • Seating Capacities at Comparable Ballparks In order to assess potential seating capacity at a reconstructed or new ballpark in Yakima, it is useful to review the seating capacities of ballparks hosting minor league baseball in markets similar in size to Yakima: Exhibit 7 -1 summarizes the capacities of Class A and Independent League ballparks in comparable markets, as well as the ratio of residents per 113 CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) • Subject to Change seat in each market. The analysis excludes comparable ballparks in Brooklyn, NY; Staten Island, NY; and Aberdeen, MD due to the extremely large populations within their respective markets. Exhibit 7-1 Seating Capacity Analysis • Comparable Class A and Independent League Markets • Market Population • Team Capacity Population (') Per Seat • Tri-City ValleyCats 6,630 857,820 129 Rockford Riverhawks 3,079 360,007 117 Eugene Emeralds 4,500 348,614 77 West Virginia Power 4,500 303,146 67 Lexington Legends 6,994 455,977 65 • York Revolution 6,700 430,201 64 • Peoria Chiefs 7,000 373,236 53 Cedar Rapids Kernels 5,300 .256,250 48 Lincoln Saltdogs 8,500. 297,207 35 Traverse City Beach Bums 4,500 . 143,601 32 State College Spikes 5,570 146,142 26 Rome Braves 5,105 96,560 19 Great Lakes Loons 5,700 82,555. 14 'Average 5,700 319,300 58 • Yakima Ballpark: • Population 236,053 Comparable Market Average Ratio 58 Potential Seating Capacity 4,100 • Source: 2009 Claritas and CSL International Research. (1) Represents the population of the Core Based Statistical Area. The average capacity among the comparable market ballparks analyzed' is approximately • 5,700. The average ratio of population to ballpark seats in these markets is 58. Applying this ratio to the Yakima CBSA population would result in a ballpark capacity of approximately 4,100 seats. • Estimated Maximum Attendance • • . Based on the research and analyses described in the previous chapter, a reconstructed of the existing Yakima County Stadium is estimated to result in a sustained attendance increase of 20 percent over the Bears' historical attendance levels. A new ballpark located closer to downtown Yakima is estimated to result in a 40 percent attendance increase. • 114 • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change The largest single game crowd in terms of turnstile attendance over the past six seasons. of Bears baseball (2004 through 2009) was 2,777 for the last game of the 2009 season. The highest paid attendance over that period was 3,354, which also occurred during the 2009 season. • If the peak demand for ticket at a reconstructed Yakima County Stadium approximated a 20 percent increase over the historical high attendance level, a capacity of approximately 3,300 could be needed to accommodate maximum turnstile attendance, while approximately 4,000 seats could be needed to accommodate maximum paid attendance. Similarly, if the peak demand for ticket at a new ballpark near downtown Yakima approximated a 20 percent increase over the historical high attendance level, a capacity of approximately 3,900 could be needed to accommodate maximum turnstile attendance, while approximately 4,700 seats could be needed to accommodate maximum paid attendance. In reality, the estimated attendance increases at a reconstructed or new ballpark may not apply linearly across each individual game. However, this analysis 'provides further insight as to the potential capacity that may be required to accommodate peak attendance levels. Seating Capacity Summary Based on this analysis and the estimated attendance levels that could be attracted at a reconstructed or new ballpark, a capacity of approximately 5,000 total seats appears to be appropriate. This capacity would likely accommodate peak demand for tickets, and would be large enough to accommodate future attendance growth. It is recommended that this capacity consists of 3,500 to 4,000 fixed seats which would likely be sufficient to accommodate ticket demand for the majority of Bears games. A grass berm seating area capable of accommodating 1,000 to 1,500 additional fans could be used to reach the total recommended capacity of 5,000 seats. This area could be used only as overflow seating for games with high ticket demand, or could provide a low -cost alternative to fixed seating or a more flexible seating arrangement for families with small children. • 115 CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) subject to Change Premium Seating Premium seating is often incorporated into new and renovated ballparks and can serve as an important source of revenue. Premium seating generally consists of private suites and club seats. In order to estimate potential demand for premium seating, existing premium seating options in the- local marketplace as well as premium seating at Class. A and Independent League ballparks in comparable markets were analyzed. Existing Premium Seating Options in the Market Area The Yakima market's existing sports and event venues, including the Yakima Valley SunDome and Yakima County Stadium, do not offer any premium seating. The lack of competition for premium seating spending in Yakima may be an advantage in marketing premium seating at a reconstructed Yakima County Stadium or a new ballpark. However, the Bears may need to educate the market about the amenities and advantages associated with purchasing premium seating, as the market may be unfamiliar with premium seating concepts. Premium Seating in Comparable Facilities In considering the appropriate level of premium seating that should be incorporated into a reconstructed or new ballpark in Yakima, it is important to understand trends in current premium seating offerings at minor league ballparks. A review of premium seating inventories and prices supported at comparable ballparks can provide benchmarks to aid in developing a premium seating program in Yakima. Exhibit 7 -2 on the following page summarizes premium seating inventories and pricing at selected comparable Class A and independent league ballparks. 116 �t; • CONFIDENTIAL DRAFT For Discussion Purposes Only . 7. Building Program and Cost (cont'd) . Subject to Change Exhibit 7 -2 • Premium Seating at Comparable Market Ballparks Average Average . • Year Suite Annual Club Seat Annual Franchise Location Ballpark Built Inventory Price Inventory Price Eugene Emeralds Eugene, OR PK Park (1) 2009 8 n/a 111 0 n/a Great Lakes Loons Midland, MI Dow Diamond • 2007 12 $25,000 0 n/a York Revolution York, PA Sovereign Bank Park 2007 20 $25,000 0 ' . n/a State College Spikes State College, PA Medlar Field at Lubrano Park 2006 20 $28,000 0 n/a Traverse City Beach Bums Traverse City, MI Wuerfel Park 2006 27 $10,000 0 n/a Rockford RiverHawks Loves Park, IL Road Ranger Stadium 2006 8 $12,000 0 n/a West Virginia Power Charleston, WV Appalachian Power Park 2005 14 $25,000 0 n/a Rome Braves Rome, GA . - State Mutual Stadium 2003 14 $30,000 1,269 $690 Aberdeen IronBirds Aberdeen, MD Ripken Stadium 2002 6 n/a (a) 375 5589 Tri-City ValleyCats Troy, NY Joseph L Bruno Stadium 2002 10 n/a (4) 0 n/a Cedar Rapids Kernels Cedar Rapids, IA Veterans Memorial Stadium 2002. 12 $21,000 0 n/a Peoria Chiefs Peoria, IL O'Brien Field 2002 20 $25,000 0 n/a . Staten Island Yankees Staten Island, NY RCB Ballpark 2001 . 20 n/a (s) 0 n/a Brooklyn Cyclones Brooklyn, NY KeySpan Park 2001 12 $27,000 0 n/a Lexington Legends Lexngton, KY Applebee's Park 2001 26 $30,000 746 $1,170 . Lincoln Saltdogs Lincoln, NE Haymarket Park 2001 . 16 $33,600 355 $595 Yakima Bears Yakima, WA Yakima County Stadium 1993 0 n/a 0 n/a Average (excluding Yakima) 15 $24,300 686 $790 ' (1) The Eugene Emeralds will move into PK Park in 2010. (2) Suite prices have not been made available. (3) Suites are sold on a per game basis for $1,250. (4) Suites are sold on a per game basis for $500. (5) Suites arc sold on a per game basis for $1,000. • Note: Average club scat inventory and pricing includes only ballparks with club seating. • Source: Team and facility interviews. Each of the. comparable market ballparks incorporates private suites, with inventories ranging from six to 27 suites. The average ballpark incorporates 15 suites with an average annual price of $24,300. • Only four of the 16 ballparks included in the analysis incorporate club seating, with inventories ranging from 355 to 1,269 seats and averaging approximately 686 seats. The average price per season among these ballparks is approximately $790 per seat. • It is important to note that several of the comparable ballparks host full- season Class A • baseball, whose schedule consists of 70 home games. Therefore, these ballparks may be able to support higher prices than short- season facilities that host only 38 home games per season.. . • • • • • M . . . . 117 • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject toChange Penetration Analysis Due to the higher costs typically associated with private suites, corporations are often the main purchasers of premium seating. Therefore; an important indicator of the ability of a market to support private suites is the ratio of the number of corporations and branches to the total number of suites. This ratio indicates a market's ability to penetrate its corporate market base through the sale of suites. • Exhibit 7 -3 presents a penetration analysis of the corporate inventory in the CBSA of each comparable ballpark to the number of suites in each ballpark. The corporate inventory is defined as corporate headquarters with at least 25 employees and $2.5 million in annual sales, and corporate branches with at least 25 'employees. It should be noted that franchises located in the New York City, Baltimore and Albany, New York metropolitan areas have been excluded, as these markets are not comparable in size to Yakima. Exhibit 7 -3 Suite Penetration'Analysis Total Corporations CBSA Corporate Suite Per Team Market Population Base (I) Inventory Suite Rockford RiverHawks Loves Park, IL .360,007 510 8 64 Eugene Emeralds Eugene, OR 348,614 510 8 64 Cedar Rapids Kernels Cedar Rapids, IA 256,250 432 12 36 West Virginia Power Charleston, WV 303,146 500 14 36 York Revolution York, PA 430,201 651 20 33 Lexington Legends • Lexington, KY 455,977 759 26 29 Lincoln Saltdogs Lincoln, NE 297,207 430 16 27 • Peoria Chiefs Peoria, IL 373,236 537 20 27 State College Spikes State College, PA 146,142 229 20 11 Great Lakes Loons Midland, MI 82,555 112 12 9 Rome Braves Rome, GA 96,560 122 14 9 Traverse City Beach Bums Traverse City, MI 143,601 230 27 9 Average 274,458 419 16 29 Yakima Bears Yakima, WA 236,053 324 -› 11 (�) 29 (1) Corporate base includes headquarters with $2.5 million or more in annual sales and corporate branch locations with 25 or more employees. (2) Yakima suite inventory based on comparable market average corporations per suite. • Source: Dun and Bradstreet • 118 CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) subject to Change The average ratio of corporations and branches to private suites in the Class A and independent markets analyzed is 29 corporations per suite. Applying this ratio to the Yakima market's corporate inventory of 324 would result in an estimated supportable inventory of approximately 11 suites. • Premium Seating Summary Based on the preliminary premium seating analysis discussed herein, a premium seating program consisting of 12 private suites, 300 club seats and two party decks is recommended for a reconstructed Yakima County Stadium. Each suite should include 12 fixed suites, while each of the party decks should accommodate approximately 30 guests. Based on the results of the surveys of current and potential ballpark patrons, a new ballpark constructed closer to downtown Yakima may be able to support higher inventories of premium seating. Specifically, the recommended building program for a new ballpark near downtown includes 15 suites, 350 club seats and two party decks. Parking The availability of sufficient parking is critical to the success of a minor league ballpark. Currently, Yakima County Stadium is served by Fairgrounds parking lots, which also serve the Yakima Valley SunDome. Presumably, reconstructed Yakima County Stadium would also be able to utilize these spaces. However, based on preliminary estimates developed by HKS, Inc., the footprint of a reconstructed Yakima County Stadium may be upwards of 80 percent larger than the existing stadium's footprint, which could reduce the number of spaces available. Further, the Fairgrounds' master .,plan should :be considered in evaluating the future of the stadium. In the event that the Fairgrounds undertake any expansion or construction projects in future years, further reduction in parking spaces could occur. If a new ballpark is developed outside of the Fairgrounds, parking considerations will need to be evaluated as part of the site selection process. Industry standards indicate that approximately one parking space should be provided within walking distance for every three seats. Given the recommended total capacity of 5,000 seats, this would result in a recommended parking inventory of 1,600 to 1,700 spaces. 119 fit., CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) subject to Change Detailed Building Program • . Based on . the various building program analyses and considerations discussed herein, HKS, Inc. developed a detailed preliminary building program for a reconstructed Yakima County Stadium or a new ballpark near downtown Yakima, as summarized in the . following exhibits. Exhibit 7 -4 summarizes the building program for a reconstructed Yakima County Stadium, while Exhibit 7 -5 summarizes the building program for a new ballpark. Exhibit 7-4 . . Building Program- Reconstructed Yakima County Stadium Cond/ 'Rl 3 F. `c t : I a t a Uncond Pr cram Area a!r * tt�k r? w"..' Comments Arca Comments ++x ",t. ti j 2„i ',r . y -iv a git4 �` .r) P v -; t'a ; 1'Z � ,4a . ar y� 6 4"h ililA f s 1ptlaltu'Sratmy, hr;, r , a• � , t 79.1 . ,, a_ 7; 969 \I 3,7911 s t 1 des,l, t ,1)eck.& 1 ,eau r p` Total Capacity -4,994 U Fixed CeneraI Sealing 800 4,400 Min.I9" seat width: 5.50 sf per position Metal bleacher with hack U Fixed Box Sealing • 2,250 • 14.677 20" minimum seal width; 6.5 sf per seat Sellkosing armchair seats U Fixed Club Seating (Premium Box) 3(0 1250 Minimum 21" seat width: 7.5 sf per seat Club access & in -seat wait service U Fixed Suite Seating 156 1.872 22" sent width: 12 seats /suite: 12 el' per seat Includes ADA seats C Barstool Suite Sealing 60 0 4 stnolsisuite included in Private Suites U ' ADA & Companion Seating 68 750 22 sf per pair of seals Suite, Pany Deck Club. Picnic Deck & Beer Garden ADA seats . not included -Berm seating not included 11 sf /person included in Other [ ierior Spaces below at U Bert Seating 12(0 0 end ol' rug= U Outdoor Party Deck Club O INK) Club or Group sales area Possible Suite level location U Party Deck Club Seating 60 420 Apprnx. 16 barstool seats & 44 fixed 21" seats Includes ADA seats U Croup Picnic Deck 260 4,600 Game seating (260 seats) located in sealingbow9 Includes three (3) seating table areas served by one main serving station U Beer Garden Deck & Seating 100 2,000 Locate down outfield line Siriii :V "Sf6O." aY 5.'""51 5SS l. r : 1 0..' , :,..: v- u* 4) x7 R, „r.`r tit,. 0';'1 s^ r„ "(s,5ti' (a' £}.,r. it. ,.'•a ((7'Y>'r C Private Suites (does not include toilet in suite) 13 12 3.9(0 300 sf per suite, sell or lease 12 plus owners suite End suites at each side to be flexible with dividing pan it inns to create super suites C Suite Reslroonx 2 5(0 Womens - 4 WC. 2 lays: M ens - 2 WC, 2 Ur. 2 lays To he shared with Party Deck patrons C . Suite/Party Deck Club Pantry 1 460 Suites and Club to share pantry if possible C Premium Box Club I 2,200 Includes small bar & pantry. Locate behind Club Seats Accomodates sit -down seating for approximately 130 C. Premium Box Club Res trooms ;21 2 480 Womens - 4 WC. 2 lays; 'M ens - I WC, 2 ur. I lay : ii4t1r5 FJ 1 1111IIkRa' lei(• }ffieg s .MlifiPLA VsMaji gib Itit! y : S4 l § lµ .k5 '.' •� ,: ii, DY Y Public Restmonx- Males (5055) 1,613 Approx. 38 sf per fixture - typical U Water Closets & Urinals 28 1,050 1 WC75 fast 1.500 & 1 /150 over 1,500 (per code) 21 required+ 7 (added factor to neet minimum demd) = 28 U Lavatories 11 400 1 Inv. ^_00 9 reyuiredlpnn•ide 11 an Public Rest rooms- Females (504,) 1.613 Approx. 38 sf per fixture - typical U Water Closets 40 1,5(0 1 WC/40 first 1.5(10 & I WC/60 over 1.500 (per code) U lavatories II 420 1 laW150 C Fancily Restmonx (3 Total 300 Verity - based on pairs Berm Restmonx - Males (50"/) 600 U Water Cloets & Urinals - 4 150 Not based on code requirement - not fixed seats Verify with building inspection U Lavatories 2 80 Berm Restroom - Females (50006) 600 U Water Closets 6 230 Not based on code requirernnent - not fixed seats Verify with building inspection U Lavatories 3 120 C Fixed Seating Concession Stands 3,476 17 P.0.0 1.900 200 spectators per P.O.S.: P.O.S. = 5' x 22' General , Fixed Box. Fixed Club. . and ADA & Companion seating C Bemc Concess ion Stands 12(0) 4 P.O.S 4.50 Specialty Stands To'he determined C Guest Services / Lost and Found 140 C First Aid /Security • 280 C Team Store 1.300 Includes C Main Concourse Storage - 320 C Novelly stands or kiosks 0 included in Concourse E 7.7 .. 1 • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change • Exhibit 7-4 Building Program - Reconstructed Yakima County Stadium (cont'd) w Cond/ " �` r k A...' � l t tt t Uncond Pr ram Area 9 'r'ts�,uka'sa..'9! Comments Arca Comments . srr�1t tn� ili4 my �;1 r :l is 'S ga i?�, ?`.,t'sa', r�Ftl SI '�, ,,. +' f f;` #�`� ' .�"'�' #ter. A, C Main Box Once 250 Provide vault (4) ticket windows. (1) will call C Ticket Work Room. 180 C Ticket Cash Room 110 C Ticket Sales Director and Asst Dir Offices 220 • U Satellite Ticket Booths 180 Verify requirement Adnnni5014OfficSti..\rr .-( x 2" t.Tra?.5 4 5 }l, ..:;°ss . a't la<. r s ;cE'_'.r RIFZ1 " AV h>• �t :r.'K, rC G•'S ;; C nwday ballpark Mgntl Offices Adjacent to M win Box Office area C Reception 120 C Staff Offices 220 I at 120 .sf and I at 100 sf . C Storage 100 • ' C Restroom 80 Unisex resiroom Plt nor fan ui Twio reciliuVs a `1 }•v casks ti t i t ryd F I r r 1 + 5 �(s vk h °' t c dam-,..' g - ;fiia '?. >'.� -.. 3r a. �t ..� I79.111S1 .#•�..::, �.x�..�s;. r ��r�. w..° x- :�•�'xsY.h �:�; Hone Team Clubhouse: 6,400 ' C Cluhhouse Entrance Lobby 90 • C Players' Locker Room ((40I Includes toilets and showers C Manager's Once 200 Includes toilets and showers C Coaches Locker Room • 470 Includes toilets and showers; 6 coaches ' C Trainers Office'. 140 C Trainers Room 420 3 treatment tables; Player prep. massa>x therapy. injury treatment C Hydrotherapy Room 100 2 hill body whirlpools: 1 exironn ies whirlpool; 1 ice machine . C Training Storage 70 C Weights and Physical Conditioning 480 C Video Room 0 Verify if required C Players' Lounge 520 • C Family Lounge 260 ' C Equipment Storage 350 C Clubhouse & Equipment Managers • 150 C Team Laundy 290 Services Home and Visiting Teatrra U Honr TeamDugout 1,200 With toilet. camera pit, and equipment storage Visiting Team Cluhhouse: 3,650 • C Players' Locker Room 1,300 Includes toilet and showers and lobby C Coaches' Locker Room 480 Include, toilet and showers C Training Room/ Hydrotherapy 390 C Manager's Office 150 C Storage 80 C Team Laundry 0 See Horne Team Laundry . U Visitor's Dugout 1,200 With toilet; camera pit. and equipment storage C Umpire's Lockers / Showers / Toilets 370 C General Locker Room 38(1 For concerts. high school baseball, etc. C Team Mascot Locker Dressing 110 Possible shared space • C (2) Hitting / Pitching Tunnels or Cages 2 3,5(01 90' longs 20' wide x 14'180 U Bullpens ��u 2 3,500 1 4 ac113ii1s_ ' kA _ $' 4 az. rPliCl lc�n MAW t`, a tI...i.41 1 2, CM& -. k i..M.43, a la C TV Broadcast Booths 125 1 at 125 of C Radio Broadcast Booths 330 3 at 110 sf C Camera Bay (high home) (20 C Video / Scoreboard Booth (70 Game Day Production: includes P.A. Announcer. M atrix Board, Video Board, and M uric operators C Public Address Announcer 0 Included in Video / Scoreboard Booth C Electrical Room 120 U Storage 200 Media and concourse storato at media level C Video / Graphics Production Room 100 Accessible to Game Day Production For whiten press, and official scorekeeper plus rest arra C ' Press Box Area 500 for buffet, fax machines. and copier; terraced area Incl. corridor w: in Press Box C Media Restroons • 80 One unisex resiroom C Production Truck Area 0 Exterior space • C Camera Bays 0 Exterior space .—, rar. r•- w- rosr^tsr tiR tt 1,ctodtictsnc end. \t sciiilit lgrort:`,: „alis.: r. k:' �.�:1 -;j �Y N rrxtIliA.. 'r"' + tf'r v4 lit C' Concession Manager's Once 120 C Concession Administration Area 180 Area for desks and office support C Concession Cash Room 100 Provide vault ., C Concession Employee Check -in Area 200 C StaffRestroorns 150 C Concession's' Commissary 3,1(0 C Concession's Warehouse Included in Commissary C Novelty Warehouse 4 C Vendor Commissaries 320 2 at 160 sf 121 , • 6, . . . • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change Exhibit 7-4 Building Program- Reconstructed Yakima County Stadium (cont'd) Con Uneon / d Pr ram Arca 11 � .. egk1N9, r r`t l+,u !l�a <, Comments Arce Comments '1'3:64 i" i nic nanit"Ar, ,,;.' GR".ft.I:-..,n.;t rla....." f i'"'s'3;_IIIIISI =9.i. slti'r'h,.a,_+rCt X4§x^ 'rP u 4., h Receivhtg Dock 390 2 loading bcnhs Trash Room 180 Incl. Trash Chme on Concourse Receiving Once 120 Staff Locker Room 420 Dress,lockrr area fbr men /wnmrn +toilets Paper Goods Storage 150 Stadium Maintenance Storage 540 Field Maintenance Piluip Smmge /Workroom 1,000 Ground Crew locker Roan 300 Includes toilet • Shop 400 Ind. Flammable Smri(8 �Clrculantiri, t� u-"' in utrt' w e 4z: i. ai i6 moo St tf'� t - w it *�:a,� M"'+ /,li,:, by m. _. .•..; ,r„ ,. x..�.. ...., s, .:,,. r.�r >_. �_.i... ..,;.._:.,.u? �,...,. _sou... .,a s» ��..,. Main Concourse 24,720 4sf /person, Min. 22' wide concourse. min. 10' wide si Incudes outfield onnenucSe outfield been Suite /Press Lrvel Condor 1000 Stairs or Ramps 1,500 • 2 eaierior stairs Other Circulation 6,820 IS ^,Lot net areas, excluding semine &concourse CJevators and Machute Rooms 540 1 passer 1 service /passenger ' \IiChemi.Jl indPi,irrcnl rrF�s'F ` A J OM L -r(� 181)ISit, - Sh t l` r'' y. ..,.- a.3r�x.._e_x :S:.e ,.«t ....a..t... .w. . +.. -. -�,� .,._,..�,- :'i. .,...rlk._ -; _..._. i:WAN. Mechanical Roonw 1,-500 HVAC equip, a ater heaters, fire sprinkler control valves, Estimate - depends on systems etc Electrical Rooms 440 Telephone. and A/V Closets 240 A - a..., S C It _b Y .:; y9r {ks t.Wa 93: 1 -_ !Other l.Sliii r Slug ±: J: r,'& .� ;4.�i'e�.:'� 1:: rCM. •`i't. i .a3s:3�0l)ISI r - .._F��CS c." ,t=% e F" ;i - MP;� 3' rs v.;:. ?; .r.rr:; :d.J Picnic Areas 0 InduJed in Sp ectamr Seating Entrance Canopies L(Nq Bert Seating Area 13,200 1 sloes person Playbrg Field 0 N /A: nmuml Bass with irri�timn unJ drainage Willle Ball Field 4,600 Kids Zone Play Area & Courts 4,500 Third Pan Food Providers Coo ys� E � 1' b fi" 4 �i�'Yfi ti tF tt 9.vai..:�i:C�» v(filin'V e.:g-- . ,•✓_ia.1.?A:ZSI 161 FS"IN .,a . t ,iinl.r, ?"ORVY xv EkTi .i Sports Bar & Caille .- To be determined Source:1-IKS, Inc. 122 • • CONFIDENTIAL DRAFT • For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change • • Exhibit 7 -5 Building Program - New Ballpark • Coed/ 9 1. 1,..'30:k w : ar,.. • Uncond Pr, ram Area }c: :117 0 ,u 1ff8,�5_;, ti Comments Area Comments ," ! Tv i,.',,,q,Jl.)„ l ri F:vS,y -)131, -mv i ' y' ` t e), *;r tiir 04 t lr,, s . 'A V,, U- g - , yd4' '7 a i x w 0 i i S pectatmlScuntt s: ss' " ,°3t c . ,4t011111i s1r? nc's..34,044 SF 4811 1fx I 1 ley,,P ,m - Dcik r t ks t , Total Capacity -5,000 U Fixed General Seating 860 4,730 Min.19" seat width: 5.50 sf per position Metal bleacher with back U Fixed Box Sealing 2,310 15,015 20" minimum scat width: 6.5 sf per seat Self- rising armchair scats U Fixed Club Seating (Premium Box) 350 • 2,625 Minimum 21" scat width: 7.5 sf per seat ('lub access & in -scat wait .service U Fixed Suite Sealing 192 2,304 22" scat width: 12 seats /suite: 12 sf per scat Includes ADA scats C Barstool Suite Sealing 60 0 4 stools /suite included in Private Suites U • ADA & Companion Seating 68 750 22 sf per pair of scats Suite Party Deck Club. Picnic Deck & Bccr Garden ADA scats not included -Berm seating not included U Berm Seating 1.000 0 12 sfiperson included in Other Exterior Spaces below at end of p rognam U Outdoor Pany Deck Club 0 1.000 Club or Group sales area Possible Suite level location U Party Deck Club Seating 60 420 Appmx.l6 harst not seats & 44 fixed 21" scats Two locations of 311 each. U Group Picnic Deck 300 5.200 Includes seating table areas served by one main s wing smtiun U Beer Cerden Deck &Seating 100 2.000 Locate down outfield line • • Sun s r.,,:a0 , ec''Kr+ P ;�ZR '1. s'xy.: - t , -.'1. r i:.'S • ".? 0,10 ti t 4"t' � e v rth - s t =y 0 -t . . C Private Suites (does not include toilet in suite) 16 • 16 5,120 320 sf per suite. sell or (case 15 plus owners suite End suites at each side to be flexible with dividing partitions to create super suites C Suite Restroons • 2 560 Womens- 5 W('. 2 lnvs: M ens -2 WC. 2 Ur, 2 lays To be shared with Party Deck patrons C Suite /Parry Deck Club Pantries 1 '500 Suites & party decks to share panty if possible C Premium Box Club 1 2.350 Includes small bar& pantry. Locate behind Club Seats Accomodates sit -down seating for approximately 14(1 plus barstool seating at field side y4ous C Premium Box Club Rest moms 2 480 Wmnens - 4 WC. 2 lays: Mens - I WC, 2 ur. 1 lav a.ct roil; ?Facillhcs' •.�a- M, °. WX a; 3S,i � .. ''� p'. (d: r C 1 •:9' w:- Z ,$9'510 tit "„I+ii 1 W'^)r4-?A St n d 1': •, •4 tl „r +„+ ,:,.-- Public Rest rooms- Males (50%) 1,613 40 sf per fixture - typical U Water Closets & Urinals 28 1,120 1 WC/75 first 1,500 & 1/150 over 1.500 (p er code/ 21 required t 7 (added factor to meet minimum demand) = 28 U lavatories 11 440 I lav200 9 required/provide 11 Public Restroons- Females (50 %1 1,613 40 sf per Mixture - typical • U Water Closets 40 1,600 1 WC /40 first 1.500 & 1 W('160 over 1.500 (pct code) U Lavatories II 480 I 1.1150 C Family Restroons (3 Total) 300 Verify - based on pmts Bert Res 'rooms - Males (50%) 600 U Water Cloets & Urinals 5 200 Not based on node requirement - not fixed scats Verify with building inspection U Lavatories - 2 80 . • Berm Res troom- Females (505/) 600 U Water Closets 7 280 Not based on code requircmncnt - not fixed scats Verify with building inspection U Lavatories - 3 120 C Fixed Seating Concession Stands 3,476 17 P.O.S. 2.040 Approx. 200 spectators per P.O.S.: P.O.S. =5' x 22' General, Fixed Box. Fixed Club. , and ADA & Companion seating C Berm Concession Stands 1,200 4 P.O.S. 480 Specialty Stands To be determined C Guest Services, lost and Found 160 C First Aid /Security 300 C' Team Store 1,550 Includes C Main Concourse Storage 360 C Novelty stands orkiosks 0 included in Concourse s. ..plct t,.l rckhnl..i ..};2't o .'r AMNfir e.74'.EZP. t ; ifi.... -._ 9811 I 1 ,:21g, gge.grt,,. +>"..'.f'_�'t �? c :7C:..,,z Ill C Main Box Office 260 Provide vault (4) ticket windows. (1) will call C Ticket Work Room 180 • C Ticket Cash Room 110 ' C Ticket Sales Director and Asst Dir Offices 230 ' U Satellite Ticket Booths 200 Verify requirement Wnpnisti i. (.i 1). 1 i r 4 • J,f-S i5/.// d ?s. 4, ntl si •>E (u 3l t t,,y Sx, '; Pti ,af ^'I tt WWII Gnnteday Ballpark Mgrs Offices Adjacent to Main Box Office area C Reception 120 C Sta Offices 220 1 at 120 sf and 1 at 100 sf C . Storage 100 C Restrnom 80 , Unisex restroom • • • M. • 123 • • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) subject to Change Exhibit 7 -5 Building Program - New Ballpark (cont'd) Uncond Pro ram Area *. ecl t d't 4.. ' ' 1r ' 4 , Comments Area Comments 11hnm IASYUir I, atn.Taci111 s S;' A �'°' 3r- �' t Y "� H5 6 y,, €: /t .� <d5 F L, a,v •�v ° .drd ?$N.�'t„I (t:fi70IS . ..i�s� a. x�fln« r pM,i,U �' �;L"�, r•.,.r;,. ", . Hone Team Clubhouse: 6,790 C Clubhouse Entrance Lobby 90 C Players' Locker Room 1,700 Includes toilets and showers • C Manager's Office 200 Includes toilets and showers C Coaches Locker Room 490 Includes toilers and showers; 6 coaches C Trainer's Office 140 3 treatment tables: Player prep. massage therapy. injury C Trainer's Room 460 treatment • 2 full body whirlpools; 1 cnrcmitics whirlpool. I ice C Hydrotherapy Room 180 machine C Training Storage 70 C Weights and Physical Conditioning 500 C Video Room 0 Verify if required C Players' Lounge 550 C Family Lounge 300 C Equipment Storage 370 C Clubhouse & Equipment Managers 150 • C Team Laundry 290 Soo ices !Ionic and Visiting Teams U Hone Team Dugout 1,300 With toilet. camera pit and equipment storage Visiting Team Clubhouse: 3,780 C Players' locker Room 1,350 Includes toilet and showers and lobby C Coaches' Locker Room 500 Includes toilet and showers C Training Rooms Hydrotherapy' 390 C Managers Office 160 C Storage 80 C Team Laundry 0 Sec 'tome Team laundry U Visitors Dugout 1,300 With toilet camera pit and equipment sto rage C Umpire's Lockers / Showers / Toilets 380 C General Locker Room 400 For concerts, high school baseball. etc. C Tenn Mascot Locker / Dressing 120 Possible shared space C. (2) Hitting/ Pitching Tunnels or Cages 2 3.600 90' long x20' wide x14'high U Bullpens 2 3,600 Mc dta P he taf :it',4 t ,n s'4a .a. .: dhr ;Ppriiti , ,4 C TV Broadcast Booths 125 I at 125 sf C Radio Broadcast Booths 360 3 at 120 if C Camera Bay (high hone) 125 C Video / Scoreboard Booth 180 Game Dag Production; includes P.A. Announcer. Matrix Board. Video Board. and M usic operators C Public Address Announcer 0 Included in Video / Scoreboard Booth • C L]ectrical Room 120 U Storage 220 Media and concourse storage at media level C Video / Graphics Production Room 200 Accessible to (lame Day Production C Press Box Area 600 For written press, and official scorekeeper plus rest area Incl. corridor w Press Box for buffet, fax machines. and copier: terraced area C Media Res trooms 80 Oneunisexrestroom C Production Truck Area 0 Exterior space C Camera Bays 0 Exterior space - ^• Y i J R k < V a 1 od tiiixttt �n elti�lulrtait lh:-'•'+�,f rit.�z �y,:=,., 1�r' � ara<>:. �. i, tyti� 1 . 91111 .. $..2"`P;,,......r..s�('_. �'��; i` M.V, S .; -ar C Concession Manager's Office 130 C Concession Administration Area 200 Area for4 desks and once support C Concession Cash Room 100 Provide vault C Concession Employee Check -m Area 200 C Sta ITRestrooms 150 C C'oncess ions Commissary 3.300 • C Concession's Warehouse Included in Commissary C Novelty Warehouse 500 C Vendor Commissaries 320 2 at 160 sf titrru anilllatuknaiicc�rca ;i;"iS��:+=t�� � . ,s s�'�.'d s'��1�3:ROOtiI.�Y d'•,E S.�tli rv��ra t'r $.�:. .R�x$'�rlr ;a'r.Jt ... C Receiving Dock 390 2 loading berth • C Trash Room 180 Incl. Trash ('huts on Concourse C Receiving Office 120 C Staff locker Room 420 Dress!locker area for mcn'women 1 toilets C Paper Goods Storage 150 C Stadium Maintenance Storage 540 C Field Maintenance Equip Storage /Workroom 1,100 C Ground Crew Locker Room 300 Includes toilet C Shop 600 Incl. Flammable Storage 124 • 7 • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) . Subject toChange Exhibit 7 -5 Building Program - New Ballpark (cont'd) Cond/ T m n� Uneond „4., Pro ram Ar A 'gy a Le p S Comments Areo Comments Oteulahon.' -YiY. '.mr.a t i� <�'& dk?14., F'x`r 'ya 0ISI ,k+'t a.ttT.rf.,"kt�..,,kw .i „m�',�a' ,, ...x�; "Y .yur�'.� Main Concourse '30.000 4 sf Per person, M in. 22' wide concourse, min. 10' wide ai Inchtdes outf eid conenursc nut field henn - Suite /Press Levef Cortidor 3.200 , Stairs or Rangas 1,500 2csicrior stairs Other Circulation - 7.410 1502 of net areas. excluding soaring & concourse IUevalots and Machine Roons 540 1 passeng r, 1 sonice�passenEnr . i'h Jw646and P.z.Eal 'Its+. a�.[ ` + v a __....._ ....v�._:"�rl� �:,�,��'+�.��,.t: ,f , o� .,_ss'�xv,�x���:s�,s �' ��,:io53".; ` Mechanical Roons 1.560 HVAC equip. water heaters, lire sprinkler enntrol valves, Estimate - depends un systems etc. SJecldcal Roons 540 - Telephone. and A/V Closets 280 • . Olhcrlvtcrin t a S l wus 3i. kfixiv- . Y4'tn.N dk,yu'vuAa22a 00IS1 o , 4 i"; N [.VF.:V : Picnic Areas , 0 Included in Sp,xtunx Seating Gnrance Canopies 1.000 " Berm Seating Area 12.000 12 of per person Playing Field • 0 N'A; natural sass as ith irigstinn and drainaec Wink Ball Field - "' 4,600 Kids Zone Play Area & COLITIS 4;500 ' Third Pan Food Providers Court • 1.4 ' rt 474 .0NMas• :.,zu lgeO ;, NgH ir'''Ic %,NA:.+e' `'elli niV FAA 4,- NjiT'AM;?. 84"•Tk.fu+a,5. -'sA ,?6 i V.,. 11 Sports BUT & Gnlle --_ To he dctcmmncd Source: HKS, Inc. • Potential Reconstruction Impacts Based on the building program developed by HKS, Inc., and HKS's experience with minor league ballpark design projects, the footprint of a reconstructed Yakima County Stadium may be upwards of 80 percent larger than the existing stadium's footprint. This would require the stadium's footprint to encroach onto existing parking lots adjacent to the .stadium. Exhibit 7 -6 compares the footprint of Yakima County Stadium to the potential" expanded footprint required to accommodate a reconstructed stadium. 125 E,,., CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change - Exhibit 7 -6 Comparison of Existing and Reconstructed Stadium Footprints tacit a .. 1v � , r � . .. 1 , { . , ... , w 4' 4 •-Z. 4 • "1" 5 s. ' VA' � . ` ' t ' S g„ wn - / f a a h F 4W � i‘tt:`‘ 1.'t''''.',' 7 1 i # ty x W1 �.. � 4 1� S 0 fi l Yd .' . >'' ' t { ! , a � t " r U a t "�.+ r t . 4^ 1 7, £l � ,'' � r�. 7 ., �`4ijr �° a l ( Ae 7 L Aa.�a7 di $1k • Z h 3 �, f =P IA'? 4 ) �; r k'Nr .ti 1 y+� p �'{' V +&, ! a' t lY4� . s� ( yG n S ° 1', ' " ' k „.!,,, ' ' z' , '� 1 , i ,, ? 1 ' ;. fi t ! t s 41, ' , sfat 1 . Park "� � ,.;,,,C01- ' " + , '4_:',':. t ' state f. P , ^fi b if.' , 7 !! ? ' i. � „, €• - f , 3 e n kt`w` ?h `° t { , . i ggy"P ! ,, rv:, W , sr, ': �' , ' i { -'t STING BALLPARK)' ��`' • °�.,, . •� '>~� 7j ��{ � r � "� � v”. YSREEI+„ZQNE � M C I � ' 4:$- ,' � � ^` �f m � I � � �' .. :- � .' K : .' Existing Yakima County Stadium Footprint Potential Reconstructed Stadium Footprint The photograph on the left side of the exhibit illustrates the footprint of Yakima County Stadium relative to the SunDome and associated parking lots. In the illustration on the right side of the exhibit, an aerial photograph of Banner "Island Ballpark in Stockton, California, has been overlaid to scale on the previous photograph. Banner Island Ballpark shares many of the building program attributes that would likely be incorporated into a reconstructed stadium, and therefore provides an appropriate benchmark for the potential footprint required for a reconstructed stadium. The expanded footprint of a reconstructed stadium would likely result in a reduction to the number of spaces available for Bears games and other events taking place at the stadium and the Fairgrounds. The expanded footprint of a reconstructed stadium could also impact future development and expansion opportunities for the Fairgrounds. Should current master planning activities by the CWFA include the development of new buildings or programming spaces in areas that are adjacent to the current stadium, those plans may need to be re- evaluated in light of an expansion of the stadium. a+ 126 CONFIDENTIAL DRAFT For Discussion Purposes only 7. Building Program and Cost (cont'd) subject to Change Estimated Cost In order to provide project representatives with information regarding the potential cost of reconstructing Yakima County Stadium or constructing a new ballpark in Yakima, HKS, Inc. performed a preliminary cost estimate for both development scenarios. While the final project costs could vary based on changes to the building program, timing of the project and other such factors, these cost estimates are useful in determining the approximate amount of project funding that may be required. The cost estimates are based on the detailed potential building programs summarized previously. It should be noted that, while a reconstruction of the existing Yakima County Stadium would provide a state -of -the -art Class A ballpark, the scope and size of this concept will provide less facility program and smaller size facility elements as compared to the • construction of a new ballpark. This approach would be taken to minimize the amount of additional site required to accommodate the stadium needs. Within these parameters, the reconstructed ballpark footprint would still require approximately 80 percent additional site over the existing Yakima County Stadium footprint to accommodate this concept. This reconstruction would require the basic demolition of the existing ballpark. Most construction cost savings will be achieved through reduced site development cost, cost of utilities, reuse of existing sports lighting and the scope difference. Exhibit 7 -7 on the following page details the project cost estimates developed by HKS, Inc. for each of the two potential development scenarios. • 127 CONFIDENTIAL DRAFT For Discussion Purposes Only • 7. Building Program and Cost (cont'd) Subject to Change • Exhibit 7 -7 Estimated Project Cost • Estimated Cost Reconstructed New Yakima County Downtown Project Component • Stadium Ballpark Ballpark Hard Construction: General Conditions 1,250,000 1,750,000 . Contractor's Fees 600,000 850,000 Bonds & Insurance (included in General Conditions) • Site Development 600,000 2,600,000 Ballpark: Demolition 200,000 n/a Foundations 1,100,000 1,325,000 • Substructure 1,450,000 1,750,000 Superstructure 1,500,000 1,900,000 Exterior Closure /Roof 1,950,000 2,650,000 Interior Construction 1,550,000 1,950,000 Conveying Systems 150,000 150,000 Mechanical/Electrical 2,600,000 3,900,000 Field 750,000 750,000 • Sports Lighting • • • 150,000 500,000 Scoreboard /Video 450,000 550,000 Food Service Equipment 800,000 900,000 Sound System 220,000 300,000 Seating (4,000 fixed) 400,000 400,000 Equipment 100,000 125,000 Ballpark Subtotal 13,370,000 17,150,000 Total Ballpark Hard Construction 15,820,000 22,350,000 Parking (not included) . Bonds & Insurance (included in General Conditions) Owners Contingency (approx 5 %) 800,000 1,100,000 • Estimate Contingency (approx 8 %) 1,300,000 1,800,000 Subtotal 17,920,000 25,250,000 FF &E 600,000 650,000 Soft Costs (1) 1,850,000 2,250,000 TOTAL 20,370,000 28,150,000 (1) Includes A &E fees, geotechnical investigation, permits, inspections & testing, surveys, utility location investigation, platting, etc. Source: HKS, Inc. As summarized in the exhibit, the construction of a new ballpark is estimated to cost approximately $28.2 million, excluding land acquisition, parking and infrastructure costs. Because a reconstruction of Yakima County Stadium may be able to utilize certain 128 1 �p • CONFIDENTIAL DRAFT For Discussion Purposes Only 7. Building Program and Cost (cont'd) Subject to Change elements of the existing stadium, the costs associated with this scenario are lower than the estimated cost to build a new stadium at another location. Specifically, the cost to reconstruct the existing stadium is estimated to approximate $20.4 million, or about 72 percent of the cost to build a new ballpark. In considering the cost estimates presented herein, the following qualifications should be noted: • Cost model has been developed without benefit of any design drawings or detailed program information. The program information is based on scope only. • The cost model is based on 2008 construction dollars. • Soft cost and furniture, fixture and equipment (FF &E), numbers are provided based on averages of similar type projects. An itemized list of needs has not been . developed. • The cost model does not include: o Land cost; o Financing /legal and administrative costs; o Owner moving or occupancy costs; o. Parking /street and infrastructure off - site utility costs; • o Asbestos and hazardous material removal or abatement; or, o LEED commissioning. • • • 129 6, • Executive Summary 1. Introduction 2. Historical Operations ' 3. Local Market Characteristics 4. Comparable Facilities 5. Survey Results p 6. Estimated Demand 8. Financial Operations 7. Building Program and Cost 8. Financial Operations •_ 9. Funding Options Appendix: Open -Ended Comments • CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial Operations subject to Change The purpose of this section is to present estimated operating revenues and expenses associated with the Yakima Bears playing at a reconstructed Yakima County Stadium or a new ballpark near downtown Yakima. The assumptions used in this analysis are based on the results of the market analysis, industry trends, knowledge of the marketplace, historical operations of the Yakima Bears and Yakima County Stadium, the results of the patron surveys and financial results from comparable facilities and teams. • This presentation is designed to assist the Yakima Bears, the Yakima County Development Association and other community leaders in estimating the financial attributes of a reconstructed Yakima County Stadium or new ballpark in Yakima, and cannot be considered to be a presentation of expected future results. Accordingly, this analysis may not be useful for any other purpose. The assumptions disclosed herein are not all inclusive, but are those deemed to be significant; however, there will be • differences between estimated and actual results which may be material. Key assumptions used to estimate the potential financial operations of the Yakima Bears in a reconstructed Yakima County Stadium or new ballpark include, but are not limited to the following: • The building program for a reconstructed stadium or new ballpark will generally follow the recommendations made in this report. • The Yakima Bears will continue to be affiliated with the Arizona Diamondbacks. • Class A Short- Season professional baseball will remain in its present state, in terms of length of season and number of games played. • A reconstructed Yakima County Stadium or a new ballpark will be a state -of -the- • art venue and would meet Class A Short- Season/Northwest League standards.. • Regardless of location, a reconstructed stadium of new ballpark will be owned by • the public sector, and therefore will not be subject to property taxes. • The Yakima Bears and a reconstructed Yakima County Stadium or new ballpark will be aggressively marketed. • The market will generate spending on tickets, concessions, novelties, sponsorships /advertising, and premium seating that is consistent with the recent history of. the Yakima Bears and comparable franchises in renovated or new ballparks. • Sufficient parking will be available to accommodate demand (on -site or off -site within walking distance). • The supply and quality of existing competitive venues in the marketplace will remain unchanged. 130 .7 CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial' Operations (cont d) subject to Change • The Yakima Bears will serve as the primary tenant. The Bears will retain all revenues generated by a reconstructed stadium or new ballpark, and will be responsible for all operating expenses associated with the facility. • The Bears will make annual stadium rent payments that are comparable to the rent payments made by minor league baseball teams playing in comparable markets and facilities. • The Bears will be required to make annual contributions to a capital reserve fund in the amount of three percent of gate receipts revenue, as stipulated by the team's current stadium lease. • Economicconditions will continue to improve. The presentation of estimated operating results is comprised of the following components: • Summary of Financial Estimates; • Operating Revenues; and, • Operating Expenses • It should be noted that all dollar amounts are stated in 2009 dollars for a stabilized year of operations. For comparative purposes, the existing operations of Yakima County Stadium and the Yakima Bears have been summarized herein to provide context regarding any incremental financial impacts that could occur with each ballpark development option. The historical financials are based on the average revenues and expenses resulting from team and stadium operations over the past three fiscal years (2007, 2008 and 2009). In calculating the three -year averages, financial information from 2007 and 2008 was inflated to 2009 dollars using a three percent annual inflator. Additional physical development planning must be completed before more precise estimations of the team and ballpark operating costs can be made. Also, upon completion of preliminary planning, revenue and expense assumptions should be updated to reflect changes to the assumptions made herein. These changes could significantly affect the analysis of future operating results. Summary of Financial Estimates Exhibit 8 -1 on the following page summarizes the revenues and expenses estimated to be generated under each potential stadium/ballpark development scenario. All estimates are presented in 2009 dollars and represent a stabilized year of operations. 131 CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial Operations (cunt d) subject to Change Exhibit 8 -1 Estimated Revenues and Expenses Stabilized Year of Operations - 2009 Dollars Existing Reconstructed New Yakima Yakima Ballpark County County Located Near Stadium tq Stadium Downtown • OPERATING REVENUES : Ticket receipts • $243,500 $333,700 $401,100 • Premium seating, net 0 225,200 341,000 Food and beverage, net 105,000 191,500 235,100 Advertising and promotions 264,400 325,000 375,000 Naming rights • 0 100,000 150,000 Souvenirs & Amusements, net 32,800 56,600 65,400 Picnics, net 54,400 80,000 85,000 Non - tenant events, net 5,700 39,900 39,900 Other 2,400 2,400 2,400 TOTAL OPERATING REVENUES 708,200 1,354,300 1,694,900 OPERATING EXPENS ES: Salaries, Wages & Benefits 303,300 350,000 350,000 General & Administrative 133,200 180,000 190,000 Game day labor 77,300 120,000 140,000 Other game costs 40,200 45,000 70,000 Team costs • 66,300 66,300 66,300 Stadium operations 37,700 350,000 450,000 Insurance 15,100 20,000 25,000 Other operating expenses 800 800 800 TOTAL OPERATING EXPENSES 673,900 1,132,100 . 1,292,100 NET OPERATING REVENUE: 34,300 222,200 402,800 OTHER EXPENSES: Stadium Rent 14,500 100,000 125,000 . Concession Fee 10,300 0 0 Parking Expense 5,000 0 0 • Capital Reserve . 7,300 10,000 12,000 Non- Operating Expenses 83,500 83,500 83,500 TOTAL OTHER EXPENSES 120,600 193,500 220,500 NET INCOME BEFORE DEBT: ($86,300) $28,700 $182,300 • OPERATING MARGIN -12% 2% ' 11% (1) Average Bears' financials over past three fiscal years (2007, '08 and '09), stated in 2009 dollars. During a normalized year of operations, the Yakima Bears • are estimated to generate net income of approximately $28,700 at a reconstructed Yakima County Stadium and $182,300 at a new ballpark located near downtown Yakima. While operating and non - operating expenses are estimated to be higher the new downtown ballpark scenario, the incremental revenues resulting from the downtown location, which was preferred by the 132 • s • CONFIDENTIAL DRAFT 8. Financial Operations cont For DSu bje c tto Purposes Only 'd l � � Subject to Change majority of survey respondents, is estimated to be sufficient to offset the additional expenses. The remainder of this chapter provides additional detail regarding the specific estimates • and assumptions underlying the financial operating estimates. Operating Revenues Revenue generated by the operations of the Yakima Bears and a reconstructed Yakima County Stadium or new ballpark will primarily consist of ticket sales, premium seating, food and beverage, sponsorships, merchandise, parking and non - tenant events. A description of each revenue source is provided below. Ticket Sales . • Ticket sales will comprise one of the largest revenue sources for the Yakima Bears playing in a reconstructed Yakima County Stadium or new ballpark. Ticket revenue is a function of paid attendance and ticket prices. Exhibit 8 -2 summarizes the assumptions used to estimate ticket sales under each ballpark development option. Attendance and ticket price assumptions were developed based on an analysis of historical Bears' ticket prices, average ticket prices for other Northwest League franchises and market survey results. Exhibit 8 -2 Estimated Annual Ticket Revenue Stabilized Year of Operations (2009 Dollars) • Existing Reconstructed New Yakima County Yakima County Downtown Stadium Stadium Ballpark Bears' Games 38 38 38 Average Paid Attendance 1,888 2,250 2,600 Annual Paid Attendance 71,735 85,500 98,800 Average Ticket Price • $3.39 $3.90 $4.06 Annual Ticket Revenue $243,500 $333,700 $401,100 It is estimated that the -Bears could generate approximately $333,700 in annual ticket revenue at a reconstructed Yakima County Stadium, a 37 percent increase over the Bears' three -year average ticket revenue. At a new stadium located near downtown Yakima, it is estimated that the Bears could generate approximately $401,100 in ticket revenue, an increase of 65 percent over three -year average revenues. • 133 CONFIDENTIAL DRAFT 8. Financial Operations cont For Discussion Sbject to Purposes Only ' h � � Subject to Change Premium Seating Premium seating revenue is typically derived from the sale of private suites and club seats. Currently, Yakima County Stadium does not provide private suite or club seats. • Exhibit 8 -3 summarizes - the premium seating .inventories and pricing. of Northwest League ballparks. Exhibit 8 -3 Northwest League Premium Seating Overview • Average Average Year Suite Annual Club Seat Annual Franchise Location Ballpark Built Capacity Inventory Price Inventory Price Eugene Emeralds Eugene, OR PK Pare 2009 4,500 8 n/a tat 0 n/a Salem- Keizer Volcanoes Keizer, OR - Volcanoes Stadium 1997 4,252 13 $8,900 • 90 $760 Tri-City Dust Devils Pasco, WA Gesa Stadium 1995 3,654 2 $9,500 0 • n/a Boise Hawks Boise, ID Memorial Stadium 1989 4,500 0 n/a 76 "t $1,400 Everett AquaSox Everett, WA Everett Memorial Stadium 1984 3,682 1 $19,000 t 0 n/a Spokane Indians Spokane, WA Avista Stadium 1958 ' 7,162 25 $10,500 (5 ' • 0 n/a Vancouver Canadians Vancouver, BC Nat Bailey Stadium 1951 5,132 1 n/a 161 0 n/a Yakima Bears Yakima, WA Yakima County Stadium 1993 2,654 0 n/a 0 n/a Average (excluding Yakima) 4,697 7 $10,200 83 51,080 (1) The Eugene Emeralds will move into PK Park in 2010. (2) Suite prices have not been made available. (3) Diamond Club scats are sold in packages of four and cost $5,600 per season. .(4) Suite is located adjacent to the press box and is sold for $500 per game. (5) Skyboxes are open -air and are sold on a per game basis for between $200 and $350 depending on the number of guests. (6) Executive Dugout Suite is sold on a per game basis with prices including food and beverage, and ranging from $1,400 and $2,550 depending on catering package. Note: Average club seat inventory and pricing includes only ballparks with club seating. Source: Minor League Baseball Six of the eight ballparks hosting Northwest League franchises offer at least one private suite, including Avista Stadium in Spokane, whose suites consist of open -air skyboxes. Two Northwest League franchises sell their suites on a season -long basis, with • the • remainder selling their suites on a single -game basis. Prices for annually- leased suites range from $8,900 to $9;500 per season, while single -game suite prices vary widely based on factors such as suite capacity, location and inclusion of food and beverage . packages. . Club seats are less prevalent in Northwest League ballparks, with only two facilities offering this amenity. Volcanoes Stadium in Keizer, Oregon, incorporates 90 club seats priced at $760 per season. Memorial Stadium in Boise, Idaho offers 76 club seats priced at $5,600 per season for a package of four seats ($1,400 per seat per season). • Because premium seating is more common in newer minor league ballparks, analyzing the premium seating offerings at comparable ballparks built since ,2000 can be helpful in determining an appropriate premium seating program for a renovated or new facility in Yakima. Exhibit 8 -4 on the following page summarizes the premium seating inventories and pricing at comparable Class A and Independent League ballparks built since-2000. • • 134 • • CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial Operations (cont d) Subject to Change Exhibit 8-4 • Premium Seating at Comparable Market Ballparks Average Average • Year Suite Annual Club Seat Annual Franchise Location Ballpark • Built Inventory Price Inventory Price Eugene Emeralds ' Eugene, OR PK Park 2009 8 n/a t2t • 0 n/a Great Lakes Loons Midland, MI Dow Diamond 2007 12 $25,000 0 n/a York Revolution York, PA Sovereign Bank Park 2007 20 $25,000 0 n/a State College Spikes State College, PA Medlar Field at Lubrano Park 2006 20 $28,000 0 n/a Traverse City Beach Bums Traverse City, MI Wuerfel Park 2006 27 $10,000 0 n/a Rockford RiverHawks Loves Park, IL Road Ranger Stadium 2006 8 $12,000 0 n/a West Vtrginia Power Charleston, WV Appalachian Power Park 2005 14 . $25,000 0 n/a Rome Braves Rome, GA State Mutual Stadium 2003 14 $30,000 1,269 $690 Aberdeen IronBirds Aberdeen, MD Ripken Stadium 2002 6 n/a 131 375 $589 Tri-City ValleyCats Troy, NY • • Joseph L. Bruno Stadium • 2002 10 n/a (4) 0 n/a Cedar Rapids Kernels Cedar Rapids, IA Veterans Memorial Stadium 2002 12 $21,000 0 n/a Peoria Chiefs Peoria, IL O'Brien Field 2002 - 20 $25,000 0 n/a • Staten Island Yankees. Staten Island, NY RCB Ballpark 2001 • 20 n/a j5J 0 n/a Brooklyn Cyclones Brooklyn, NY KeySpan •Park 2001 12 $27,000 0 n/a Lexington Legends Lexington, KY Applebee's Park 2001 • 26 530,000 746 $1,170 Lincoln Saltdogs Lincoln, NE Haymarket Park 2001 16 $33,600 355 $595 Yakima Bears Yakima, WA Yakima County Stadium 1993 0 n/a • 0 n/a Average (excluding Yakima) • 15 $24,300 686 $790 (1) The Eugene Emeralds will move into PK Park in 2010. • (2) Suite prices have not been made available. (3) Suites are sold on a per game basis for $1,250. (4) Stites are sold on a per game basis for $500. • (5) Stites are sold on a per game basis for $1,000. Note: Average club seat inventory and pricing includes only ballparks with club seating. Source: Teani and facility interviews. •As shown, the average comparable ballpark incorporates 15 luxury suites with an average annual lease price of $24,300 per suite. Suite inventories range from a low of six at Ripken Stadium in Aberdeen, Maryland, to a high of 27 at Wuerfel Park in Traverse City, Michigan. Annual suite lease prices range from a low of $10,000 at Wuerfel Park to a • • high of $33,600 at Haymarket Park in Lincoln, Nebraska: Suites ' 'at three' the comparable ballparks are. sold on a per -game basis, with prices ranging from $500 to . $1,250 per game. • Club seats are offered at four of the comparable ballparks. The average number of club seats at these, ballparks is approximately 686,. ranging from a low of 355 at Haymarket Park to a high of'1,269 at State Mutual Stadium in Rome, Georgia. The average club seat price at these ballparks is approximately $790 per season. It is important to note that several of the franchises playing in the comparable ballparks included in the above analysis play significantly more home games 'than the 38 home games played by Northwest League teams. Dividing each ballpark's average annual suite . price by the number of home games played by each respective franchise results in an effective suite price of approximately $430 per game. Applying this average price•per • 135 • • CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial Operations (cont d) Subject to Change game to a 38 game home schedule would result in an annual suite price of approximately $16,300.. • • • Similarly, dividing each ballpark's average club seat price by the number of games played by each respective franchise results in an effective club seat price of approximately $13 per game. Applying this average price per game to a 38 game home schedule would result in an annual club seat price of approximately $500. Based, on premium seating levels at comparable ballparks, the results of the penetration analysis, the results of the surveys and other such research, Exhibit 8 -5 summarizes the estimated premium seating revenue that could be generated by a reconstructed Yakima County Stadium. or a new ballpark located near downtown Yakima. • As shown, a reconstructed Exhibit 8 -5 • Estimated Annual Premium Seating Revenue Yakima County Stadium is Stabilized Year of Operations (2009 Dollars) estimated to generate approximately $225,200 m Party Club • Suites Decks Seats Total annual revenue from private Reconstructed Yakima County Stadium suites, party decks and club seats, net of the value of Inven 12 2 300 ' Sold 10 57 "" 225 tickets included within the Occupancy % 83% 75% 75% lease prices. A new ballpark P "ce: Total $12,500 $800 $500 . located closer to downtown Less Ticket Value ($1,780) ($117) ($148) Yakima is estimated to Net Premium $10,720 $683 $352 Total Premiums $107,200 $38,900 $79,100 support higher premium % Retained by Team/Stadium 100% 100% 100% seating inventories and Net Premium Seating Revenue $107,200 $38,900 $79,100 $225,200 • pricing, generating net premium .seating revenue of I New Downtown Ballpark approximately $341,000 per Inventory 15 2 • • 350 year. Sold 13 61 �" 275 • • Occupancy % 87% 80% 79% Price: Total $15,000 $900 $600 Less Ticket Value ($1,851) ($122) ($154) Net Premium $13,149 $778 $446 • Total Premiums $170,900 $47,500 $122,600 • % Retained by Team/Stadium 100 %. 100% 100% Net Premium Seating Revenue $170,900_ $47,500 $122,600 $341,000 • (1) Represents number of party suite rentals per season. • • 136 • • CONFIDENTIAL DRAFT 8. Financial Operations con For DSu bje c tto Purposes Only t'd P � � Subject to Change Food and Beverage, net Food and beverage revenue consists of sales of various food and beverage items at concession stands as well as catering offered within the ballpark. Revenue assumptions are based on estimated event and attendance levels, historical concession spending at Yakima County Stadium, concession spending at comparable new or renovated Class A . and Independent League ballparks and discussions with national concessionaries. Exhibit 8 -6 summarizes the estimated net food and beverage revenue that could be generated by the Bears under each ballpark development scenario. Exhibit 8 -6 Estimated Annual Food & Beverage Revenue Stabilized Year of Operations (2009 Dollars) Existing Reconstructed , New - , Yakima County Yakima County Downtown Stadium Stadium Ballpark Bears' Games .38 38 • 38 • Average Turnstile Attendance 1,234 • 1,575 1,820 Average Per Capita Spending $4.74 $8.00 $8.50 Gross F &B Revenue $222,200 $478,800 $587,900 Cost of Sales: Percentage 53% 60% 60% Amount $117,200 $287,300 $352,700 NetF &B Revenue $105,000 $191,500 $235,200 • Over the past three Bears' attendees spent approximately $4.74 per capita on food and beverage, generating approximately $105,000 in net food and beverage revenue in 2009 dollars. At a reconstructed Yakima County Stadium or a new ballpark, per capita spending is estimated to increase to approximately $8.00 to $8.50 due to factors such as improved and additional concessions stands and additional food and beverage revenue generated by premium seating. • Based on this per. capita spending estimate and the estimated turnstile attendance, the Bears are estimated to .generate approximately $191,500 in net food and beverage revenue in a stabilized year of operations at a reconstructed Yakima County Stadium, an increase of approximately 82 percent over three -year average net revenue. At a new ballpark located near downtown Yakima, the Bears are estimated to generate approximately $235,200 in food and beverage revenue on an annual basis, an increase of approximately 124 percent over three -year average net revenue. 137 CONFIDENTIAL DRAFT : For Discussion Purposes Only 8. Financial Operations (cont d) subject to Change Advertising and Promotions Minor league baseball stadiums typically provide a number of opportunities to generate advertising and promotions revenue. Typically, the outfield fence signs generate the largest amount of advertising revenue, while other advertising revenue is generated from entrance sponsorships, in -game promotions, scoreboard signage and electronic messages, and advertisements on ticket backs, programs and other printed materials. Over the past three fiscal years, the Yakima Bears generated an average of approximately $264,400 in net advertising and promotions revenues, stated in 2009 dollars. Based on a review of advertising and promotions revenues generated by Class A and Independent League franchises playing in recently built or renovated ballparks in comparable markets, and the estimated attendance increases at a reconstructed stadium or a new ballpark, estimates were developed of the potential advertising and promotions revenue that could be generated at under each potential development scenario. The estimates include traditional revenues such as stadium signage, broadcast advertising and promotional offerings, as well as 'pouring rights, naming rights for the playing field and /or other specific stadium components (stadium naming rights are presented separately). It is estimated that advertising and promotions revenue could increase by approximately 25 percent in a reconstructed Yakima County Stadium to approximately $325,000 in a normalized year of operations. Advertising and promotions revenue is estimated to increase by approximately 40 percent in a new ballpark near downtown Yakima due to higher estimated attendance levels, closer proximity to the downtown corporate base and higher visibility. This would result in estimated annual revenues of approximately $375,000. Naming Rights The sale of naming rights can provide a minor league ballpark with a significant source of contractually obligated revenue. In order to assess the naming rights revenue potential for a reconstructed or new ballpark in Yakima, information was collected .regarding numerous recent naming rights agreements at Class A and Independent League ballparks. Exhibit 8 -7 on the following page presents a summary of the key terms of these naming rights agreements. E. 138 • . CONFIDENTIAL DRAFT . Operations COnt�d For Discussion Purposes Only • P 8. Financial O • Subject to Change • Exhibit 8 -7 Class A and Independent League Ballpark Naming Rights Agreements Total Term Annual Facility Name Location Team League Value ' Length Value • KeySpan Park Brooklyn, NY Brooklyn Cyclones New York -Penn (A) NA NA 5500,000 RCB Ballpark • Staten Island, NY Staten Island Yankees New York -Penn (A) . 4,000,000 10 400,000 First Horizon' Park Greensboro, NC Greensboro Grasshoppers South Atlantic (A) 3,000,000 10 300,000 Applebee's Park Lexington, KY Lexington Legend South Atlantic (A) 3,000,000 10 300,000 Parkview Field Ft. Wayne, IN Ft. Wayne Tin Caps Midwest (A) 3,000,000 10 300,000 . Newman Outdoor Field Fargo, ND Fargo- Moorhead Redhawks Northern (Ind.) 1,500,000 5 • 300,000 United States Steel Yard Gary, IN Gary Southshore RailCats Northem (Ind.) 2,300,000 10 230,000 Fifth Third Field Dayton, OH Dayton Dragons . Midwest (A) 4,500,000 20 225,000 • FirstEnergy Park Lakewood, NJ Lakewood Blue Claws South Atlantic (A) 4,500,000 20 225,000 Alexian Field Schaumburg, IL Schaumburg Flyers Northern (Ind.) 2,000,000 10 200,000 Bright House Networks Field Clearwater, FL Clearwater Threshers Florida State (A) 1,700,000 10 170,000 Silver Cross Field Joliet, IL Joliet Jackhammers Northern (Ind.) 2,250,000 15 150,000 O'Brien Field Peoria, IL ' Peoria Chiefs Midwest (A) 1,050,000 7 150,000 Appalachian Power Park Charleston, WV West Virginia Power South Atlantic (A) 1,250,000 10 125,000 State Mutual Stadium Rome, GA Rome Braves • South Atlantic (A) 1,800,000 18 100,000 GMC Park Collinsville, IL • Gateway Grizzlies Frontier (Ind.) 1,000,000 10 100,000 Coastal Federal Field Myrtle Beach, SC Myrtle Beach Pelicans Carolina (A) 1,000,000 10 100,000 Roger Dean Stadium Jupiter, FL Jupiter Hammerheads Florida State (A) 1,000,000 10 100,000 Oldsmobile Park Lansing, MI Lansing Lugnuts Midwest (A) 1,500,000 15 100,000 Knology Park Dunedin, FL Dunedin Blue Jays Florida State (A) 400,000 5 80,000 Arrowhead Credit Union Park San Bemardino, CA Inland Empire 66ers California (A) 750,000 10 75,000 Price Cutter Stadium Ozark, MO Ozark Mountain Ducks Central (Ind.) 600,000 10 60,000 CanWest Global Park Winnipeg, MB Winnipeg Goldeyes Northern (Ind.) 1,500,000 25 60,000 Aliant Energy Field Clinton, IA Clinton Lumberkings Midwest (A) 450,000 10 45,000 John Thurman Field Modesto, CA Modesto A's Califomia (A) 250,000 10 25,000 Fieldcrest Cannon Stadium Kannapolis, NC Kannapolis Intimidators South Atlantic (A) 200,000 10 20,000 Hawkinson Ford Field Crestwood, IL Cook County Cheetahs Frontier (Ind.) 35,000 10 3,500 Average - Overall $1,712,900 12 $164,600 Medan - Overall , $1,500,000 10 $125,000 Average - Class AOnly $1,852,800 11 $175,800 Median -Class A Only $1,375,000 10 $125,000 Source: Revenues from Sports Venues, CSL research. The average naming rights agreement for Class A and Independent League ballparks . generates approximately $164,600 per year, while the median agreement is valued at $125,000 per. year. Including only Class A facilities results in average and median annual . naming rights values of approximately $175,800 and $125,000, respectively.. While the current Yakima County Stadium does not have a naming rights agreement, it is • • possible that a major reconstruction of the stadium or the development of a new ballpark could attract a naming rights agreement. Typically, naming rights agreements for new facilities generate more revenue than naming rights agreements for older facilities. The exposure a company receives during construction and the initial years of ballpark . • - operations often results in newer ballparks receiving more naming rights revenue. For purposes of this analysis, it is estimated that a reconstructed Yakima County Stadium could generate naming rights revenue of approximately $100,000 per year. A new ballpark located near downtown Yakima could potentially generate higher naming rights revenues due to higher estimated attendance levels and the increased visibility of a downtown location. Therefore, annual naming rights revenues at a new downtown 139 CONFIDENTIAL DRAFT For Discussion Change ballpark 8. Financial Operations (cont'd) Subject to Change ballpark are estimated to approximate $150,000 per year. These annual naming rights revenues would be similar to those generated in several comparable markets hosting Class A franchises. Souvenirs and Amusements, net The Yakima Bears offer a variety of clothing, souvenirs, programs, amusements and other miscellaneous items for during home games and throughout the year via mail order and the team's website. Revenue assumptions are based on estimated event and attendance levels, historical sales figures, merchandise spending at comparable ballparks and discussions with national merchandisers. Exhibit 8 -8 summarizes the estimated merchandise revenue that could be generated under each potential ballpark development option. Exhibit 8 -8 Estimated Annual Souvenirs & Amusements Revenue Stabilized Year of Operations (2009 Dollars) Existing Reconstructed New Yakima County Yakima County Downtown Stadium Stadium Ballpark Events 38 38 38 Average Turnstile Attendance 1,234 1,575 1,820 Average Per Capita Spending $0.92 $1.25 $1.25 Gross Souvenirs & Amusements Revenue $43,300 $74,800 $86,400 Cost of Sales: Percentage 24% 24% 24% Amount $10,500 $18,200 $21,000 • Net Souvenirs & Amusements Revenue $32,800 $56,600 565,400 In 2009, the Bears generated approximately $32,800 in net souvenirs and amusements revenue, based on per capita spending of approximately $0.84 per attendee and a 24 percent cost of sales. At a reconstructed Yakima County Stadium or new ballpark, spending on souvenirs and amusements is estimated to increase to approximately $1.25 per capita as a result of additional and improved points of sale. Based on the attendance estimates presented previously, this would result in approximately $56,600 in annual net revenue at a reconstructed Yakima County Stadium, or approximately $65,400 in annual net revenue at a new ballpark near downtown Yakima. 140 • CONFIDENTIAL DRAFT 8. Financial Operations ( For Discussion Sbjet toC Change Parking cont'd p \ � Subject to Change Parking (net) Industry standards dictate that one parking space should be provided for every three seats in a ballpark. Based on the recommended capacity of 5,000 seats for a reconstructed • Yakima County Stadium or a new ballpark in Yakima, this indicates that approximately 1,700 parking spaces .could be needed to accommodate parking demand for a sold out event. • Currently, Yakima County Stadium is served by Fairgrounds parking lots located . adjacent to the stadium. The CWFA assesses a parking fee of $4.00 per car during stadium events, and retains all revenue generated by the parking fees. While adequate parking for Bears games is currently provided by the existing Fairgrounds parking lots, it should be noted that a reconstructed stadium would likely encompass a larger footprint than the current stadium, which would reduce the inventory of available parking spaces. If a new ballpark is developed, the inventory of parking spaces controlled by the Bears • • would depend on factors such as the availability of adjacent land on which to develop • parking lots and the number of existing parking spaces located in close proximity to the ballpark that are controlled by other parties. • Bears representatives have indicated that the team would not implement parking charges at a reconstructed Yakima County Stadium or a new ballpark in an effort to maintain an affordable ballpark experience. Therefore, no parking revenue has been included under either development scenario. Picnics • The Yakima Bears currently offer a variety of game day picnic packages, which include game tickets and various food and beverage options. Prices range from $10 to • $27 per person, depending on the food and beverage package included. The Bears also offer the CWHBA Picnic Deck, a shaded picnic area that can be rented for $150 per game for up to 75 guests. Over the past three seasons, the Bears generated approximately $54,400 in annual net revenues from these picnic offerings, stated in 2009 dollars. During that time, picnic revenues have increased from $41,700 in 2007 to $67,400 in 2009. • While a reconstructed Yakima County Stadium or new ballpark would potentially offer new and more exclusive group seating areas, including suites and party decks, it is likely that either facility would also continue to offer picnic packages similar to those offered at the current stadium. A reconstructed or new facility could provide opportunities to increase the revenues generated by picnic packages due to factors such as upgraded picnic facilities and higher overall demand to attend games. • 141 ' CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial Operations (cont d) subject to Change — Based on these considerations and the recent annual growth in Bears' picnic revenues, it is estimated that annual picnic revenues could increase over 2009 revenue levels by approximately 20 percent per year at a reconstructed Yakima County Stadium, or approximately 25 percent at a new ballpark located near downtown Yakima. This would result in estimated annual net picnic revenue of approximately $80,000 at a reconstructed Yakima County Stadium or $85,000 at a new ballpark near downtown Yakima. Non- Tenant Events .. Historically, non - tenant event use of Yakima County Stadium has been limited to annual State high school baseball tournament games and occasional non - recurrent events such as Little League tournaments and community events. Over the past three years, the Bears retained an average of approximately $5,700 in net annual revenue from non - tenant events, stated in 2009 dollars. A reconstructed stadium or new ballpark could present additional opportunities to generate revenue through the hosting of increased non - tenant events. Exhibit 8 -9 summarizes the estimated' annual revenue that could be generated by non - tenant events under each potential development scenario. Exhibit 8 -9 Estimated Annual Non - Tenant Event Revenue Stabilized Year of Operations (2009 Dollars) . misting Reconstructed New Yakima County Yakima County Downtown Stadium Stadium Ballpark Annual Events: High School Baseball 8 8 8 College Baseball 0 10 10 Concerts 0 1 1 Other 0 10 10 • Net Revenue Per Event High School Baseball 710 1,500 1,500 College Baseball n/a 750 750 Concerts n/a 2,500 2,500 Other n/a 1,500 1,500 Annual Non - Tenant Revenue $5,700 $39,900 $39,900 As shown, based on the estimated annual non - tenant event levels, it is estimated that a reconstructed Yakima County Stadium or new ballpark in Yakima could generate approximately $39,900 in annual revenue from non - tenant events. It should be noted that these estimates assume that the existing Yakima County Stadium would not continue to operate if a new ballpark is developed at another site. The continued operations of the M 142 , • • • CONFIDENTIAL DRAFT 8. Financial Operations (cont'd For DSu bje c tto Purposes Only l' \ � Subject to Change existing stadium could result in a reduction to the non - tenant event estimates for a new ballpark. Other Revenues • In addition to the revenues discussed previously, the Bears have historically generated revenues from other miscellaneous sources such as ATM fees, Kids Club dues, ticket order convenience fees and other such revenues. Over the past three years, these miscellaneous revenues averaged approximately $2,400 per year, stated in 2009 dollars. For purposes of this analysis, other revenues are estimated to total approximately $2,400 under each ballpark development scenario, similar to the miscellaneous revenue levels generated historically. • Expenses The expenses incurred by the Yakima Bears can generally be included in two broad categories: operating expenses and non - operating expenses. Operating expenses are those expenses resulting directly from the operations of the team and stadium. Non - operating expenses .consist of expenses such as stadium rent payments, capital reserve funding, depreciation and other such expenses. Operating Expenses Over the past three years, the Yakima Bears incurred an average of approximately $673,900 . in annual operating expenses, stated in 2009 dollars. Salaries, wages and benefits accounted for approximately 45 percent of this total. General'and administrative costs, game day expenses and team operating costs (transportation, uniforms, game equipment, etc) also comprised significant portions of the team's operating expenses. Also included in the operating expense total were approximately $37,700 in annual stadium operating costs and $14,100 in annual insurance expenses. Several expense line items are likely to increase significantly following the completion of a reconstructed Yakima County Stadium or a new ballpark. For example: • Additional front office staff may be needed to market the new premium seating offerings at an upgraded facility. • General and administrative costs would likely increase as a result of an expanded staff, higher event and attendance levels and other such factors. ' 143 CONFIDENTIAL DRAFT For Discussion Purposes Only 8e Financial Operations (cont d) Subject to Change • Game day costs would likely increase, as a larger facility offering a higher level of amenities will require additional personnel to staff premium areas, additional concessions stands and additional entry points. • The most significant increase in operating expenses may result from costs associated with operating and maintaining a reconstructed or new facility. Over the past three years, the Bears have incurred an average of $37,700 in annual stadium - related expenses. Based on operating information received from comparable ballparks, a reconstructed or new facility is likely to be significantly more expensive to maintain and operate. Such a facility would likely be a much more substantial structure than the current stadium, including a larger. footprint, higher level of finishes, and additional team and patron amenities, all of which would need to be maintained at a higher level than the existing stadium. Based on the historical operations of the Bears, financial information received from comparable franchises and ballparks, and our past industry experience, Exhibit 8 -10 summarizes the estimated annual operating expenses associated with the Yakima Bears . playing at a reconstructed Yakima County Stadium or a new ballpark near downtown Yakima. • Exhibit 8 -10 Estimated Annual Operating Expenses Stabilized Year of Operations (2009 Dollars) Existing Reconstructed New Yakima County Yakima County Downtown • Stadium Stadium Ballpark Salaries, Wages & Benefits $303,300 $350,000 $350,000 General & Administrative 133,200 180,000 190,000 Game day labor 77,300 120,000 140,000 Other game costs 40,200 45,000 70,000 Team costs 66,300 66,300 66,300 Stadium operations 37,700 350,000 450,000 Insurance 15,100 20,000 25,000 Other operating expenses 800 800 800 Total Annual Operating Expenses $673,900 $1,132,100 $1,292,100 As shown, operating expenses associated with a scenario in which the Bears play at a reconstructed Yakima County Stadium are estimated to increase by approximately 68 percent over the Bears' three -year average expenses, to approximately $1.1 million. At a new ballpark located near downtown Yakima, the Bears are estimated to incur approximately $1.3 million in operating expenses, an increase of approximately 92 percent over the team's 2009 operating expenses. 144 CONFIDENTIAL DRAFT 8e Financial Operations contd For Discussion C h an sesOnly ti (cont' d) � � Subject to Change' Non- Operating Expenses The terms of the stadium lease between the Yakima Bears and the CWFA require the Bears to pay $13,000 in rent to the CWFA each year. The actual rent paid by the Bears over the past three years has averaged approximately $14,500 per year (in 2009 dollars). In addition to the base rent, the Bears are required to pay to the CWFA 24 percent . of concessions revenue, capped at $10,000 per year. The lease also stipulates that the Bears must contribute three percent of net ticket sales to a capital reserve fund. This has amounted to an average of approximately $7,300 per year over the past three seasons (in 2009 dollars). Along with these lease- related payments, the Bears have incurred an average of approximately $83,500 in other non - operating expenses over the past three years (in 2009 dollars), including depreciation, interest expenses, contributions to charity and other such expenses. Under either potential development scenario, it is assumed that the Bears would continue to make an annual stadium rent payment to a landlord who would own the facility. In order to estimate the stadium rent that could be paid by the Bears at a reconstructed stadium or new ballpark, the lease terms of several comparable franchises playing in . recently built stadiums were reviewed. While lease terms and rent payments vary widely among minor league franchises and facilities, an annual rent payment of approximately $100,000 to $125,000 per year would place the Bears within the range of the rent paid by comparable ballparks, and would reflect the increased revenue generating capabilities of a reconstructed or new ballpark. It is assumed that the Bears would be allowed to retain all revenues from concessions sales at a reconstructed or new facility, eliminating the concession fee currently paid to the CWFA. • For purposes of this analysis, it is assumed that the Bears would be required to make a contribution to a capital reserve fund equal to three percent of total gate receipts, as stipulated by the team's current lease agreement. Based on the gate receipts estimates presented herein, this would result in an annual capital reserve contribution of approximately $10,000 to $12,000 per year. It is important to note that this capital reserve contribution would likely not be sufficient to cover all future capital repairs associated with a reconstructed stadium or new ballpark. Industry standards indicate that an annual capital reserve fund contribution equal to approximately 0.5 percent of total construction costs could be necessary to cover future capital repair needs. Based on construction cost estimates of $20.4 million for a reconstructed Yakima County Stadium or $28.2 million for a new ballpark near downtown Yakima, the required annual capital contribution for each scenario could approximate $100,000 and $140,000, respectively. 145 1 CONFIDENTIAL DRAFT For Discussion Purposes Only 8. Financial Operations (cont d) Subject to Change Other non - operating expenses, such as depreciation, interest expenses and charitable contributions are estimated to remain similar to historical levels. Based on these assumptions and estimates, Exhibit 8 -11 summarizes the Bears' estimated annual non - operating expenses under each development scenario. Exhibit 8 -11 Estimated Annual Non - Operating Expenses Stabilized Yeai• of Operations (2009 Dollars) Existing Reconstructed New Yakima County Yakima County Downtown Stadium Stadium Ballpark Stadium Rent $14,500 $100,000 $125,000 Concession Fee 10,300 0 0 • . Capital Reserve 7,300 10,000 12,000 Other Non-Operating Expenses 83,500 83,500 83,500 Total Annual Non - Operating Expenses $120,600 $193,500 $220,500 • • • • 146 Executive Summary 1. Introduction 2. Historical Operations 3. Local Market Characteristics 9. Funding Options 4. Comparable Facilities 5. Survey Results 6. Estimated Demand 7. Building Program and Cost 8. Financial Operations 9. Funding Options Appendix: Open -Ended Comments • • CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options Subject to Change • The cost to reconstruct the existing Yakima County Stadium could approximate $20.4 million, while the cost to construct a new ballpark near downtown Yakima could approximate $28.2 million, excluding any land or infrastructure costs. The purpose of this section is to summarize potential funding sources that could be used for a stadium reconstruction or new ballpark development project. The funding analysis is presented in the following sections: • Comparable Ballpark Funding; • Washington State Public Sports Facilities Funding Case Studies; and, • Quantified, Funding Sources. • Comparable Ballpark Funding A review of Class A Short- Season and comparable full- season Class A ballpark funding can be useful in identifying various sources of funds that could be used to fund a renovation of Yakima County Stadium or the construction of or a new ballpark. Exhibit • 9 -1 presents a summary of public and private funding participation for comparable ballparks opened since 2000 that host short- season Class A franchises. Exhibit 9 -1 Funding Comparison - Public and Private Sector Participation Comparable Ballpark Summary- Class A Short Season Total Year Project Amount Percentage Team Ballpark Opened Cost Public Private Public Private Eugene Emeralds PK Park 2009 $20.0 $0.0 $20.0 0% 100% Vancouver Canadians Nat Bailey Stadium 2008 $5.0 $2.5 $2.5 . 50% 50% State College Spikes Medlar Field at Lubrano Park 2006 $31.4 $11.9 $19.5 38% 62% Aberdeen IronBirds Ripken Stadium 2002 $18.0 $14.0 $4.0 78% 22% Tri-City ValleyCats Joseph L. Bruno Stadium 2002 $14.0 $14.0 $0.0 100% • 0% • Staten Island Yankees RCB Ballpark 2001 $38.0 $34.0 $4.0 89% 11% Brooklyn Cyclones KeySpan Park 2001 $39.0 $39.0 $0.0 100% 0% Average $23.6 $16.5 $7.1 65% 35% • Median $20.0 $14.0 84.0 78% 22% Note: All dollar figures are represented in millions. Source: CSL International research Among recently built Class A short season ballparks, the public and private sector provided an average of approximately 65 percent and 35 percent of funding, respectively. The average public sector contribution was approximately $16.5 million and the average private sector contribution was approximately $7.1 million. • 147 • • CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont'd) subject to Change It should be noted that the average is materially impacted by PK Park, a 100 percent privately financed ballpark that primarily serves as the home venue for the University of - Oregon baseball program. As a result, the median has been calculated to discount this unique situation. The median public sector contribution accounted for approximately 78 percent of project costs, or approximately $14.0 million. Median private participation was approximately 22 percent of total project costs, or approximately $4.0 million. • Exhibit 9 -2 presents a summary of public and private funding participation for comparable ballparks opened since 2000 that host full- season Class A or independent league franchises. Exhibit 9 -2 Funding Comparison - Public and Private Sector Participation Comparable Ballpark Summary - Class A Full Season and independent Leagues • Total • • Year Project Amount Percentage Team Ballpark Opened Cost Public . Private Public Private • Great Lakes Loons Dow Diamond 2007 $33.0 $0.0 $33.0 0% 100% York Revolution Sovereign Bank Stadium 2007 $35.5 $14.5 $21.0 40% 60% • Traverse City Beach Bums Wuerfel Park 2006 $8.0 $0.0 $8.0 0% 100% Rockford RiverHawks Road Ranger Stadium 2006 $6.0 $0.0 $6.0 0% 100% West Virginia Power Appalachian Power Park 2005 $23.0 $18.0 $5.0 78% 22% Rome Braves State Mutual Stadium 2003 $16.0 $15.0 $1.0 94% 6% Cedar Rapids,Kemcls Veterans Memorial Stadium 2002. $15.0 $12.5 $2.5 83% 17% Peoria Chiefs O'Brien Stadium 2002 $19.5 $3.5 $16.0 18% 82% Lexington Legends Applebee's Park 2001 $17.0 $0.0. $17.0 0% 100% Lincoln Saltdogs Haymarket Park 2001 $35.0 $15.0 $20.0 42% • 58% Average $20.8. $7.9 $13.0 36% 64% Median $18.3 • $8.0 - $12.0 29% 71% Note: All dollar figures are represented in millions. Source: CSL International research • Among comparable ballparks hosting Class A full season or independent league franchises, the public and private sector provided an average of approximately 36 percent and 64 percent of funding, respectively. The average public sector contribution was approximately $7.9 million and the average private sector contribution was approximately $13.0 million. The median public ; sector participation accounted for approximately 29 percent of project costs, or approximately $8.0 million. Median private participation was approximately 71 percent of total project costs, or approximately $12.0 million. On average, comparable ballparks hosting Class A full season or independent league franchises have included higher levels of private funding participation. Because Class A full season and independent league teams play more home games than Class A short season teams, there are opportunities for full season and independent league franchises to • generate higher stadium - related revenues over the course of the season, which could • 148 • CONFIDENTIAL DRAFT Purposes 9. Funding Options (cont'd) For Discusslon Change Only provide those franchises with greater ability to contribute significant funding toward a ballpark project. This may be a factor in the higher average private contributions made to full season and independent league ballpark projects. It should be noted that public sector financing is considered to originate from government- related sources with no ties to ballpark operations. Such funds could include general funds or tax revenues. Private sector financing can take many forms and can include revenues generated from ballpark operations, equity contributions, and other such sources. Exhibit 9 -3 summarizes the percentage of Class A Short - Season and Class A ballpark funding plans analyzed that included contributions by the state, county and city in which the ballpark was built, as well as the percent of ballpark projects for which the tenant baseball team or private entity /individual made a funding contribution. Exhibit 9 -3 Percentage of Comparable Ballparks Utilizing Various Funding Entities 80% 65% 60% 47% 47% 35% 40% 24% 20% 0% - .2' -11re. Team Other Private City State County Contribution Sources Contribution Contribution Contribution As shown, approximately 65 percent of comparable ballpark funding plans analyzed included a contribution from the tenant baseball team, while 47 percent received contributions from other private sources. The average and median team contribution approximated $6.9 million and $4.0 million, respectively. Approximately 47 percent of comparable ballparks analyzed received a contribution from the host city, with an average and median contribution of approximately $13.3 million and $6.5 million, respectively. In addition, 35 percent of comparable ballparks analyzed received state funding with an average and median contribution of $10.3 million and $12.0 million, respectively. Approximately 24 percent received county funding with an average and median contribution of $5.0 million and $2.0 million, respectively. 149 3 • CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) Subject to Change Exhibit 9 -4 summarizes the specific public and private sector sources used assist in funding the development of comparable ballparks, including the percentage of ballparks that used each funding sources and the range of funding generated from each source. Exhibit 9-4 • Comparable Ballpark Funding Sources Percent Funding Amount Funding Source Using • Low . Average High Public Sources: Grant or appropriations 65% $2.5 $14.9 $39.0 • Sales taxes 6% $15.0 . $15.0 $15.0 Lodging taxes 6% $2.0 $2.0 $2.0 • Incremental property taxes 6% $8.0 $8.0 $8.0 Other public sources 12% $1.3 $2.7 $4.0 Private Sources: • Upfront team contribution 53% $1.0 $4.8 $10.0 . Private donations 18% • $1.0 $8.9 $17.5 Naming rights 18% $2.5 $2.6 $2.7 Ballpark revenues securing debt - 12% $16.0 • $16.5 $17.0 • • • Other private sources 35% $0.5 $16.0 $33.0 Note: All dollar amounts are in millions. As depicted aboye, grants or appropriations (Federal, State, County or City) were used in • the funding of 65, percent of comparable ballparks analyzed herein, contributing an average of $14.9 million. • Sales tax revenues, lodging tax revenues and .incremental property tax revenues were each included in the funding of one comparable ballpark, contributing $15.0 million, $2 :0 million and $8.0 million to the respective projects. Approximately 53 percent of the comparable ballparks were funded in part through an upfront contribution by the tenant baseball franchise, with an average team contribution of approximately $4.8 million. Approximately 18 percent of comparable ballpark projects received private donations, accounting for an average of $8.9 million of project funding. Naming rights contributed to the funding of 18 percent of comparable ballparks, providing an average of approximately $2.6 million. Approximately 12 percent of comparable ballparks secured debt through ballpark revenues as a way of privately financing construction. • The amount of private debt secured averaged approximately • $16.5 .million: • • • • • • • • 150 • CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) Subject to Change Washington State Public Sports Facilities Funding Case Studies Understanding the various types of financing methods used to construct minor league ballparks in communities throughout the country is a useful step in identifying potential funding sources for a ballpark project in Yakima. However, it may be more instructive to focus on public assembly facility development projects completed in the State of Washington in recent years, as these facilities were developed under similar statutes and political environments. The following case studies detail the financing plans of several public sports venues in the State of Washington. Yakima Valley SunDome / Yakima County Stadium The Yakima SunDome opened in 1990 and was financed through bonds backed by a 3.0 ' �4r .. �F � , s om 1 X percent hotel tax. Approximately 38 percent ,fi w x c to ,- °'� _ ' -. f }1 7' '�� , of the hotel tax revenues are allocated toward . - f : . ,. SunDome debt service, with the .remainder allocated to the operations and capital needs 1 i of the Yakima Convention Center and the - . h 3 4' Y 1 - 1 - .. Capitol Theatre. When Yakima County t xe A J' l M T 0& * ": : Stadium was constructed prior to the 1993 ' ' , . ,, baseball season, the hotel tax was producing ' , '` '' - more revenue than was needed to pay down -- • - debt associated with the SunDome. The ';/. 0 - . , t f excess hotel tax revenue was sufficient to � ` - , 47 service the debt associated with the Stadium's " ,.�' '° -- , - ---<-1 ' t -- -- - `- "`' construction costs. Therefore, both projects /' have been funded entirely through hotel tax revenue. Cheney Stadium Renovation The City of Tacoma and the Tacoma Rainiers ' ' - '- Class AAA minor league baseball franchise Y , are in the process of finalizing a funding plan - _ •, , q''" . - '''` for a $30 million renovation of Cheney : �, ; , i k' y 1 Stadium, which originally opened in 1960. , The City plans to issue general obligation - :,.,'''. ` ~`—:- bonds to fund the majority of project costs. . •'" .A � - _ ' The bonds will be backed by general City II 1 51 2 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) Subject to Change funds and annual stadium rent payments to be made by the Rainiers. No specific tax increases will be implemented by the City to fund their portion of the project. The Rainiers will not make any upfront funding contributions. The remainder of the project costs will be funded by donations by a local private foundation. The specific amounts to be funded by each of the three parties (City, team and foundation) are currently under negotiation, and are not know at this time. Comcast Arena at Everett Opened in 2003, Comcast Arena at Everett is a ,ra i g ` M a a, «t ? 10,0 -seat facility located in Everett, � � s . Washington. Professional tenants include the V l s0" % R5t _ WHL Silvertips and the NLL Stealth. The City of ? . 4 - S pp j -- • Everett established a Public Facilities District to ;Z:4 finance construction of the arena. The $71.5 vtVeRiPz t`°mtQ ` Vja ' r , ' ' °" C MU million facility received 53 percent of its funding from public sources, including $15.0 million in _ – - . . _ �- — City general obligation bonds and $22.6 million in bonds backed by State sales tax rebates from the City and County, hotel/motel tax revenues and admissions taxes. Private sources of funding totaled $33.9 million, which were financed through bonds backed by arena revenues. Exhibit 9 -5 presents a summary of Comcast Arena funding sources. Exhibit 9 -5 Comcast Arena at Everett Funding Sources Private Funding: Bonds Backed by Arena Revenues $33,900,000 47% Total Private Funding $33,900,000 47% Public Funding: Bonds Backed by Tax Revenues $22,600,000 32% City General Obligation Bonds $15,000,000 21% Total Public Funding $37,600,000 53% TOTAL $71,500,000 100% 152 9 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont'd) Subject to Change Qwest Field Built at a cost of approximately $461.0 million, #7`.-:, Qwest Field opened in 2002 in Seattle as the home - "`r. , of the NFL Seahawks. Public funding of the ' __` project totaled approximately 63 percent of the total ' facility cost, including $127.9 million from sports related lottery games, $101.4 million from a King :k County sales tax attributable to events at the a n t facility, $56.0 million from facility admissions and ''` parking taxes and $15.0 million from a King County hotel /motel tax. The remaining 37 percent, or $161.0 million, was funded through the Seahawks' owner Paul Allen, and included $9.0 million from personal seat licenses and ,a $44.0 million NFL G -3 loan secured by club seat revenues. Exhibit 9 -6 on the following page summarizes the private and public funding sources for Qwest Field. Exhibit 9-6 Qwest Field Funding Sources Private Funding: Ownership Contribution $108,000,000 23% NFL G-3 Loans Backed by Club Seat Revenues $44,000,000 10% Seat Licenses $9,000,000 2% Total Private Funding $161,000,000 35% Public Funding: Lottery Revenues $127,900,000 28% King County Sales TaxRevenue $101,400,000 22% Admission and Parking Tax Revenue $56,000,000 12% King County Hotel/MotelTaxRevenue $15,000,000 3% Total Public Funding $300,300,000 65% TOTAL . $461,300,000 100% 153 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont' d) SubjecttoChange Safeco Field Safeco Field is located in Seattle and is home to a .ro n:�,t the MLB Mariners. The facility opened in 1999 at s a cost of approximately $511.0 million. Public P financing amounted to approximately $372.0 .' r' - million, with King County funding $150.0 and $71.0 million through tax - exempt . general obligation bonds supported by a 0.5 percent ? $' r• increase and a . two percent increase in the : _ • County's food and beverage and car rental taxes, -;: respectively. In addition, 0.017 percent of the State's 6.5 percent sales tax collections were returned to the County to assist in the bond repayment and provided approximately $71:0 million. Further, $50.0 million in bonds secured by lottery revenue related to four newly created lottery games by the State also funded the public's portion of stadium development costs. Interest income generated approximately $5.0 million. Finally, the County levied a 10 percent admissions tax on all events at the stadium, five percent used by the PFD to fund the debt service associated with the $27.0 million parking garage and the remaining five percent used by the Mariners to fund a major replacement reserve up to a maximum of $5.0 million. The Seattle Mariners generated approximately $20.0 million from personal seat licenses, and took out approximately $25.0 million in bank loans. The team was also forced to pay approximately $94.0 million in cost overruns that were supported by facility and team revenues. Private sources of financing for the facility amounted approximately $139.0 million: Exhibit 9 -7 summarizes Safeco Field's funding sources. Exhibit 9 -7 Safeco Field Funding Sources Private Funding: Facility and TeamRevenues $94,000,000 18% Team Loans $25,000,000 5% Seat Licenses $20,000,000 4% Interest Income $5,000,000 1% Total Private Funding $144,000,000 28% Public Funding: King County Bar and Restaurant Tax $150,000,000 29% King County Sales Tax Credit $71,000,000 14% King County Rental Car Tax $71,000,000 14% Lottery Revenues $50,000,000 10% • Admission Tax $25,000,000 5% • Total Private Funding $367,000,000 .72% TOTAL $511,000,000 100% 154 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (coot d) Subject to Change Key Arena Originally built in 1962, Key Arena e."*",:".*:', underwent a major renovation that was t . completed in 1995 at a cost of approximately $104,0 million. Located in Seattle, Washington, the Arena is .the former home of the , NBA SuperSonics and the current home of the WNBA Storm. Private funds totaled ' approximately 91 percent of the.costs of the renovation, including $73.4 million in general obligation bonds that were issued by the City and backed up by Arena revenues. The City is required, however, to repay the bonds if the arena or tenant revenues are insufficient or fail to cover debt service. The SuperSonics contributed approximately $21.0 million for the acquisition of a scoreboard, construction of a practice area, concession areas, a retail store and their locker rooms. The team also contributed an additional $500,000 for the build -out of their locker rooms. The remaining nine percent was paid by the City and included $3.8 million in interest earnings, $3.4 million of existing capital funds and $1.9 million in other City funds. Exhibit 9 -8 summarizes the sources of funds for the Key Arena renovation. Exhibit 9 -8 Key Arena Funding Sources • Private Funding: Team Debt $21,000,000 .20% Interest Earnings $3,800,000 4% Other Private Funds $500,000 0% Total Private Funding $25,300,000 24% Public Funding: City General Funds $73,400,000 71% Existing Capital Funds $3,400,000 3% Other City Funds $1,900,000 2% Total Private Funding $78,700,000 76% TOTAL $104,000,000 100% Washington Public Facility Funding Summary Private sector funding sources accounted for approximately 32 percent of the funding of the Washington State sports facilities included in this analysis. Specific private funding sources included: 155 9 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) Subject to Change • Facility revenues; • Seat licenses; and • Team equity contributions. Public sector funding sources accounted for approximately 69 percent of the funding of the sports facilities discussed herein, including the following - specific sources: • City general funds; • Hotel/motel tax revenue; • Rental car tax revenue; • Restaurant and bar tax revenue; • Parking tax revenue; • Admission tax revenue; • Sales tax revenue; and, _ • Lottery proceeds. Quantified Funding Sources The purpose of this section is to present a summary of the estimated funding potential of various private and public sector revenue sources that could represent potential sources of project funding. The funding analysis presented herein is not intended to an exhaustive review of all potential funding sources, but rather a review of the more common funding .sources that may be available specific to this project. The specific funding sources discussed herein include: • State funding; • County funding; • • Tax Increment Financing / Local Infrastructure Financing Tool; • Team rent payments; • Team equity contributions; • Admissions tax; • Ticket surcharge; • Sales tax; • Hotel /motel tax; • Gambling tax; • Local business and occupation tax; • Utility tax; and, • Rental car tax. 156 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) subject to Change State Funding As noted previously, nearly half of the comparable minor league ballparks analyzed have received some form of state funding. This often consists of a grant provided by the state government in order to help spur economic development in the recipient city. The State of Washington has provided funds to several minor league ballparks throughout the State in recent years to fund a variety of capital repair projects and minor ballpark improvements. Yakima County Stadium has been the beneficiary of a portion of these funds, which helped cover the costs associated with the construction of a new outfield wall, replacement of the stadium's lights and other such improvements. This program has been limited to relatively inexpensive ballpark upgrades, and is unlikely to be expanded to provide Yakima with sufficient funding to cover a significant portion of a major reconstruction or new ballpark development project. Another potential source of State funding is through an expansion of the Public Facilities District (PFD) participation. PFD's were established through State legislation, and are municipal corporations with independent taxing authority. The PFD program allows communities to receive a sales tax credit, which is essentially a rebate of a portion of the State sales taxes generated within the PFD. The Yakima Regional PFD was formed in June, 2001, to lease and operate the Yakima • Convention Center, and includes the cities of Yakima, Selah and Union Gap. The District has access to a State sales and use tax credit, which shifts 0.033 percent of the retail sales and use taxes generated within the District boundaries to the District. This credit, along with a required 33 percent local match, is used to pay debt service on 25- year bonds issued to fund a $10 million expansion of the Yakima Convention Center. In addition to Convention Center funding, the Yakima Regional PFD secured an additional 0.033 percent tax credit from the State, which was used to finance $7 million in bonds for improvements to the Capitol Theatre. The District could seek approval from the State of another incremental tax credit to fund a portion of a ballpark reconstruction or development project. The amount of funding covered by this type of further expansion of the PFD would depend on the specific terms of the expansion. However, based on past projects, it appears that such a program, if approved, could potentially fund approximately $7 to $10 million in project costs. gi .157 j CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) subject to Change County Funding • While. State funding often contributes significantly to ballpark development project, local municipalities typically represent the primary sources of public funding. , Based on conversations with project representatives, the ability of Yakima County to participate in the funding of a stadium reconstruction or new ballpark development project is likely to be limited. However, it is possible that the County could contribute some level of funding to the project. An analysis of comparable ballpark funding indicates that the median contribution made by counties that have participated in ballpark funding is approximately $2.0 million. For purposes of this analysis, it is assumed that Yakima County could potentially provide approximately $1.0 to $3.0 million, which would be within the range of county contributions to comparable ballpark funding. Tax Increment Financing /Local Infrastructure Financing Tool Tax Increment Financing (TIF) has been used to fund the development of numerous sports and assembly venues in recent years, particularly when those facilities are envisioned to spur additional economic development in their immediate surroundings. TIF essentially capturing assessed. valuation growth within a specific area (i.e. TIF district) related to a particular development. TIF often requires enactment of legislation by the State legislature. Typically, a redevelopment agency delineates a project area and declares a base year. The existing base - assessed valuation is taxed as before by each overlapping taxing entity covering a portion of the project area. The additional assessed valuation, added to the tax rolls over the base, is taxed at the same rate as the base valuation. However, the tax revenues attributed to the new incremental assessed valuation are remitted to the redevelopment agency and used to pay debt service. Within the TIF district, public investment can be financed by isolating and designating incremental increases in property tax revenues that result from the redevelopment of deteriorated properties. This mechanism is used when a public investment can directly result in subsequent redevelopment efforts by the private sector. For example, the development of a new downtown ballpark near Yakima could spur additional restaurants, retail shops, residential units and other such development in the immediate area, potentially generating significant incremental property tax revenues. In 2006, the State of Washington established the Local Infrastructure Financing Tool (LIFT), which is similar to TIF, but allows for the capture of incremental sales tax revenue in addition to property tax revenue. LIFT allows selected local governments to capture incremental public revenue from property and sales taxes generated by private development in a Revenue Development Area (RDA), also known as a LIFT District. The incremental increases in revenue generated in the RDA are used to pay principal and 158 ` l CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cons d) • subject to Change interest on general obligation bonds issued to finance infrastructure improvements that will encourage economic development and redevelopment in that area. The incremental revenue, along with revenue from other local public sources that is dedicated to the payment of the bonds, is used as matching funds to earn state money, which must also be used for payment of the same bonds. In 2008, the City of Yakima was selected to receive a LIFT award. A 556- acre Yakima Revenue Development Area (YRDA) was created, including a 224 -acre primary development zone, which incorporates the 205 -acre former Boise Cascade Sawmill and Plywood Plant site. The City plans to use up to $25 million of LIFT funds to finance a portion of the estimated $50.5 million in public transportation and utility improvements that are necessary for the redevelopment project envisioned for the site. A few key stipulations of the LIFT program could limit its use as a funding tool for a • ballpark development project: . • No more than one LIFT district can be established within a single county. Because Yakima County is already home to the YRDA, a separate LIFT district could not be established to fund ballpark - related improvements. Therefore, LIFT could not be used to fund a reconstruction of Yakima County Stadium, which is not located in:the YRDA. In order to use LIFT to fund the development of a new ballpark, the facility would need to be constructed within the existing YRDA, or the boundaries of the YRDA would need to be redrawn to include the ballpark site. • LIFT revenues are currently envisioned to be used to fund infrastructure improvements associated with the YRDA. Reallocating a portion of these revenues to ballpark - related funding would require the identification of alternative funding for the YRDA infrastructure .improvements (for example, procuring federal funding for improvements to the Interstate 82 interchange. • The potential approval of Initiative Measure No. 1033 by the State Legislature would limit the growth of certain state, county and city revenues to annual inflation and population growth. This could have significant implications to LIFT funding, as increases in tax revenues would be refunded back to taxpayers in the form of property tax relief, making those revenues unavailable for public . development projects. • A project financed by LIFT must generate direct sales and property tax revenues. An example would be a road or sewer pipeline that leads to a commercial building that generates its direct property and sales tax revenue to support the debt service on the infrastructure. A publicly -owned ballpark would not be subject to property taxes, and may not generate sales tax revenues comparable to 'a dedicated retail 159 CONFIDENTIAL DRAFT • For Discussion Purposes Only 9. Funding Options (cont d) subject to Change development. Therefore, the use of LIFT for a ballpark may entail additional risk for the City or County. Based on the current statutes and limitations surrounding LIFT, it does not appear that LIFT represents a likely source of funding for stadium reconstruction or development. However, if a new ballpark were to be developed within the existing YRDA, a portion of the $25 million in LIFT funds could potentially be used to cover infrastructure costs associated with the new ballpark. Infrastructure costs for a new ballpark built outside of the YRDA have not been estimated in this report. • Team Rent Payments • Rental payments from minor league baseball teams have been used, by local municipalities to fund a portion of ballpark development costs throughout the country. Over the past four years, the Yakima Bears have paid an average of $14,100 in rent to the CWFA to use Yakima County Stadium. The Bears also pay an annual concession fee of $10,000 to the CWFA. Recognizing that the Yakima Bears would likely benefit financially from a reconstructed Yakima County Stadium or a new downtown ballpark, it is possible that the City and • team could agree on a new rental structure that could provide contractual revenue that could be used to secure funding. Annual rent payments of approximately $100,000 and $125,000 have been estimated for a reconstructed Yakima County Stadium or a new ballpark, respectively. These annual rent payments would be similar to the rent payments made by several comparable Class A and independent league franchises playing at recently built or renovated ballparks. Allocating these rent payments toward debt service could provide a key piece of private funding for the project. • Assuming a five percent interest rate and a required debt coverage ratio of 1.2, the Bears' annual rent payments could fund approximately $1.0 million of project costs over 30 years. Team Equity Contributions In addition to the Bears' annual rent payments, a portion of the team's annual operating revenues could be also be allocated toward stadium debt. In order to estimate the amount of project funding that could potentially be derived from the Bears' operating revenues, a scenario was developed in which the Bears contribute 50 percent of their estimated net operating profit toward stadium debt over 30 years of ballpark operations. • 160 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) • subject to Change Assuming a five percent interest rate and a required debt coverage ratio of 1.2, it is estimated that the Bears could fund approximately $200,000 of a reconstruction of Yakima County Stadium and $1.0 million of a new ballpark with 50 percent of their estimated operating profits. Admission Tax No admissions tax is current in place in Yakima. However, a tax of up to 5.0 percent could be imposed by City Council action. Such a tax would be applied to admissions to a variety of attractions, including events held at Yakima County Stadium, the Yakima Valley SunDome and the Capitol Theatre, as well as fair admissions, movie theater tickets and other such expenditures. In 2007, the implementation of an admissions tax was proposed as a means of funding public safety initiatives in the City. At that time, City officials estimated that a 5.0 percent tax could generate approximately $400,000 per year. This proposal was met by opposition from several organizations that generate admissions revenue, and ultimately - did not move forward. However, it could be revisited as a potential means of funding the proposed ballpark project. Assuming annual revenues of $400,000, a five percent interest rate and a debt coverage ratio of 1.2, an admissions tax could potentially cover approximately $5.0 million in project debt service. Ticket Surcharge As an alternative to implementing a City -wide admissions tax, a surcharge could be assessed specifically on tickets sold to events held at a reconstructed Yakima County Stadium or a new ballpark, with proceeds used to pay down debt associated with the project. Several sports and entertainment venues throughout the country assess these surcharges as a means of covering operating expenses, paying for capital repairs and/or repaying debt. Facility fees are often a politically popular funding source, as the fee is only paid by those residents who use the facility. However, the revenue generated by a facility fee is subject to the attendance fluctuations of the tenant team and industry trends that impact the number of concerts and other special events held at the venue. A relatively simple facility fee scenario would involve the assessment of a surcharge of $1.00 on every ticket sold at the ballpark, including tenant baseball games, concerts, amateur sports events and any other events for which admission is charged. Based on the event and attendance levels developed in the market analysis, such a surcharge at a 161 '� y CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) subject to Change reconstructed Yakima County Stadium or a new ballpark near downtown Yakima could generate approximately $88,000 or $103,000, respectively, in a normalized year of operations.. Assuming a five percent interest rate and a debt coverage ratio of 1.2, this surcharge could cover approximately $1.0 million in project costs over 30 years. Sales Tax The current sales tax rate in the City of Yakima is 8.2 percent, including: • 6.5 percent State tax; • 1.0 percent general City tax; • • 0.3 percent public transit tax; • 0.3 percent public safety tax; and, • . • 0.1 percent criminal justice tax. The City's 2009 budget estimated approximately $14.4 million in revenues from the 1.0 percent general City tax. . The City sales tax rate could be increased through the approval of a public referendum. A sales tax increase was proposed to fund the development of an aquatics center, but the City Council did not approve the referendum. The ability to increase the local sales tax rate to fund stadium reconstruction or new ballpark development would depend on the • willingness of the City Council to approve a referendum, and the ability to pass the referendum by simple majority vote. For purposes of this analysis, an estimate of the funding potential of a 0.1 percent sales tax increase was prepared. The analysis assumes $1.4 million in annual tax revenue. Over 30 years, this level of revenue could fund approximately $18.0 million 'in project costs, assuming a five percent interest rate and a debt coverage ratio of 1.2. Hotel /Motel Tax A tax rate of 5.0 percent is currently assessed on hotel /motel stays in Yakima, including a 3.0 percent local tax and a 2.0 percent State tax. The local portion of the tax is estimated to generate approximately $1.15 million in 2009, with the revenue distributed as follows: • 43 percent to Convention Center operations; • • 38 percent to debt service associated with the SunDome and Yakima County Stadium; • 11 percent to Convention Center capital; and, 162 s CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) subjectto'change • 8 percent to Capitol Theatre operations. • Yakima's hotel /motel tax rate exceeds the maximum allowed under State law; however, Yakima was granted an exception, as the rate was already in place when State statutes were changed. Because the local tax rate already exceeds the State limit, the rate cannot be increased barring changes in State legislation. While the hotel /motel rate cannot be increased, it is possible that a portion of existing funds could be allocated toward the ballpark project. The most likely scenario would involve the portion of revenue current dedicated to debt service related to the SunDome and the current Stadium (approximately $437,000 in 2009). When that debt has been fully serviced, the revenue could be re- allocated . to ballpark- related debt service. However, this may be met with opposition from the Fair Board, who may wish to use that revenue to fund future construction projects on the Fairgrounds. An analysis was conducted to estimate the amount of project funding that could be covered.by a reallocation of the $437,000 in revenue currently allocated toward debt service associated with the SunDome and the current Stadium. Assuming a five percent interest rate and a 1.2 debt coverage ratio, a reallocation of hotel tax revenue could potentially retire approximately $5.0 million of stadium/ballpark - related debt over 30 years. Gambling Tax The State of Washington allows local cities, counties or towns to tax gambling receipts. • The maximum tax rate varies by activity as follows: • Card rooms: 20 percent of gross receipts • Raffles: Five percent of net receipts over $10,000 • Bingo: Five percent of net receipts • Punchboards and pull -tabs (commercial): Five percent of gross receipts or 10 percent of net receipts • Punchboards and pull -tabs (charitable): 10 percent of net receipts • Amusements games: Two percent of net receipts The City of Yakima currently imposes a 10 percent tax on card rooms, generating approximately $750,000 per year. The rate could be increased by up to an additional 10 percent through City Council action without a referendum. In 2007, consideration was given to increasing the tax rate on card rooms to fund public safety initiatives, but the City Council declined to implement the increase. - 163 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) subject to Change An increase in the gambling tax rate could be considered to help fund a stadium reconstruction or new ballpark development project. An estimated •$375,000 would be raised annually by every 5 percent increase in the tax rate. However, this action would ' require approval by the City Council. In order to estimate the funding potential of a five percent increase in the gambling tax, an analysis was conducted that assumed $375,000 in incremental tax revenue per year. Assuming a five percent interest rate and a required debt coverage ratio of 1.2, these tax revenues could fund approximately $5.0 million in project costs over 30 years. Local Business and Occupation Tax The State of Washington does not have.. an income tax, but imposes a Business and Occupation Tax (B &O tax), which is imposed on the value of products, gross proceeds of sale or gross income of a business. The tax is calculated on the gross income from activities, with no deductions for labor, materials, taxes, or other costs of doing business. The B &O tax rate varies by business classification. Local municipalities within the State of Washington also have the ability to implement B &O taxes. Yakima does not currently impose B &O a tax, but could assess a tax of up to 0.2 percent of gross business receipts. Such a tax would generate an estimated $4.2 million per year. However, in order to implement the tax, the City would need to repeal its current business license fees, which generate approximately $500,000 per year. As such, the net revenue increase to the City resulting from a 0.2 percent B &O tax could approximate $3.7 million per year. The net present value of the revenue generated by a 0.1 percent B &O tax could approximate .$20.0 million over 30 years, assuming a five percent interest rate and a required debt coverage ratio of 1.2. . • • Utility Tax The City of Yakima currently implements a six percent tax on utilities. The tax is tiered into two levels, with a four percent tax assessed up to a maximum of $4,000 for any one customer in a calendar month, and an additional two percent assessed on the total bill. An increase in the utility tax requires the passage of a City -wide referendum. In 2006, a 1.5 percent utility tax increase was proposed to generate approximately $1.6 million in funding for public safety initiatives, but the measure was defeated by public referendum. 164 CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) Subject to Change An increase in the utility tax could potentially be used to pay debt service associated with a ballpark project. Each one percent increase would generate an estimated $1.1 million in annual revenue, of which all or a portion of the proceeds could be allocated toward ballpark debt. This funding mechanism would require approval by City voters. Assuming $1.1 million in annual tax collections, the net present value of the revenue generated by a 1.0 percent increase in the utility tax could approximate $14.0 million over 30 years, assuming a five percent interest rate and a required debt coverage ratio of 1..2. . Rental Car Tax • Washington State imposes a 5.9 percent rental car tax on all passenger car rentals of less than 30 days, while the Regional Transit Authority receives an additional 0.8 percent. Cars rented in certain counties are subject to an additional one or two percent increase; however, this tax is not implemented in Yakima County. Because Yakima is not home to a major airport and has a limited rental car tax base, it is unlikely that a tax on rental cars would provide significant funds toward a ballpark project. Summary An analysis was conducted to evaluate specific funding sources for a reconstructed Yakima County Stadium or a new ballpark near downtown Yakima. A variety of funding vehicles and revenue sources were evaluated. It should be noted that.the list of sources is not intended to be an exhaustive or cumulative in nature. Rather, the funding analysis developed herein was intended to identify the most typical or likely sources of project funding based on a review of comparable ballparks and the resources that may be specifically available in the local market. A review of comparable ballpark funding indicates that each ballpark that has been developed has a unique funding structure. The ultimate financing structure of a ballpark is dependent on the political, economic and other issues of the related parties. In some markets, the public sector has the ability to finance a substantial portion of the project cost, while in other markets it does not. The same is true of the private sector. Exhibit 9 -9 summarizes the funding potential of several of the funding sources discussed within this chapter, assuming the revenues from each source- were used to pay debt service on 30 year bonds with an interest rate of 5.0 percent and a required debt coverage ratio of 1.2. 165 • CONFIDENTIAL DRAFT , For Discussion Purposes Only 9. F unding Options (cont d) Subject to Change Exhibit 9 -9 Estimated Funding Potential. of Various Sources • Estimated • Source Funding Capacity (1) Business & Occupation Tax- 0.1% $20 million Sales Tax- 0.1% $18 million Utility Tax- 1.0% $14 million • PFD Funding $7 to $10 million Hotel TaxReallocation $5 million Admissions Tax- 5.0% $5 million • • Gambling Tax - 5.0% $5 million County Funding $1 to $3 million • Team Rent $1 million • Ticket Surcharge - $1.00 $1 million Team Operating Revenue $0.2 to $1 million • (1) Funding capacity of each revenue stream over 30 years, assuming a • five percent interest rate and a 1.2 debt coverage ratio. Additional estimates and assumptions related to individual funding sources can be found within the text of the report. Note: In addition to the quantified funding sources presented in this exhibit, Local Infrastructure Financing Tool (LIFT) funding may be available to help fund infrastructure expenses related to a new ballpark, depending on the site. At this time, it is difficult to quantify the potential amount of LIFT funding that may be available. As summarized in- the previous exhibit, revenues generated directly from the stadium, including team rent, 50 percent of net team profits and a $1.00 surcharge on tickets to all stadium/ballpark events, are estimated to be able to fund approximately $2.0 to $3.0 million in project costs. This would leave a substantial portion of project funding to be covered by other sources, such as 'private fundraising, reallocations of existing tax revenues, increases in tax rates and other such sources. -The implementation of a.0.1 percent Business & Operation tax, a 0.1 percent increase in the City sales tax or a 1.0 percent increase in the City utilities tax could generate annual • • revenue sufficient to cover all or a significant portion of debt service associated with a stadium or ballpark project. However, recent that it may be difficult to gamer public support for increases in those taxes through approval by City Council and passage of the public referendum that would be required to enact such increases. Taxes on activities such as hotel /motel room rentals, car rentals, event admissions and gambling tend to be more politically acceptable than sales or utilities taxes, as they primarily target visitors (in the case of hotel /motel and car rental taxes) or targeted • voluntary leisure activities (admissions and gambling), and therefore may not impact the population as a whole. However, the hotel /motel tax cannot be raised above -its current • level without changes to State legislation,' while the car rental tax base in.Yakima is insufficient to generate significant levels of ballpark funding. Admissions and gambling • . 166 • • i , • • CONFIDENTIAL DRAFT For Discussion Purposes Only 9. Funding Options (cont d) Subject to Change taxes would likely be met with opposition from individuals and organizations engaging in those activities, but could be considered in identifying potential sources of project funding. Other potential funding sources that could be considered include the sale of the land on which the existing Yakima County Stadium is located (if a new ballpark is developed on a different site), funding participation by the local school district in exchange for using the facility to meet potential sports facility needs, contributions from private developers with an interest in developing land adjacent to the stadium or ballpark, and other miscellaneous sources. The funding potential of these sources could vary significantly, and has not been estimated herein. • 167 ATTACHMENT C JULY 2010 DEVELOPMENT OPTIONS FOR A NEW MULTI- PURPOSE STADIUM FOR THE YAKIMA BEARS PRESENTED BY YAKIMA BEARS MADISON GROUP, LTD. DEVELOPMENT OPTIONS FOR A NEw 1VIULT'I PURPOSE .STADIUM FOR THE YAKIMA BEARS PRESENTED BY THE YAKIMA BEARS BASEBALL CLUB AND THE MADISON GROUP, LTD. JULY 7. 2010 THE KEY TO ANY PROJECT Y A ec nq "POLITICAL WILL" The biggest and most important piece of the puzzle! Without it, any project will fail. One individual or organization must be willing to lead the charge, and accept both the positive and negative, in pursuit of the project's ultimate success. YAKIMA BEARS PROFESSIONAL BASEBALL 2 CURRENT SITUATION aY AK ^n Potential for a Successful Project is in Place — Site identified • Boise Cascade mill site • Land to be donated to the project • Economic and financing tools in place • Part of a master- planned development - Entertainment - Retail Strong history of Minor League Baseball • Bears have been . part of the community for 21 years ® Local ownership, knowledgeable to Yakima's "Way of Life" YAKIMA BEARS PROFESSIONAL BASEBALL 3 r NORTHWEST LEAGUE OVERVIEW Market Established Facility Status Eugene 1974 New Stadium - Opened 2010 Spokane 1983 Major renovations over the years Everett 1984 Recent major renovations Boise 1987 Working on a new stadium Yakima 1990 ? ?? Salem 1997 New stadium Vancouver 2000 Historic renovated stadium Tri- Cities 2001 Relocation, stadium built in 1995 YAKIMA BEARS PROFESSIONAL BASEBALL 4 PROJECT BENEFITS - BEARS Y A u, nA q \ 1f I _ Current Future • Limited revenue • Provides basis for opportunities economic viability • High operating expenses ® Efficient operations 50 summer jobs 0 Up to 150 summer jobs • Use /user restrictions ® Community venue ® Limited community • Stadium will become a involvement community asset • Restrictive location ® Serves as an anchor and gathering point YAKIMA BEARS PROFESSIONAL BASEBALL 5 PROJECT GOALS AND OBJECTIVES ® Additional "Quality of Life" amenity for local v Y residents — "Family Room" ® Serves as the first, as well as an iconic development for future retail tenants and commercial development - Economic catalyst Sets architectural /design tone of development ® Serves as an evening/night time entertainment option, in a primarily day-time tourist area p YAKIMA; BEARS PROFESSIONAL BASEBALL 6 PROJECT DESIGN AND � _ " }: O PERATIONAL GOALS 0 Architecturall a ealin appealing • Functionally efficient "Fan First" amenities — • Integratethe stadium into the overall master- planned development to utilize and maximize future development MuIth Design - Baseball, at all levels — Youth soccer — Community and entertainment events YAKIMA BEARS PROFESSIONAL BASEBALL 7 NEw NEW BASEBALL, FACILITY EVENTS > K . nit .17-: j.2 „ ) • Symphony at the Ballpark ( "Pops at the ® Baseball Camps, both adult and youth Park" and "Mozart from the Mound ") ® Youth /High School Showcases- Scout • Concerts Tryouts • Special Olympics ® Broadway Production - "Damn Yankees" ® Football Tailgating and game watching ® Boy /Girl Scout Camp -outs on the scoreboard ® Wrestling /Boxing Matches ® Corporate Team Building ® Santa at the Stadium (Holiday Expo) • Corporate - Family Outings /Picnics (on- ® Trade Show(s) on the Concourse field) Car Show(s) "Corvettes, Porches, ® College Invitational Tournaments Mustangs, etc." (Parking Lot) ® College Regional Tournaments ® Harley "Hog" Rally (Parking Lot) ® High School Games and Graduations 0 Basketball Tourneys (Parking Lot) ® Family Sit -in Movie Nights ® Football /Soccer Games • Charity Softball Games ® Morning walkers, open to the public • Cancer Survivors Walk - "Relay for Life" ® Little League Games YAKIMA BEARS PROFESSIONAL BASEBALL 8 • • INITIAL P DESIGN. ...... .. ,� • • • • • • _ \ �_ - • ''� � 1 1, . • • " . .. • • , � / - • .,.� i •fi r...+- r 3 • _ , - _ 8th Street • • • . . i . r . .. . . . . . .. . , • . . , ,e. :,,, . , t% , • . . ! 1 . . . . . .t. • .. . . . . • . . . YAKIMA BEARS PROFESSIONAL BASEBALL . . . • • 9 • • • I NITIAL. ULTI PURPOSE DEsIGN � Y ,_,_. -�; "✓ . r N. 10th •• St. i • . — — — — — � ., �/ 1 ' r I .44A • Youth Soccer Fields ° '��� ©��� � .. 1 .0) . : +77I : _ 1 N INDICATES E7[7ENf OF 10ACAE4\ 1 I � • I ' ", \\;\\; \;;�\\ _ :Y, // INDICATES EXTENT OF 10 . . I • ` EXISTING PLYWOOD ..- 1 ' IIIIIIII � PLANT . - - - ' �: ..• • I' p I - • 71, o �'l lllllll - - i �� IN 1111II l- i Potential.Ice Rink I 2- = .-. �; ": S • r North 8th Street MAIN CONCOURSE • . 'HICS=-.. YAKIMA BEARS BALLPARK • • '"'°"'y YAKIMA, WASHINGTON • YAKIMA BEARS PROFESSIONAL BASEBALL 10 • • INITIAL PROJECT DESIGN - AERIAL ;1 ,, .� ,,s: '7::: - i P _ 1- "'..- . „ Div* .. -..""...4e1 / .. .,il,. c -4`:.' ` " , YAKIMA BEARS PROFESSIONAL BASEBALL 11 . -1, ---- 4" INITIAL PROJECT DESIGN - A \ 71 \ FIRST BASE PATIO AREA ,..‘,._.... .. ........ ... .._.. ,. , —..,. — .- — .. -. .. • NV 9 K lit - .) ! 4 • ' ' - 11.31.- 11 I,. H j i- 1 . 1 ' l, ... . •......... ' ^ . . .,,. - - , , . .. . . 4 . • . . — _ _ ._ _ .-t z . aiii 11"10 - _ _ ..., _ _______ 4. ._ . . ...... , 4 ,, . __..... .„............._ 0, 11 1 1 ,pII • 1 , . • ‘a / 1 .. _ .._ rit_k i • mow • \tittimii i illftra It! ' - ' 141111 ail 111- 1411 Ili ilillillo i IMO 1 , id 111111iii. ma nil . . 1 s . YAKIMA BEARS PROFESSIONAL BASEBALL 12 t ��. c KEY POINTS OF THE INTEREST rA K. M Development Issues — The facility will interact and help fuel the area's growth - Yakima Bears Professional Baseball will have the development risk ® Architectural /Design • Cost ® Schedule Operational Guided by the Lease — Funding, on -going and long term - Maintenance and repairs Community standards, if needed — Use Agreement, with other users or community groups YAKIMA BEARS PROFESSIONAL BASEBALL 13 FA0IuTY's INITIAL ESTIMATE l J • Approxmately 3, 000 fixed seats — Capacity up to 4,000 for baseball - Concerts and field events, TBD • Approximately 10 skyboxes • Adheres to NAPBL Standards • Total Development Budget $22,962,500 Construction Costs $17,500,000 FFE, Ins. Bonds, Contingency $. 2,900,000 Soft Costs $ 2,562,500 YAKIMA BEARS PROFESSIONAL BASEBALL 14 TEAM'S PARTICIPATION IN FAGIL.ITY F!NANCING Team will contribute u p to $ 5 million - .Up -front contribution at closing to the project p 1 — Annual lease payments • Help secure financing based on ex ected expected to institutional and community investors ® Enter into a "Binding Lease",forthe Iength of g the p ublic indebtedness — No chance of team relocation Operate and manage the facility g No on -going operational erational ex enses p expenses BEARS PROFESSIONAL BASEBALL 15 PUBLIC PARTICIPATION IN FAcIuTYx_t' Y A K 1 M {; FINANCING ® Contribute u -front equity to the project p q Y p 1 - Grants - Other -- staff and development support 61 UtiIize ublic financing tools and financing p vehicles Secure financing for the project based on expected returns to the community and surrounding . roundin area - Tax Increment Financing (LIFT) - Economic development grants — Economic impact and tax collections YAKIMA BEARS PROFESSIONAL BASEBALL 16 POSSIBLE FUNDING SOURCES Y A K I M A No NEW TAXES UTILIZED ::: • Teamcontribution $ 2.5m • Team lease a ments pv $2.5m • Landfill redevelopment funds $5.0m • LIFT $10.0m • SJED Fundin g $6.Om Grant $3.0m Loan $3.Om Total $26.0m YAKIMA BEARS PROFESSIONAL BASEBALL 17 c "THE LEASE ) K • Basis for future operational aspects of the p p project - Financial revenue and expense allocation — Operational - regular and special maintenance — Capital repairs and improvements ® Outlines the commitment and responsibility of all parties involved - City- of Yakima - Yakima County — Yakima Bears Professional Baseball - Others YAKIMA BEARS PROFESSIONAL BASEBALL 18 NEXT STEPS M AC, Commitment from the p ublic bodies for 90 -120 day work period — Mayor and Council, direct staff and appropriate service providers to move project forward Working to ex lore o en issues and p p formalize major developrnentissues and agreements, if appropriate . Development timeline and budget — Research and finalize legal structure — Develop financing plan — Begin to secure funding commitments YAKIMA BEARS PROFESSIONAL BASEBALL 19 14 Y a K nn q 1 . g an ou!!! Q u i n "When many work together fora goal, y g Great things may be accomplished." g Y p Sakya Pandita . Buddhist Scholar YAKIMA BEARS PROFESSIONAL BASEBALL 20 ATTACHMENT D ARTICLES SUBMITTED FOR COUNCIL INFORMATION BY COUNCILMAN RICK ENSEY laryland 'I axpayers Losing Money on Stadium Deals - by Alyssa Card... http: / /www. heartland. org /budgetandtax- news.org/article /28034 /Maryl... • 'Maryland Taxpayers Losing Money on Stadium Deals SUBSCRIBE Subscribe Via Email Budget & Tax News > September 2010 • Economic Development> Cities • Your Email Address 5•u8rmr Economic Development > Stadiums /Convention Centers • Taxes> Subsidies /Abatements (SEE ALSO: Economic Development) Subscribe via Rss Email a Friend • Written By: Aiyssa Carducci Published In: Budget & Tax News > September 2010 Publication date: 07/14/2010 • FEATURED VIDEO Publisher: The Heartland Institute • An ill- advised financial arrangement is causing Maryland taxpayers to lose money on sports stadium financing deals that were supposed to save them money. • • Under the pretext of economic development, while planning for the construction of a new stadium for the Baltimore Ravens of the National Football League in the late 1990s, the Maryland Stadium Authority entered into what are known as swap deals, complex business arrangements that enabled them to hedge against interest rate nses. The Federal Reserve significantly lowered interest rates in the years since, however, and the swaps are now costing taxpayers money: Marta Mossburg, a senior fellow at the Maryland Public Policy Institute, noted a public debt analysis revealed the MSA received $19 million in cash up front as part of the deal. The incentive likely caused the fixed interest rate paid by the • MSA to be 1 percent higher than it might have been had the MSA not received money up front. Renowned intemational investor Jim Rogers Millions of $$$ Lost • explains how the Federal Reserve has become 'a ,pawn shop' for large and politically connected The MSA received a total of $21 million in subsidies, according to its 2009 Annual Report. Yet in 2009 the agency still financial firms. had an operating loss of $10.5 million. • Most economsts who have studied sports facilities subsidies agree subsidizing stadiums is bad public policy because it THIS MONTH'S POLL burdens taxpayers while creating minimal economic benefits. ` t 4ta * 'r 1 r :�r % r c • ?Bud &TaXPOIH: r c� rt1 s' 1 don't think you can get much difference of opinion among economists or sports economists around the country: The sports stadiums tend to be drains on local economies," said Allen Sanderson, professor of economics at the University of • Chicago. . In addition to having an operating loss of more than $10 million last year, the MSA did not adequately pursue $812,000 in ... back rent owed by the Baltimore Orioles of Major League Baseball, according to a May 2010 audit from the Maryland . Department of Legislative Services. The MSA also wrote off $158,000 in debt without proper approval, and an additional $124,000 from delinquent accounts was not collected, according to the Legislative Services audit. • Debt Forgiven • Hundreds of thousands of dollars more also have been lost to taxpayers. In 2008 the Maryland Board of Public Works voted 2 -1 to forgive $444,274 in outstanding rent owed to the MSA from the Sports Legend Museum, the audit noted. The museum's monthly rent also was slashed from $32,208 to $10,300. The MSA has since resolved the back rent owed by the Orioles. However, The bigger issue is why the MSA should • exist at all, given the agency's poor stewardship of scarce resources," wrote Mossburg in a column for the Baltimore Sun. More Subsidies, Higher Costs THIS WEEK'S EXPERT Stadium costs have been sharply on the rise nationwide since 1990. Although factors such as construction and Robert Genetski, Ph.D., a • insurance costs are involved, a 2007 study by Andrew Moylan of the National Taxpayers Union Foundation concluded • Heartland Institute policy advisor, • these factors have 'little merit" on what is driving stadium costs up. ° is one of the nation's leading . economists and financial advisors. He has spent more than • Moylan noted iron and steel paces fell between 1995 and 2002, 'a period when stadium costs escalated significantly.' " ' ??k:,;h 35 years promoting the use of The September 11, 2001 terrorist attacks caused insurance costs to rise, but Moylan noted, "the inflation- adjusted -! classical economic and increase in stadium costs from 1990- 2001 —before the September 11. attacks —still would be a whopping 46 percent.' ¢ investment principles for sound financial decisions. He heads ClassicatPtinciples.corn and is a popular speaker He concludes the likely reason for increased stadium costs is simply fancier stadiums resulting from the huge taxpayer who entertains thousands of people at conferences subsidies that go into them. The greater the subsidies, the more expensive the stadium designs become. and investor meetings around the world each year. He is one of the nation's premier interest rate forecasters and investment advisors, providing Other Risk Factors . insights to economic, financial, and investment • The University of Chicago's Sanderson also points to other risk factors in public investment in sports stadiums. matters. Operating expenses are often high, he notes. One reason is there are few alternative uses for the facilities, especially Complete bio Articles by Robert Genetski outdoor football stadiums. It can be tliFficutt to make a profit when the venue isn't open on a regular basis. Email Robert Genetski • "Teams would prefer not to own the stadiums for that very reason, because they're [financial) drains,' Sanderson said. • • In the case of the Baltimore Orioles, the baseball team pays rent based on how much revenue the team produces each ABOUT THE HEARTLAND INSTITUTE' year, so there is not a sure revenue stream. The Center on Taxes and the Economy is a project of The Heartland institute, a , • of 2 8/18/2010 11:23 AN • hould Cities Pay for Sports Facilities? • http:// www .stlouisfed.org/publications /re /articles / ?id =461 • SMRRE • THE REGIONAL ECONOMIST 1 APRIL 2001 Should Cities Pay for Sports Facilities? • • By Adam M. Zaretsky • • • "We play the Star - Spangled Banner before every game —you want us to pay tames, too? - -Bill Veeck • • Americans love sports. Watching the home team in any of the four major sports— baseba8, football, basketball and hockey- -march to victory in the World Series, Super Bowl, NBA Finals or Stanley Cup Finals arguably generates more excitement and local pride in a town than any other event Fans love when the hometown boys win. But even when they don't, fans stick by their teams. By and large, so do the cities these teams play in In fact, cities with hone tears are often willing to go to great lengths to ensure they stay home. And cities • without home teams are often willing to dangle many carrots to entice tears to move. In either case, the most visible way cities do this is by building new stadiums and arenas. • Between 1987 and 1999, 55 stadiums and arenas were refurbished or built in the United States at a cost of more than $8.7 billion.1 This figure, however, includes only the direct costs involved in the construction or refurbishment of the facilities, not the indirect costs —such as money cities night spend on aryroving or adding to the infrastructure needed to support the facilities. Of the $8.7 billion in direct costs, about 57 percent —around $5 billion —was financed with taxpayer money. Since 1999, other stadiums have been constructed or are in the pipeline (see table below for some examples), much of the cost of which will also be supported with tax dollars. Between $14 billion and $16 billion is expected to be spent on these post -'99 stadiums and arenas, with somewhere between $9 billion and $11 billion of this amount coning from.pubiic coffers. The use of public funds to lure or keep teams begs several questions, the foremost of which is, We these good investments for cities?' Table 1 • In the Pipeline: Plans for new stadiums often count on taxpayers' support • • • Estimated Cost and Contribution (millions of dollars) ' • Team or City Total Public Dollars Percent Public • . Cincinnati Reds 280 280 100 Seattle Seahav,ks 430 300 70 • St Louis Cardinals 370 250 68 • San Diego Padres 411 275 • 67 • Chicago Bears 587 387 66 Houston (new NFL) 310 195 63 - Philadelphia Eagles 395 234 " 59 • Philadelphia Phillies 345 174 50 Boston Red Sox 550 200 36 New England Patriots 325 0 0 SOURCE: Tearrfs and local newspapers • • The short answer to this question is "No." When studying this issue, almost all economists and development specialists (at least those who work independently and not for a chamber • of commerce or similar organization) conclude that the rate of return a city or metropolitan area receives for its investment is generally below that of altemative projects. In addition, evidence suggests that cities and metro areas that have invested heavily in sports stadiums and arenas have, on average, experienced slower income growth than those that have not. Why, then, would cities engage in such activities? This question is actually harder to answer than the former one because, more often than not, the reasons cited are not quantifiable. In other words, the reasons are not as easily measured as, say, costs, because they include many intangible variables, such as civic pride and political self- interest. Moreover, cities generally justify these decisions —and convince taxpayers of their virtue —with analyses that many economists consider suspect because the studies generally overlook some basic economic realities. • • • Not Always Built with Tax Dollars... • In 1862, William Carnmeyer enclosed the Union Club Grounds in Brooklyn, N.Y., and began charging admission, making it the first recorded baseball "stadium" in the United States. • The facility was quite attractive to the fledgling sport of baseball because it enabled the exclusion of non - paying spectators and impressed the up- and - coming players, for whom teams were beginning to compete. By the time the National Association was formed in 1871, owners of such enclosed ballparks had a distinct advantage in the competition for teams. In many ways, not much has changed since then. Teams today are still attracted by modem facilities, and cities go out of their way to provide them. In other ways, though, much has changed. Nowadays, facilities are not usually owned privately by individuals, but, rather, publicly by a government agency. And even though public financing of stadiums is a more common practice today, cities did pony up for a few of the older, well -known stadiums in times past. Some prime examples of govemment -owned stadiums from yesteryear are the Los Angeles Coliseum and Soldier Field, both of which are still in use today. Other famous venues, such • as Fenway Park, Ebbets Field, Wrigley Field, Yankee Stadium and the original Comiskey Park, were all privately financed and owned. In fact, prior to World War II, of the 28 major league sports facilities that were built —for which data are available —only five were paid for in part or whole with taxpayer dollars.2Since World War II, however, of the roughly 140 sports facilities that have been built or refurbished, only 14 did not use taxpayer dollars. ...But When They Are, Are They Worth It? • - The finllerc hoinn imreefert in ennrte farilitioc aro n: cite er ihetanfial rnneifiarinn the nvorell i•nnfrihrrfinn the inri::ctry ma4ec to the ornnnmv In tectirnnnv hofnre the 11 C r`.nnnracc • • of 2 • 8/23/2010 R:40 PN .eason Foundation - Politicians Smother Cities http: / /reason.org/news /printer /politicians- smother -citie Reason Foundation • http: / /reason.org http ://reason.org/news/show/politic ians-smother-c ities • Politicians Smother Cities • How to bring life back to great American cities • John Stossel March 18, 2010 I like my hometown, but I must admit that New York has problems: high taxes, noise, traffic. Forbes magazine just ranked my city the 16th most miserable in America. Ouch! Of course, that makes me wonder: What's America's most miserable city? Cleveland, says Forbes. People call it "the Mistake by the Lake. " Cleveland, once America's sixth - largest city, has been going downhill for decades. Why do some cities thrive while others decay? One reason is that some politicians smother their cities with the unintended consequences of their grand visions, while others have the good sense to limit government power. . In a state that already taxes its citizens heavily, Cleveland's politicians drown businesses in taxes. One result: Since 2000, 50,000 people have left the city. Half of Cleveland's population has left since 1950. But the politicians haven't learned. They still think government is the key to revitalization. While Indianapolis privatized services, Cleveland prefers state capitalism. It owns and operates a big grocery store, the West Side Market. Typical of government, it's open only four days a week, and two of those days it closes at 4 p.m. The city doesn't maintain the market very well. Despite those cost savings, the city manages to lose money running the market. It also loses money running golf courses— $400,000 last year. Another way that cities like Cleveland cause their own decline is through regulations that make building anything a long drawn -out affair. Cleveland has 22 different zoning designations and 673 pages of zoning guidelines. By contrast, Houston has almost no zoning. This permits a mix of uses and styles that gives the city vitality. And the paperwork in Houston is so light that a business can get going in a single afternoon. In Cleveland, one politician bragged that he helped a business get though the red tape in "just 18 months." Randall O'Toole, author of The Best -Laid Plans: How Government Planning Harms Your Oualitv of Life, Your Pocketbook, and Your Future, says Houston does have rules, but they are more flexible and responsive to citizens' needs because they are set by neighborhood associations based on protective covenants written by developers. 0 / ^1fli1nin 0.1, ne • .eason houndanon - rolrticians Smother. Cities http: / /reason.org/news /printer /politicians- smother -citie Politicians' rules rarely change because the politicians don't have their own money on the line. Cleveland's managers thought that funding gleaming new sports stadiums (which subsidize wealthy team owners) and other prestigious attractions like the Rock and Roll Hall of Fame would revitalize their city. Urban policy expert Joel Kotkin says, "This whole tendency to put what are scarce public funds into conventions centers and ... ephemeral projects is delusional." But politicians claim that stadiums increase the number of jobs. Not so, says J.C. Bradbury, author of The Baseball Economist The Real Game Exposed. "There's a huge consensus among economists that there is no economic development benefit to having these stadiums," he says. The stadiums do create jobs for construction workers and some vendors. But "it's a case of the seen and the unseen," Bradbury says, alluding to the 19th - century French economist Frederic Bastiat. "It's very • easy to see a new stadium going up. ... But what you don't see is that something else didn't get built across town. ... It's just transferring from one place to the other. "People don't bury their entertainment dollars in a coffee can in their backyard and then dig it up when a baseball team comes to town. They switch it from something else." Stadiums are among the more foolish of politicians' boondoggles. There are only 81 home baseball games a year and 41 basketball games. How does that sustain a neighborhood economy? But the arrogance of city planners knows no end. Now Cleveland is spending taxpayers' money on a medical convention center that they say will turn Cleveland into a "Disney World" for doctors. Well, Chicago's $1 billion expansion of the country's biggest convention center— McCormick Place —was unable to prevent an annual drop in conventions, and analysts say America already has 40 percent more convention space than it needs. Politicians would be better stewards of their cities if they set simple rules and then just got out of the way. I won't hold my breath. John Stossel is host of Stossel on the Fox Business Network. He the author of Give Me a Break and of Myth, Lies, and Downright Stupidity. To find out more about John Stossel, visit his site at johnstossel.com. This column first appeared at Reason.com. COPYRIGHT 2010 BY JFS PRODUCTIONS, INC. DISTRIBUTED BY CREATORS.COM • Bonus Reason.tv video: The Decline of a Once - Great -City: Reason Saves Cleveland With Drew Carey. • • of 3 R/21/2010 8.13 Pig You tiumma It, tney will Leave - Reason Magazine http: // reason .com /archives /2004/01/01/if -you- build -it -they- will- leav /prir. http: / /reason.com/ archives / 2004 /01/0 1 /if- you - build -it- they - will -leav If You Build It They Will Leave Sports teams fleece the taxpayer, again. Matt Welch from the January 2004 issue On the same day the Florida Marlins paraded through Miami to celebrate their second World Series championship in six years, politicians from Miami -Dade County swallowed the young baseball team's corporate welfare bait. • County Mayor Alex Penelas and Manager George Burgess announced they were offering a whopping $73 million in bed tax revenue, plus a parcel of free land, to help build a new $325 million baseball -only retractable -roof stadium that the lucrative franchise desperately wants. (The Marlins' owners are unwilling to shell out more than $137 million for the venue.) Baseball Commissioner Bud Selig, who as owner of the wretched Milwaukee Brewers wheedled more than $600 million from Wisconsin taxpayers to build the two- year -old Miller Park, immediately issued a statement that he was "extremely pleased and excited that the Florida Marlins have been able to transform their success, both on and off the field, to...significaint movement toward the possibility of building a new ballpark in South Florida." Selig has ample reason to be extremely pleased. He has made an art form out of fleecing taxpayers for billions of dollars. Like any successful con, the commish has learned the power of looking straight into the cameras and repeating, over and over again, the same easily disproved lie: that the baseball industry is suffering terribly and needs public handouts just to stay afloat. Every year, Forbes publishes new estimates of baseball revenue that make a mockery out of Selig's claims of poverty. The magazine's valuations, on average, are $5o million higher than what the teams themselves report. The teams increased in value, on average, by 171 percent from 1992 to 2002, according to calculations by Forbes' Michael Ozanian. In fact, the industry's sustained boom is due in no small part to municipalities' foolish willingness to pay for the construction of fancy new stadiums, dish out various tax breaks, and generally act like landlords terrified that their one tenant might find a better deal across the street. "Public subsidies pad the bottom lines of team owners and boost player salaries while offering no real economic benefit to the cities involved," the economist Raymond Keating of 3 R/23/2010 8.26 Pk You Budd It, Ihey Will Leave - Reason Magazine http: / /reason.com/archives /2004 /01/01/if -you- build -it- they - will - leav /prin wrote in a widely cited 1999 Cato Institute report on the "costly relationship" between major league sports and government. "They provide another example of government action whereby the few and the influential benefit at the cost of the many." The Marlins in particular have perfected the gold - throated beg. The team's original owner, Blockbuster Video magnate Wayne Huizenga, convinced Miami -Dade to pay for nearly $30 million in road and utility upgrades around Pro Player Stadium before he brought baseball to South Florida. He also wangled an annual $2 million sales tax rebate for the next 30 years, which remains in effect for other business interests even though he's long since sold the team. Yet this wasn't enough -- he wanted a new publicly funded stadium, even though Pro Player, which also houses the Miami Dolphins, was built as recently as 1987 (with the help of $85 million in city- backed tax - exempt bonds). Like Selig, Huizenga pleaded poverty, he blatantly lied about his finances, and when the locals failed to reward his 1997 World Championship with the ballpark of his dreams, he engaged in what baseball economist Andrew Zimbalist has called "the most radical fire sale of players in baseball history," leading to a disastrous 54 -108 record. He then sold the Marlins for a $65 million profit after just five years, in a deal that gave him incredibly favorable terms: 10O percent ownership of Pro Player, a hefty annual rent, and huge chunks of parking and concession receipts. Huizenga's emotional blackmail of sports -mad taxpayers has hardly been limited to baseball. In 1996 he convinced Broward County to cough up $185 million to build the National Car Rental Center for the Florida Panthers, his National Hockey League team. The county and the team were supposed to divvy up arena profits 20/80, but after the first five years the Panthers had pocketed $53.7 million and Broward just $331,2o6, according to columnist Michael Mayo of the South Florida Sun - Sentinel. Worse, the arena's most recent audit, by Deloitte & Touche, warned that "certain factors exist that may indicate that [the Panthers] will be unable to continue as a going concern for a reasonable period of time." Broward could soon find itself owning, and servicing the debt on, an empty hockey arena. This is just a tiny part of the overall sports pork racket. As Keating estimated, "During the loth century, more than $2o billion has been spent on major league ballparks, stadiums, and arenas. This includes a minimum of $14.7 billion in government subsidies that has gone to the four major league sports...including more than $5.2 billion just since 1989." Further, "These numbers...exclude the billions of dollars in subsidies provided through the use of tax -free municipal bonds, interest paid on debt, lost property and other tax revenues not paid on facilities, taxpayer dollars placed at risk of being lost if the venture failed, direct government grants to teams, and the billions of dollars spent by taxpayers on minor league facilities." The money quote from baseball's most nauseating bit of self - mythology, the 1989 Kevin Costner vehicle Field of Dreams, was, "If you build it, they will come." Like much of the national pastime's lore, the truth is actually much closer to the opposite: Build a stadium with tax money, and they will eventually leave. of3 R/23/2010 R:26 PTV You build lt, Iney Will Leave Reason Magazine http: // reason .com /archives /2004/01/01/if -you- build -it -they- will- leav /prin The most recent example of this phenomenon was the October sale of the Triple -A Edmonton Trappers franchise to a Texas group headed by Hall of Fame pitcher Nolan Ryan. The team moved even though Canadian taxpayers paid for half the construction costs of the Trappers' Telus Field in 1 995 -- and even though Edmonton held a 15 -year lease. Keating made the obvious but infrequently stated point in a March 2000 article for USA Today magazine: "Another major downside to government -built and -owned ballparks is that clubs are transformed from owners to renters. It is always easier for a renter to move to get a better deal. So, government officials who advocate taxpayer- funded sports facilities to attract or keep a team virtually ensure that teams will continue issuing threats and moving." Here's a different approach: Tax - funded entities should immediately begin selling off all their sports venues. Why on earth should two- thirds of Major League Baseball parks be fully or partly owned by governments? San Francisco's glorious Pac Bell Park was the first privately financed stadium to be built since 1962; not coincidentally, it generates the most revenue in baseball. Private owners are far more likely to upgrade facilities, seek creative revenue- generating schemes, and stay put in their host cities. - A fire sale of stadiums and arenas would bring some much - needed revenue for cash- strapped cities and counties, even in the long term (in the form of future sales and property taxes, which frequently go uncollected on municipally owned properties). The city of Los Angeles, for example, projects a $18o million deficit in the next fiscal year, yet it continues to co -own and operate the nearly vacant Memorial Coliseum and Sports Arena while failing to fill the two -foot potholes in the street in front of my house. Once cities get in the habit of disconnecting taxpayer monies from professional sports franchises, future subsidies will be all that much harder to justify, and the Bud Seligs of the world will have to go back to making money the old - fashioned way: by earning it. • of3 u /Y;nnnln u. '26 P1V: o. 85 Sports Stadium Madness: Why It Started, How to Stop It (summ... http: / /www. heartland. org /budgetandtax- news.org/article /9474 • • • No. 85 Sports Stadium Madness: Why It Started, How to Stop It SUBSCRIBE (summary) Subscribe Via Email Your Email Address >ver:uT Heartland Policy Study No. 85 Economic Development • Subscribe via Rss Economic Development> Stadiums /Convention Centers Email a Friend • Written By Joseph L. Bast • Published In: Heartland Policy Study FEATURED VIDEO Publication date: 02/01/1998 • Publisher: The Heartland Institute Quick Links Policy Study (pdf) - Taxpayer subsidies to professional sports teams amount to some $500 million a year. The decision to subsidize a team is driven by competition among cities for a limited number of teams, league policies that reward relocation, and lobbying by special interest groups. The solution is for fans and taxpayers to campaign for nonprofit ownership of teams, a model • pioneered by the NFL Green Bay Packers in 1923. • 1. The U.S. is in the grip of a massive taxpayer - financed spending spree on sports stadiums. • Nationally, subsidies to professional sports facilities cost taxpayers some $500 million a year. More than $7 billion will be Renowned intemational investor Jim Rogers spent on new facilities by the year 2008, with most of it coming from public sources. Communities that are hard - pressed explains how the Federal Reserve has become 'a to keep their schools open or police on the beat are nevertheless entering into agreements to spend hundreds of millions Pawn shop' for large and politically connected of dollars to bid away a professional sports team from another city. - financial firms. • • Sports stadiums are subsidized in many ways: construction and ownership by a govemment agency, construction and THIS MONTH'S POLL operating grants paid to private owners or developers, state and local tax abatements, and by the use of federal tax - exempt bonds to finance construction. Atypical sports facility costs local taxpayers more than $10 million a year r B u ' } � y r t, APE ",` ?' _ *' j tltion anion cities for professional sport Budget &Tax Po li P ; w, Co ti !mpe g p port franchises has dramatically lowered rent payments from teams, often to zero, and teams routinely claim all revenues from parking and concessions. • 2. The net economic benefit of professional sports for a host city is usually negligible, and may even be • negative. ' According to The Brookings Institution, "a new sports facility has an extremely small (perhaps even negative) effect on • overall economic activity and employment.' No recent facility appears to have earned anything approaching a reasonable . return on investment. No recent facility has been self- financing in terms of its impact on net tax revenues.... [Tjhe • economic benefits of sports facilities are de rrvnirrus." Sports economist Robert Baade at Lake Forest College studied 48 metropolitan statistical areas (MSAs) over a 30 -year • period, and found "of the 32 MSAs where there was a change in the number of sports teams, 30 MSAS showed no • significant relationship between the presence of the teams and real, trend - adjusted, per - capita personal income growth. In the remaining two cases, the presence of sports teams was significantly positive once (in Indianapolis) and significantly negative once (in Batin-ore)." • • - 3. Three reasons why professional sports falls to produce net economic benefits for host communities. - THIS WEEK'S EXPERT Opportunity cost The true cost of using a resource is the value of the next-highest- valued alternative use of that Robert Genets stit Ph.D. a resource, or its "opportunity cost.° The alternatives to investing l-lear of Institute policy advisor, sting in a or sports franchise inducts a new park, an is one e of the nation's leading industrial park or community college, or, money to hire more police, firefighters, or teachers. In many cases, those . alternative uses would produce more value than a new stadium. ? .4y economists and financial . .. tt advisors. He has spent more than g spending: Most of the money spent at a sports stadium or arena would have been s 35 Years promoting the use of Shifting current spo Pent anyway at .W: classical economic and some other entertainment venue, such as a local theater, bowling alley, night dub, or health dub. Because they play a . p` investment principles for sound so frequently, baseball and basketball teams rarely attract a significant portion of the audience from outside the " ;- financial decisions. He heads metropolitan area. Football garner attract fans from greater distances, but football teams host just eight regular season ClassicalPrind com and is a speaker games a year. pies. popular s Baker who entertains thousands of people at conferences and investor meetings around the world each year Subsidies leave the community: Much of a stadium's subsidy goes directly into the pockets of team owners by He is one of the nation's premier interest rate raising the re -sale value of their teams: This money is unlikely to be reinvested in the community. Players seldom live forecasters and invesbnent advisors, providing ' • for extended periods of time in the communities in which they work, and when they leave, their savings and spend 9 in insights to economic, financial, and investment go with them' matters. • Complete bio . Articles by Robert Genetski 4. The "intangible" or non - economic benefits of professional sports do not justify public subsidies. Email Robert Genetski Having a professional sports franchise in town gives fans something to talk about at work and home, a place to go for • wholesome family entertainment, and a certain amount of pride in one's hometown. However, those 'intangible" benefits • must be weighed against similar benefits that would have been created 'rf the money were spent on something else. New ABOUT THE HEARTLAND INSTITUTE - schools, better police protection, or a thriving downtown business.district all would have a positive effect on the The Center on Taxes and the Economy is a community's image and its residents' self - esteem. project of The Heartland Institute, a • )f 2 8/22/2010 8:34 AM • No. 85— February 23, 1998 Sports Stadium Madness Why It Started • How To Stop It By Joseph L. Bast' Future historians will look back on the 1980s and 1990s with amazement. Communities that were hard - pressed to keep their schools open or police on the beat nevertheless spent billions of dollars on stadiums and arenas for use by professional sports teams. Even mediocre athletes were paid more for a single season than the average hard- working taxpayer would earn in a lifetime. The average taxpayer, who was taxed to build sports facilities and support players' salaries, could not afford to walk through the turnstile and watch a live game. The U.S. is in the grip of a massive public spending spree on professional sports. The U.S. is in the grip of a massive How bad is it? Roger G. Noll, professor of public spending spree on professional economics at Stanford University, and Sports. Andrew Zimbalist, professor of economics at Smith College, described the situation in the summer of 1997: New facilities costing at least $200 million [each] have been completed or are under way in Baltimore, Charlotte, Chicago, Cincinnati, Cleveland, Milwaukee, Nashville, San Francisco, St. Louis, Seattle, Tampa, and Washington, D.C. and are in the planning stages in Boston, Dallas, Minneapolis, New York, and Pittsburgh. Major stadium renovations have been undertaken in Jacksonville and Oakland. Industry experts estimate that more than $7 billion will be spent on new facilities for professional sports teams before 2006. Most of this $7 billion will come from public sources.' 'Joseph L. Bast is president of The Heartland Institute, a nonprofit research and education organization based in Chicago, Illinois. This paper is based on comments he made to the Indianapolis Economic Forum on October 1, 1997. The author wishes to thank Robert Baade, Dean Baim, John Beck, Joe A. Bell, George Clowes, Don Haider, J. David Hoeveler Jr., Nicholas Lash, Adrian Moore, Dave Olson, Bill Raabe, Stephen M. Robinson, Mary Ruwart, Herbert Walberg, Tom Walton, and Phillip Zazove for helpful comments. 'Roger G. Noll and Andrew Zimbalist, "Sports, Jobs, and Taxes," The Brookings Review, Summer 1997, page 35. • Nationally, subsidies to professional sports facilities are costing taxpayers approximately $500 million a year.' That figure understates the true cost, which would take into account the inefficiency, lost employment opportunities, and income redistribution effects caused by sports stadium subsidies. This sizeable public investment is. Nationally, subsidies to professional being made for an industry that is puny sports facilities are costing taxpayers compared to almost any other sector of the approximately $500 million a year. U.S. economy. For example, annual sales reported by Sears Roebuck & Co. are approximately thirty times the entire revenues of Major League Baseba11. Chicago, home of five professional sports franchises, derives less than a tenth of 1 percent of its personal income from professional sports.' Indeed, there isn't a single county anywhere in the U.S. where professional sports accounts for more than one -half of 1 percent of that county's private - sector. payro11. All available data suggest that continued public investment in sport stadiums is madness. Sports subsidies don't produce economic benefits sufficient to justify their public subsidies. At best, they are an inefficient and unfair way to attain such "intangible" benefits as civic pride or urban identity. They unfairly burden those who don't follow professional sports or who can't afford to watch live games. There is some good news, however. There is a way to stop the madness. The special - interest groups that back stadium subsidies can be divided by proposing a plan that keeps teams from moving without offering millions of dollars in tax subsidies. Allowing fans to own franchises —a model pioneered in 1923 by the Green Bay Packers —would put a stop to the extortionist practice of teams threatening to relocate unless they are subsidized. Part 1 of this Heartland Policy Study summarizes the many ways sports are subsidized in the United States and evaluates the benefits — claimed, real, and intangible —that are said to result from those subsidies. The author concludes that neither economics nor "civic pride" n justify taxpayer subsidies for the construction and maintenance of sports facilities. 'James Quirk and Rodney D. Fort, Pay. Dirt: The Business of Professional Sports (Princeton, NJ: Princeton University Press, 1992, 1997 edition), page "xxiv. 'Robert Baade, "Should Congress Stop the Bidding War for Sports Franchises ?" Testimony before the Subcommittee on Antitrust, Business Rights, and Competition of the Senate Committee on the Judiciary, November 29, 1995, Heartland Policy Study #77, The Heartland Institute, page 29. 'Ibid. 6 Mark S. Rosentraub, "Are Tax - funded Sports Arenas a Good Investment for America's Cities ?" Insight, September 22, 1997, page 27. -2- In Part 2, the author explains why state and municipal governments nevertheless continue to subsidize sports facilities. While sports franchises don't need subsidies, and taxpayers don't want to subsidize them, the "bidding war" driven by too many cities chasing too few teams makes subsidies nearly inevitable. Having come to understand what it is about the sports- and - public- policy environment that has given rise to the subsidy madness, the author in Part 3 considers several solutions that have been proposed to address it. Antitrust enforcement and legislation to outlaw the use of subsidies are considered, but found wanting. The best solution to the madness, the author concludes, is fan ownership of sports franchises ala the NFL's Green Bay Packers. Part 4 offers a summary and concluding remarks. • -3- PART 1 • How and Why We Subsidize Sports Sports stadiums are subsidized in several ways: construction and ownership by a government agency, construction and operating grants paid to private owners or developers, state and local tax abatements, and by the use of federal tax - exempt bonds to finance construction. A typical sports facility costs local taxpayers more than $10 million a year. Oriole Park at Camden Yards, for example, costs Maryland taxpayers about $14 million a year. In 1989, the Louisiana Superdome cost taxpayers over $35 million.' A 1990 study of 14 stadiums found Competition among cities for "only one — privately built, owned, and professional sport franchises has operated Dodger Stadium —earned a positive dramatically lowered rent payments net accumulated value. "' Back then, most from teams, often to zero. Operating stadium tenants paid enough in rent and subsidies have become the rule. shared revenues from parking and concessions to cover operating costs, but not enough to produce a positive rate of return on capital. Since that time, competition among cities for professional sport franchises has dramatically lowered rent payments from teams, often to zero, and teams routinely claim all revenues from parking and concessions. Operating subsidies have become the rule. The subsidy to professional sports produced by using tax- exempt bonds is often overlooked. Because interest income from state and municipal bonds is exempt from federal income tax, those bonds in 1996 paid between 2.0 and 4.5 percentage points below the interest rates paid by private - purpose bonds and commercial loans. Assuming a $225 million price for a new stadium, Dennis Zimmerman estimates "a lifetime federal tax subsidy as high as $75 million, 34 percent of construction costs. "'° Using tax exempt bonds to finance stadium construction imposes costs on taxpayers in three ways. Most cities have a cap or limit on the amount of tax - exempt bonds they can issue for 'Dennis Zimmerman, "Tax- Exempt Bonds and the Economics of Professional Sports Stadiums," CRS Report for Congress (Washington, DC: Congressional Research - Service, May 29, 1996), page 7. 'Dean V. Baim, "Sports Stadiums as `Wise Investments': An Evaluation," Heartland Policy Study #32, The Heartland Institute, November 26, 1990, page 6. . 9 See Charles C. Euchner, Playing the Field: Why Sports Teams Move and Cities Fight to Keep Them (Baltimore, MD: The Johns Hopkins University Press, 1993); Michael N. Danielson, Home Team: Professional Sports and the American Metropolis (Princeton, NJ: Princeton University Press, 1997). • 'Dennis Zimmerman, supra note 7, page 9. -4- public projects. Using the bonds for sports facilities crowds out more worthy projects . such as other public buildings or infrastructure improvements. Second, because government entities carry the debt on their books, their credit ratings could be negatively effected. A lower credit rating means having to pay a higher interest rate on future loans." Third, taxpayers must bear the risk that the deal struck with the private team owners or developer to repay the bonds falls short due to poor attendance, cost overruns, or some other reason. "Stadium construction," in the words of economist Dean Baim, "is not a low -risk investment."' It might reasonably be objected that tax exemptions are not "subsidies," since they Taxpayers must bear the risk that the only allow taxpayers (in this case, team deal struck with the private team owners and stadium developers) to keep owners or developer to repay the money that is rightfully theirs. The exemptions bonds falls short due to poor in this case, however, are granted to a particular firm or industry attendance, cost overruns, or some p try and not to others, other reason. and without a clear public benefit that might justify such special treatment. Tax - exempt financing has been recognized by other writers as a type of subsidy or "corporate welfare. "'' Congress attempted to restrict tax - exempt financing for sports facilities by adding a provision to the 1986 Tax Reform Act denying the use of tax- exempt bonds for sports facilities if more than 10 percent of debt service was covered by revenues from the facility. Unfortunately, the rule only sweetened the already -sweet deals municipalities were negotiating: Senator Moynihan has twice introduced bills to eliminate tax - exempt financing of stadiums altogether. What are the benefits? • We subsidize professional sports, we are frequently told, because they produce more social and economic benefits than a typical private business." Like other "public goods," the argument goes, stadiums would not be produced in sufficient supply if the decision were left solely in the hands of private investors. Tax dollars are needed to correct this "market failure." "Illinois issued $150 million in bonds to pay for land acquisition- and construction of the new Comiskey Park in Chicago. One year after the park opened, Standard & Poor's lowered its rating on Illinois' general obligation debt from AA to AA -, and Moody's lowered its rating from Aal to Aa. See Illinois State Budget, Fiscal Year 1994, page Ch.8 -4. 'Dean V. Baim, supra note 8, page 5. "Stephen Moore and Dean Stansel, "How Corporate Welfare Won," Policy Analysis #254, Cato Institute, May 15, 1996, 4. "See Rick Horrow, "Are Tax - funded Sports Arenas a Good Investment for America's Cities ?" Insight, September 22, 1997, pages 24, 26. -5- • Among the alleged benefits of a taxpayer- subsidized stadium are new construction jobs; new spending in the community, which creates more jobs; new businesses and tourists attracted by national television coverage; and a "multiplier effect" that occurs when money is spent and then re -spent in the community, resulting in 1.2 to as much as 3.0 times the wealth- producing impact of the original expenditure. Abe Pollin, owner of the National Basketball Association (NBA) Washington Wizards and Major League Baseball (MLB) Washington Capitals, described the many public benefits he sees flowing from his new, subsidized, MCI Center as follows: [T]he area surrounding MCI Center, specifically, and downtown, generally, are already undergoing a renaissance. New shops, hotels, restaurants and office buildings are sprouting up everywhere. Property values are rising correspondingly, which means more real estate taxes for the city. People are coming into the city and staying for the evening. This means more sales taxes. Downtown is coming alive at night in a way that hasn't been seen for a generation. Many economists and political Many economists and political scientists, however, say the "public goods" scientists say the "public goods" label label has been applied wrongly to many goods has been applied wrongly to many and services that can readily be supplied in goods and services that can readily be sufficient quantity without taxpayer support. supplied in sufficient quantity without Nearly all economic activities produce benefits taxpayer support. that are not entirely captured by the producer, so the mere fact that an activity produces "positive externalities" does not mean we should subsidize it. The high profile and popularity of professional sports guarantee that its benefits are always on display. But what of the benefits of other public investments, or of the many private investments that don't get made because the money was confiscated to build or operate a stadium? Whether the benefits of stadium subsidies actually justify their cost is not merely a matter of theory or conjuncture. Independent scholars have studied job creation, business creation, income growth, and other measures of economic performance in cities before and after a new stadium or professional sports franchise arrives. They have also compared the economic records of cities that invest in stadiums and franchises with those that do not, and use statistical methods to control for other changes that might account for differences. Roger Noll and Andrew Zimbalist recently summarized the findings of many of these 'Abe Pollin, "MCI Center: Good for the City Washington Post (letter to the editor), January 8, 1997. , 'Tyler Cowen, editor, The Theory of Market. Failure: A Critical Examination (Fairfax, VA: George Mason University Press, 1988), -6- studies: In our forthcoming Brookings [Institution] book, Sports, Jobs, and Taxes, we and 15 collaborators examine the local economic development argument from all angles ... in every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self - financing in terms of its impact on net tax revenues.... [T]he economic benefits of sports facilities are de minimus." The Heartland Institute published several studies that helped bring about this new consensus. The most recent, by economist Robert Baade, studied 48 cities and the metropolitan statistical areas (MSAs) around them over a 30 -year period. He concluded: Of the 32 MSAs where there was a change in the number of sports teams, 30 MSAs showed no significant relationship between the presence of the teams and real, trend - adjusted, per - capita personal income growth. In the remaining two cases, the presence of sports teams was significantly positive once (in Indianapolis) and significantly negative once (in Baltimore). Of the 30 MSAs where there was a change in the number of stadiums or arenas ten years old or less, 27 MSAs showed no significant relationship between the presence of a stadium and real, trend- adjusted, per - capita personal income growth. In all three of the remaining cases (St. Louis, San Francisco /Oakland, and Washington D.C.) the presence of a sports stadium was significantly negative. [emphasis in original]'$ Indianapolis has done more than any other city to make sports its economic catalyst. The city made amateur and professional sports an important part of its downtown redevelopment plan, pouring public funds into partnerships to keep the National Football League (NFL) Colts, NBA Pacers, headquarters of the National College Athletics Association (NCAA), Pan American Games, men's college basketball championships, and more. Indianapolis' plan was the model for similar efforts in Cleveland, Baltimore, Jacksonville, and other cities. Surely if professional sports contributed to job creation and prosperity, the results would be visible in Indianapolis. "Noll and Zimbalist, supra note 2, page 36. "Robert A. Baade, "Stadiums, Professional Sports, and Economic Development: Assessing the Reality," Policy Study #62, The Heartland Institute, April 4, 1994. -7- • The definitive study of. sports'. contribution to the Indianapolis economy has been written by Mark Rosentraub, Associate Dean of the School of Public and Environmental Affairs at Indiana University in Indianapolis. finds "no significant or substantial shifts in economic development. Simply put, the sports strategy did not•achieve its objectives." Rosentraub says the strategy "was marginally successful in creating a small number of jobs," but that "overall, average salaries in Indianapolis declined in comparison to salaries with many of those cities with which Indianapolis' leadership believes it competes." And finally, "If success is measured by growth in jobs and payrolls, then Indianapolis was not as successful as other cities with which it competes for economic development." Indianapolis represents the limits to Investing in a stadium has a beneficial which a city can go to derive benefits from the net effect only if-the stadium produces presence of professional sports teams. The more value than the forgone fact that few or no benefits were to be found opportunity. reaffirms the findings of•national studies-by • Robert Baade and the other experts cited earlier. Why are there no benefits? • Econometric analysis finds no evidence of greater job creation or income creation in communities that invest in sports stadiums versus those that do not. Why not? It is less a mystery than a puzzle with several parts. • Opportunity costs are often. overlooked • The true cost of using a resource is "the value of the next- highest- valued alternative use of that resource. "'° Economists refer to this amount ass the "opportunity cost" of an investment or purchase. -To measure the true social benefits produced by a sports stadium, the apparent or visible economic benefits must be reduced by the benefits that would have been produced by alternative uses of the same capital and land. Investing in a stadium has a beneficial net effect only if the stadium produces more value than the forgone opportunity. For example, the same money used to finance a stadium might otherwise have gone to finance a new park, renovate an historic building or business district, or build a new civic center or library. The land might have been used foe an industrial park, a 19 Mark S. Rosentraub, Major League Losers: The Real Cost of Sports and Who's Paying.For It (New York, NY: Harper Collins Publishers, Inc., 1997). The quotes that follow are from a summary of the book written by Rosentraub titled "Indianapolis: A Major League Loser ?" Indiana Policy Review, Winter 1998, pages 14 -17. 'David R. Henderson, "Opportunity Cost," in David R. Henderson, editor, The Fortune Encyclopedia of Economics (New York, NY: Warner Books, 1993), page 44. -8- community college, or affordable housing. The money used to subsidize the operation of a stadium might instead have gone to hire more police, firefighters, or teachers. How much benefit would have come from those alternative uses? Whatever that amount is, it must be subtracted from the visible benefits produced by the stadium investment in order for the net benefits to be revealed. When an econometric study finds no significant positive effects, and occasionally a significant negative effect, of a new, stadium or sports franchise on a metropolitan area, it is telling us the opportunity cost of that investment was as great or greater than the value it produced. It was, in other words, a poor investment. Economically, the community would have been no worse off, and may have been better off, had the subsidy not been given. • Most stadiums do not attract "new money" to a metropolitan area. Most people have an "entertainment budget" of time and money they are willing to devote to entertainment of any kind. The act of subsidizing a sports stadium does not increase the size of that budget: We are not somehow given more time to devote to recreation, and the price of tickets to see a live game does not go down (for reasons explained below). Consequently, most of the money spent at a sports stadium or arena would have been spent anyway at some other entertainment venue, such as a local theater, bowling alley, night club, or health club. A stadium would indeed generate "new money" for a metropolitan area if it The large majority of fans at most attracted a significant percent of its fans from professional sporting events resides outside the immediate area. This is generally inside the boundaries of the not the case for baseball and basketball, where metropolitan region. "the number and frequency of games means that most of the market for ticket sales is - metropolitan. " Football games, because there are fewer of them and they are scheduled on weekends, draw fans from greater distances. However, the small number of football games —just eight regular season home games —means the total number of fans attending football games is much smaller than the number attending baseball or basketball games. The few sports teams that do attract fans from outside their immediate areas typically play in facilities (such as Oriole Park in Camden Yards, Maryland) strategically located on the outskirts of major metropolitan areas, in which case the host jurisdiction's employment and tax revenue gains come largely at the expense of the neighboring jurisdiction. Finally, a few long - established baseball franchises located near the central business districts of major metropolitan areas also draw fans from outside the immediate area. "Polls have shown that more than half the visitors to 21 "Rather than spurring industries that will develop strong export potential, recreational service industries tend to rearrange what has already been produced." Charles C. Euchner, supra note 9, page 68. - 22 Michael N. Danielson, supra note 9, page 48. -9- Wrigley Field [home of the MLB Chicago Cubs] come from more than 100 miles outside Chicago's city limits. " Because the popularity of these teams is so strongly connected to their locations, they are least likely to threaten to relocate. Few businesses are attracted by the presence of a sports facility. New sports facilities, especially football stadiums, are designed and built in a way that is unlikely to prompt local economic development. The transportation and parking needs of a modern facility require acres of unattractive parking lots and close proximity to a four- or six -lane expressway. In order to capture as much revenue from visiting fans as possible, these stadiums are built like self - contained fortresses, with restaurants, gift shops, hotel rooms, and even night clubs all within their walls. As a result, few fans venture far from the stadiums after a game before heading home. Some sports facilities, particularly In order to capture as much revenue older baseball -only stadiums such as Fenway from visiting fans as possible, new Park in Boston and. Wrigley Field in Chicago, stadiums are built like self - contained are physically embedded in well - established fortresses, with restaurants, gift shops, business districts and residential hotel rooms, and even night clubs all neighborhoods. It is plausible, in these cases, within their walls. that a complementary relationship exists between the stadium and nearby bars and restaurants. Much less plausible, however, is the claim that this relationship is characteristic of newer and larger facilities, or that it extends much more than a few blocks from even an old and beloved stadium's front door. Do professional sports teams attract new businesses to a city by subtly shaping the city's image in the minds of chief executive officers of the Fortune 500? This claim assumes that some CEOs choose new locations for their businesses after having seen a city's skyline during coverage of a football or baseball game. Just how implausible this is can be demonstrated by asking the following question: Would you buy stock in a company whose CEO decided where to locate the headquarters or a new factory based on where his favorite professional sports teams are based? There are better ways to capture the attention of site - hunting CEOs. The cover of the September 29, 1997 issue of U.S. News & World Report featured New York Mayor Rudolph Giuliani and was titled "Comeback City." The subtitle on the front cover read "How much credit does Mayor Giuliani deserve for New York's amazing turnaround ?" Inside, the eight -page feature article attributed the city's economic recovery to reducing its crime rate "to its lowest level in 30 • 23 Dave Van Dyck, "`Bully' Slays Cubs on WGN," Chicago Sun - Times, January 29, 1998, page 100. 24 Michael N. Danielson, supra note 9, pages 109ff. -10- years," eliminating graffiti from the subways, cleaner streets, welfare reform, and a $ 1.2 billion municipal budget surplus!' Business Week started the favorable reviews in business publications with a December 1995 article titled "A Safer New York City. " Since then, Fortune has named New York "North America's most improved city" and Plants Sites and Parks named it one of the top ten "hot spots" for business expansion. One reason New York can afford to put more police on the street,' keep its New York City shows how a city can subways and streets cleaner, and still have a boost its image and gain positive budget surplus is because it hasn't given in to national attention by choosing to sit extortion demands from its two Major League out the professional sports bidding Baseball teams. John Dyson, New York's deputy mayor for finance and economic war. development, said in 1996, "The typical funding structure lately has been to get 80 percent from the public and 20 percent from the teams. We think those numbers should be reversed. "29 • New York City shows how a city can boost its image and gain positive national attention by choosing to sit out the professional sports bidding war. Sport stadium revenues are not spent locally. The .big money in professional sports goes to the team owners and players, who may or may not invest or spend the money in the host community. Much of the subsidy to a stadium goes directly into the pockets of the team owners by raising the re-sale value of their teams. For example, investor Eli Jacobs bought the Baltimore Orioles for $70 million in 1989 and was able to sell it Tess than four years later for $173 million, a 150 percent appreciation, thanks to the decision by Maryland policy - makers to build a $200 million stadium at taxpayer expense.'° • 25 John Marks, "New York, New York," U.S. News & World Report, September 29, 1997, pages 45 -54. 'Elizabeth Lesly, "A Safer New York City," Business Week, December 11, 1995, pages 81 -84. "Anne Faircloth, "North America's Most Improved Cities," Fortune, November 24, 1997, pages 170 -191. 28 Tracy Bertman, "Hot Spots Set Stage for Business Expansion," Plants Sites & Parks, November/ December 1997, pages 67 -89. 'Quoted in Dan McGraw, "Playing the Stadium Game," U.S. News & World Report, June 3, 1996, page 48. 30 Randall Lane, "Bread and Circuses," Forbes, June 6, 1994, page 62. -11- • • Maryland's subsidy package included •free use of a $200 million made -to -order stadium; the right to raise $80 million from seat licenses; all profits from concessions, parking, and advertising; and payment by the state of any relocation fee charged by the league." As a result of such favorable deals, the value of professional sports franchises has risen dramatically since the early 1980s. Atypical NFL franchise in 1997 was worth over $200 million. Following negotiations for a new television contract in early 1998, one sports columnist quoted an executive for the Dallas Cowboys speaking off the record: "I would bet each NFL franchise is now worth at least $100 million more than it was yesterday. " That same source put the value of the NFL Dallas Cowboys at $600 million. Team owners such as Eli Jacobs are not likely to spend more than a small fraction of their windfalls in the city or state whose taxpayers financed the subsidy. Skilled investors put their money wherever they can get the highest return. In today's investment world, that could easily be outside of the .U.S. Many wealthy people who are not skilled investors pay to have their funds managed by national investment companies, which once again are unlikely to return a substantial portion of the dollars to their state of origin. Players also get a piece of the action. The big money in professional sports The enormous salaries paid to athletes in goes to the team owners and players, recent years have made headlines around the who may or may not invest or spend world. The athletes, their managers, and their the money in the host community. unions are simply taking advantage of the "surplus" or excess profits that stadium subsidies help 'make possible. Professional athletes often do not live for extended periods of time in the communities in which they work. When they leave, their savings and spending go with them. Since professional careers tend to be short and the pay extremely high, professional athletes (and increasingly coaches) place most of their incomes in investment accounts managed, once again, by national firms. • Even part of the money that fans voluntarily•give to their favorite teams when they purchase tickets ends up leaving the city. League rules typically require that ticket revenues be shared with franchise owners in other cities, a way to subsidize teams in smaller markets. In the case of the NFL, 40 percent of gate receipts is exported from the community under this rule. Do stadium subsidies nevertheless benefit fans by reducing the price of tickets? The answer, perhaps surprisingly, is no. Capital subsidies —that is, construction subsidies —may "Marc Levinson, "Fields of Schemes," Newsweek, December 11, 1995, page 60. 'James Quirk and Rodney D. Fort, supra note 3, chapter 2. 33 Rick Telander, "NFL Owners Run to Paydirt," Chicago Sun - Times, January 23, 1998, page 138. 34 Charles C. Euchner, supra note 9, page 72. • • -12- reduce a team's overall costs, but the marginal cost to admit one more fan to a game is unlikely to • change. Consequently, capital subsidies are not likely to have any effect on ticket prices. The lowly fan receives no benefit, and may even face higher ticket prices due to the waste and "gold plating" that the subsidy causes. Operating subsidies may reduce a team's marginal costs, but whether that The lowly fan receives no benefit, and savings gets passed along to fans in the form i may even face higher ticket prices due of lower ticket prices depends on the strength to the waste and "gold plating" that of competing forms of entertainment and the the subsidy causes. price sensitivity of fans. In markets where competition is strong and demand is "elastic" (that is, where consumers respond to changes in price), a team already has a financial incentive to lower prices to sell more tickets, since the increase in ticket sales will more than make up for the • lower ticket price. Ironically, it is only in markets where demand is "inelastic" —where price matters less to fans —that an operating subsidy can create an environment in which lower ticket prices may result. Sports generate low paying, seasonal jobs. While professional athletes are well paid, the great majority of jobs created by stadium development are low - paying, seasonal, and part -time, such as parking cars and selling refreshments during games. These are not the kinds of jobs that lead to greater economic growth for a region, or position a community to take advantage of national and international trends toward workforces with higher skills and familiarity with advanced technology. Many economists would agree that low - paying jobs often serve as valuable first rungs on the employment ladder. Young people and people with few skills can use these jobs to learn how to increase their productivity, thereby positioning themselves for better - paying jobs in the future. But research by Robert Baade suggests that growth in the number of low - skilled jobs tends to follow the creation of higher paying jobs," not the other way around. So the optimal economic development strategy, according to Baade, may be to foster the latter, not the former. 35 Dean Baim, supra note 8, page 12 and endnotes 10 and 11. 36 Ibid. 'Robert Baade, "Is There an Economic Rationale for Subsidizing Sports Stadiums ?" Heartland Policy Study #13, The Heartland Institute, February 23, 1987; Michael N. Danielson, supra note 9, page 106. 'Robert Baade, supra note 4, page 29. -13- , Advocates often make unrealistic assumptions about economic impacts. Common to all sports stadium debates is the "economic impact study. "'y Such studies, typically commissioned by franchise owners and performed by an accounting firm, estimate the number of people employed by the team and facility owner and their combined salaries. Some percent of these salaries is then assumed to be spent in the community, resulting in greater demand for goods and services, and consequently a second round of new employment and new spending. The total impact of this "recycling" of new money in the community is estimated by multiplying the original salary figures by a "multiplier effect" that typically ranges from 1.2 to 3. According to. Marquette University Multiplier analysis, according to professor of economics William Hunter, the Hunter, can be used to justify any multipliers used in economic impact studies public works project, no matter how routinely make unrealistic assumptions about unnecessary or wasteful it may be. - how much money stays in the community, how much represents new economic activity, and how often the money cycles through the economy. The choice of a multiplier is often arbitrary or made with an eye toward the client's wishes. Multiplier analysis, according to Hunter, can be used to justify any public works project, no matter how unnecessary or wasteful it may be, because "the expenditure is itself considered community income, so the application of even the smallest multiplier will guarantee community income growth in excess of public expenditure. " Hunter calls this the "Taj Mahal syndrome." The convention industry can't save sports stadiums. Linking stadiums to convention centers was often said during the early 1990s to be the way to solve the "empty stadium" problem. Groups requiring extremely large meeting facilities —the Boy Scouts of America and Promise Keepers are two groups invariably mentioned in this context —have been said to be sources of income that can make sports stadium financing work. They haven't. Publicly subsidized convention centers, like stadiums and arenas, are plagued by operating deficits and minimal economic impacts.. A 1987 survey of 25 government convention centers 'Typical of the reports claiming a significant positive economic impact from stadium construction is KPMG Peat Marwick LLP, "Economic and Fiscal Benefits Analysis Related to the Potential Relocation of a Professional Football Franchise to Nashville," Final Report, October 1995. 40 William J. Hunter, "Economic Impact Studies: Inaccurate, Misleading, and Unnecessary," Heartland Policy Study #21, The Heartland Institute, July 22, 1988. • 41 Ibid., page 6. - 'Edwin S. Mills, "Should Governments Own.Convention Centers ?" Heartland Policy Study #33, The Heartland Institute, January 21, 1991. -14- - with more than 300,000 square feet of meeting and exhibit space found annual operating losses averaged 42 percent of revenue. Convention centers are no more likely than stadiums to produce benefits greater than alternative investments of capital and land, for many of the same reasons: There are too many convention centers chasing too few events; construction and operating costs are inflated by sweetheart deals and public- sector incompetence; and tourists are often discouraged from visiting neighboring businesses by the self- contained nature of the facilities. Combining stadiums with convention centers usually increases a project's cost Publicly subsidized convention dramatically, making it a bigger sacrifice and centers, like stadiums and arenas, are risk for local taxpayers. While team owners plagued with operating deficits and can be reasonably expected to hire competent minimal economic impacts. facility managers when they own their stadium , or lease a public stadium, a convention center typically lacks the equivalent of a major tenant. Convention centers are therefore more complex and difficult to manage than stadiums, increasing the likelihood of poor management and wasted tax dollars. The convention picture is likely to get worse instead of better. A recent editorial in Crain's Chicago Business pointed out the reasons: [T]he universe of new big trade shows is shrinking.. . [T]here simply aren't enough events large enough to justify construction of a domed assembly hall... . Chicago already is struggling to fill the convention facilities it has .. 44 A recent study of-a proposed convention center in Boston reached many of the same conclusions.AS Are there "intangible" benefits? Okay, so stadium subsidies don't generate any more economic benefits than would have been generated had the money been spent on something else. Still, aren't there indirect or "intangible" benefits? Sports, after all, are fun! Having a professional sports franchise in town gives fans something to talk about at work and home, a place to go for wholesome family entertainment, and a certain amount of pride in one's hometown. 43 Ibid., page 3. 'Say `No' to McDome, Say `No' to the Bears," Crain's Chicago Business (editorial), March 24, 1997, page 10. 'Heywood T. Sanders, "Challenging Convention(al) Wisdom: Hard Facts about the Proposed Boston Convention Center," White Paper, Pioneer Institute for Public Policy Research, May 1997. -1 5= There is, in fact, a literature describing how sports create a sense of "contrived community" and even advance racial harmony in some cities. Robert Milbourne, executive director of the Greater Milwaukee Committee, was quoted a few years ago as saying "without major league sports, Milwaukee would be like Des Moines, " presumably meaning that Milwaukee would be a less interesting place to visit. While pitching a $540 million subsidy package in 1996 for the Cincinnati Bengals and Cincinnati. Reds, Hamilton County, Ohio, Commissioner Bob Bedinghaus would say "the issue is about staking out a vision for what we want this community to look like 25 .years from now. " °S When Cleveland's Gateway project If spent by the public sector, the same recently came under criticism for producing investment might have boosted a city's only 2,000 permanent jobs, rather than the image or its residents' self - esteem 16,800 its proponents had predicted, Thomas even more. ; Chema, the former spokesperson for the Gateway project, first denied ever making the prediction and then complained that such criticism overlooks the "intangible" benefits of Gateway. The real benefit, he explained, was "image enhancement. " It is probably impossible to measure the contribution that professional sports make to a community's image or self - esteem. Whatever it is, though, we know it must be weighed against the value that would have been created if the money were spent on something else. This is simply . the opportunity cost issue in a different guise. If spent by the public sector, the same investment might have meant new schools, better police protection, roads, parks, or other public facilities. Surely these things would have a positive effect on the community's image and its residents' self - esteem. • If the money spent on sports stadiums were left instead in the hands of the public, it might have meant better restaurants, a rejuvenated downtown business district, a new theme park, more amateur sports, and more of the countless other things produced by for - profit and non - profit businesses in the community. Wouldn't those goods and services have.a positive impact on a community's image? And if more people participated in the kinds of entertainment described here than attend the ten or eleven games typically played at home by an NFL franchise team, would we say the money was truly better spent? 46 Michael N. Danielson, supra note 9, chapter 1. 'Marcia Berss, "Big League Blackmail," Forbes, May 11, 1992, page 45. • 'Quoted in John Helyar, "A City's Self -Image Confronts Tax Revolt in Battle on Stadiums," The Wall Street Journal, March 19, 1996, page 1. 'Bob Cook, "Author Says Gateway an Economic Air Ball," Crain's Cleveland Business, February 24, 1997, page 33. -16- It often goes unremarked that the sense of pride and identity that may come from hosting a professional sports franchise is only a temporary and delicate thing in light of the many relocations and threats to relocate that now characterize the national leagues. Today's proud community may experience a deep sense of failure and abandonment when its team repeatedly loses or threatens to move. Football fans in Cleveland experienced this first -hand when the NFL Browns moved to Baltimore. Fan reactions included bomb threats against the owner and angry taunting of players during their final games in Cleveland." Did this grim episode benefit - Cleveland's national image or the self - esteem of the city's residents? Another possible indirect benefit of having a professional sports team is that it - The sense of pride and identity that sells newspapers, which helps to explain why may come from hosting a professional daily newspapers are invariably big boosters sports franchise is only a temporary of sports stadium subsidies. It is possible, for and delicate thing. example, that without Michael Jordan and the Chicago Bulls, Chicago would have only one • rather than two daily newspapers. It may even have happened in some city, somewhere, that the presence of a professional sports team kept alive a newspaper that otherwise would have gone under, and that newspaper then uncovered government corruption or a hidden public health risk, benefitting thousands or millions of people. Given the popularity of the sports sections of many newspapers, this is not an entirely implausible scenario. One supposes that there must be less expensive ways than building sports stadiums to finance investigative journalism and reporting on public health hazards. Be that as it may, the better response is to point out that it may have happened in some city, somewhere, that the decision to finance a new hospital rather than a stadium resulted in the discovery of a new drug or vaccine that reduced suffering for millions of people. Or the renovation of a city's historic business district led to the return of major employers and residential developers who, had a stadium been built instead, would have decided to locate elsewhere. These counter - examples demonstrate the overly hypothetical nature of the "newspaper argument." Such claims about what may or might happen cannot be proved or disproved. They do not contribute to an informed debate.. 50 "We have found evidence that people's optimism and moods are elevated after a victory. But a Toss seems to affect them to even greater proportions in a negative form." Ed Hirt, professor of psychology, Indiana University in Bloomington, quoted in Bob Condor, "It's Only a Game!" Chicago Tribune, November 27, 1997, Section 5, page 3. 51 Steve Wulf, "Bad Bounces for the NFL," Time, December 11, 1995, page 65. -17- PART 2 Why Do We Subsidize Stadiums? If there are no net economic benefits from hosting a professional sports franchise, and if the "intangible" benefits of having a team could easily be less than the intangible benefits of other investments, why do so many cities continue to subsidize professional sports? As a columnist for the Cleveland Plain Dealer eloquently put it, "Are we crazy, or what ? " Professional sports franchises don't need government subsidies. Annual NFL Television Revenue We don't subsidize professional sports because they need the money :In the absence $2500 (MiDi°nt of 1998 dollars) of government subsidies, private parties could still compete for franchises and new stadiums $2000 and arenas would still be built, albeit probably not as elaborate as the new generation of subsidized facilities. $1500 ,( „ Sales of luxury suites, club boxes, and $1000 — — personal seat licenses are already a major part of most new stadium financing and have the $500 — — commendable effect of making fans rather than taxpayers pay for new or improved facilities. $o ” ,`' , Charging major corporations fees to have their 1974-77 197641 196246 1987 -89 1990-93 1994-97 1998-05 name placed on the facility or to advertise inside and outside the building is a major and Source: Newsweek, January 26, 1998. growing source of-revenue. Revenue from television broadcasting is a large and growing share of total income for franchise owners. In January 1998, the four major networks agreed to pay the NFL a total of $18 billion over eight years for the right to broadcast games.' The deal was nearly twice the annual revenue (in inflation - adjusted dollars) of the prior four -year agreement (see chart on this page) 'Joe Dirck, "The High Cost of Playing Host," The Plain Dealer, February 23, 1997. 'Pacific Bell, for example, will pay $50 million for the right to have its name on the new privately financed ballpark for the San Francisco Giants. 3Com Corp., a computer company, is paying $1 million a year to put its name on Candlestick Park. Edward Robinson, "It's Where You Play That Counts," Fortune, July 21, 1997, page 55. 'Richard Turner, "NBC: The Road to `Tap City, "' Newsweek, January 26, 1998, pages 42 -44- -18- and guarantees every franchise owner in the NFL an average payment of about $73 million per year, or about $4.5 million to each team for every game it plays.JS The NBA recently signed a four-year $2.6 billion television contract.' Broadcasters, who make millions of dollars on professional sports, are logical candidates to be equity partners, and in fact are playing a growing role in the corporate ownership of many franchises. Integrating sports facilities into mixed -use projects is another way to attract capital. The Pro Player Stadium (previously named Joe Robbie Stadium), located in Florida, was largely self - financing because it was imbedded in a larger mixed -used development plan that attracted other investors and produced additional potential revenue streams. How do team owners justify their pleas for taxpayer support when such ample The owners of a professional team in funding is available from other sources? The one city say they must be given open - MLB Marlins play in the Pro Player Stadium, ended access to the public treasury in which was widely hailed as being state -of -the- order to compete with other teams, art when it opened in 1987. Yet billionaire Wayne Huizenga, owner of the Marlins, because the other teams have been campaigned successfully for a new tax- given open - ended access to their subsidized arena. He justified his call for city's or state's treasury. taxpayer support as follows: If we build the stadium with a mortgage, and all the other successful teams have been given their stadiums, then we are at a disadvantage. How can we have a $60 million payroll like Atlanta? We need what other teams get. We need all the revenue streams. • This claim implies that the owners of a professional team in one city must be given open- ended access to the public treasury in order to compete with other teams, because the other teams have been given open -ended access to their city's or state's treasury. There is no limit to the amount of money that can be demanded using this logic, with each team owner ratcheting up his or her demands in round -robin fashion without end. Are taxpayers really willing to play the game by these rules? 55 Sports columnist Rick Telander did the math, supra note 33. 56 Stefan Fatsis, "For Pro Football, Giant TV Pacts May Carry a Price," The Wall Street Journal, January 15, 1998, page B10. 57 The Tribune Co. purchased the Cubs in 1981; and since then Time Warner, Comcast, Cablevision, and News Corp. have all become sole or part owners of sports franchises. 'Edward Robinson, supra note 53. • -19- Taxpayers don't want to subsidize stadiums. According to Many sports fans, team owners, facility developers, and elected officials, the reason we subsidize stadiums is because taxpayers want such subsidies. Sports are popular, the argument goes, and the general public believes the entertainment value of a professional sports franchise is worth the small increase in their taxes. Opinion polls, however, tell a different Voters Don't Support. Stadium Subsidies story. "Don'.t question where most Americans stand on this," wrote syndicated columnist Neal. R. Peirce in a January 17, 1997 column. "Polls No 1 show that by over - whelming margins —up to 80 percent— [Americans] want sports subsidies stopped, right now. " Not sure Responding to a national survey of one thousand adults conducted on November 11, 1997, by Rasmussen Research 64 percent said tax dollars should never be used to build a professional sports facility, while 13 percent were "Should .tax dollars ever be used to build a not sure. Some 56 percent said government professional sports facility ?" agencies should sell their existing arenas to the Source: Rasmussen Research, 1997. highest bidder. Even 39 percent of respondents who said they attend professional sports events • regularly said the arenas should be sold . Newspapers seldom publish such survey results during stadium debates, and when they do, they may hide the results under misleading headlines. For example, an August 27, 1996 news article in the Chicago Tribune was titled "Fans Back Dome, Boo McCaskey," a•title that implies public support for a proposed publicly financed domed stadium even though the owner of the NFL Chicago Bears is unpopular. But the poll that is the basis of the article, conducted by Market Shares Corp., found 62 percent of those asked were opposed to "the use of public funds to build a stadium to keep the Bears from moving out of state," while only 26 percent were in favor, and 13 percent had no opinion. 59 Neal R. Peirce, "Sports Blackmail: Just Say No ?" The Plain Dealer, January 26, 1997. Such a poll is reported in "Survey: Massachusetts Residents Support Tax Cuts, Tax Credits," NewsLink, The Beacon Hill Institute, Fall 1997. The survey found 63 percent of respondents opposed using state - backed bonds to improve Foxboro Stadium to keep the NFL Patriots from moving. Thirty percent favored the subsidy and 7 percent didn't know. 60 Scott W. Rasmussen, "Americans Want State and Local Governments to Sell Sports Stadiums, Not Buy Them," News Release, Rasmussen Research (Waxhaw, North Carolina), November 11, 1997. ' 'Stevenson Swanson and Flynn McRoberts, "Fans Back Dome, Boo McCaskey," Chicago Tribune, August 27, 1996. . -20- Real reason #1: Cities bid against one another forsports franchises. We arrive, finally, at the first of three real reasons why we subsidize sports stadiums. The number of professional sports franchises is kept below the number of cities that could support a team, thereby forcing cities to bid against one another for the privilege hosting a team. So long as even one city with a suitable (empty) stadium is-seeking a team, every other city is subject to threats by their teams to relocate unless more subsidies are delivered. In plain language, there are too many stadiums chasing too few teams. James Quirk and Rodney D. Fort described the roots of the present situation in the 1997 update to their important 1992 book, Pay Dirt: The Business of Professional Team Sports: The ability of teams to extract large subsidies from local governments stems entirely from the monopoly power wielded by sports leagues. If there were several competing leagues in a sport, simple profit incentives would lead toward expansion of leagues into any city that could profitably support a team, and blackmailing threats would be a thing of the past. There would be no incentives, such as those that exist at present, to leave a few potentially profitable locations without teams, as threats to the local government. According to one estimate, as many as 35 metropolitan areas could support a MLB The number of professional sports franchise,. but the league has authorized only franchises is kept below the number of 30 teams. When a MLB or NFL team cities that could support a team, relocates, the other franchise holders receive thereby forcing cities to bid against "relocation fees" worth millions of dollars. one another for the privilege of hosting New franchises are doled out slowly and.only to communities that are unlikely -to reduce the a team. gate receipts of an existing franchise. Not every city is as vulnerable as the next to stadium extortion. Cities in large media markets, or that host other franchises competing for fans, have some leverage against a team threatening to leave.' Similarly, differences in ownership structure mean not every team is as capable of carrying out the threat to relocate, a point that will be explored in greater depth below. • 'James Quirk and Rodney D. Fort, supra note 3, page xxiv. 63 Mark S. Rosentraub, supra note 19. The number of current franchises includes two new franchises (Arizona and Tampa Bay) scheduled to begin playing in 1998. 64 "Smaller metropolitan areas are more vulnerable to relocation threats than larger markets ...." Michael N. Danielson, supra note 9, page 301. -21- Real reason #2: League revenue - sharing rules encourage relocation. • The second real reason for sports stadium subsidies-is the rules governing how franchises share the revenue generated by merchandising, broadcasting, ticket sales, and other activities. The NFL's rules, for example, give each team an equal share of total receipts from broadcasting and the sale of merchandise, and requires that gate receipts be split 60/40 with the league, with the home team keeping the larger share. This arrangement means each team has relatively little incentive to maximize attendance at its games, but it produces a substantial amount of revenue - sharing with teams in smaller media markets, such as the Green Bay Packers, making it possible for the latter to field competitive teams. Other leagues have similar, though less generous, revenue - sharing arrangements. While most leagues require that most A team with a facility that generates revenue sources be shared, to some degree, considerable non ticket revenue will with the other franchises, every league allows have a financial advantage over its its teams to keep all the non- ticket revenue opponents, and presumably will be generated by their stadium or arena. A team able to field a better team, with a facility that generates considerable non- ticket revenue will have a financial advantage over its opponents, and presumably will be able to field a better team. Noll and Zimbalist list "luxury suites, club boxes, elaborate concessions, catering, signage, advertising, theme activities, and even bars, restaurants and apartments with a view of the field" as among the latest profit - maximizing strategies." The luxury suites and other enhancements typically found in a new stadium in 1997 enabled a team to increase its annual revenue by $30 million or more, at least for a few years after the stadium opens. Older stadiums —even those less than a decade old— frequently fail to have all the latest features that increase the potential revenue stream for owners. With the rewards from moving to a new stadium so great, teams seek new homes more frequently than in the past. Innovations in stadium design make it possible for smaller cities to support franchises, enabling more cities to bid for the limited number of franchises. The result is even more intense bidding, more innovations in stadium design to maximize the franchises' revenue, and so on in an endless spiral of rising tax subsidies and profits for team owners. 'Roger G. Noll and Andrew Zimbalist, supra note 2, page 39. 'Edward Robinson, supra note 53, page 55. -22- • • Real reason #3: Subsidy backers win because they have more at stake than taxpayers. The third real reason we subsidize stadiums is due to the efforts of self - interested parties that economists call "rent seekers." Rent seekers, profit by using their position in the political system to derive unearned income from the general public. Rent seeking produces no goods or services, or anything else of value to society. Yet economists believe such conduct redistributes billions of dollars from the general public to the coffers of special - interest groups every year.° Besides the team owners and players, rent seekers in the stadium subsidy game Rent seeking produces no goods or include bond houses that make millions of • services, or anything else of value to dollars by arranging financing; politically society. connected construction contractors who build or renovate facilities; labor unions that represent construction workers; newspaper reporters, editors, and publishers whose jobs and profits depend on the presence of a professional team; and politicians who see being identified with popular athletes as a way to improve their chances for re- election. • The pro- subsidy coalition that secured $240 million for the MLB Seattle Mariners is typical. It consisted of the mayor; "most key politicians, labor unions, many civic leaders and important business executives. " They planned to raise $700,000 to push the plan, while investors in the stadium pledged $825,000 more. Opponents of the subsidy "include mostly businesses that ' would have to be relocated to make room for the park, and they have raised about $50,000. " Another typical pro - subsidy coalition was the one that successfully lobbied for Cleveland's $462 million Gateway stadium and arena project in 1990. It included the mayor, the city's daily newspaper, its weekly business paper, the city chamber of commerce, and the AFL -CIO. Crain's Cleveland Business, by its own count, published six pro- Gateway editorials and opinion essays in four consecutive issues leading up to the vote.'° Opposing the pro- subsidy coalition is usually a motley assortment of taxpayer groups, fans of the existing "obsolete" facility, NIMBY ( "not in my backyard ") protesters, and 67 See Gordon Tullock, "Government Spending," in David R. Henderson, editor, The Fortune Encyclopedia of Economics (New York, NY: Warner Books, Inc., 1993), pages 262 -264. • 68 Tom Brune, "Seattle Swims Against the Tide with Costly Tax Request," Chicago Tribune, September 19, 1995. 69 Ibid. 'Bob Cook, supra note 49. -23- • sometimes the advocates of higher spending on welfare and other competing public services." The contest usually follows a path familiar to students of public choice theory:" • The pro - stadium rent seekers, being relatively few in number and each standing to reap substantial financial benefits from a stadium deal, effectively organize a political movement and raise money for a pro- stadium public relations campaign. "Economic impact studies" are commissioned, civic leaders are recruited to the cause, and campaign contributions are made to politicians. • Anti - stadium activists have greater difficulty getting organized because each potential member of their coalition faces only a minor financial cost if the effort loses and little net gain over the current situation if it wins. Consequently, subsidy opponents typically raise very little money for public relations. Their coalitions are often little more than "a ragtag band of libertarians and anti -tax activists. "" • • Politicians are likely to endorse stadium subsidies because the benefits of doing so— favorable press attention, campaign contributions from builders and team owners, and a hand in determining how millions of dollars in subsidies are spent —all come immediately, in time to boost a re- election effort. The costs of the subsidy — higher taxes, lost economic growth, unfulfilled promises of economic impact, and threats to relocate unless further subsidies are provided —all become apparent later, after the politician is safely reelected or no longer in office. • Most local media outlets weigh in strongly on the side of the stadium subsidies, since their circulation or ratings will be improved by the presence of a professional sports team. Misinformation regarding job creation and economic development is usually reported uncritically, persuading people who would otherwise be skeptical or indifferent to the plan to become passive supporters. • When opponents of stadium subsidies are able to place the question on a public ballot, they . sometimes win -.despite being outspent by subsidy proponents. However, even here the.playing "The groups advocating higher spending on other social services are usually bought off later in the negotiating process with promises of jobs, grants, and higher spending on their programs. For detailed accounts of two recent successful campaigns for stadium subsidies, see Noah Wepman, "Political Football: The Inside Story on How the San Francisco 49ers Scored at the Ballot Box — Winning a New Stadium and Shopping Mall," Campaigns & Elections, October/November 1997, pages 19 -22; and Mark A. Hart, "Tampa Sales Tax Touchdown: How a Sales Tax Package Was Passed — Despite Organized Opposition to Inclusion of Funds for a New Stadium," Campaigns & Elections, October/November 1997, pages 23 -25. 72 See Mancur Olson Jr., Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1971); and James Buchanan and Gordon Tullock, The Calculus of Consent :: Logical Foundations of Constitutional Democracy (Ann Arbor, MI: The University of Michigan Press, 1965 (fifth printing, 1974)). For detailed case studies involving stadium subsidies, see Charles C. Euchner, supra note 9. "Peter Navarro, "San Diego Latest Pawn in Stadium Blackmail," USA Today, February 20, 1997. -24- • field is tilted toward the supporters of subsidies. A high percentage of government workers, union members, and others with direct financial stakes in the subsidy turn out to vote. A much smaller percentage of taxpayers and others with less at stake in the debate take the time to vote on election day. They are "rationally ignorant ": that is, they choose not to invest the time required to be an informed voter because they know their vote is unlikely to change the election outcome. If opponents of stadium subsidies are lucky enough to win despite their organizational disadvantages, their victories are usually short- lived. Without the pressure of an upcoming referendum or pending legislation in the state legislature, the anti - stadium alliance quickly dissolves as its members return to their higher - priority concerns. The pro - stadium forces remain funded, organized, and focused on their goals, If opponents of stadium subsidies are working behind the scenes to secure a deal lucky enough to win despite their outside the referenda or legislative process or organizational disadvantages, their preparing for the net vote. With millions of victories are usually short- lived. dollars in contracts and control over thousands of jobs at stake, the pro- stadium forces can justify the time and money required to stay organized year after year, long after their grassroots opponents have worn themselves out or been divided by some other public policy initiative. Not surprisingly, the record shows that the pro - stadium groups eventually win nearly every contest. Why we shouldn't subsidize stadiums If there isn't a positive case for subsidizing sports stadiums, is there nevertheless little harm in doing so? Is this merely a small investment in a national pastime? Aren't such subsidies smaller and less harmful than many other public expenditures that go unchallenged? There are at least five reasons, apart from their lack of public benefit, why subsidies to professional sports should be discouraged. Subsidies divert public funds from more important services. Stadium subsidies divert funding from more important public services, such as crime prevention, road building, and schools. The cost of a proposed stadium /convention facility for the NFL Chicago Bears, for example, is nearly half the entire annual budget of the Chicago Public Schools. A plan to place the MLB New York Yankees on the West Side of Manhattan -25- carries a price tag of between $1.4 and $1.6 billion." A fraction of these amounts would be enough to build a dozen new schools from the ground up and renovate scores of other facilities. The risk of diverting funds from real needs is worse when smaller cities try to compete in the bidding wars. Sacramento, which a municipal debt of $14 million in 1997, nevertheless gave the NBA Kings a low- interest loan of $70 million in return for a promise not to leave the city in under ten years." Just a few miles away, Oakland can't afford to heat its schools and is contemplating cutting back the number of police and firefighters due to a deal its city council made to bring back the NFL Raiders. That deal could cost the community hundreds of millions of dollars." It is sometimes claimed that the money In Milton Friedman's famous in question could not have been raised if not formulation, "There ain't no such thing for the stadium plan. But this claim only as a free lunch." muddies the issue since it is impossible to prove or disprove. We know that the funds don't mysteriously appear out of thin air: They must first be earned or acquired by force (taxed) and diverted from some other use. The financial resources available to a unit of government are limited by law and by taxpayers' willingness to pay higher taxes or be responsible for greater amounts of debt. A subsidy given to a professional sports team, therefore, necessarily reduces the funds available to be applied to other uses or to reduce current taxes. In Milton Friedman's famous formulation, "There ain't no such thing as a free lunch." Subsidies are unfair to taxpayers. As former Houston Mayor Bob Lanier puts it, "the average working person is asked to put a tax on their home, or pay sales or some other consumer tax, to build luxury boxes in which they cannot afford to sit. "n It is patently unfair to use the taxing power of government to force average citizens to subsidize the entertainment of a privileged elite. This is playing Robin Hood in reverse: Using government's taxing authority to take from the poor and give to the rich. If governments can tax for this purpose, then there can be no objection to subsidizing other kinds of entertainment, such as opera, art- galleries, race tracks, and casinos; Indeed, these "Murray Chass, "New Jersey Readies Plan for Stadium for Yankees," The New York Times, September 15, 1995. 'Jason Vest, "Uproot for the Home Team," US. News & World Report, March 10, 1997, page 53. 'Gayle M.B. Hanson, "Oakland's Mayor Moonbeam ?" insight, February . 2, 1998, page 16. "Mayor Bob Lanier, "Should Congress Stop the Bidding War for Sports Franchises ?" Testimony before the Subcommittee on Antitrust, Business Rights, and Competition of the Senate Committee on the Judiciary, November 25, 1995, Heartland Policy Study #76, page 2. -26- enterprises are frequently subsidized by cities and states. How can we justify saying "no" to still other special - interest groups —shoe sellers, say, or the makers of outdoor patio furniture —when they decide to come before the legislature to ask for subsidies? Opinion polls mentioned earlier make it clear that the general public understands the injustice of such schemes, but are too poorly organized to successfully oppose them. Subsidies are unfair to other businesses. No other industry is given access to public funds as readily as professional sports By fueling a bidding war among team teams, yet other businesses must compete owners for the elite athletes, taxpayer with professional sports for labor, materials, subsidies to sports have made the and customers. The result is higher prices for salaries of professional athletes much needed inputs, and the need to spend more on higher than they would be in a advertising to attract the attention of customers. This is probably most intuitive in competitive and unsubsidized the case of movie theaters, bowling alleys, and environment. other businesses that compete directly with a new stadium or arena for customers, but it is also true for any employer who draws from the same labor market and material suppliers as are tapped by the subsidized sports team. The unequal treatment of different classes of businesses represented by sports subsidies leads to the diversion of labor and other inputs away from those who would put them to their highest and best use and into the hands of a politically favored but relatively low- productivity industry (professional sports). Ultimately this means less wealth is created as efficiency and other productivity- enhancing behavior go unrewarded.' Subsidies accentuate income inequalities. By fueling a bidding war among team owners for the elite athletes, taxpayer subsidies to professional sports have made the salaries of professional athletes much higher than they would be in a competitive and unsubsidized environment. As James Quirk and Rodney D. Fort write: ,. . [T]he present day level of player salaries reflects the ability of players to generate revenue for an owner, in a monopolized setting. In a competitive pro sports environment, teams and leagues would be competing with one another for TV coverage, franchise sites, and fans. Inevitably, competition, as compared to a 'The argument that there is a "slippery slide" toward expanding government intervention probably received its finest presentation in the 1944 international best seller, The Road to Serfdom, by Friedrich Hayek. -27- monopoly setting, would reduce the revenues that teams earn, just as inevitably, this would be reflected in lower, not higher, player salaries. When people see extraordinarily high salaries going to professional athletes —such as Michael Jordan's $35 million a.year contract, and even mediocre players getting $1 million a year —the stage is set for all sorts of unhealthy reactions. Adults grow to envy the lifestyles of Nearly every boy in America between athletes and disparage the more modest but the ages of 10 and 15 expects to grow still comfortable lifestyles that can be attained up to become a professional athlete through hard work. A young man or woman and earn millions of dollars. entering the workforce in 1998, - perhaps with college loans to payoff, faces forty years of hard work and discipline to climb a career ladder, the top of which may provide an annual salary of perhaps only $40,000 in 1998 dollars. How disheartening is it to watch 19- year -old athletes being paid millions of dollars a year to play basketball? The distorted economics of professional sports creates such enormous and undeserved income differentials as to fuel envy and hopelessness even among adults who would otherwise celebrate the financial success of others. The effect on younger people is worse still. Nearly every boy in American between the ages of 10 and 15 expects to grow up to become a professional athlete and earn millions of dollars. Finding the self - discipline needed to study reading and arithmetic is difficult enough at that age; how much more difficult must it be when the youngster believes in his heart that school work is completely unrelated to his future career in sports? How many members of the so- called "Generation X" graduated high school without employment skills because of the false allure of professional sports during their teen years? Subsidies cause a deadweight loss to society. Some stadium development projects are, or could be in the absence of subsidized competition from other facilities, economically sound investments. They would be built by private developers in the absence of subsidies, though as mentioned earlier they almost certainly would not be as elaborate as those built with taxpayer assistance. The critical difference between these facilities and those currently being proposed and built is that meticulous care would be exercised in the planning, construction, and operating phases of such projects in order to achieve the economic returns necessary to attract and maintain the capital investment.• Private owners whose own capital is invested in.a facility have the necessary .incentives to control costs and maximize a facility's utilization, while most government owners or private 79 James Quirk and Rodney D. Fort, supra note 3, page.xxv. -28- owners who are not also investors do not. The result is a transfer of wealth from taxpayers to team owners and athletes, and a deadweight loss to society. No social value is produced when facilities that are still functional are torn down Private owners whose own capital is on the grounds that they are "economically invested in a facility have the obsolete." Expensive investments in necessary incentives to control costs infrastructure are similarly being abandoned, and maximize a facility's utilization, only to be built anew across town or in some other city. This is not "economic while most government owners or development." It is make -work: no different private owners who are not also in principle from digging and re- filling investors do not. ditches. The economic effects are different, but no more positive, when an existing stadium is left standing and a new facility is built next door or down the road. In the Miami area, for example, there are three operating arenas a 30 -mile stretch of Interstate 95 ".g° • SO Robert Baade, comments to the author, December 1997. -29- PART 3 Can Government Stop the Madness? What can be done to stop the madness of subsidizing billionaires, uprooting long- established teams, and leaving major media markets without teams? In the arena of public policy, three proposals get the most attention. They are (1) using antitrust law to break up the leagues, (2) banning the use of tax subsidies for stadiums, and (3) ending the use of tax- exempt bonds for stadium construction. Although the author is sympathetic to the goals of those advocating the first two courses of action, he cannot endorse them. The third proposal is valuable, but would not do enough. The real solution, presented in the section following this one, does not require government intervention at all. (1) Should we use antitrust laws to break up the leagues? Subjecting the leagues to antitrust enforcement is often suggested as the way to introduce competition and decentralized control into professional sports.S All professional sports leagues enjoy a de facto exemption from antitrust litigation thanks to the Sports Broadcasting Act. Baseball's exemption is the broadest because it is based on a 1922 U.S Supreme Court decision that baseball, as the nation's pastime, is not "commerce," and therefore cannot be regulated by the federal government under its interstate commerce powers. • Major League Baseball, to its credit, "The foxes are guarding the chickens. has used its broad antitrust exemption to And while they keep saying, `We're prevent franchise owners from relocating: nice foxes,' I wonder what those Only one MLB team, the Senators, has feathers are, coming out of their relocated since 1972. The NFL and National mouths." Hockey League argue that they, too, would more actively work to limit team relocations if a broader antitrust exemption protected them from lawsuits filed by their franchise owners. But one doubts whether the leagues, once they are given this authority, would be any more aggressive in expanding the number of franchises than in the recent past. As former Houston 'Stephen F. Ross, "Should Congress Stop the Bidding War for Sports Franchises ?" Testimony before the Subcommittee on Antitrust, Business Rights, and Competition of the Senate Committee on the Judiciary, November 29, 1995, Heartland Policy Study #77, The Heartland Institute, pages 11-21; Michael N. Danielson, supra note 9; and Charles C. Euchner, supra note 9. 82 Paul Tagliabue (Commissioner of the NFL) and Gary Bettman (Commissioner of the NHL), "Should Congress Stop the Bidding War for Sports Franchises ?" Testimony before the Subcommittee on Antitrust, Business Rights, and Competition of the Senate Committee on the Judiciary, November 29, 1995, Heartland Policy Study #75. -30- • Mayor Bob Lanier has said, "The foxes are guarding the chickens. And while they keep saying, 'We're nice foxes,' I wonder what those feathers are, coming out of their mouths."" Perhaps, as Stephen Ross suggests, antitrust laws can be used selectively to There is growing consensus among change policies that play the biggest role in economists that past attempts aimed at causing municipalities to bid against each "trust busting" did not advance and other.s Requiring that luxury suite and club may have harmed consumer interests. box revenues be shared as gate receipts are, for example, would "take away a significant incentive for owners to relocate." Or, as Robert Baade suggests, cities that lose a franchise could be entitled to receive an expansion franchise without paying the usual fee, so long as they could meet some minimum capitalization requirements. This would force the leagues to lose some of their market power every time one of their members accepts a subsidy to relocate, a trade -off that would require the team owners themselves to decide what their current cartels are worth. Subjecting the leagues to antitrust laws would presumably force them to allow more franchises to be formed or to end practices that encourage teams to lobby for new tax- subsidized stadiums. The Sherman Antitrust Act gives Congress the authority to do this. But there are reasons to believe that antitrust enforcement is not the best approach to take to this problem. Antitrust laws: A world -wide failure There is growing consensus among economists that past attempts aimed at "trust busting" did not advance and may have harmed consumer interests. The notion that government can prevent firms from colluding, and in doing so benefit consumers, is no longer embraced uncritically by most economists and students of the issue. Dominick Armentano, a professor of economics at the University of Hartford, contends that antitrust has never performed as well as its defenders have claimed. He has documented in great detail how "the business organizations under indictment in the classic antitrust cases were expanding outputs, reducing prices, improving technology, and engaging generally in an 83 Quoted in Steve Wulf, supra note 51, page 65. `Stephen F. Ross, supra note 81, pages .11 -21. 85 Robert Baade, supra note 4. 86 See Clyde Wayne Crews Jr., "Antitrust Policy as Corporate Welfare," Competitive Enterprise Institute, July 1997; and essays by Carl Shapiro, J. Gregory Sidak, and George Bittlingmayer in Jobs & Capital, Milken Institute for Job & Capital Formation, Winter 1997. -3 1 - intensely competitive process. " "' In other words,, the firms were not acting as monopolists. Why, then, were they targeted? According to Armentano, Yale Brozen, " Richard Posner," and many other leading scholars in the field, regulators and the firms they are supposed to be regulating use antitrust law to advance their own private interests. This generally entails preventing rather than encouraging competitive behavior and protecting existing market structures.` These interest groups are able to use antitrust laws in ways other than those intended by Congress because there is little or no empirical basis for determining which markets are "competitive enough," or what effects monopolistic conduct has on consumers, or what effects government interventions aimed at preventing that conduct would have on consumers. In the absence of an objective set of. rules with which to apply or assess the effects of antitrust laws, rent - seeking conduct flourishes. If the past is a reliable guide to the For every 1 percent increase in Justice future, government cannot be expected to Department antitrust cases during the enforce antitrust laws in a way that will period 1947 - 1981; the unemployment actually benefit consumers. Two economists rate increased 0.17 percent. in 1984 calculated that for every 1 percent increase in Justice Department antitrust cases • during the period 1947 -1981, the nation's • unemployment rate increased 0.17 percent, the predictable result, they say, of the use of antitrust laws to benefit firms that could not otherwise win in a competitive marketplace. According to some writers in the antitrust field, government should stay out of the antitrust business for a different reason. Fred L. Smith Jr.,expressed it well in 1983: Liberty is a neglected aspect of antitrust discussion. Why should a businessman not be free to restrain his own trade if he wishes, alone or in combination with others? The activities prohibited under antitrust laws are invariably peaceable 'Dominick T. Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (New York, NY: Holmes & Meier Inc., 1982, second edition, 1990), page 1 'Yale Brozen, Is Government the Source of Monopoly? And Other Essays (Washington, DC: Cato Institute, 1980). 89 Richard Posner, "A Statistical Study of Antitrust Law Enforcement," Journal of Law and Economics, Vol. 13 (October 1970), pages 365 -419. 90 Fred Smith points out that from July 1976 to July 1977, private parties filed 1,600 antitrust suits in federal courts, while government agencies filed only 78. Fred L. Smith Jr., "Why Not Abolish Antitrust ?" Regulation: The AEI Journal on Government and Society, Vol. 7, No. 1 (January/February 1983), page 28. Shughart II and R.D. Tollison, "The Employment Consequences of Antitrust," 1984 manuscript summarized in R.D. Tollison, "Public Choice and Antitrust," Cato Journal, Winter 1985, pages 905 -916. -32- • activities— whatever their merit under an efficiency standard —and thus should be allowed in a free society. The broad consensus against antitrust laws was demonstrated dramatically in l 997 An attempt to "break up the leagues" by the publication of a two- volume report on by usingantitrust laws would result in regulatory reform by the Organization for less, not more, competition, and fewer Economic Cooperation and Development rather than greater benefits to (OECD), a highly respected international organization. The authors of the report consumers. observe that many sectors of•the economies of developed countries were once viewed as "either natural monopolies or as being of vital social or strategic interest, or both, requiring at a minimum heavy regulation, if not direct public ownership. These rationales are in many cases no longer considered valid" (Emphasis added.) They go on writer Changes in technology and experience have called into doubt the •pervasiveness of natural monopolies, or narrowed their existence to network components. Increasing complexity of economies and increasing globalisation have also resulted in greater scope for actual or potential competition.... In addition, government failure may be as capable of creating inefficiency as market.failure. In light of its disappointing past and the skepticism of scholars around the world, antitrust law enforcement aimed at "breaking up the leagues" would likely result in less, not more, competition, and fewer rather than greater benefits to consumers. It is difficult_ to imagine that antitrust laws would work in this case when they have performed so poorly everywhere else they have been tried. Is the professional sports cartel already breaking up ? Monopolies, oligopolies, and cartels, in the absence of government- erected barriers to competition or consumer choice, are invariably short - lived." High prices and profits in one sector of the economy act as signals for firms and investors to enter that market, thereby increasing supply and driving down profits. Attempts to restrict competition through collusion and price 92 Fred L. Smith Jr:, supra note 90, page 25. • 9 'The OECD Report on Regulatory Reform, Vol. 1: Sectoral Studies; Vol. 2 :. Thematic Studies. (Paris: Organization for Economic Cooperation and Development, 1997). The quotations are from Vol. 2, page 9. 94 See Yale frozen, supra note 88. . • -33- fixing either end in cheating by members of the cartel or have little apparent effect on prices. This competitive process has worked well to keep other industries from being dominated by one or a small number of big corporations immune from market forces. Will it eventually break up the professional sports cartel? • Evidence that the leagues' grip is already slipping includes the slow growth in attendance at baseball games and the growing popularity of amateur sports and those sports, such as soccer, that are not controlled by the leagues. With the proliferation of television channels and growing popularity of other forms of entertainment, professional sports is claiming a diminishing share of America's leisure -time "budget. " • Although the major leagues are This competition among sports expanding very slowly, the combined effect leagues, even if competition is limited has been a growing number of cities that now within a particular league, is enough 'to host major league baseball, football, impose market discipline on franchise basketball, and hockey franchises, making competition for fans intense. This competition owners. among sports leagues is enough to impose market discipline on franchise owners, even if competition is limited within a particular league. For example, the owner of the extremely popular NBA Chicago Bulls probably settled for a privately financed arena because he knew that in the team's absence, fans would switch their attention to the NFL Bears or MLB Cubs and White Sox. Fans and taxpayers were also still dissatisfied with the decision several years earlier to use public funds to build a new park for the White Sox. • Recognizing that it risked losing long -time football fans in a major media market to other sports, the NFL guaranteed Cleveland a relocated or expansion franchise by 1999 and assistance with financing a new stadium following the decision of the Browns to move to Baltimore. In Denver, the recent addition of baseball and hockey franchises makes it less likely the Broncos will • 'Dominick T. Armentano, supra note 87; and Fred L. Smith Jr., supra note 90. 96 Despite many predictions to the contrary, "the average size of firms has shrunk and competition has increased since the 1960s." Pam Woodall, "A Game of Monopoly ?" The Economist, September 28, 1996. 97 Charles C. Euchner, supra note 9. Ratings for the 1998 , Super.Bowl rebounded, but continued to fall for regular season games for all sports. Illustrative of this trend is the decision, announced in January 1998, by "superstation" WGN televison to reduce the number of MLB Chicago Cubs games broadcast each season from 144 to 92, an all- time low. Tribune Company, which owns WGN and the Cubs, also owns 22.7 percent of Warner Brothers, which is attempting to become a major television network. "In essence, [Tribune Company] is competing against itself." Dave Van Dyck, supra note 23. 98 The agreement also reportedly requires that any team relocating to Cleveland must not be in breach of its present lease. Richard Sandomir, "Compromise Got Cleveland a Stadium," The New York Times, February 12, 1996. -34- be successful in their campaign, ongoing as this is written, for a new, tax- funded stadium." The high salaries paid to some professional athletes have fueled the growth of high school, college, and semi- professional athletic programs catering to young people (including women) who want to become professional athletes. Cable television and other new forms of broadcasting are allowing these athletes to reach a growing audience without being part of•the established leagues. The demise of the draft system, which once kept players' salaries in check, is likely to exacerbate the income gap between the tiny elite able to play for the major leagues and the huge and growing tier of amateur stars eager to play but kept out by the leagues' monopsonistic practices.'°° Unlike virtually all other markets Finally, the threat that new leagues where competition is limited could be launched also weakens the hold of "market power" appears to be a the current major leagues. Unlike virtually all problem, there are no legal barriers to other markets where competition is limited and "market power." appears to be a problem, ; new competitors in the professional there are no legal barriers to new competitors sports industry. in the professional sports industry. In the past, new leagues have served to push major leagues into offering new expansion franchises and have prevented them from abandoning major media markets.' °' As the number of television networks grows, it becomes inevitable that one or more networks that lose the bidding competition to broadcast games will be tempted to finance the start -up of a competing league. As this is written, there is speculation that NBC and Turner Broadcasting are considering creating a new football Ieague. In the memorable words of sports writer Rick Telander, "as long as there are rich, bored, greedy men with testosterone coursing through their hardening arteries, there will be new football leagues a- forming. " 103 These new developments in inter - league competition for fans, technology, entertainment, and the next generation of professional athletes weaken the leagues' grip on professional sports in the U.S. and reduce the leagues' ability to shake down taxpayers for subsidies and new stadiums and arenas. Based on the what we know of the dismal record of antitrust enforcement, fans and taxpayers would be better served by allowing market forces, rather than government regulators, 99 See Kevin Simpson, "Expectations Tightly Reined," U.S. News & World Report, January 26, 1998, page 14. 100 See John J. Siegfried, "Sports Player Drafts and Reserve Systems," Cato Journal, Vol. 14, No. 3 (Winter 1995), pages 443 -452. 101 For a detailed and well -told history of upstart leagues, see James Quirk and Rodney. D. Fort, supra note 3, Chapters 8 and 9. 102 Rick Telander, "A League of Their Own," Chicago Sun - Times, February 2, 1998, page 98. ' -35- • to restructure the sports industry. • -36- (2) Should we outlaw the use of subsidies? Rather than use antitrust laws to change the structure of professional sports to reduce its market power, perhaps it would be easier to change the laws concerning how and when government entities are able to give subsidies to private interests. Stephen Ross, Mark Rosentraub, and others suggest that states and municipalities should declare a "cease fire" in the bidding war and refuse to submit to extortion demands. Neal Peirce described the strategy in a column in January 1998: If prospective towns start saying no to sports moguls in search of public subsidies for their luxury- suited stadia and sky -high player salaries, then the whole extortion bubble will bust and pro sports will descend to more reasonable, free market -set prices.' ° There is some evidence that this "just States and municipalities could declare say no" strategy is making progress. Voters in a "cease fire" in the bidding war and Minneapolis recently adopted a requirement refuse to submit to extortion demands. that any stadium plan be approved by public referendum, and the Minnesota legislature recently refused to guarantee $356 million in subsidies to the MLB Twins. But for every Minneapolis there seems to be a Washington (which approved $300 million in bonds for the NFL Seattle Seahawks in 1997) and a San Francisco ($525 million for the NFL 49ers, also in 1997). Given the strength of the pro- subsidy coalitions, how likely is it that other cities, or even Minneapolis, will be able to refuse future demands for subsidies? Congress, which is somewhat more insulated from fans and the influence of local and state pro- subsidy coalitions, could prohibit outright the use of tax subsidies to lure or retain franchises, an act Stephen Ross says would be justified given that it was Congress' act of granting a special antitrust exemption that allowed the creation of a monopoly football league in the first place. Declaring a ban on all subsidies would be more complex and difficult to enforce than might be thought. Cities and states have many ways of enticing franchises, and other potential employers, to locate in their jurisdictions. For example: • Selective tax abatement is now commonplace, and is often justified by pointing to the low quality of public services provided in an economically depressed area, or the low probability that alternative development would generate more tax revenues. 104 NeaI Peirce, "Worm Turns on Stadium Ripoffs," Washington Post, January 11, 1998. 105 Ibid. -37- • Infrastructure improvements— ranging from assembling property and demolishing existing structures to building new freeway ramps —are part of the standard sports stadium subsidy package, but proponents argue that making such improvements is a common and proper role for government. • • Tax Increment Financing (TIF) districts, once restricted to "blighted" urban areas, are now commonly used to raise funds for infrastructure and improvements demanded by developers even in prosperous communities and thriving downtown districts. In a TIF district, tax- exempt bonds are issued for infrastructure improvements and then repaid from the increase in property tax revenues generated by the new development. A ban on sports stadium subsidies could easily be evaded if avenues for indirect A ban on sports stadium subsidies subsidy were not also closed. Closing them could easily be evaded if avenues. for would be a complex task undertaken against indirect subsidy were not also closed. claims by local officials that such development "tools" do not constitute subsidies at all, but rather are legitimate attempts by cities and states to tailor tax burdens and infrastructures to their local needs and opportunities. Senator Daniel Patrick Moynihan's very modest proposal to restrict the use of tax- exempt bonds, for example, drew a letter signed by six organizations representing mayors and other state and municipal officials protesting that it would "constrain local flexibility in deciding what projects to undertake on a tax- exempt basis. " 106 Similar objections and difficulties have arisen in response to past and pending proposals to limit the use of business subsidies generally. There is also the not insignificant matter of the U.S. Constitution to consider. The Tenth Amendment restricts the powers of the federal government to those enumerated in the document, reserving the rest "to the states, respectively, or to the people." Telling state governments how to tailor their tax systems is not among the enumerated powers, and - therefore Ross' rationalization is' unlikely to stand up to a legal challenge. Given widespread support for returning to the federal system of decentralized authority,' °' this is probably for the best. 106 Leslie Wayne, "Picking Up the Tab for Field of Dreams," The New York Times, July 27, 1996. 107 James Johnston, "Competition Helps States," USA Today, October 25, 1995; Neil Peirce, "Let Feds End State vs. State Jobs Battle," Arizona Republic, November 5, 1995; Federal Reserve Bank of Minneapolis, "The • Economic War Among the States," The Region, June 1996; and Federal Reserve Bank of Boston, "The Effects of State and Local Public Policies on Economic Development," New England Economic Review, March/April 1997. 108 See William D. Eggers and John O'Leary, Revolution at the Roots (New York, NY: The Free Press, 1995); and David Osborne and Ted Gaebler, Reinventing Government (New York, NY: Addison - Wesley Publishing Company Inc., 1992). -38- • (3) Should we prohibit the use of tax - exempt bonds for sports stadiums? As noted earlier, allowing stadium developers to use tax- exempt bonds to finance their projects amounts to a federal subsidy of as much as one -third of construction costs. This subsidy costs taxpayers much more than is immediately apparent because of the rule that tax- exempt bonds cannot be used if more than 10 percent of debt service is covered by revenues from the facilities. Arrangements that would have made a facility largely self - financing are scrapped to qualify, for tax-exempt financing, leaving taxpayers to pick up the bulk of the expense. Tax- exempt financing is also especially unfair to taxpayers. Residents of a city that uses tax- exempt bonds to finance a stadium enjoy all of the benefits of hosting a professional sports franchise —as slim and fleeting as they may be —while paying only a small fraction of the total cost imposed on taxpayers. People in rural areas and in cities that do not use tax- exempt bonds help pay for the subsidy but receive none of the benefit. Dennis Zimmerman has shown how A handy model for fan ownership of a p prohibiting the use of tax- exempt bonds for professional sports franchise exists in stadiums would dry up about $100 million a Green Bay, Wisconsin. year in subsidies.'° While not a complete solution, Senator Moynihan's Stop Tax- exempt Arena Debt Issuance Act (STADIA) would end this most unfair form of subsidization and remove the perverse incentive to minimize the amount of revenue generated by a facility. Regardless of whatever other reforms are adopted, this simple and long- overdue step should be taken. A better idea: Let fans own their teams There is a way to prevent teams from pitting one community against the next for enormous subsidies, without passing new and possibly counterproductive regulations, and without infringing on the freedom of states to compete legitimately for economic development. It is to allow fans to own and manage teams through nonprofit corporations. The Packer Model A handy model for fan ownership of a professional sports franchise exists in Green Bay, Wisconsin. It has these features: "° 'Dennis Zimmerman, supra note 7, pages 22 -23. 1° This description is drawn from several sources, including James Quirk and Rodney D. Fort, supra note 3, page 417; Jeff Borden, "Forget McDome: Buy the Bears," Crain's Chicago Business, March 24, 1997, pages 1, 40; and Mike Royko, "Chill Out, Bears Fans -Just Pretend that You're Cheeseheads," Chicago Tribune, November 8, 1995. -39- • • In 1923, the bankrupt Green Bay Packer NFL franchise was bought by a private nonprofit corporation for a $2,500 loan. In 1950, to fend off a proposal by Earl "Curly" Lambeau to become a for - profit corporation, the board of directors sold stock at $25 per share, raising $118,000 and putting the team on firm financial footing. An additional 400,000 shares were approved for sale in late 19197. "' • Stockholders meet once a year to elect 15 members to a 45- person board, which in "All the profits we make go back into turn elects a seven- person executive the club in the form of facility committee to oversee operations of the improvements, players or endowments." nonprofit corporation. Only the president- CEO is paid. • No dividends are paid on the so- called "souvenir stock," which cannot be sold or traded for more than its original price. No shareholder can hold 200 shares or more. • In the unlikely event that the team is ever sold, the vast majority of the proceeds are assigned by the corporation's bylaws to a local Veterans of Foreign Wars post. • Since the owners cannot derive a profit from the team, according to Packers Chief Financial Officer Michael Reinfeldt, "all the profits we make go back into the club in the form of facility improvements, players or endowments. It's an advantage we have. " Indeed, the ban on distributing an organization's earnings to private investors is what enables nonprofit organizations to put non - market objectives, such as staying in Green Bay, Wisconsin, above opportunities to earn a higher rate of return on capital. '' The Packer Model has produced impressive results The results of this arrangement have been good for the host city, the fans, and the team. The Packers are the least - subsidized professional sports team in the country, despite the small size of their market and the fact that Lambeau Field, their 40- year -old stadium, generates only $5 million a year in revenue from club boxes. (By contrast, the Dallas Cowboys expected to receive "'Jim Harding, "A Piece of the Packers For Sale, if Shareholders Approve," Chicago Tribune, October 11, 1997; and "MoneyTalks, "Chicago Tribune, November 13, 1997. 1 'Jim Harding, supra note 111. "'Susan' Rose- Ackerman, "Altruism , Nonprofits, and Economic Theory," Journal of Economic Literature, Vol. 34 (June 1996), pages 715ff. "Dennis Zimmerman, supra note 7, page 7. Lambeau Field received an estimated subsidy, in 1989 dollars, of $143,000, versus an average $6.7 million for 21 stadiums. -40- between $30 millionand $40 million from 379 luxury suites in 1997. '1 The City of Green Bay actually makes money on its stadium: About $500,000 in net revenue was projected for 1996, to be spent by the city as it wishes. " Another result of fan ownership of the The Packer Model even earned the Packers is a well - publicized love affair admiration of the much beloved between the team and the entire state of Chicago columnist, Mike Royko. Wisconsin. One cannot walk down a street in many of the state's cities and towns without seeing the distinctive green and gold Packer logo on flags, bumper stickers, decals applied to living room windows, jerseys, banners, painted on the faces of children or carved into their hair, and seemingly everywhere else. '' This affection predates by many years the team's 1997 Super Bowl victory, and was sustained despite a 23 -year period during which the team failed to make it to a single Super Bowl. The Packer Model even earned the admiration of the late and much beloved Chicago columnist, Mike. Royko, who was otherwise no fan of his neighbors to the North. In a 1995 column, Royko wrote: If there is one team that truly deserves to be called America's Team, it is in the most unlikely community to have a major league sports franchise of any kind. Yes, I'm talking about little Green Bay, Wisconsin and its Packers. You don't hear the owners of the Green Bay team whining that they are not rich enough or trying to shake down the local taxpayers for new goodies that will make them even richer. That's because the Packer franchise is owned by the kind of people who should own every football franchise. Basically, it is owned by the people of Green Bay. And it would be almost impossible for the team to go anywhere else because no one individual owns a big enough piece to do it. "9 "'Edward Robinson, supra note 53, page 57. ' "New Lease," The Appleton Post - Crescent, November 30, 1995. 'Tom Richards, a columnist for the Post Crescent published in Appleton, Wisconsin, reports that the Packer logo "is more nearly ubiquitous than the cross in a convent." See "Holy Cow! `97 Spotted with Green, Gold and Pink," Post Crescent, December 28, 1997, page D-1. See also David Southwell, "They're Green, But It's Not Envy," Chicago Sun - Times, January 15, 1998, page 6. 18 The 23 -year gap in the Packer's championship record may explain the missing generation in the following quotation from former Packer great Ray Nitschke: "From grandfather to grandchild, everyone feels like they own a piece of the team. That makes all the difference in the world." Quoted in Dan Bickley, "They Own It, They Live It, They Love It," Chicago Sun Times, December 9, 1994, page 130. 19 Mike Royko, supra note 110. -41- • Widespread adoption of the Packer Model would reduce stadium subsidies While the Packer Model is attractive in many ways, most important for our purposes is that it substantially reduces the chance that the franchise will threaten to move to a different community to cash in on the bidding war occurring elsewhere. The Green Bay Packers are effectively "out of the bidding" due to the ownership of stock by persons living in Green Bay and surrounding areas, and federal laws requiring that the proceeds of a sale be given to another charitable organization. Taxpayers and fans in each city that hosts a Packer Model team would benefit from the same security. Similarly, because the Packer Model team competes for fans with teams in other Another result of fan ownership of the leagues and serves as a model of unsubsidized Packers is a well- publicized love affair operation, other sports franchises already in between the team and the entire state that city or metropolitan area will find it more of Wisconsin. difficult to campaign successfully for subsidies to stay. In the case of a large city that has several professional sports teams, a single team adopting the Packer Model would reduce the negotiating leverage of as many as four other sports franchises.'Z° Taxpayers and fans throughout the country also would benefit when any one city adopts. the Packer Model. Since different sports compete among themselves for fans, as was described above, the city that hosts a Packer Model team becomes less likely to entertain subsidy requests from franchises in other leagues. Cities, particularly those in small or medium -sized media markets, may well be satisfied hosting one major league team. Since the number of moveable teams in those other leagues remains unchanged, they would all lose leverage against taxpayers in the remaining cities. The fact that fans own the Green Bay Packers, and that this explains why the team has never threatened to relocate, is mentioned repeatedly by critics of stadium subsidies. How much more critical attention would come to bear on stadium subsidy proposals if, instead of only one - fan- owned team in the country, there were a dozen? What if there were one in each of the top five media markets? The result would almost certainly be a dramatic reduction in stadium subsidies. ' ?°The nonprofit ownership of the Green Bay Packers may be one reason why other professional sports teams in Wisconsin receive few subsidies. The NBA Milwaukee Bucks play in the privately financed Bradley Center (although that project did receive some city aid in the form of land and infrastructure), and the MLB Milwaukee Brewers play in 45- year -old Milwaukee County Stadium, the fourth- oldest baseball stadium in use. A new tax- subsidized stadium was approved by the Wisconsin legislature in 1995 despite voters rejecting the plan by referendum. One legislator was recalled and removed from office by angry taxpayers. See Mandy Rafool, "Playing • the Stadium Game," Legislative Finance Paper # 106, National Conference of State Legislatures, June 1997. -42- Barriers to adopting the Packer Model The biggest barrier to more widespread adoption of the Packer Model is the presence of league policies against nonprofit ownership. The Packer's unique arrangement was grandfathered in when the Packers joined the NFL; league rules now forbid corporate ownership (whether for- profit or nonprofit). The other leagues allow for -profit corporate ownership but prohibit nonprofit ownership. Approximately 52 MLB, NBA, and NHL franchises are owned at least in part by public companies, and the trend is unmistakably toward further public ownership. Stock in the NBA Boston Celtics is even traded on the New York Stock Exchange. The next barrier to replicating the Packer Model is the steep cost of buying an existing franchise. A typical NFL franchise in 1997 cost between $200 million and $300 million. Franchises in other leagues tend to cost less, but still often approach $100 million. Prices are so steep because they reflect the potential subsidies to be gained by threatening to relocate. Since a fan -owned team would never exercise that threat, its buyers are paying a steep premium for the right to retire their franchise's option to move. A third major barrier is opposition The biggest barrier to more from the special- interest groups that benefit widespread adoption of the Packer from the current arrangement. Current team Model is opposition to nonprofit owners, contractors, and players will ownership by the leagues. vigorously oppose efforts to allow nonprofit ownership, since they profit from the bidding war and frequent relocation of franchises. However, three other elements of the current pro- subsidy coalition —fans, media, and elected officials— benefit from the presence of a professional team but do not profit from the threat to relocate. These latter interest groups could be mobilized on behalf of nonprofit ownership of sports teams. What can be done? In November 1997, the owner of the MLB Minnesota Twins offered to give the team to a charitable foundation in return for taxpayers building a $250 million stadium. The offer was not approved by the baseball leagues, but that such an offer could even be seriously discussed, and by a private owner at that, suggests that current team owners are not unified in their opposition to nonprofit ownership. 12 'Roy S. Johnson, "Take Me Out to the Boardroom," Fortune, July 21, 1997, pages 43; and Jason Vest, supra note 75. i22 "A Plan" (unsigned commentary), Chicago Tribune, November 7, 1997. -43- The trend toward corporate ownership should make it easier to get one, and then all, of the leagues to agree to accept nonprofit corporate ownership. The step from corporate ownership to nonprofit ownership is a relatively small one. Corporate ownership already brings some of the advantages of nonprofit ownership: a greater sense of responsibility, more financial stability, and fewer personal agendas to the sports scene. Public corporations, especially those involved in media, are more sensitive than private owners to public opinion. The Tribune Company, for example, is unlikely to ever threaten to move the MLB Chicago Cubs from Chicago, whereas the private owner of the White Sox demanded and received a taxpayer - financed stadium as a condition of remaining in the city. The NFL, the only league that allows neither for -profit nor nonprofit corporate ownership, is most vulnerable on this issue, particularly since the Packer Model is provided by an NFL franchise. NFL franchises are also the most lucrative for team owners, and football stadiums are the most expensive and most underutilized of the sports facilities seeking public subsidies. For all these reasons, the NFL would seem to be a prime target of the fan-ownership movement. A coincidence in the economics of stadiums and franchises may ease the adoption Rather than build a new.stadium and of the nonprofit stockholder model. The going give it to the owners of a professional price for an NFL franchise in a major media sports franchise, the fans in some city market in 1997, about $200 million, was close could just buy the team and keep the to the going price of a new,state -of -the -art old stadium. stadium. Rather than build a new stadium and give it to the owners of a professional sports franchise, the fans in some city could just buy the team and keep the old stadium. For a city the size of Chicago, it would cost about $85 a person in 1997 to buy the NFL Chicago Bears. A key to the success of a campaign for fan ownership of professional sports teams will be the involvement of fan clubs, the media, and local elected officials. As pointed out earlier, all three groups are currently drawn by self - interest to be part of the pro - subsidy camp. Fan ownership could serve their interests even better by ensuring that once a team is in the community, it is likely to stay. The opportunity to sell stock —even "souvenir stock" ala the Green Bay Packers —could give subsidy opponents the financial stake required to keep them organized year after year. Local elected officials, retired professional players and coaches, and business leaders could be recruited to serve as chairmen and spokespersons for the effort. • 'Roy S. Johnson, supra note 121, pages 42-47. 'Charles C. Euchner, supra note 9, chapter 6. 175 Jeff Borden, supra note 110. -44- • A coalition of fan clubs, taxpayer groups, and civic organizations could be formed to launch a concerted campaign to convince the leagues to allow ownership by nonprofit corporations. It would be inappropriate to lobby for legislation requiring the leagues to adopt such a rule, since this ought to be a voluntary decision by the leagues. The leagues would almost certainly respond to hundreds of thousands of letters and phone calls, perhaps as well as television and radio ads appearing during sports coverage and supportive editorials in newspapers and on radio, all urging the leagues to give fans the chance to own their favorite teams. In recent years, the original founder of the now defunct U.S. Football League, David What if NBC and Turner Broadcasting Dixon, has attempted to organize a league of were to provide start-up funding and fan -owned professional football teams. Each guaranteed television coverage for team would start with an initial capital Dixon's Fan League? investment of $5.5 million, far less than the amount needed to buy an NFL franchise. Stock shares would then be sold to fans who would have majority ownership. This would seem to be a much more affordable approach than buying franchises in the existing leagues, though finding fan support for a new league could be difficult. What if NBC and Turner Broadcasting were to provide start-up funding and guaranteed television coverage for Dixon's Fan League? Even an investment of $1 billion a year would be substantially less than what the other networks agreed in January 1998 to pay to broadcast NFL games. Municipal ownership is not an acceptable option. Fan ownership, as discussed here, must not be confused with public or municipal ownership. The latter has been proposed at various times for teams in Boston, Minneapolis, and Los Angeles, and federal legislation that would compel the leagues to allow municipal ownership has been proposed by Congressman Earl Blumenauer (OR). Municipal ownership would seem to solve the biggest part of the team relocation problem —the ability of the team to threaten to leave would no longer exist —but the injustice of forcing some taxpayers to pay for the entertainment chosen by others would continue. If the team must first be purchased from its current owners, the expense could be in the hundreds of millions of dollars. Even if the current owners gave the team to the city, the city would still ' Verdi, "His Fan -tasy? See New League Leave NFL in Dust," Chicago Tribune, February 27, 1996. 127 This possibility was first aired by Rick Telander, supra note 102. ''Michael N. Danielson, supra note 9, page 299ff; Jason Vest, supra note 75. -45- grapple with the paradox of spending millions of dollars each year on professional athletes and stadium enhancements while more important public services go underfunded. The inefficiencies of public management of enterprises of any sort'Z raise Who, upon serious reflection, would the possibility that any "savings" gained by want a mayor involved in such volatile buying out the profit- seeking owners will be decisions as which quarterback to lost to a different set of rent seekers who !, start, or who to draft for next season? • flourish in public bureaucracies, such as patronage workers and government managers. Who, upon serious reflection, would want a mayor involved in such volatile decisions as which quarterback to start, or who to draft for next season? Mixing sports and politics even more than is currently the case would only be damaging to both. • • • • ' for example, Thomas E. Borcherding, Werner Pommerehne, and Friedrich Schneider, Comparing the Efficiency of Private and Public Production: The Evidence from Five Countries, Institute for Empirical Research in Economics, University of Zurich, Switzerland, 1982; and Charles Wolf Jr., Markets or Government: Choosing Between Imperfect Alternatives (Cambridge, MA: The MIT Press, 1988). • -46- • PART it Conclusion The use of tax dollars to subsidize professional sports grew out of control during the 1990s. Cities that can barely afford to keep police and firefighters on the streets are nevertheless spending hundreds of millions of dollars to bid teams away from other, equally hard- pressed, cities. The competition is unfair to taxpayers and produces few if any economic benefits. Claims that professional sports produces "intangible" benefits are not plausible in light of other ways to achieve those same benefits and the emotional roller - coaster ride frequent team relocations have caused for fans. The popular debate over whether to subsidize professional sports is often distorted by unbalanced media coverage and unsubstantiated claims of economic benefits flowing from hosting a professional sports franchise. The real reasons we subsidize professional sports are because more cities want franchises than there are franchises to go around; league rules reward teams that maximize non - ticket income from their stadium or arena; and special- interest groups that benefit from public spending out - organize and out -spend their opposition. The most direct route to ending Based on its many failures both in the stadium subsidies would seem to be using U.S. and internationally, antitrust law antitrust laws to force the leagues to expand should be recognized as a theoretically the number of franchises and change "anti- and practically flawed tool with which competitive practices," or to outlaw the use to solve so- called "market failure." of subsidies by state and municipal governments. Each of these proposals has support by some prominent researchers in the field, and some progress has been made in some parts of the country to implement such policies. Senator Daniel Patrick Moynihan's legislation preventing the use of tax- exempt bonds to support stadium and arena construction is the best of these proposals and is a promising place to start the reform effort. Upon closer examination, direct routes to stopping stadium subsidies (other than Senator Moynihan's legislation) come up short. Based on its many failures both in the U.S. and internationally, antitrust law should be recognized as a theoretically and practically flawed tool with which to solve so- called "market failure." Even a "simple" rule banning public subsidies becomes complex and of dubious value when we realize how many loopholes and avenues for indirect subsidies are likely to survive such a rule. The better solution is fan ownership structured along the lines of the Packer Model. Fan- owned teams are extremely unlikely to threaten to move to another city if they do not receive taxpayer subsidies. Fan ownership also gives a franchise a reservoir of popular support that -47- • • cannot be matched by any of the other ownership models, with major benefits to both fans and sports. Until fans and taxpayers become the owners of professional sports teams, their Until fans and taxpayers become the interests will take a back seat to those of owners of professional sports teams, companies and individuals who profit each their interests will take a back seat to time a team relocates. Sports stadium madness those of companies and individuals can't be stopped by passing a law or passing who profit each time a team relocates. the blame. Fans and taxpayers —the people who benefit and the people who pay —need to work together to protect their shared interests. No one else will do it for them. Making fan ownership a reality in cities across the country will require leadership and hard work by political leaders, journalists, business leaders, and fans. The effort involved in convincing the leagues to make the necessary policy changes, and then raising the funds necessary to purchase franchises from their current owners, may seem huge. But as David Dixon has said, "There are more of us than there are of those rich owners who want to get richer by getting into our pockets again. " 130 { Distributed by The Heartland Institute, a nonprofit and nonpartisan public policy research organization. Nothing in this Heartland Policy Study should be construed as reflecting the views of The Heartland Institute, nor as an attempt to aid or hinder the passage of legislation. Additional copies of this study are available for $10 from The Heartland Institute, 19 South LaSalle Street #903, Chicago, IL 60603; phone 312/377 -4000; fax 312/377 -5000; email think @heartland.org; Web www.heartland.org. • Copyright 1998 The Heartland Institute. Permission is hereby given to quote from this Policy Study, provided appropriate credit is given to the author and to The Heartland Institute. 130 Bob Verdi, supra note 126. -48- • Interested in pursuing the fan ownership option? • The Heartland Institute is compiling a database of fan clubs, taxpayer organizations, and individuals interested in exploring the possibility of buying their local professional sports franchise. If there's a movement underway in your community, it needs your participation! We can help you be a part of that movement. Call The Heartland Institute at 312/377 -4000 for more information. • • • The Heartland Institute 19 South LaSalle Street #903 Chicago, Illinois 60603 phone 312.377.4000 + fax 312.377.5000 + e- mail: think @heartland.org web: http: / /www.heartland.org $10 • There an Economic Rationale For Subsidizing Sports Stadiums? - by... http: / /www. heartland. org /budgetandtax- news.org/article /1728( • Is There an Economic Rationale For Subsidizing Sports Stadiums? SUBSCRIBE • . .Subscribe Via Email • Economic Development Economic Development > Stadiums /Convention Centers Your Email Address velniT Email a Friend ' • • Written By: Robert A. Baade Published In: Policy Study #13 • Subscribe via Rss Publication date: 02/23/1987 • Publisher: The Heartland Institute Controversy shadows sports in the United States. Sports are so deeply woven into the fabric of our culture that FEATURED VIDEO disputations about them are inevitable. Sports are leisure; sports are business; sports are religion. • The multiple personalities of sports are nowhere more visible than in the many municipal stadium debates taking place • • throughout the country. City leaders from Miami to San Francisco have summoned sound eoonomic management as their star witness in defending plans to subsidize the renovation or construction of stadiums. Can this witness stand up to a stiff cross- examination? The purpose of this paper is to determined subsidizing sports facilities makes economic sense for municipalities. This analysis begins with an assessment of the history and future prospects for privately financed and managed' sports • facilities. Can private interests derive from a sports facility benefits sufficient to cover their costs? What does recent history tell us about private ownership of these facilities? What do current plans for new stadiums and arenas imply . about the likelihood of private ownership in the future? Part 11 of this paper provides some answers to these questions. In Part 111, the author challenges the prevailing notion that sports produce significant economic benefits for municipalities, • and offers instead two alternative hypotheses to explain sports affect an economy. He first proposes that, in the Renowned international investor Jim Rogers short temp, locals rid' by sports explains how the Federal Reserve has become 'a pe ing y ports fans and visiting personnel does not represent an increase in spending on leisure pawn shop' for large and politically connected activity, but rather may be rrnerey a diversion of leisure dollars from other activities. financial firms. The author proposes a similar hypothesis with respect to the long -term economic impact of sports. Those who argue that stadium development can serve as a catalyst for urban renewal see a link between professional sports and the ability of THIS MONTH'S POLL a municipality to attract new business or foster a "big- league" expansionist attitude among businesses already in the area. The author suggests, however, that any long -term economic "growth" prompted by sports stadiums may not be Budgl &Tax Poll;` t ti 7M 4 k '' growth at all, but merely a realignment of economic development in the service sector of the economy. • In Parts IV and V, the author finds statistical evidence to support both new hypotheses. A summary and concluding remarks constitute Part VI of the paper. Download full text (pdf) • See more articles by Robert A. Baade . • • Post a comment: Name: • • E -Mail: . Email Minot be displayed, distributed or sold to third parties Your Comment • • THIS WEEK'S EXPERT • Robert Genetski, Ph.D., a r � r r to 17p Heartland Institute policy advisor, is one of the nation's leading economists and financial �'. :i•^°_, rat advisors. He has spent more than Verity the text In the image: (k is case- sensitive) '; "; r 35 years promoting the use of • • i x3 classical economic and Su6iriiE 'x investment principles for sound " financial decisions. He heads • ClassicalPrinciples.com and is a popular speaker • who entertains thousands of people at conferences O Share / Save a 1a r : and i nvestor meetings around the world each year. He is one of the nation's premier interest rate forecasters and investment advisors, providing insights to economic, financial, and investment matters. Complete bio • Articles by Robert Genetski • Email Robert Genetski • • • ABOUT THE HEARTLAND INSTITUTE The Center on Taxes and the Economy is a project of The Heartland Institute, a of 2 8/23/2010 8:47 PIV The Heartland Institute Policy Study No. 13 February 23, 1987 • IS THERE AN ECONOMIC RATIONALE FOR SUBSIDIZING SPORTS STADIUMS? by Robert A. Baade I. Introduction Controversy shadows sports in the United States. Sports are so deeply woven into the fabric of our culture that disputations about them are inevitable. Sports are leisure; sports are business; sports are religion. The multiple personalities of sports are nowhere more visible than in the many municipal stadium debates taking place throughout the country. City leaders from Miami to San Francisco have summoned sound eocnomic management as their star witness in defending plans to subsidize the renovation or construction of stadiums. Can this witness stand up to a stiff cross - examination? The purpose of this paper is to determine if subsidizing sports facilities makes economic sense for municipalities. This analysis begins with an assessment of the history and future prospects for privately financed and managed sports facilities. Can private interests derive from a sports facility benefits sufficient to cover their costs? What does recent history tell us about private ownership of these facilities? What do current plans for new stadiums and arenas imply about the likelihood of private • ownership in the future? Part II of this paper provides some answers to these questions. In Part III, the author challenges the prevailing notion that sports produce significant economic benefits for municipalities, and offers instead two alternative hypotheses to explain how sports affect an economy. He first proposes that, in the short term, local spending by sports fans and visiting personnel does not represent an increase in spending on leisure activity, but rather may be merely a diversion of leisure dollars from other activities. The author proposes a similar hypothesis with respect to the long -term economic impact of sports. Those who argue that stadium development can serve as a catalyst for urban renewal -1- see a link between professional sports and the ability of a municipality to attract new business or foster a "big- league" expansionist attitude among businesses already in the area. The author suggests, however,.that any long -term economic "growth prompted by sports stadiums may not be growth at all, but merely a realignment of economic development in the service sector of the economy. In Parts IV and V, the author finds statistical evidence to support both new hypotheses. A summary and concluding remarks constitute Part VI of the paper. II. Ownership of Arenas and Stadiums: A Recent History and Future Prospects A. Public funding of sports facilities prior to the 1970s. Arenas and stadiums will be privately constructed and operated if the benefits appropriable by private owners exceed costs incurred in constructing and operating those facilities. Data compiled since 1953 on arenas utilized by professional hockey and basketball teams, and on stadiums utilized by professional football and baseball teams, offer de facto evidence that profitable private construction and operation of these sports facilities is. difficult. Of the thirty-eight arenas used by National Basketball Association (NBA) teams and/or National Hockey League (NHL) teams since 1953, only eight were privately owned) Of the fifty- eight stadiums used by major league baseball teams and/or National Football League (NFL) teams since 1953, "seventeen are (or -in the case of facilities no longer in existence, were) privately • owned; thirty-three are (were) publicly owned; two are owned by universities; two began as " private sites and were sold to public agencies; and two were publicly owned but were sold to private interests. It was not possible to trace the lineage of two of the stadiums because they are no longer standing. " If we count the two university stadiums as publicly owned, and exclude the two with untraceable histories, then of the ninety -four facilities used by professional football, baseball, hockey, and basketball teams since 1953, approximately 71 percent are publicly owned. It cannot be concluded from this fact that stadiums and arenas do not generate sufficient benefits . to excite much private interest, but the evidence certainly supports that hypothesis. Data on private and public financing of stadiums between 1960 and 1987 offer more compelling evidence on the ability or unwillingness of private interests to invest in sports facilities: Of the total number of new baseball /multi - purpose stadiums constructed since 1960, only two i Dean Bai, "Comparison of Privately and Publicly Owned Sports Stadiums and Arenas," Heartland Policy Study No. 6 (Chicago, IL: The Heartland Institute, August 19, 1985), page 2. 2 /bid., page 6. -2- (Dodger Stadium, Los Angeles, California, 1962; and Sullivan Stadium, Foxboro, Massachusetts, 1971) have been financed entirely by private capital.' During the 1960s and 1970s, the public sector was the key player in stadium construction, a situation that developed for two reasons. First, it was difficult for the private sector to secure the large amounts of capital necessary in the early stages of stadium construction. Second, it was easy for the private owners of sports teams to secure public funding for stadiums, using as leverage a city's fear of losing the sports franchise or its desire to adopt one. B. The rise of private financing in the 1970s and 1980s. In the late 1970s and early 1980s, public sector financial backing for stadiums became less reliable. The urban fiscal crisis beginning in the 1970s is in large part responsible for this development. The public sector has tightened its purse strings and, perhaps not coincidentally, has witnessed an increase in private financial involvement. A growing number of private and public partnerships have been formed to build and operate stadiums. The Meadowlands Complex in East Rutherford, New Jersey, and Texas Stadium in Irving, Texas, are two among many facilities built, in the 1970s with funds secured in part through private bond issues. Private financing early in the history of Texas Stadium was secured through a rather novel means: season ticket - holders were required to purchase bonds to get their seats. For example, a $1,000 bond purchase would guarantee a season ticket - holder a seat somewhere between the 35- yard- lines. In the 1980s, the public - private partnership has become more commonplace, and the , private sector is emerging as the star player on the team. Baltimore might still have the Colts if not for the public - private economic alliance that built the Indianapolis Hoosier dome to corral them. A substantial portion of the $82 million that built the Hoosier Dome came from private sources, including a $25 million grant from Indianapolis' Lilly Endowment. Nowhere have public and private forces been more integrated in the stadium quest than in New York. "I don't think there's another deal like this in the country," noted Vincent Tese, the chairman of New York's State Urban Development Corporation. In a December 4, 1985, proclamation, New York State and New York City authorized. Donald J. Trump to build a $286 million domed stadium in New York.' The private and public developers in this project will be 'Roger Lowenstein, "Miami Dolphins' Owner Builds a Stadium with Private Financing and Fancy Seating," Wall Street Journal, November 15, 1985, page 25. 4 "Sports Stadiums: How They're Built, How They're Faring," Chicago Tribune, January 22, 1978, section 3, page 2. 'Martin Gottlieb, "Trump Cleared to Build Domed Sports Stadium," New York Times, December 5, 1985. -3- roughly equal partners until 2011, when the city and state share of operating.income will fall to 25 percent of net operating income. What makes the New York project so intriguing is the private developer's plan for recouping his initial financial outlay. Trump intends to sell 23,000 seats for an average of $12,000; to lease 15,000 seats for an average of $2,400; and to lease 221, luxury boxes on an annual basis for $60,000each. If expectations are met, the sale of seats alone will generate $276 million —only $10 million less than the stadium's projected cost of $286 million. The New York idea for stadium financing could revolutionize stadium economics and sports, and pass the sports promotion industry back to private entrepreneurs. The NFL Miami Dolphins are building the fi rst privately financed and operated facility to be constructed since 1971; if all the luxury boxes and club seats can be leased the Dolphins could earn $16.5 million a year, which is $500,000 more than each NFL team grosses annually from television revenues.' C. Decision making is influenced by positive stadium externalities. How has the private sector been able to assume a responsibility for financing stadium construction that was ostensibly beyond its grasp not long ago? There are at least two explanations. First, stadium financing may have been within private reach all along. Subsidization by the public sector of stadium construction is one rendition of an old saw: Do not spend your private funds when the government will financially accommodate your private ambition. It is quite plausible that the private sector has not often invested in stadium construction simply because it has not needed to. Second, a decrease in public funds has compelled the private sector to fashion strategies for capturing revenues and profits that result from stadium activities, but that in the past have not been appropriated by stadium owners and operators. These benefits (and costs, as well), which result from private economic activity but are not appropriable by the entrepreneurs initiating the activity, are "external" to that private activity. Pollution is an example of a negative externality: a cost for which a private concern may be responsible, but in the absence of coercion or a sense of social responsibility is not influential in private decision making. In the case of stadiums, the argument for public subsidization is based on the supposed existence of positive externalities. Since the private stadium developer presumably cannot capture all the economic benefits induced by stadium activities, he requires public financial support to ensure profits commensurate with the sum of the internal and extemal benefits the stadium activity. creates. Today there is widespread disagreement about the magnitude of external stadium benefits. Recently, official public estimates of those external benefits have been greeted with growing 6 /bid. ' Lowenstein, op cit. -4- taxpayer. skepticism. The failure of stadium - related referenda in Cleveland, Miami, and Addison (Illinois) are recent manifestations of taxpayer resistance. The decline in public financial support for stadium construction has been offset in some instances by entrepreneurs who recognize the contribution stadium activity may make to their businesses. Miami's Dolphin Stadium is one example of an entrepreneur's willingness to subsidize private stadium activity, believing that his business is likely to grow as result of its construction. The firm that owns the land on which the stadium is to be built currently leases the 160 -acre stadium site to the Dolphins for one dollar a year.' D. The public sector's record. Experience indicates that it is difficult for the public sector to efficiently build and operate stadiums. The mismanagement of stadium projects in public hands —the New Orleans Superdome and Pontiac Silverdome are noteworthy examples —has galvanized taxpayer resistance to such projects. Louisiana taxpayers have been enlisted to finance Superdome deficits of $3 to $5 million annually, and the Silverdome has similarly drained government treasuries. Taxpayers in Pontiac and across the state of Michigan have paid more than $11 million since 1976 for stadium operating deficits. Why has the public sector faced these problems? Any answer to this question must consider construction costs as influenced by both industry conditions and civic ambition. Furthermore, it must take into account what impact the rush of municipalities to the sports- dollar lure has had on overall market conditions for sports facilities and teams. In Table 1, information is provided for six stadiums with regard to their roof structures, original costs of production, equivalent February 1986 costs of production (based on a construction cost index), costs per seat when the stadiums were built, and costs per seat if the stadiums were built in February 1986. As the figures indicate, current stadium construction costs are enormous. Furthermore, the rate of increase in construction costs exceeds the overall rate of inflation. Increases in the construction cost index have been approximately 70 percent and 90 percent greater than increases for the consumer and wholesale price indices respectively for the 1965 to February 1986 period. In addition, the type of facility currently in vogue has contributed significantly to stadium financing problems. Today, the fashion in stadiums comes domed, and domes increase stadium costs substantially. Consider this tale of two stadiums built in 1965. Atlanta's open -air stadium took $18 million ad one year to construct; it cost approximately 40 percent of what the Houston 8 lbid . 9 John Helgar, "More Cities Plan domed Stadiums, But Returns May Prove to be Small," Wall Street Journal, May 17, 1984, page 33. -5- Astrodome cost and took half as long to build. The absolute dollar differential between the Atlanta and Houston stadiums would be far greater today. Despite the cost advantages of open - air stadiums, the new generation of stadiums being planned or built since the mid -1970s is primarily domed. - • As the data in Table 1 indicate, the high cost of rigid -roof domed facilities has led municipalities to consider stadiums with flexible rooms. The 1986 cost of air - support, teflon -roof domes identified in Table 1 ranged from 23 to 64 percent of the cost of the structures. with rigid roofs. Lack of durability and energy inefficiency have been cited as disadvantages of the flexible - roof domes, but it seems unlikely that those disadvantages would be enough to favor building rigid -roof stadiums. Nonetheless, the stadium planned for New York will have a hard roof, will cost $286 million, and will not be ready for play until the '1989 football season. TABLE 1 Cost Figures on Selected Stadiums with Alternative Roof Structures* Original Cost Estimated Cost (Year Completed) February 1986 Original .February 1986 Stadium ($thousands) ($ thousands) Cost/Seat Cost/Seat Roof Structure Superdome $163,000 . $356,744 $2,145 $4,694 Steel • (New Orleans) (1975) Kingdome 67,000 150,430 1,030 2,314 Reinforced (Seattle) :(1976) concrete Astrodome 45,000 129,941 849 2,452 Steel (Houston) (1965) • Silverdome 51,700 103,411 646 1,293 Air Support (Detroit) - (1975) Hoosier Dome 82,000 87,447 1,367 1,457 Air Support (Indianapolis)? • •(1984) Metrodome 55,000. • 83,4 873 1,324 Air Support (Minneapolis) (1984) Source: Office of Internal Audit, Cuyahoga County (Ohio), "Proposed Dome Stadium," February 10, 1984. *The numbers from the Cuyahoga report are somewhat different from those found in other sources, but they do not alter the conclusions suggested. These figures do not reflect the costs of land acquisition. • 10 "Sports Stadiums: How They're Built, How They're Faring," supra note 4. -6- • In the nation's third largest city, all the early plans submitted for a new, multi - purpose Chicago stadium include hard - roofed domes, and all had cost estimates of over $200 million. Chicago developers have since tempered their plans, but it could be argued that the new generation of stadium builders has generally emphasized the elaborate over the cost - efficient precisely at a time when most municipalities are financially strapped. Climate is, of course, more easily controlled in a domed stadium, and for that reason domed facilities may be likely to attract more frequent near - capacity crowds than do open -air stadiums. In addition, domed stadiums can host conventions and exhibitions, while open -air stadiums are less likely to attract such nonsport events. Yet, while purveyors of domed stadiums offer these and other arguments in support of their elaborate plans, the significance of ego in building the new generation of domed stadiums cannot be overlooked. Perhaps ho one has offered a more honest assessment of the New Orleans Superdome than did Moon Landrieu, the Mayor of New Orleans, during its construction. Landrieu noted, "the Superdome is an exercise of optimism. A statement of faith. It is the very building of it that is important, not how much it is used or its economics. "" Not all political officials are as forthright as Landrieu, whose honesty was forced in part by mounting evidence that the Superdome was not grounded in economic rationality. Taxpayers are becoming more skeptical about stadium economics, and market conditions are changing in a way that even further diminishes their economic justification. Like cats chasing their tails, cities unable to resist the stadium promise of prestige and money are rushing to secure the sports teams they hope will provide the economic justification they seek. Today there are more sports stadiums than teams. Nearly a dozen cities in the United States and Canada are urging the major baseball leagues to expand. In addition, Buffalo, Denver, Indianapolis, Nashville, New Orleans, Phoenix, St. Petersburg, Tampa, Washington, Vancouver, and many other cities are putting pressure on cities that are engaged in lease negotiations with current major league tenants. It is not a market that favors the buyers of professional sports teams. As the competition for teams intensifies, cities are embarking on ever- riskier financial courses. Again, a city's image of itself appears to be a primary motivating force. For example, Minnesota Governor Rudy Perpich is making professional sports a centerpiece in his efforts to revitalize the state's economy. Th head of Perpich's task force on revitalization, Merlin E. Dewing, reflected on the prospect of losing the Minnesota Twins baseball team, noting: "It's almost worse for a city's image to lose amajor league team than to have never had one at all. " "J.D. Reed, "Louisiana Purchase: Superdome in New Orleans," Sports Illustrated, July 22, 1974, pages 66 -72. 12 "Stadium Mania," Business Week, May 14, 1984, page 142. -7- In the . current climate, it would be difficult to imagine a riskier strategy than building a stadium to attract professional sports teams. Yet municipalities believe that a stadium is necessary to secure a professional sports franchise. This belief has been reinforced by the commissioners of professional sports leagues who, seeking to maximize incomes for the teams they represent, want assurances with regard to skybox, concession, and general revenues. Fundamental to the profitable operation of a stadium is its utilization. The greater the number of near- capacity events the stadium attracts, the more revenue there is to apply to stadium fixed costs. As more stadiums bid for events that will utilize the stadium near its capacity, the less likely it is that stadium authorities will be able to exact terms that will allow for profitable operation. Furthermore, since stadiums newly constructed since 1960 -have been done so primarily with public funds, the ability and willingness of public authorities to secure events takes on increasingly greater significance. The Houston Astrodome, for example, is a modestly priced stadium by today's standards, yet it must be booked 150 days a year to operate profitable. Reviewing utilization rates for private and public arenas and stadiums, Dean Baim found public arenas were utilized 197 days a year, compared to 254 days for private arenas, and public stadiums were utilized 105 days annually compared to 115 days for private stadiums. Private incentives do seem to correlate with greater arena and stadium use. Recognizing this, some municipalities have sought to replace public sports facility management wit private. For example, even though the Seattle Kingdome is one of the few publicly managed stadiums operating in the black, a recent editorial in the Seattle Times argued: "The timing is right for the county to take an objective look at whether taxpayers and tenants are best served by public or private operation of the Kingdome. " Even if all arenas and stadiums were privately managed, the fundamental problem of too many facilities chasing too few events would remain. However, the leverage teams have in shopping for the best municipal deal may be decreased as a consequence of greater private ownership and/or management of sports facilities. Team loyalty is to a large extent defined in dollars and cents; a private sports facility, since it is likely to be owned by the franchise itself, is less likely to be abandoned simply because a stadium will not be easily sold to another party. To the extent that private ownership and management could lead to a reduction in the number of teams shopping for a new host city, the relative bargaining position of stadium sellers would improve with greater reliance placed on the private sector for stadium construction and operation. 13 "Development: Super Headache," Newsweek, April 29, 1974, pages 82 -84. 1414 Dean Baim, supra note 1, pages 4 an d 6. 15 "Time to Weight Private Operation of Kingdome," Seattle Times, December 8, 1985. -8- E. Examples of municipal largesse. At the present time, owners of professional sports franchises are making liberal use of the market power they possess. From Toronto to New Orleans, sports teams are capitalizing on the emphasis city officials have placed on image. Consider the following examples of municipal largesse by cities confronted with the prospect of losing a team. • New Orleans. The Louisiana state government voted to turn over to the NFL Saints all Superdome revenues related to Saints football except for a 5 percent rental fee based on gate receipts. The Saints estimate this arrangement, coupled with the abolition of the state's 4 percent amusement tax, will add $2.5 million annually to the team's treasury. • Toronto. Mayor Eggleton indicated that a secret clause in the deal that brought the Blue Jays baseball team to Toronto specifies that if plans for a domed stadium fall through, the city is pledged to build a second tier of at least 10,000 seats on the present ballpark. The cost of the addition is estimated at $50 million, and taxpayers will assume that burden. If Toronto does not comply, they risk losing their baseball team." • Philadelphia (National League baseball Phillies). The city has agreed to phase out by 1992 the current per- ticket use charge, which is thirty cents per ticket; has committed to give the Phillies $1 million for a new outfield scoreboard; has agreed to take over the Phillies' debt service payments ($745,000 annually through 1992) on the Panavision scoreboard and to pay the Phillies back $1.5 million in past payments the team has made on the board; and will permit the Phillies to build twenty- three "baseball only" suites in the stadium, with the team retaining 60 percent of the related revenues. The Phillies estimate that the lease revisions will result in a $2.5 million revenue reallocation from the city to the Phillies. • Philadelphia (NFL Eagles). To get the Eagles to sign a ten -year lease, the city has agreed to construct fifty to eighty skyboxes at no cost to the Eagles, and the team will retain all revenues from the lease of these boxes. The city will be spending $500,000 to construct and furnish additional field boxes, the revenue from which is appropriated by the Eagles. Other provisions of the new city agreement with the Eagles relate to practice and training facilities, deferral of Eagles' rent payments until September 1994, and city responsibilities for game -day security. The total cost to the City of Philadelphia has been estimated at $30 million. 16 " New Relationships Between Other Sports Teams and Their Respective Cities," Chicago Metropolitan Planning Council Stadium Task Force Supplement, January/February 1986, page S -1. "Robert Billings, "In Toronto, the Costs Have Gone Up But a Stadium Has Not," Chicago Sun- Timews, January 5, 1986, page 9. 18 Chicago Metropolitan Planning Council Stadium Task Force Supplement, supra note 16, page S -3. 1 9lbid. , page S -2. -9- • Seattle. The city has agreed to give the American League baseball Mariners free rent and will pickup all game -day expenses for the 1985 -87 period. In addition, the Mariners will be entitled to 40 percent of the revenue on all new baseball suites, beginning in 1990. The Mariners estimate that these provisions and others will result in an increase in net revenues of $20 million over the next twelve years. The Mariners have secured the right to cancel the lease in the event they do not draw at least 1.4 million fans per year during the .1986 -88 period.' There have been unconfirmed reports that Indianapolis, in an attempt to induce the Mariners to move, is offering a more attractive package that would include a guaranteed attendance of two million. • Baltimore. The American League baseball Orioles and the city have structured a rental fee based on a 50 -50 profit- sharing plan. If the Orioles make a profit, the city and team share the profits on a 50 -50 basis. If the Orioles do not make a profit, then no rent is due the city.'' • Chicago. In early negotiations with stadium developers, the American League baseball White Sox issued a list of twelve minimum requirements, prompting one of the developers to comment: "They (White Sox) want all the benefits of ownership and none of the liabilities." White Sox owners proposed that the Sox pay no rent and keep virtually all income from ticket sales, concessions, parking, and in- stadium display advertisements. The only money left to developers, and remaining to finance the construction of the ballpark, would be skybox and luxury seat lease revenues.'' It is doubtful that the White Sox demands could have reached such heights in the absence of very lucrative offers from other municipalities. F. Plans for sports facility construction and renovation. In a market that appears to offer so little in the way of potential profits for suppliers, it would be expected that the quantity of stadiums supplied would decrease. That would be true of municipalities were economically motivated. However, the data assembled in Table 2 below suggest that, despite claims made by city officials wooing sports teams, economics may not be a primary motivation. Cities do not appear to be discouraged by market conditions that have eroded the potential for profitably operating a sports facility. One -third of the sixty largest standard metropolitan statistical areas (SMSAs) have plans for new stadiums. Of'course, planning.does not guarantee construction, but the extent of planning indicates an optimism that belies market conditions. 20 Ibid., page S - 5. ''Ibid., page S - 22 John McCarron, "Sox Throw Developers Knuckleball," Chicago Tribune, January 19, 1986, page 1. • -10- En a survey conducted under the author's direction, city planners were asked, "Do you believe that stadium construction or renovation can be justified on economic grounds ?" Sixty percent of those building stadiums answered "yes," while only three of the twenty answered "no." Two city planners indicated they were "not sure," while one said he felt uncomfortable answering the question. In a market in which professional sports team suitors already outnumber professional sports teams by a substantial amount, new stadiums seem destined only to intensify intercity competition for teams and to diminish further the prospect that cities can profit from building a stadium. Secondly, seven SMSAs ranking in the top twenty according to population have stadium plans, and all of them already have at least one stadium. Two top -twenty cities, Atlanta and Chicago, are seriously considering constru of two stadiums. Furthermore, the survey indicated that official sin five of the top -twenty cities believe new stadium construction is essential to retain or reacquire at least one professional sports franchise they currently host or recently hosted. In the case of New York, stadium construction is _ contingent on bringing an NFL franchise back to the city. Only in Miami did circumstances suggest that the new stadium was not part of a defensive city action. After three referenda failed to produce public support for a new stadium, as noted earlier, the owner of the NFL Miami Dolphins decided to build his own. Thirdly, the data indicated that stadium plans in the top twenty SMSAs may be designed primarily to frustrate the ambitions of those cities ranking between twenty-first and fortieth in population. Eight cities in this latter group are planning sports facilities, and of these only Milwaukee is building to retain a team. However, even Milwaukee is reportedly planning to use the new arena as part of a strategy to attract an NHL club. In this group of eight cities, only Charlotte has not articulated a desire to host a team. The six cities other than Milwaukee and Charlotte in this group are each seeking professional baseball or football teams, although New York State support for a stadium in Buffalo of only 20,000 seats will likely dissuade any team from locating there; This group of eight also exhibited a greater interest in financing the projects exclusively through private sources than did either the first twenty or the third twenty cities. Finally, only five cities of those ranking between forty-first and sixtieth in population have stadium plans. Only one in this group, Oklahoma City, has plans for a large, domed stadium. The other four cities in this group planned to build arenas, many of which will also'serve as convention centers. Interestingly facility plans by this group specified a reliance on public funding greater than that indicated by either the first or second twenty cities. 23 Robert Baade, Linda Dunn, and Chris Hilden, "Stadium Planning Evaluation Questionnaire," Lake Forest College, Lake Forest, Illinois, March 1, 1986. -11- • • • TABLE 2 • Stadium Plans for Largest Metropolitan Areas in the United States . Cities in Sport(s) Stadium ' . Top 60 SMSAs SMSA Do Plans Call Seating Is Designed to with Stadium Plans Rank for Dome? Capacity Retain /Attract/Serve Financing Combination: % private; New York, NY 1 . Yet 82,000 Football % public • No 45,000 Baseball • Combination • Chicago, IL . 3 Uncertain 75,000 Football Combination 35,000 to San Francisco, CA 5 No 42,000 Baseball Combination Combination: 70,000 Football , 2/3 private; Cleveland, OH 11 Yes 50,000 Baseball 1/3 public Miami, FL 12 No 70,000 .Football Combination St. Louis, MO 14 Yes • 70,000 Football Combination • • No 73,000 Football • Combination Atlanta, GA 16 Yes Uncertain Baseball Combination Tampa Bay/ St. Petersburg, FL 22 Yes 46,000 Baseball , Private • under • Milwaukee, WI 23 Arena 20,000 Basketball /Hockey Private • • Phoenix, AZ 24 . Yes Uncertain Football Private Columbus, OH 28 Yes Uncertain Football • Public • under Buffalo, NY 29 Yes 20,000 Baseball Public Indianapolis, IN 30 No Uncertain Baseball Combination Sacramento, CA 32 Yes 55,000 Football/Baseball Private Charlotte, NC 36 Arena 25,000 Uncertain Public Oklahoma City, OK 43 Yes 75,000 Football Combination Albany, NY • 46 Arena 15,000 Hockey /Basketball Combination 8,000 to Baseball • Scranton, NY 49 Arena 10,000 (minor league) Public • 14;000 to Orlando, FL 51 Arena 17,000 Hockey /Basketball Public Knoxville, TN' 60 Arena 25,000 College Basketball Combination *according to population as of 1980. • III. A New Perspective on the Economic Effects of Sports Supporters of stadium construction invariably emphasize the economic activity that directly and indirectly emanates from the presence of a sports facility and events it hosts. In particular, stadium proponents assert that a city's economy will benefit substantially if a professional sports franchise can be secured as a stadium•tenant. For example, a recent study by a University of Pennsylvania researcher estimated that Philadelphia's professional sports teams contributed more than $500 million to the city's economy in 1983. In another study, $33 million in economic activity in Pittsburgh in 1979 was found attributable to the baseball Pirates.' Not all researchers agree that professional sports have a substantial impact on a city's economy. For example, a Baltimore researcher, appraising the economic impact the NFL Colts had on Baltimore before bolting for the greener pastures of Indianapolis, estimated the team's overall impact on the economy at approximately $200,000. The significant differences in these estimates can be explained, in part, by the advocacy role for Philadelphia professional sports played by the Philadelphia study; the Baltimore study can be viewed as a predictable reaction to the Colts' rejection of that city. The two studies do, however, contain meaningfully different perspectives on how economies work. Because the public statements of city officials and stadium proponents appear to rely so heavily on economic rationales, it is particularly important to consider the shortcomings of studies that purport to find such justifications for investment in sports. Edward Shils' Philadelphia study is, for two reasons, overly optimistic in its portrayal of the economic' impact of sports. First, Shils assumes that spending on sports franchises reflects an increase in aggregate consumer demand; presumably, such spending would not have occurred in the absence of sports. That assumption, however, is questionable. The statistical analysis summarized in Part IV lends strong support to a different hypothesis: that sports spending simply diverts dollars from other leisure activities. It is not difficult to understand why such diversion might occur. The leisure budget of a family or an individual is limited, in terms of both money and time. It seems likely, then, that a dollar spent at the Spectrum in Philadelphia may well, be a dollar less spent at a movie theater in Bucks County. Indeed, it is entirely plausible that sports spending may produce more than a dollar - for - dollar reduction in spending on other leisure activities. A father's attendance at a sports event (or his merely watching that event on the home television set) consumes several hours of his 'Edward B. Shils, "Report to the Philadelphia Professional Sports Consortium On Its Contribution to the Economy of'Philadelphia," mimeograph, January 18, 1985. 2 'Greater Pittsburgh Chamber of Commerce, "Chamber Study Shows Pirate's Economic Impact is $33 Million —Up $12 Million Since 1976," mimeograph, June 17, 1980. 26 1 -Ia1 Lancaster, "Tale of Two Cities: Why Football Mesmerizes Baltimore, Indianapolis," Wall Street Journal, January 21, 1986, page 23. -13- personal leisure time budget. When the head of the household is a sports buff, the time and money spent on family leisure activities may decline. • The second reason for Shils' false optimism is his failure to systematically consider the long -term impact of stadiums and professional sports on a city's economy. The establishment of stadiums and professional sports in a city alters its economic landscape. An emphasis on sports will encourage a development character in a city different than that identified for the larger region of which that city is a part. This different economic character needs to be identified and evaluated. It cannot be assumed that a city's long -term interest is served by economic development influenced by sports. In Part V below, the author "again finds support for a hypothesis different from that offered by city officials and stadium proponents: that any long -term economic development prompted by sports will be in the service sector of the economy. Much of this development may merely reflect a diversion from manufacturing or from the service sector in other parts of the region, rather than true growth. Stadium construction or renovation may create construction (manufacturing sector) employment in the short term, but in the long term the employment associated with sports events is clearly in the service sector: food, beverage, and souvenir vendors, security personnel, neighborhood restaurants and hotels. While the nation's economy as a whole may be moving in the direction of the service sector, a city that affirmatively pursues that developmental trend may find that its economy compares poorly to the rest of its region. IV. Short - Term Effects of Sports Facilities and Teams Does statistical analysis lend support to the hypothesis that spending on sports merely diverts spending from other leisure activities (the short-term economic impact of sports)? The author has used a statistical, method known as regression analysis to examine the impact sports stadiums and teams have on SMSA (Standard Metropolitan Statistical Area) income and retail sales. The statistical support for the author's findings appears in the Appendix. It is important to keep in mind that statistical analysis has its limitations; the results of a statistical analysis do not "prove "or "disprove "anything, but merely lend support to or cast doubt on a hypothesis. Economic activity does not take place in a vacuum, but rather is the result of decision making on the part of many individuals whose purposes and methods cannot be completely accounted for by statistical analysis. In the regressions performed for this study, the existence of a sports franchise (baseball or football) or a stadium (new or renovated) are the "independent" variables. Each of these variables is assigned a value of 0 (if no franchise or stadium exists) or 1 (if a franchise or stadium does exist). These independent variables are said to have a statistically significant impact on the "dependent" variable (in the first regression below, SMSA income is the dependent variable) if it' is found that a change in the value of an independent variable results in a greater- than -zero change in the value of the dependent variable: -14- Regressions were run for nine cities (Cincinnati, Denver, Detroit, Kansas City, New Orleans, Pittsburgh, San Diego, Seattle, and Tampa Bay— representing each of the major regions defined by the Bureau of the Census) for data from 1965 through 1983. SMSA income statistics were regressed on independent variables that capture the character of the city's economy before and after the establishment of sports stadiums and teams. The results of this first level of analysis were ambiguous. In Cincinnati; Denver, Detroit, and Seattle, the construction of a new stadium or rehabilitation of an old stadium did have a statistically significant positive impact on SMSA income. In Cincinnati, however, the positive impact of the stadium was offset by a statistically significant negative impact associated with professional football. This finding is enigmatic, and it is even more puzzling in light of the fact that the result was not repeated for any other city. This finding may be explained by the hypothesis presented earlier: that every dollar spent on professional football in Cincinnati induces more than a dollar reduction in spending on other leisure activities. For the remaining five cities in the analysis, stadium construction or renovation and the securing of a professional football or baseball team failed to exert a significant influence on SMSA income. While the results yielded through this first regression were ambiguous, a second regression —which used SMSA income as a fraction of regional income as the dependent variable — produced a consistently surprising result. In seven of the nine cities analyzed, stadium renovation or construction, or a city's adoption of a professional football or baseball team, was followed by a reduction in that city's share of regional income. The importance of considering the impact of stadiums and sports teams from a regional perspective cannot be overstated. The construction or renovation of a stadium, or the presence of a professional sports franchise, might well have a positive effect on the economy in the stadium's . immediate neighborhood. But at what cost to the rest of the city or to the region as a whole? Perhaps a new restaurant will open up on the vicinity of a new sports stadium; it is, however, just as likely that an established restaurant fifteen blocks away will close its doors as a result. Is this what stadium proponents consider "economic growth "? • The skeptic may argue that the stadium and/or professional sports variables inadvertently capture the effect of general urban malaise on urban incomes. A population variable was, however, included in each regression in an effort to capture the impact of urban economic contraction on city income. In this respect, the results of a third regression offer even stronger support for the hypothesis that stadiums and professional sports have a negative impact on SMSA economic development relative t the region. One would expect that a city's income as a fraction of regional income (the "income variable ") would be significantly and directly correlated with changes in the city's population as a fraction of regional population (the "population variable "). In the regressions performed here, the stadium and/or professional sports variables remained significantly correlated with the income variable even in the presence of the population variable. Such a result lends strength to the -15- argument that professional sports and stadiums exert an impact on city incomes independent of urban malaise. The results of this third regression confirm the thesis that stadiums and professional sports induce a reduction in SMSA income as a percent of regional income. In five of the nine cities, stadiums and professional sports had a significant negative impact; in the remaining four cities, the stadium and professional sports variables failed to exert a significant impact, positive or negative, on city incomes. In no instance did a positive, significant correlation surface among stadiums, professional sports, and city income as a fraction of regional income. If individual SMSA statistics are pooled ( "aggregated "), do stadiums and professional sports in general affect city income? Aggregated regressions were performed based on the three regressions discussed above. In addition, retail sales statistics in total and as a percentage of regional retail sales were considered as dependent variables in the new, aggregated regressions. The set of SMSAs analyzed in the aggregated regressions includes Atlanta, Buffalo, Cincinnati, Denver, Miami, New Orleans, San Diego, Seattle, and Tampa Bay. This set differs from that analyzed above. In Detroit, Kansas City, and Pittsburgh (those cities appearing in the first data set but excluded from the second), stadium construction/renovation or the adoption of a major league franchise occurred prior to the first year for which retail sales data area available. For that reason, it is not possible to examine statistically what impact the stadium or team may have had on the retail sales of these cities. Retail sales data for the selected SMSAs were available for the years 1967, 1972, 1977, and 1982. The aggregated regressions yielded results similar to those found in the analysis of individual SMSAs. Stadium construction or renovation may exert a positive influence on SMSA income, but the positive stadium effect is offset by the negative influence on city income induced by the presence of a professional baseball team. As one might expect, the same pattern emerges in an analysis of the relationship between city retail sales and the stadium and professional baseball variables. Professional football does not have a statistically significant impact -on either city income or retail sales; this result was expected since only eight "home games" are scheduled for professional football teams during the regular season. In professional baseball, on the other hand, there are eighty-one games hosted by a major league city during the regular season. Finally, the stadium variable was not found to have a significant effect on SMSA income as a fraction of regional income; the same insignificant result was found for the stadium variable's impact on city retail sales as a fraction of regional retail sales. The professional baseball variable did exert a negative impact on city income as a fraction of regional income, but this result is likely to occur randomly 20 percent of the time. Similarly, the professional football variable exerted a positive impact on city retail sales as a fraction of regional retail sales, but such a result is also likely to occur randomly 20 percent of the time. In summary, Shils' contention that professional sports contribute mightily to a city's . economy is questionable. In four out of nine cities surveyed, the stadium variable, which -16- presumably captures the economic multiplier triggered by professional sports, exercised a significant impact on a city's income. However, in the case of Cincinnati, the economic benefit associated with the stadium was more than negated by the significantly negative impact exerted by the professional football variable. In five cities the stadium variable proved insignificant. Furthermore, the stadium or a professional sports variable consistently correlated with a decline in a sports - minded city's fraction of regional income. V. Long - Term Effects of Sports Facilities and Teams Proponents of publicly built sports facilities argue that stadiums and professional sports bring business to a community. The immediate impact exerted by stadiums and sports was analyzed in Part IV of this paper, and was found generally to be insignificant. But the impact of stadiums and professional sports is thought by some to go beyond the immediate impact already analyzed; they are seen as magnets for other businesses. A recent New York Times article noted the potential benefits stadium enthusiasts define. "Supporters of a domed stadium in downtown (Buffalo) say that in addition to promoting civic pride and tourism, it would also create construction jobs and attract many other jobs to the area, which has the state's highest unemployment rate. " Do stadiums function as economic catalysts? In this section of the paper, the author finds statistical support for his hypothesis that stadiums and sports facilities merely divert economic development from the manufacturing sector to the service sector of a city's economy. Eight cities — Buffalo, Cincinnati, Denver, Miami, New Orleans, San Diego, Seattle, and Tampa Bay —were selected for analysis in this part of the study. Cities in the data set were selected on the basis of data availability and the timing of stadium construction or team adoption. Data for the years 1965 through 1978 were used, and construction or adoption had to occur between those years for meaningful statistical analysis. For each SMSA an attempt was made to determine if the presence of a renovated or new stadium or a professional sports franchise had a statistically significant impact on one of three dependent variables: (1) SMSA manufacturing employment as a percentage of the region; (2) manufacturing value added as a percentage of the region; or (3) capital formation in the manufacturing sector as a percentage of regional capital formation. Again, statistical support for the conclusions outlined below is presented in the Appendix. The results of the statistical analysis lend strong support to the author's second hypothesis, that stadiums and professional sports tend to divert economic development toward the service sector. Only in a region where several cities are pursuing similar developmental paths did the stadium and professional sports variables have a significant positive impact. 27 Ibid. -17- Many West Coast cities built stadiums and attracted teams in the 1960s, suggesting that the region as a whole was moving toward a service economy. In the regressions performed here, only in the cases of San Diego and Seattle was there a significant positive correlation between any of the independent variables representing manufacturing activity and the stadium and sports variables. San Diego's renovation of its stadium and its marriage to the baseball Padres both appeared to induce capital formation and increase the city's share of regional employment in the manufacturing sector. In Seattle, the presence of the baseball mariners appeared to contribute positively to the city's share of regional manufacturing value added. the only other significant correlation occurred in New Orleans, where employment and value added as a percentage of the region declined after the Superdome was built and after the football Saints took up residence. It is possible that the completion of the nation's largest, most expensive domed stadium eliminated a significant number of construction jobs, and activity it diverted from the manufacturing sector. In the case of Saints football, it could be that activity has been diverted from the manufacturing sector to the service sector. This result conforms to findings presented earlier. VI. Summary and Conclusions The sports stadium is perhaps the icon of twentieth century America. Whether constructing cathedrals in the Middle Ages or superdomes in modern cities in the United States, financing icons was and is an issue. Stadiums in the United States have a mixed history of private and public sponsorship reflecting changing perceptions of the economic soundness of such projects. Despite questionable economics, stadiums have a past and a future. Sports are so intimately woven into the fabric of our culture that it seems inconceivable that stadiums will not be constructed in which to showcase our social jewels. Yet the rationale offered in defense of public subsidization of stadiums is decidedly economic. The findings of this study do not, however, consistently support an economic rationale. During the .1960s and early 1970s the private sector all but deserted the stadium scene. Such a widespread retreat suggests that the stadium benefits appropriable by the private sector were insufficient to cover costs, or that the private sector had discovered how accommodating the public sector could be in subsidizing stadiums for its sports teams. Popular belief in the benefits associated with stadiums and the sports they host has produced an intense municipal competition for a sports presence. As a result, stadiums have expanded in scale, grandeur, and cost, while the competition for teams has whittled away at the benefits municipalities could hope to derive from them. Despite this, a third of the sixty largest municipalities in the United States are building or planning to build stadiums, and almost all believe their plans are economically justifiable. The results of this study suggest that the economic "growth" spurred by sports franchises or stadiums is not likely to be true growth at all, but merely "realignment." Jobs are not created, but diverted from the manufacturing economy to the service economy, or from higher - skilled to lower - skilled (and lower -paid) occupations. Similarly, spending on sports activities may only -18- divert spending from other leisure activities, and new business start -ups in the neighborhood of a stadium may be negated by business failures in other areas of the city. Contrary to the claims of city officials, this study has found that sports and stadiums frequently had no significant positive impact on a city's economy and, in a regional context, may actually contribute to a reduction in a sports- minded city's share of regional income. The results presented here suggest that it must not be assumed that subsidization of sports or stadiums by the public sector is economically sound. It remains to be seen if the private sector by tapping into potential revenue streams (the sale or leasing of luxury stadium space or integration of the stadium into larger development schemes) can appropriate benefits sufficient to justify massive investments in teams and their facilities. # ## Robert A. Baade is the James D. Vail Associate Professor of Economics at Lake Forest College, Illinois. During 1985 and 1986 he served as chairman of the Chicago Metropolitan Planning Council's Committee to Determine Costs and Benefits of a New Sports Stadium in Chicago. Published by The heartland Institute as the thirteenth in a series of in -depth studies concerning important issues in the Midwest. Nothing in a Heartland Policy Study should be construed as necessarily reflecting the views of The Heartland Institute or as an attempt to aid or hinder the passage of any legislation. Copyright 1986. by The Heartland Institute. • • -19- APPENDIX Equations (1), (2), and (3) below, by considering the impact of stadiums and sports teams on aggregate income, spending, and development, provide a framework suitable for an analysis of the "short- term" impact of stadiums and sports teams on an SMSA's economy. (1) Y = Bo +B1X11 +B2X2, +83X3' +B4X4i +E, where, • Y = the i SMSA's income; X, = ' the it' SMSA's population; X = a dummy variable that assumes a 0 value if the i` SMSA does not renovate or build a new stadium in a given period; the value 1 is assigned if it does; X31 = a dummy variable that assumes a 0 value if the it SMSA does not have a professional football team in a given period; the value 1 is assigned if it does; X = a dummy variable that assumes a 0 value if the i i ' SMSA does not have a professional baseball team in a given period; the value 1 is assigned if it does; E = stochastic error. (2) Y /YR = B + B,X,; + B2X2, + B3X3i + B4X4, + E,,, where, Y = the fraction of regional income represented by the i SMSA. (3) Y /YR = Bo + B(X1,XR1,) + B2X2, + B3X3i + B4X4 + E where, (X = the fraction of regional population represented by the i tt' SMSA. The structure of these equations offers an indication of the extent to which the value of the variable on the left side of the equation (dependent variable) can be explained by summing the value of the variables on the right side of the equation (independent variables). More precisely, the independent variable's value is weighted by the change in its value relative to the change in the dependent variable value. Each independent variable is assigned a weight, represented in the equations as B B2, B3, and B4. Bo represents the systematic change in the dependent variable's -20- value explained by all the independent variables included in the equation. A value for the dependent variable is first predicted by adding the appropriately weighted independent variable values to B The difference between the predicted and actual value for the dependent variable is the random or stochastic error, represented by E In Table A -1, the R indicates the fraction of the variation in the dependent variable's value "explained" by each equation. If R equals one, then all the variation in the dependent variable's value is explained by changes in the value of the dependent variables weighted and summed. In the regression analysis performed to get the results presented in Table A -1, SMSA income statistics were regressed on independent variables that capture the character of the city's economy before and after the establishment of sports stadiums and teams. Regressions were run for nine cities representing each of the major regions defined by the Bureau of the Census for data from 1965 through 1983. The results of the analysis are recorded in Table A -1. -21- • TABLE A -1 . THE IMPACT OF STADIUMS AND PROFESSIONAL FOOTBALL AND BASEBALL ON SMSA TOTAL PERSONAL INCOME AND AS A FRACTION OF REGIONAL INCOME 1965 TO 1983 • SMSA Equation B1 B2 B3 84 R2 • Cincinnati (1) 233.70 2784.60 -4127.10 0 .84 (5.76)** (2.23) ( -2.37) (2) .00003 -.00148 ' ' -.0004 -• .68 (3.06) ( -4.98) ( -.95) • • (3) .85 -.0004 .0008 . 57 (1.64) ( -.60) (1.50) Denver • (1) 23.80 6085.80 .90 (4.99) (4.50) (2) .00006 -.023 • .50 • • (3.06) . • ( -3.95) (3) .78 .008 .44 (2.64) (.,93) Detroit (1) 25.80 20157.00 . 79 (2.04) (6.14) (2) .00001 -.0085 • .74 (2.88) ( -6.73) (3) 1.35 -.005 _77 • • (3.37) ( -3.68) Kansas City (1) 50.20 2661.00 1362.82 .81 (4.76) (1.14) (.73) • (2) .00004 -.0048 - .00041 .55 (4.23) ( -3.17) (.22) (3) .78 ' -.003 - .00005 .49 )3.70) ( -2.16) _ ( -.02) New Orleans (1) 41.30 ' -83.80 587.80 .98 (15.27) ( -.16) (-1.14) • • (2) -.0000 -.001 -.0042 .47 ( -.33) ( -.71) , • ( -3.03) (3) 2.32 -.0002 -.0023 .88 (7.05) • _ ( -.38) _ ( -3.28) Pittsburgh (1) -91.50 - 1581.50 . 94 (- 10.68) ( -1.31) • (2) - .00002 - .00272 .67 • . (-5.26) ( -4.43) . (3) -.93 -.003 .47 ( -3.48) ( -3.27) San Diego (1) 26.20 - 94 2. 4 0 - 1491.60 .96 • (15.56) ( -.61) - (-1.13) ' (2) 00001 - .00245 .00364 .95 (7.56) (2.41) (4.18) • (3) .50 .002 .004 .92 (5.77) _ (1.93) _ _ (4.10) ' Seattle (1) , , 27.90 5640.90 "' .92 (5.85) • (4.39) •• (2) - .00000 .00075 01 ' ( -.17). • • (.42) . ( .75 •:002 .24 (2.20) (1.69) Tampa Bay (1) 17.90 823.30 .92 ( (.53) (2) .00002 -.0025 ..99 ( ( -6.11) (3) 1.30 -.0018 .98 (18.83) _ ' _ ( -3.93) • ' While Cincinnati does host the National League Reds, the team's adoption occurred prior to 1965, the first year for which sufficient data for .meaningful analysis are available. Blanks elsewhere in this table and in Table A -3 reflect similar situations. ' **t-statistic. ' "' Kingdome and professional football were established in Seattle.in 1976, so this coefficient represents the impact of the stadium and football. Sources (1) 1967 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business (Washington DC: US Government Printing Office, May 1972), Vol. 52, No. 5, pages 30-36. (2) 1972 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income (Washington„ DC: US Government • Printing Office, June 1976), Vol. 1, pages 73 -287. ' (3) 1977 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income 1976 -81 • • If individual SMSA statistics are pooled, do stadiums and professional sports in general seem to exercise an influence on city income or SMSA retail sales? In addressing this question, equations (1) through (3) were pooled across cities, and cities were assigned a number in an effort to capture income changes resulting from circumstances peculiar to a particular city. In addition to pooled regressions based on equations (1) through (3), retail trade statistics in total and as a . percentage of regional retail sales were regressed on the independent variables identified in the aggregated versions of equations (1.) through (3). These equations are numbered (4) through (6). Regression results based on the aggregated versions of equations (1) through (3) and'on equations (4) through (6) are recorded in Table A -2. The SMSAs included in the study are Atlanta, Buffalo, Cincinnati, Denver, Miami, New Orleans, San Diego, Seattle, and Tampa Bay. Data for these SMSAs on retail sales was available for 1967, 1972, 1977, and 1982. The analysis for each equation was thus based on thirty-six observations. (4) RS =13 + BIXt1 +B2X2, + B3X3; + B4X4, + B5X5, + E • (5) (RS/RSR = B + B X„ + + B3X3; + B4X4; + B + E ( (RS /RSR,) = B + B1(Xu /XR1,) + B2X2, + B3X3; + B + B5X5, + E where, RS = the i`" SMSA's retail sales; X = the i SMSA's assigned number; (RS /RSR = the fraction of regional retail sales represented by the i SMSA. In considering the relationship between SMSA income as a fraction of income in that city's region and the stadium and professional sports variables, the stadium variable is not significant in either equation (3) or (4). The same insignificant result occurs when analyzing the relationship between city retail sales as a fraction of that SMSA's regional retail sales and the stadium variable in either equation (5) or (6). While professional baseball does exert a negative impact on city income as a percentage of regional income in both equation (2) and (5), this is likely to randomly occur 20 percent of the time. Furthermore, the (2) and (5) equations offer scan evidence on the income- or retail sales- generating process for an SMSA within its region. The professional football variable similarly is significant only at the 20 percent level in describing a city's retail sales in a regional context. •-23- • • TABLE A -2 THE IMPACT OF STADIUMS AND PROFESSIONAL FOOTBALL AND BASEBALL ON SMSA PERSONAL INCOME AND RETAIL SALES - AGGREGATED Equation 61 B2 B3 B4 B5 R2 • (1 • • 18.77' 2703.50 1167.40 - 3104.60` 157':40 .68 (6.44) (1.53) (.52) ( -1.78) (1.14) • (2)* .00006 -.022 .054 -.052 .006 .21 • (1.04) ( -.61) (1.19) ( -1.47) (2.24) • (3)' 1.26 -.0009 .001 -.0014 • - .0007' .996 (73.64) . _ (-.33) _ (.31) ( -.58) ( -3.25) • (4) • 8.25' • 979.33 550.00 • - 1514.38 ' 43 98 .69 . (6.79) (1.33) (.59) • (-2t08) • ' (:77) (5) .00004 -.015 .031 -.026 .0029 .25 • . (1.47) (.95) (1:52) (1.64) (2.27) • (6) .56' -.006 .009 - .00027 -.0003 .95 (20.33) _ ( -1.27) _ (1.59) ( -.07) ( -.86) (3) • 1.30 -.0018 - (18.83) 98 - _ _ ( -3.93) • aggregated version of equation identified in Table A -1. significant at the 1% level. ° significant at the 5% level. significant at the 10% level. ° significant at the 20% level. Sources (1) 1967 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business (Washington, DC: US Government Printing Office, May 1972), Vol. 52, No. 5, pages 30-36. (2) 1972 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income (Washington, DC: US Government Printing Office, June 1976), Vol. 1, pages 73 -287. • (3) 1977 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income 1976 - (Washington, DC: US Govemment Printing Office, June 1983), pages 21 -97. (4) 1982 Income: U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income 1978 - (Washington, DC: US Govemment Printing Office, June 1985), pages 30 -108. (5) Retail Sales: U.S. Department of Commerce, Bureau of the Census, Census of Retail Trade, Geographic Area Series, United States (Washington, DC: US Govemment Printing Office), 1973 -83. Finally, an analysis can be made of the extent to which the manufacturing sector of selected SMSAs benefitted from the construction or renovation of a stadium or the adoption. of a professional sports franchise. Buffalo, Cincinnati, Denver, Miami,.New Orleans, San Diego, Seattle, and Tampa Bay were the SMSAs selected for analysis on the basis of geographic location. For each SMSA an attempt was made to determine if the presence of a renovated or new stadium or a professional sports franchise had a statistically significant impact on either SMSA manufacturing employment.as a percentage of the region, manufacturing value added as a . percentage of the region, or capital formation in the manufacturing sector as a percentage of regional capital formation. Such tests will provide evidence on the ability of stadiums and professional sports to attract business activity from elsewhere in the region and enhance economic development in sports- minded SMSAs. Equations (7), (8), and (9) are the equations relevant to the analysis. • (7) N/NR = B + BI(Xli /XR;) +B + B + B + E;, • where, . N/NR = . the fraction of regional employment represented by the i SMSA; and the other independent variables are those defined earlier. • • -24- • (8) VA VAR, = B + BI(X1iAR,) +B B3X3i +13,,X4, + E, (9) dK/dKR B + B,(X /XR +B + B + B + E. Regressions based on equations (7) through (9) were performed for each of the eight cities for 1965 through 1978. The results are recorded in Table A -3. • • • • -25- TABLE A -3 THE IMPACT OF STADIUMS AND PROFESSIONAL FOOTBALL AND BASEBALL ON MANUFACTURING ACTIVITY • 1965 TO 1978 SMSA Equation B1 B2 • B3 B4 R2 Buffalo (7) 128.34 .003 .55 ( ' (.35) (8) -2.17 .015 .10 ( -.04) (1.10) (9) - 371.47 -.078 .11 - _ ( -.96) ( -.80) • Cincinnati (7) - 182.62 -.047 -.006 .17 ( -.62) ( -.14) (.47) (8) - 182.10 -.11 .11 .27 • ( -.73) ( -.40) (.47) (9) 12.75 -.074 .17 .13 (.07) _ ( -.35) _ (.98) - Denver • (7) .08 -.47 .11 (.00) ( -.98) ( -.012' .62 .55 . ( -3.44) (.49) ( -.009 1.92 .14 ( -1.32) (.82) • Miami (7) 246.13' • - .146 ' ' .57 (2.70) (.48) • ( .001" .29 .48 (2.11) (1.19) • . (9) 271.02 .15 .35 • - ( - (.30) New Orleans (7) 385.21' -.62' ' -1.09' .88 (2.47) ( -2.87) ( -3.76) (8) 358.52* -.752' -1.09 .84 (1.95) ( -2.73) ( -3.19) (9) 664.70 .21 -.47 .57 (2.51) - (.52) _ ( -.95) - - • San Diego (7) 23.72 .38* .30" .82 • (1.36) (2.33) (2.15) (8) 28:90 .122 .225 .59 • (1.39) (.62) (1.36) (9) -9.72 .95' .81 .75 - ( -.22) - (2.22) _ (2.36) Seattle (7) 148.37 -.69 .55 .28 ' (1.06) ( -.80) (.77) (8) 270.25' -.72 1.18' .59 (2.37) ( -1.03 (2.00) • ' (9) 198.27 -.80 -.04 .061 (.41) _ (-.27) _ _ ( -.016) • Tampa Bay ( . 113.34' - .21 .38 (2.35) ( -.76) (8) 137.06' -.37 .50 • (3.17)' ( -1.36) . (9) 209.41' -.86 .35 (2.45) _ _ ( -1.61) - - * significant at the 5% level. " significant at the 10% level. Source: U.S. Department of Commerce, Bureau of the Census, Annual Survey of Manufacturers (Washington, DC: US Government Printing Office), 1973, 1975, 1977, and 1979. • • • -26- • ATTACHMENT E SAMPLE LEASE AGREEMENT BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 9 For Meeting Of: August 21, 2001 ITEM TITLE: Resolution authorizing the City Manager to execute a Sports Complex Lease between the City of Yakima and Big League Dreams Yakima, LLC SUBMITTED BY: City Management City Council Sports Complex Lease Negotiating Committee CONTACT PERSONS/TELEPHONE: Dick Zais, City Manager, 575 -6040 Mary Place, Mayor, 575 -6040 Rita Anson, Director Finance, 575 -6070 Bernie Sims, Council Member, 575 -6040 Ray Paolella, City Attorney, 575 -6030. John Puccinelli, Council Member, 575 -6040 SUMMARY EXPLANATION: To negotiate a lease with Big League Dreams ( "BLD "), Mayor Place and Council Members Sims and Puccinelli convened a negotiating committee that includes Scott Wagner, Mel Wagner, Greg Luring, Keith Riffe, from local service clubs, and Mike Nixon and Tom Hurson from the Parks Commission. The committee has received extensive technical support from City Staff including Dick Zais, Glenn Rice, Ray Paolella, Rita Anson, Tim Jensen, Chris Waarvick, Denise Nichols, and Larry Peterson. Attorney Scott Beyer, of Menke Jackson Beyer Elofson & Ehlis, LLP, has served in a primary role drafting and negotiating on behalf of the City. The proposed Sports Complex Lease has resulted from a process described below. Based upon our negotiations with BLD, staff believes the proposed lease, as a whole, is more favorable to and better protects the City of Yakima than comparable sports parks leases between BLD and California municipalities. Five examples of terms we believe demonstrate the advantages of the proposed lease are 1. Lease payments are 10% of gross revenue 2. Non- competition within the entire state of Washington Continued ... Resolution X Ordinance Other (Specify) Contract X Mail to (name and address): Mr. Scott Parks LeTellier, CEO, BLD USA, 10550 Galena Street,`Mira Loma, Calif. 91752 -3261 Phone: (310) 378 -1984 Funding Source (a) Lease Agreement N/ A r i APPROVED FOR SUBMITTAL: ,4 City Manager STAFF RECOMMENDATION: This is a policy issue. Staff respectfully requests Council consideration and direction regarding the proposed Sports Complex Lease. LEASE NEGOTIATING COMMITTEE RECOMMENDATION: Approval of the proposed Sports Complex Lease is recommended to the City Council by a strong consensus of the Lease Negotiating Committee. COUNCIL ACTION: Agenda Statement: Sports Complex Lease August 21, 2001 Page - 2 3. License Fee deferral and reimbursement in event of default 4. " Broader Indemnification 5. Increased Insurance Approximately seven more parcels will be added to the Sports Complex Lease by addendum after the City completes all necessary property acquisitions. , On May 1, 2001, Council adopted a resolution to place a measure on the September ballot that if, approved by the voters, would authorize, the City Council to increase electric, gas and phone utility tax rates from 6% to 7 %. Revenues from this voter-approved tax rate increase would be utilized toNpay the debt service on construction bonds would W be`issued to build'a''Sports Complex If the voters approve the tax; rate increase, and the Sports Complex .is ,built as ;planned, the City proposes to lease the facility to Big League Dreams to operate and maintain the Sports Complex, under the attached Sports Complex Lease Agre ement. BLD will grant the City of Yakima a non - exclusive right to use the Big League "Dreams .` Name�and.Marks" and "Total Image (collectively referred to as the ":BLD Intellectual Property ") on terms and conditions set of a separate. License Agreement BLD has invested significant financial andmanagement resources to develop, protect and .create value m its stadium replica concept and other BLD Intellectual Property. The License Agreement will be separately submitted to.the City Council for review and approval at, a future date, and will be conditioned upon voter approval of the utility tax increase on September 18, 2001 If the following conditions are not all satisfied on or before J ul y 1 , 2 002 , the expected License Agreement shall terminate as of such date Under the terms of the proposed Lease and the exp;ectedlicense agreement, the City of Yakima will pay BLD USA $300,000 within thirty (30) days after all of the following conditions having been satisfied. a . Voter approval of the Utility Tax Measure, certified` by the Yakima County Auditor, b City obtaining all land use and zoning permits and approval reasonably necessary for the development of the Project, with no right of appeal, and c. Approval by,the City and BLD Yakima of, Plans and Specifications and Budget for the Project, including Furniture, Fixtures and Equipment .( "FF &E "), and d The ' City issuing bonds at a rate per annum not to exceed 7.51% for the Project, inchiding furniture,. fixtures and equipment ( "FF &E :'). Note: The :timing of the. payment of the ;license fee has been changed in this agreement from, what was presented to Council at the April 2001 Study Session. At that time, the City anticipated that thelicense fee would be paid in the fourth year of, operatzons.of the Sports Park by way of BLD retaining $300,000 of the lease payment that BLD would otherwi�h se;ave paid.to the City. Under the exP f the License ected terms o A ee a the license fee to B LD. af ment, the City will. P Y the above conditions precedent have been satisfied, consequently, lease revenue will become payable'from BLD to `the City at the • negotiated 'le rate of-10 % of gross revenues beginung in the fourth year of operations (rather'than in year five as previously presented at the Council Study Session) Agenda Statement: Sports Complex Lease August 21, 2001 Page -3 Once all of the conditions precedent are satisfied, the City will pay the license fee from: _ a. Revenues from the voter - approved utility tax rate increase or bond proceeds, to the extent that construction bids received are less than the project budget estimate (note: the license fee would be paid from revenues from the voter - approved utility tax rate increase or bond proceeds prior to consideration of any changes to the facility such as an upgrade to the pavilion); or b. City contingency reserves, if funds available from revenues from the voter - approved utility tax rate increase or bond proceeds should be insufficient to cover the license fee. Under this option, all Sports Complex Lease revenues will be used first to fully reimburse the City's contingency reserve before any lease revenue would be allocated to the Parks Fund. Once the contingency reserve fund has been reimbursed for any license fees paid from this fund, all future lease revenues will be made available to the Parks Fund. (Note: Under this option, reserve funds utilized to make the license fee payment could include revenues received from the utility tax collections and/or the City's contingency fund.) Big League Dreams, USA guarantees to reimburse the City the full amount of the license fee paid should Big League Dreams Yakima default, surrender or abandon the Lease within ; three years from the date the license fee is paid by the City. The License Agreement, in addition to granting the City of Yakima the non - exclusive right to use BLD's Intellectual Property (as defined above and in the License Agreement), BLD agrees not to use its Intellectual Property in connection with any other sports park or sports facility located within the state of Washington. Approval of the proposed Sports Complex Lease is recommended to the City Council by a strong consensus of the Sports Complex Lease Negotiating Committee. MENKE JACKSON BEYER, ELOFSON .& EHLIS, LLP Attorneys at Law 807 NORTH 39TH AVENUE* YAKIMA, WASHINGTON 98902 (509) 575 -0313 • FAX: (509) 575 -0351 ANTHONY F. MENKE DAVID A. ELOFSON ROCKY L. JACKSON KIRK A. EHLIS G. SCOTT BEYER TO: City Council City Manager City of Yakima FROM: G. Scott Beyer DATE: August 16, 2001 RE: City of Yakima/Big League Dreams Lease Negotiations I have been assisting the City in negotiating a Lease with Big League Dreams. You will be receiving a copy of what is hoped to be the final version of the Lease. This version has not been reviewed in its final form by Big League Dreams and may therefore be subject to what we hope will be minor modifications. In addition, there may be formatting and other non- material changes in the document. Although I will reference the License Agreement provisions regarding payment and refund of the License Fee, the License Agreement is not in final form. The following are significant items that have been negotiated with BLD: o Payment of License Fee: The City will not be obligated to pay the $300,000 License Fee until all of the conditions precedent to construction of the Sports Complex have been satisfied. These conditions precedent are outlined in Section 3.2 of the Lease. o Refund of License Fee: The License Fee will be paid within 30 days after all of the conditions precedent are satisfied, which is no later than July 1, 2002. BLD USA declined to agree to a provision for performance security other than to agree to provide in the License Agreement that it will repay the License Fee if the City terminates the Lease as a result of the Tenant's default or surrendering or abandonment of the Lease. This obligation on the part of BLD USA to repay the License Fee continues for three years after the License Fee is paid by the City. The remaining points reference the Sections of the Lease: O 3.2 C editions :Precedent: The Lep does not become finally effective until th!utilitytax measure is pproved;<`l land use approvals .. are obtained, ?� Tans and Specifications and budget are approved by the parties, and the )City is able to issue bonds based upon bid prices received and accepted by the City for the entire project: + 4.1(b) - Percentage Rent: The percentage rent is 10% of Gross Revenues beginning in the fourth full lease year August 16, 2001 Page -2 O 4.2 - Gross Revenues: BLD has accepted the City's language for defining Gross Revenues as being the same as gross income of a business under Washington State law. A few items are not included in this definition which include revenues from such sources as video games or special events where the Tenant does not receive the revenue but is paid a rental fee. In these cases, the rental income would be a part of Gross Revenues. BLD points out that if it had to pay a percentage of the revenue from the actual video game sales or from ticket sales from special events, it would likely not be financially feasible to - contract with video game providers or special event promoters. BLD further points out that if these contracts were not financially feasible, both BLD and. the City would lose revenue from restaurant sales. • 7.2 Business Name: BLD will likely operate under the name "Big League Dreams Yakima Sports Park," and has this option. ♦ 8.3 — Landlord's Non- Competition: Nothing in the non - competition provision prevents the City from renting, licensing, or allowing the use of its parks or fields. In addition, it can fund youth tee -ball, coach - pitch, and player -pitch baseball or softball and can organize such youth baseball or softball if the Tenant does not do so. Youth means persons 12 or younger. O 9 - Landlord's Development of the Sports Complex: Sections 9.1, 9.4. and 9.5 address the City's ability to assure that the Plans and Specifications and Budgets are followed and that the maximum cost to the City does not exceed the maximum cost obligation. O 14 - Insurance and Indemnity: Your insurance brokers have played a significant role in crafting the language which deals with insurance. We have also added additional indemnification provisions for protection of the City. e 26.2 - Diversity of the ,Workforce: We have included this provision which is found in other agreements of the City which establishes as an aspirational goal, . diversity in employment at the .Sports Complex comparable to the ethnic composition of Yakima County. 0 29.4 Competing Business: BLD has agreed to a non - competition clause which bars it from establishing a similar park anywhere within the State of Washington for a period of 25 years. This provision is far more expansive than the leases negotiated in California. Based upon the negotiations with BLD, this Lease on the whole is more favorable to the interests of the City than any comparable lease signed by the California municipalities. RESOLUTION NO. R -2001- A RESOLUTION authorizing and directing the City Manager of the City of Yakima to execute a lease agreement with Big League Dreams Yakima, LLC for the Yakima Sports Complex. WHEREAS, many leaders of the City of Yakima (the "City ") and the greater Yakima community believe that development of a publicly -owned Sports Complex including without limitation baseball, softball, indoor hockey and indoor soccer facilities such as those designed according to plans, and specifications available from Big League Dreams USA, LLC, of Mira Loma, California, ( "Big League Dreams ") would be a community asset. A Sports Complex at Kiwanis Park would provide the City and the greater Yakima community with a unique tool to re- establish Yakima's historic image as the sports capital of the Pacific Northwest and a significant vehicle for enhancing economic development and tourism; and WHEREAS, Big League Dreams is experienced in designing, managing, and operating sports complexes (including baseball, softball, volley ball, inline hockey and soccer facilities) in Cathedral City and Jurupa, Riverside County, California; and WHEREAS, three major local service organizations, namely Kiwanis, Rotary, and Lions, have already invested substantial time, energy, and money to acquire necessary property adjacent to Kiwanis Park, and to introduce the possibility of a Sports Complex such as those designed and operated by Big League Dreams to leaders of the City of Yakima and the greater Yakima community; and WHEREAS, to encourage the possibility of development of a Big League Dreams Sports Complex in Yakima, the Kiwanis, Rotary, and Lions service. pklres /OLD 8-01 pm organizations have already donated to the City of Yakima a substantial number of the properties they acquired adjacent to Kiwanis Park; and WHEREAS, subject to voter approval of a 1% utility tax rate increase at the September 18, 2001 election, the City desires to construct a Sports Complex and lease it to Big League Dreams; and WHEREAS, the City Council deems it to be in the best interest of the City of Yakima to enter into a Sports Complex Lease Agreement with Big League Dreams Yakima, LLC; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKINIA: The City Manager of the City of Yakima is hereby authorized and directed to execute the attached and incorporated Sports Complex Lease with Big League Dreams Yakima, LLC. ADOPTED BY THE CITY COUNCIL this 21st day of August, 2001. ATTEST: Mary Place, Mayor . City Clerk Qklre, /BLD 11-01 pm • SPORTS COMPLEX LEASE between the CITY OF YAKIMA and BIG LEAGUE DREAMS YAKIMA, LLC • 1 8/16/2001 12:17 PM. TABLE OF CONTENTS SECTION 1 - DEFINITIONS 3 SECTION 2 - LEASE OF SPORTS COMPLEX 5 SECTION 3 - TERM 6 SECTION 4 - RENT 7 SECTION 5 - ADDITIONAL RENT 12 SECTION 6 - TAXES 1 SECTION 7 - USE 12 SECTION 8 - COMPLIANCE 13 SECTION 9 - LANDLORD'S DEVELOPMENT OF THE SPORTS COMPLEX • 14 SECTION 10 - UTILITIES AND SERVICES 16 SECTION 11 - MAINTENANCE AND REPAIRS 16 SECTION 12 - ALTERATIONS 17 SECTION 13 DESTRUCTION 17 SECTION 14 - INSURANCE AND INDEMNITY 19 SECTION 15 - CONDEMNATION 22 SECTION 16 - ASSIGNMENT, SUBLETTING AND ENCUMBERING 24 SECTION 17 - DEFAULT 25 SECTION 18 - LANDLORD'S ENTRY ON SPORTS COMPLEX 29 SECTION 19 - NOTICES 30 SECTION 20 - ATTORNEYS' FEES 30 SECTION 21 - LITIGATION CONCERNING VALIDITY OF THIS AGREEMENT 30 SECTION 22 - ESTOPPEL CERTIFICATES 30 SECTION 23 - SUBORDINATION 31 SECTION 24 - SALE OR TRANSFER BY LANDLORD 31 SECTION 25 - SURRENDER OF SPORTS COMPLEX 32 SECTION 26 - FORM OF NONDISCRIMINATION AND NONSEGREGATION CLAUSES 32 SECTION 27 - HOLDING OVER 32 SECTION 28 - REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS 33 SECTION 29 - SPECIAL PROVISIONS 34 SECTION 30 - HAZARDOUS MATERIALS 35 SECTION 31 = MISCELLANEOUS 37 EXHIBIT 1 41 EXHIBIT 2 42 EXHIBIT 3 43 EXHIBIT 4 44 EXHIBIT 7 47 2 8/16/2001 12:17. PM THIS SPORTS COMPLEX LEASE (this "Agreement ") is entered effective this day of , 2001, by and between the CITY OF YAKIMA, a Washington municipal corporation referred to in this Agreement as "Landlord", and BIG LEAGUE DREAMS YAKIMA, LLC, a California limited liability cornpany, referred to in this Agreement as "Tenant ". SECTION 1 - DEFINITIONS The following terms used in this Agreement shall have the meanings given unless expressly provided to the contrary: 1.1 Affiliate means Richard Odekirk, Jeffrey Odekirk, or any entity other than BLD USA in which Messrs. Odekirk and Odekirk, individually or collectively, or Tenant, owns at least a fifty percent (50 %) capital or voting interest of the common stock, . partnership units or limited liability company interests, as applicable. • 1.2 Agreement means this Sports Complex Lease. 1.3 Annual Gross Revenues Statement is defined in Section 4.2(d). 1.4 Award, Condemnation, Condemnor and Date of Taking are defined in Section 15.1. 1.5 BLD USA means Big League Dreams USA, LLC, a California limited liability company. 1.6 BLD USA Allocations are defined in Section 4.2(b). 1.7 BLD USA Sponsorships are defined in Section 4.2(b). 1.8 • Budget means an itemized budget setting forth the costs for the Project, including but not limited to financing costs, site work, infrastructure improvements, construction, parking, buildings, maintenance, FF &E, planning costs, architect fees, engineer fees, permit fees, and . applicable taxes. 1.9 City means the City of Yakima, an incorporated 'municipality within the County of Yakima, State of Washington: 1.10 City Days are defined in Section .29.1. 1.11 City Manager means the City Manager of the Landlord: 1.12 City Use Permit shall mean the use permit with respect to the Sports Complex to be approved by the City. 3 8/16/2001 12:1.7 PM 1.13 Controlling Percentage means the ownership of, or the right to vote, fifty -one percent . (51%) or more of the total combined voting shares, units or membership interests of a corporation, partnership or limited liability company, as applicable. 1.14 FF &E shall mean all furniture, furnishings, trade fixtures, apparatus and equipment required for the operation and management of the Sports Complex. A list of the anticipated FF &E is attached as Exhibit 4 and incorporated herein by this reference. 1.15 Gross Revenues are defined in Section 4.2. 1.16 Hazardous Materials are defined in Section 30.2. 1.17 Indemnitees is defined in Section 14.6. 1.18 Land means the land depicted on Exhibit 1 and described legally on Exhibit 2 on which the Project shall be constructed and which is leased to Tenant by this Agreement. 1.19 Landlord means the City of Yakima, a municipal corporation, and its permitted successors and assigns. 1.20 Lease Year means the period from .January :1 of each calendar year to December 31 of such calendar year (both dates inclusive) during the Term; If, however, the Term Commencement Date does not fall on a January 1, the first Lease Year shall be that period from the Term Commencement Date to the next following December 31, and if the Term does not end on a December 31, then the last Lease Year shall be the period commencing with the last preceding, January 1 and ending at the end of Term. The first Lease Year shall be considered a partial Lease Year for all purposes of this Agreement unless the Term Commencement Date falls on January 1 of the Lease Year during which the Term Commencement Date occurs. 1:21 Legal Challenge shall mean any action or other legal proceeding (including .a challenge on environmental grounds) brought by any third party seeking to block construction of the Sports Complex or to contest the vandity of this Agreement or of any Related Agreement. 1.22 Memorandum of Lease means that certain Memorandum of Lease executed approximately concurrently herewith and to be recorded pursuant to Section 31.16. 1.23 Percentage Rent is defined in Section 4.1. 1.24 Plans and Specifications means all concept drawings, preliminary drawings, landscaping and grading plans, site plans, engineering drawings, reports, final construction drawings and any other plans or specifications consistent with the Project Description and beneficial to or required for the construction of the Sports Complex. 1.25 Project means the development of the Sports Complex in accordance with the Project Description, the Plans and Specifications and this Agreement.: 1.26 Project Description means the summary description. of the Sports Complex described in the attached Exhibit 3: 4 8/16/2001 12 :17 PM 1.27 Punch List is defined in Section 9.3. 1.28 Quarterly Gross Revenues Statement is defined in Section 4.2(d). 1.29 Related Agreements means any and all agreements executed by and between the City or any of its affiliates, on the one hand, and BLD USA or BLD Yakima and any of their affiliates, on the other, relating to the Sports Complex. 1.30 Renewal Terms and Renewal Term are defined in Section 3.4. 1.31 Rental Account is defined in Section 4.4. 1.32 Sports Complex means the Project, FF &E, Land, and all easements or rights of way necessary or desirable for access to the Land. 1.33 Statutes are defined in Section 8.1. 1.34 Taxes are defined in Section 6.2. 1.35 Tenant means Big League Dreams Yakima, LLC, a California limited liability . company, its permitted successors and assigns. The members of Tenant are BLD USA, Richard Odekirk and Jeffrey Odekirk. 1.36 Term is defined in Section 3.1. 1.37 Term Commencement •Date means the earliest date upon. which (a) Tenant accepts in writing the Sports Complex, or (b) the City issues a Certificate of Occupancy for the Sports Complex, or (c) Tenant takes possession of the Sports Complex, and Tenant obtains all permits and licenses required to sell beer, wine and liquor at the Sports Complex; provided, however, that Tenant's obtaining such permits and licenses, shall not be required for purposes of determining the Term Commencement. Date if Tenant has failed to apply for such permits and licenses at least three (3) months prior to the expected date of substantial completion of the Sports Complex or has failed to use due diligence to pursue issuance of such permits and licenses. The Landlord shall advise the Tenant of the expected date of substantial completion at least five (5) months prior to such date: 1.38 Utility Tax Measure means the measure City voters shall be asked to approve on September 18, 2001 to increase utility taxes to pay for the cost of constructing the Sports Complex: SECTION 2 — LEASE OF SPORTS COMPLEX This Agreement shall be effective to bind the Landlord to lease the Sports Complex to Tenant and to bind: Tenant to lease the Sports Complex from Landlord on the terms stated herein, upon this Agreement being duly executed by both parties. The lease of the Sports Complex and Tenant's right of possession shall not be effective until the Term Commencement Date and shall take effect at all if the condition precedents in Section 3:2 are not satisfied. .. 5 8/16/2001 12:17 PM SECTION 3 — TERM 3.1 Lease Term. The lease term of this Agreement (the "Term ") shall commence on the Terri Commencement Date and shall end on the last day of the calendar month containing the day which is twenty -five (25) years after the Term Commencement Date, unless sooner terminated by Landlord or Tenant as otherwise provided for herein. Upon :Landlord's request, Tenant will co -sign Landlord's written confirmation of lease commencement and termination dates. 3.2 Conditions Precedent. This lease shall in no event be effective until each of the following conditions precedent are satisfied: (a) Utility Tax Measure. Voter approval of the Utility Tax Measure, certified by the Yakima County, Washington, Auditor; and (b) Land Use Approvals. Landlord obtaining all land use and zoning permits and approvals reasonably necessary for the development of the Project, with no right of appeal; and (c) Approval of Plans and Specifications and Budget. Approval by Landlord and Tenant of the final Plans and Specifications and Budget for the Project and — Ff8 E; an (d) Financing. Landlord issuing bonds at a rate per annum not to exceed 7.51 % for the Project and FF &E, based upon bid prices received and accepted by Landlord for the Proje and j In the event voter approval of the Utility Tax Measure is not certified within the time required for certifying the election of. September. 18, 2001, this Agreement shall terminate effective as of the date following certification of the election, and the parties shall have no further obligation or liability one to the other thereafter, except as otherwise provided herein. In the event that the conditions precedent contained in Sections 3.2(b), 3.2(c) and 3.2 (d) are not satisfied on or before July 1, 2002, this Agreement shall terminate effective as of such date, and the parties shall have no further obligation or liability one to the other thereafter, except as otherwise provided herein: The Landlord shall use due diligence to satisfy the condition precedent contained in Section 3.2(b). The :Landlord and Tenant shall each cooperate and use due diligence to timely review and approve the final Plans and Specifications and Budget for the Project and FF &E for the purpose of the Landlord advertising for bids. The Landlord shall have the sole discretion whether to reject all bids, readvertise for bids, or accept the bids received. The Landlord in its sole discretion may also waive the limitation on the rate of interest based upon bond market conditions:and'bid prices received. The dates for satisfaction of the conditions precedent may be extended by written agreement duly executed by Landlord and Tenant. 3.3 Minimum Percentage Rent. Landlord, in its sole discretion, shall have the right to terminate this. Agreement and all further rights and obligations of the parties hereunder by giving written notice of such termination (which shall specify a date not less than ninety (90) days 6 8/16/2001 1.2:17 PM thereafter on which such termination shall become effective) to Jenanf at any time during the first ninety (90) days of the eighth (8` ninth (9` or tenth'. (1.0) Lease Years of this \ Agreement if, but only if, during the seventh (7` eighth (8t or ninth (9` full Lease Year of this Agreement, Tenant has paid to Landlord Percentage Rent as provided in Section .4 in an amount of less than $75,000. With respect to any such full Lease Year (21 through the 9 Tenant may, at its option, pay Landlord additional Percentage Rent beyond what is required in Sectioiito meet the Percentage Rent payment requirement set forth in Section 4 and thereby avoid termination of this Agreement by Landlord. 3.4 Renewal Terms. If Tenant at the expiration of the Term of this Agreement is not in default in performing any of Tenant's obligations under this Agreement, meaning there are no defaults on the part of the Tenant with respect to which the notice and cure provisions of this Agreement have lapsed wi a cure having been accomplished, Tenant shall have and is hereby granted the optionqo renew this Agreement for three (3) five (5) year Renewal Terms (the "Renewal Terms" or "Renewal Term ") upon the same provisions, covenants, and conditions contained herein, each such five year Renewal Term to begin on the . expiration of the Term of this Agreement or the prior Renewal Term, as applicable. Each option for a Renewal Term shall be exercised by Tenant's giving Landlord written notice thereof at least sixty (60) days but not more than one hundred twenty; (120) days prior to the expiration of the Term of this Agreement or the prior Renewal Term, as applicable. SECTION 4 — RENT Tenant shall pay to Landlord Percentage Rent, without deduction, set -off, prior notice or demand, as follows: 4.1 Percentage Rent. (a) First Partial and First Three Full Lease Years. In the first partial Lease Year . (if applicable) and in each of the first three full Lease Years, . Tenant shall pay no Percentage Rent (defined below). • (b) Fourth and Subsequent Full Lease Year Payments. Commencing with the first quarter of the fourth (4th) full Lease Year and continuing for each quarter of every subsequent Lease Year, Tenant shall pay to Landlord, at the times and in the manner specified in this Agreement, Percentage Rent for each Lease Year ( "Percentage Rent "). Percentage. Rent shall be calculated by multiplying Tenant's Gross Revenues (as defined in Section 4.2) from the Sports Complex for the applicable period by Ten percent (10 %). The Percentage Rent shall be . paid quarterly, in arrears, within( 22) days following the end of each calendar quarter during the applicable Lease Year 4.2 Gross Revenues. (a) Definition. "Gross Revenues" mean "gross income of the business" as that term is defined pursuant to Chapter 82:04 of the Revised Code of Washington and Washington Administrative Code regulations promulgated pursuant to such statutes, in effect as of the date of this Agreement, and as such statutes and regulations may be amended: In the 7 8/16/2001 1:02 PM ,:7 event that such statutes or regulations are modified, amended or repealed, (which results in items, categories, kinds and types of revenue or income previousl included or to be included in -Gross Revenues being exempted or excluded from Gross Revenue; Landlord and Tenant shall negotiate in ; good faith modifications to the definition of Gross Revenue, so that the Landlord is in .a comparable financial position had such modifications, amendments or repeal of the statutes or regulations not occurred. "Business "' for :purposes of determining "gross income of the business" means all business activity of the Tenant, and of its permitted sub - tenants and of its assignees and concessionaires, franchisees, and licensees, on or about, arising from or related to the Sports Complex. Gross Revenue's shall also include, but � not be limited to, BLD Allocations as efined i i in Section 4.2 (b). .Except with respect to BLD 'llocations as- e`efmcd -in - 1(b ,Gross ?�. `. Revenues shall not include any revenues arising from or related to the Sports. Complex received 0 � ) _ by any non - Affiliate person or entity which (a) are not paid or required to be paid Tenant`s � ) • (b) derive from or arise out of ournaments; ecia evens, corporate or group event catering or Q ; services; camps /clinics; .video or other arcade ` games, - or pay phone commissions. Tenant shall include within Gross Revenues, however, all rents or other payments received by it from such e 4a C` -Y" non - Affiliate persons or entities engaged in such activities, whether or not such rents or other - `"` payments fall within the statutory definition of "gross income of the business:" Except to an i,,,, E „, Affiliate, Tenant shall not contract the collection of revenues from league or player fees; from. `-'/' field .rentals; from gate admissions; or from batting cage use to any person or entity. Accordingly, all revenues received from such revenue sources shall be Gross Revenues. Tenant may, with the approval of Landlord, sublease the operation of the restaurant/concession stands. In the event it does so, however, revenues derived therefrom by such sub - lessee shall be considered Gross Revenues, but sublease payments to Tenant shall not. �U ` ”- o (b) BLD USA Allocations. BLD USA wns nd organizes tournaments A � splayed and camps /clinics held at the various Big League Dreams Sports Parks; contracts with r" to receive commissions on room nights reserved by participants in tournaments held at the " various Big League Dreams Sport Parks; and sells sponsorships to entities interested in having a rv :001 commercial identification with the various Big League Dreams Sports Parks, and shall have the •) right to do all of the foregoing with respect to the 'Sports Complex. Except as otherwise g 1;,,r‘- provided in the remainder of this subpart (b) with respect to revenues paid by BLD USA to 00 Tenant (the "BLD USA Allocations "), revenues derived by . BLD USA shall-not be considered Gross Revenues. All other forms of Gross Revenues (including, specifically, revenues from all league and player registrations with respect to all sports played at the Sports Complex; batting cages; food and beverage; group business; special events; gate admissions; merchandising; arcade; and park tournaments) related to the Sports Complex are created solely by Tenant and all shall be included in Gross Revenues /As to BLD USA tournaments and cam s /clmics, BLD USA shall pay to Tenant, and Tenant shall include in Gross Revenues, _ le d4rental charg not 4, -7. less .: the .. -,maximum field _ rental .charge made `by. Tenant to. any third party tournament , ? ., organizer or camps /clinic operator during the applicable Lease Year BLD USA shall pay to , Tenant, and Tenant shall include in Gross Revenues, fifty Epercent.2(50 %o) ofncall hotel C,) ii t,.ee }commissions received by BLD USA for room nights reserved by participants in tournaments e.;.,,,, held at the Sports Complex. "BLD Sponsorships" shall mean any agreement entered by BLD fa, USA with any entity by which such entity is given the right to identify commercially with Big`.- g L p League- Dreams Sports Parks as a :sponsor, 'preferred company or other designation of - similar.' S s ( . import and where such commercial identification rights extend to more than one - Big League , o Dreams Sports Park. BLD `'USA, shall - pay to Tenant, and Tenant shall include in :Gross t/, of 6 . Revenues, fifty percents(5(%) the cash revenues :received from such a BLD Sponsorship it g 8/16/2001 12:17 PM ,- divided by the . number of Big League Dreams Sports Parks to which the BLD SponsorshipH pf 6' applies. As to any advertising or sponsorship sales made by BLD USA or Tenant which do not> :— 7 constitute BLD Sponsorships, BLD USA shall pay to Tenant, and Tenant shall include in Gross J - Revenue, eighty percent = 80% ` of � the cash revenues g ty P (: ) ' . d om' :fr su a ch non :B, .:receive Spons In the event, however, (A) any entity controlled by BLD USA enters a lease agreement for the construction and operation of a new Big League Dreams Sports Park, and (B) O0 . such lease shall contain BLD USA Gross Revenue allocation provisions which, taken as a whole, cA- are more favorable to the new lessor than the BLD USA Gross Revenue allocation provisions set forth above, taken as a whole, are to Landlord, then this Agreement shall ipso facto be deemed amended to make such more favorable provisions, taken as a whole, applicable to Landlord under this Agreement from that time forward. BLD USA may form an entity of which it owns a Controlling Interest to operate and manage some or all of the reveni.4 in the first sentence of this Section 4.2(b). If it does so, revenues received by such an operating entity (which shall not be an Affiliate for these purposes) from, such revenuObe treated in the same manner as revenues received by BLD USA for purposes of determining Gross Revenues and BLD USA Allocations under this Section 4.2. (c) Sales Recording and Records Tenant shall record at the time of sale, in the presence of the customer, receipts from sales or other transactions, whether cash or credit, in a cash register or registers, or a point of sale terminal or terminals, having a tape that accumulates and , consecutively numbers all transactions. A receipt from any transaction showing the correct amount of purchase shall be offered to the customer at the time of any transaction, including any cash sale. Transactions not ordinarily recorded in a cash register or point of sale terminal shall be noted on an d kept in a ledger format. Tenant shall keep, and all sub- tenants, concessionaires, franchisees, contractors and licensees of Tenant shall keep, and, with five (5) days' advance written notice, make available, at the Sports Complex:. (i) full and accurate books of account and records relating to the Gross Revenues, maintained in . accordance with generally accepted , accounting principles consistently applied, including, without limitation, a sales journal, general ledger and all bank account. statements showing deposits of Gross Revenues; and . • (ii) all cash register or point of sale terminal receipts with regard to the Gross Revenues, credits, refunds and other pertinent transactions made , from or on the Sports Complex (including the revenues of any sub- tenant, franchisee, contractor, licensee or concessionaire). Such books, receipts and records for each Lease Year shall be kept at the Sports Complex or at the headquarters of BLD USA for a period of seven (7) years after the end of each .Lease Year, and shall be made available for inspection and audit by Landlord and. Landlord's representatives at the Sports Complex on five (5), days', advance written notice. In addition, within thirty (30) days of the last day of each calendar quarter, Tenant shall furnish to Landlord copies of Tenant's state and local sales and use tax and business and occupation tax returns, and shall maintain copies of such records for each Lease Year for a period of seven (7) years after the end of .each Lease Year Tenant shall require all Tenant's sub- tenants, franchisees, contractors,.licensees and concessionaires producing Gross .Revenues to maintain the same records and copies of. tax 9 8/16/2001 12:17 PM returns required of Tenant related to the Sports Complex for each Lease Year for a period of seven (7) years after the end of each Lease Year. (d) Quarterly and Annual Gross Revenues Statements. (i) Quarterly Gross Revenue Statement. Each payment of. Percentage Rent shall be accompanied by a statement, to be certified as correct by an authorized officer of Tenant, that sets forth Tenant's Gross Revenue for the quarter just concluded ( "Quarterly Gross Revenues Statement "). Quarters shall be calendar year quarters, ending on the last day of March, June, September. and December. (ii) Annual Gross Revenue" Statement. Within sixty (60) days following the end-of each Lease Year, including the last Lease Year of the Term, Tenant shall furnish Landlord with a statement of Tenant's annual Gross_ Revenues on account of the previous Lease Year, or any partial Lease Year, including any deductions ( "Annual Gross Revenues Statement "). Such Annual Gross Revenues Statement shall be certified as correct by .an authorized officer of Tenant. (iii) Content. Each Quarterly Gross Revenues Statement and Annual r o Gross Revenues Statement shall set forth the total Gross Revenues for the preceding quarter or 5 -1s. Lease Year, as applicable, and shall show the method of computing the Percentage -n d e for such quarter or Lease Year, as applicable. Each Annual Report shall include .A per ormance - r _ }! - report regarding the use of the Sports Complex, including but not limited to, numbers of tournaments, athletic participants, admissions and such other information as will demonstrate the level of .activity at the :Sports Complex. (e) Audit Rights. (i) Audit Procedures. The acceptance by Landlord of any monies paid to Landlord by Tenant. as Percentage Rent for the Sports Complex as shown by any Annual or Quarterly Gross Revenues Statement furnished by Tenant shall not be an acceptance by Landlord of the accuracy of the statement, or of the sufficiency of the amount of Percentage Rent payments, but Landlord shall be entitled at any time and from time to time during the Term, until the date that is seven. (7) years after the end of the Lease Year for which any of the Percentage Rent payments have been paid, to question the sufficiency of the amount paid and the accuracy of any and all statements furnished by Tenant to justify the amount :Tenant shall pay as Percentage Rent, and to confirm and evaluate Tenant's statement of its Gross Revenues from the Sports Complex. At any time during the Term and within seven (7) years after the . end of the Term, Landlord may cause an audit of Tenant's books and records relating .. to the calculation of Percentage Rent by an independent accountant of Landlord's own selection for any Lease Year If any Annual Gross Revenues Statement for such Lease Year delivered by Tenant to Landlord is found to be less than the amount of Tenant's. actual Gross Revenues for the period covered by the 'statement, Tenant shall immediately pay to Landlord any additional Percentage Rent shown to be payable by Tenant. If the audit reveals that the correct amount of Gross Revenues is more than five percent (5%) greater than the amount shown on the Annual Gross Revenues Statement previously delivered by Tenant for the period covered by such statement, Tenant shall immediately pay to Landlord the cost of the audit and any additional Percentage Rent shown to be payable by Tenant, together with a late charge on the amount of the underpayment of 10 8/16/2001 12:17 PM Percentage Rent at the rate specified .in Section 17.3, plus additional rent equal to five percent (5 %) of the Percentage Rent payable for such Lease Year; otherwise, the cost of this audit shall be paid by Landlord. If, ten (10) days after written request therefor specifying Tenant's failure to comply with the reporting obligations hereunder, Tenant fails to provide to Landlord any Quarterly Gross Revenues Statement or Annual Gross Revenues Statement in the manner specified in this Agreement, such failure shall constitute a default under this Agreement. In such an event, Landlord shall have the right, in addition to any other rights or remedies it may have under this Agreement, to conduct an audit to determine such revenues. Tenant shall immediately reimburse Landlord for the cost of such audit on written demand by Landlord. If at any time Tenant causes an audit of Tenant's business at the Sports Complex to be made by an independent accountant, Tenant shall, furnish Landlord with a copy of the report of this audit at no cost to Landlord, within ten (10) days after. Tenant's receipt of the audit report. (ii) Examination of Books. Tenant shall, for a period of seven (7) years following the delivery of each Annual Gross Revenues Statement, including the seven (7) year period following the end of the Term, keep and maintain, safe and intact, all of the records, books and accounts required under Section 4.2(c) and shall from time to time, upon request, make such records available to Landlord, Landlord's auditor, representative or agent for examination at any reasonable time during such period. Landlord shall also have the right to make abstracts from the records; to make copies of any or all of the records; to examine any or all contracts, leases, licenses and concession agreements; and to make copies of any or all contracts, leases, licenses or concession agreements. (iii) • Assignees. Wherever Tenant's business or operations, or Tenant's Gross Revenues, or Tenant's records, books, accounts and other data are referred to in this. Agreement, they shall be deemed to include, but only to the extent necessary to calculate or verify Gross Revenues, those of any assignee, sub- tenant, concessionaire, licensee, vending machine operator or other person, firm or corporation selling merchandise or services on or from . the Sports Complex, provided that this subpart shall not be deemed to imply consent to the operations of any other person, firm, or corporation except in accordance with the provisions of Section 16. 4.3 Percentage Rent Due in Event of Default. If this Agreement is terminated by Landlord because of Tenant's default, and if Tenant becomes liable for rent by way of damages or otherwise, or if at any time during the Term, Tenant, in violation of Section 7, ceases to conduct in the Sports Complex the business described in Section 7, then from and after the time of the breach causing this termination, or from and after the time of the cessation of business, the Percentage Rent shall be deemed to be Ten percent (10 %) of that amount which is equal to the average of the Gross Revenues per year during the twenty -four (24) months preceding the termination or cessation of business, unless the termination or cessation occurs within three (3) years of the beginning of the Term, in which event the Percentage Rent shall be $200,000 per year 4.4 Payment. All rent payable under this Agreement shall be made in legal currency of the United States.. Tenant shall pay all rental amounts due under this Agreement by electronic funds- transfer to such account as shall be designated by Landlord from time to ;time: Such transfers . shall be authorized in writing by Tenant and provide for payment from the Rental Account established by Tenant. "Rental Account" shall mean a bank deposit account which is 11 8/16/2001 12:17 PM fully insured with the Federal Deposit Insurance Corporation. An . .amount equal to the rent due each calendar quarter shall be deposited by Tenant in such account within 'twenty (22) days following the end of each calendar quarter and Landlord shall be authorized on and after such date to sweep such account for purpose of payment of the rent due Landlord. SECTION 5 - ADDITIONAL RENT • All Taxes and other costs and expenses payable under this Agreement by Tenant and all damages, costs and expenses that Landlord incurs by reason of Tenant's default, shall be deemed additional rent. In the event of Tenant's nonpayment of additional rent, Landlord shall have all the same rights and remedies as Landlord has for the nonpayment of Percentage Rent. The term "rental" and "rent" as used in this Agreement shall mean Percentage Rent and such additional rent. SECTION 6 TAXES 6.1 Covenant to Pay Taxes. As additional rent, Tenant shall, throughout the Term, commencing effective as of the Term Commencement Date, pay directly to the appropriate taxing authorities all Taxes (as' defined in Section 6.2). All Taxes shall be paid before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of law for their nonpayment. Tenant shall furnish to Landlord prior to the date when any Taxes would become delinquent receipts or other appropriate evidence establishing such payment. 6.2 Definition of Taxes. The term "Taxes" shall include all real property taxes, possessory interest taxes, personal property taxes, excise . taxes, charges and assessments (including but not limited to= leasehold excise taxes and street improvement liens) which are levied, assessed upon or imposed by any governmental authority or political subdivision thereof } (other than the or any po7ificahsub -division therecf� during or with respect to any portion of )F 241 0 e Term ereof with respect to the Sports Complex and any improvements, fixtures, equipment or other property of Tenant, real or personal, located on the Land or used in connection with the � ' 1 t operation of the - Sports Complex, and any tax which shall be levied or assessed in addition to or 34- in lieu of such real or personal property taxes, and any license fees and 'taxes measured by or imposed upon rents, or other taxes or charges upon Landlord's leasing of the Land or the receipt of rent hereunder. • 6:3 Proration of Tenant's Tax Liability. Tenant's liability to 'pay Taxes shall be prorated on the basis of a 365 -day year to account for any fractional portion of a fiscal tax year included in the Term at its commencement or expiration. Any Taxes payable after the Term Commencement Date (but before the expiration of the Term). but applicable, in whole or in part, to periods prior to the Term Commencement Date, shall be paid by Tenant. Landlord shall, however, pay to Tenant its pro rata share of such Taxes liability for periods prior to the Term Commencement. Date at least ten (10) days prior to the date such Taxes are due and payable. SECTION - 7 - USE 7.1 Permitted Uses Tenant shall use and occupy the 'Sports Complex continuously during the Term for the purposes, among others reasonably related thereto, of offering sport, and 12 • 8/16/2001 °12:17 PM • recreational play and instructional opportunities, group and special event activities and food and . beverage, retail and other concessions at the Sports Complex as described in this Agreement and for no other purpose without exception. Use of a part of the Sports Complex for a game room, including video games, pool tables and similar entertainment equipment, shall be permitted; provided, however, that any form of gaming, lawful or otherwise, will not be permitted on the • Sports Complex without the prior written consent of the Landlord. Subject to obtaining and maintaining required or appropriate licenses, permits or other approvals from the applicable governmental agencies having jurisdiction, Tenant may engage in the sale of beer, wine and liquor. Tenant shall not permit any obscene or indecent art forms, materials, images or exhibitions to be placed or maintained on the Sports Complex. 7.2 Business Name. During the Term, and any Renewal Term, Tenant shall conduct business in the Sports Complex under the name "Big League Dreams Yakima Sports Complex" or "Big League Dreams Yakima Sports Park," as Tenant determines in its sole discretion, in the manner provided herein. 7.3 Permits. Tenant shall at all times during the Term obtain, keep and maintain all licenses and permits required by state and local governmental authorities necessary to operate the Sports Complex, and comply with each and every term of each such permit. 7.4 Security. Tenant shall at all times provide such security for the operation_ of the Sports Complex as shall reasonably be planned by Tenant to be prudent to protect the customers, employees, guests, contractors and other invitees of the Sports Complex, and the owners and occupants of neighboring properties, from the customers, employees, guests, contractors and other invitees of the Sports Complex. • 7.5 Operation. Tenant shall operate Tenant's business from the Sports Complex with due . diligence and efficiency. Tenant will operate the business at Tenant's own expense and at hours consistent with other similar businesses operated by Tenant; provided, however, that this provision shall not apply if the Sports Complex is closed due to inclement weather or Tenant's • business is temporarily shut down due to casualty, condemnation, fire or other causes beyond the reasonable control of Tenant. Tenant shall at all times carry a commercially reasonable stock of merchandise and of food and beverages offered for sale at competitive prices, and shall maintain an adequate number of properly trained personnel for the efficient service of Tenant's customers, Sports Complex participants and the operation of the Sports Complex. Although Landlord has no ownership interest in Tenant's business, Landlord is concerned about maximizing Gross - Revenues (and, consequently, the Percentage Rent), and Tenant hereby acknowledges that fact. • SECTION 8 — COMPLIANCE 8.1 Tenant: Tenant shall, at Tenant's expense, comply. promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants, conditions and restrictions and requirements of any governmental authority in effect during the Term, regulating the use or operation by Tenant of the Sports Complex (collectively, the "Statutes") whether those Statutes • are now in force or are subsequently enacted. Tenant shall keep and maintain in full force and effect, and in good standing, all permits and licenses required from state and local governmental authorities for operation of the Sports Complex. The suspension or termination of any permit or license' for a period in excess of. thirty (30) days shall be a material breach hereof, but shall first • 13 8/16/2001 12:17 PM be subject to the right to cure as provided in Section 17.1. If any bureau, department or official of the state or county government or any other governmental authority (other than the City) having jurisdiction requires that any non - structural changes, modifications, replacements, alterations or additional equipment be made or supplied in or to any portion of the Sports Complex by reason of Tenant's use or operation thereof, Tenant shall, at Tenant's cost and expense, make and supply such non - structural changes, modifications, replacements, alterations or additional equipment. Tenant shall not use nor permit the use of the Sports Complex in any manner that will tend to create waste or a nuisance. The judgment of any court of competent jurisdiction, or the admission by Tenant in .a proceeding brought against Tenant by any government entity,. that Tenant has violated any Statute shall be conclusive as between Lan_dJord and Tenant and shall constitute grounds, subject to the right to cure.as provided in Section .17.1,'x- for termination of this Agreement by Landlord. 8.2 Landlord. Landlord, and Landlord's contractors and agents, shall comply with all applicable Statutes of any governmental authority then in effect while developing the Project, including but not limited to public procurement laws as applicable. Landlord represents and warrants that, as of the Term Commencement Date, the Sports Complex will be in compliance with all applicable Statutes of any governmental authority then in effect related to the construction of the Project. In the event, during the Term, Landlord enacts or issues any new Statutes which would burden or restrict Tenant in the operation of the Sports Complex beyond restrictions contained in this Agreement or the City Use Permit, Landlord and Tenant shall negotiate in good faith modifications to the Percentage Rent formula or other provisions of this Agreement, the effect of which modifications would place Tenant in a comparable financial position had such Statutes not been enacted or issued. o-rYL 8.3 Landlord's Non-Competition. During the Term, not including any Renewal Term, Landlord, shall not :organize, or contract with third parties to organize, softball or baseball leagues or tournaments within the City; provided, that nothing in this Section shall prohibit the Landlord from (a) renting, licensing or .allowing the use of Landlord's parks or fields, or (b) funding youth t- ball, coach pitch, and player pitch baseball or softball, or (c) organizing youth t- ball, coach pitch and player pitch baseball or softball leagues in the event Tenant does not do so, or (d) organizing winter baseball or softball leagues or tournaments during such periods that the Sports Complex is not open for baseball and softball use - "Youth" for purposes of this Section shall mean persons twelve (12) years of age and younger. In the event at any time during the Term, Tenant does not intend to organize youth t -ball, coach pitch and player pitch baseball or softball leagues, it shall notify Landlord in writing prior to November 1 of the preceding ball season, so that the Landlord at its option may organize such leagues. Once such leagues are organized by the Landlord after notice from Tenant or after Tenant fails to organize such youth leagues, Landlord shall have the right to organize such youth leagues without being subject to the provisions of this Section until such time that the Landlord fails to organize such youth leagues. SECTION 9 — LANDLORD'S DEVELOPMENT 'OF THE SPORTS COMPLEX 9.1 Approval of Plans and Specifications and Budget. Landlord and Tenant shall mutually agree in writing upon the final ;Plans and Specifications and Budget for purposes of the Landlord advertising for bids for the:ProjectIndTFF&: Once mutually approved in writing, the 14 8/16/2001 12:17 PM Landlord may make nonmaterial changes in the final Plans and Specifications or Budget, provided that such modifications are approved by the Landlord's architect for the Project and are consistent with the Project Description and the intended use of the Sports Complex, but may not make material changes . in the final Plans and Specifications or Budget without the written consent of the Tenant, which shall not be unreasonably withheld. , , , 9.2 Landlord's Construction Obligations. The Sports Complex shall be constructed by Landlord, as set forth in the Project Description and the Plans and Specifications, with due diligence. The quality of construction and the quality of materials used in the construction of the Sports Complex' shall be of a .first class quality and in accordance with the Project . Description and the :Plans and Specifications. Landlord shall prosecute Landlord's construction obligations hereunder to completion without undue interruption or delay and . in a good, workmanlike manner. Landlord warrants-that it will endeavor to cause the Sports Complex to be completed and possession thereof delivered to Tenant on or before May 1, 2003. In the event the Sports Complex is not completed and possession of the Sports Complex is not delivered to Tenant on or before May 1, 2003, Tenant shall have no obligation to pay any rent or other payments or perform any other obligations under this Agreement until the .Term Commencement Date. Landlord shall have no liability to Tenant for failure to complete the Sports Complex and deliver possession of the Sports Complex on or before the date hereinbefore described, or on or before any other date, provided Landlord is continuing to prosecute its construction obligations diligently and in good faith. Tenant shall, however, have the option to terminate this Agreement, without further obligation or liability hereunder, in the event Landlord is unable to complete the Sports Complex and deliver possession of the Sports Complex to Tenant on or before November 1, 2004. 9.3 Guarantee of Materials. Landlord shall guarantee all work performed by or for Landlord in the construction of the Sports Complex against defective workmanship and materials for a period of two (2) years from the Term Commencement Date (or such longer period as may be specified in the Plans and Specifications). Landlord, if permitted, shall assign to Tenant (or enforce for Tenant's benefit) any and all guarantees and/or warranties of workmanship and materials which it may receive or which are required in the Plans and Specifications with respect to those portions of the Sports Complex required to be maintained - and repaired by Tenant hereunder. Within fifteen (15) days after receipt of Landlord's certification of substantial completion of the Sports Complex, Tenant shall supply to Landlord a • . written punch list (the "Punch List ") setting forth any additional corrective work to the Sports Complex which Tenant believes is required to be performed pursuant to the Plans and Specifications. In the event that no Punch List is provided by Tenant within such fifteen (15) day period, then Tenant shall be deemed to have accepted the Sports Complex in its entirety subject to Landlord's guarantee obligations described above and any repair and maintenance obligations of Landlord under Section 11.2 below. Landlord shall complete or correct the Punch List items promptly and with due diligence. 9.4 FF &E. Tenant shall have the right to review and make additions and revisions to the FF &E list set forth in. Exhibit 4 with the approval of the .Landlord, which approval shall not be unreasonably withheld, subject to the maximum cost set forth in Section 9.5 not being exceeded. Landlord shall acquire at its expense and own all FF&E, which shall be leased to Tenant as part of this Agreement. Landlord shall advertise for bids for the FF &E at substantially 15 . • 8/16/2001 12:17 PM the same time as the advertisement for bids for the Project. All or any portion of the FF &E:may, at Landlord's option, be bid as part of the Project or by separate bid. 9.5 Landlord's Maximum Cost Obligation. Notwithstanding any other provision of this Agreement, Landlord's maximum cost obligation under this Agreement shall not exceed the total amount of $10,317,771 for all expenses contemplated by this Agreement, including, but not limited to, bond underwriting and counsel, site work, infrastructure improvements, construction, parking, buildings, maintenance, FF &E, planning costs, architects, engineers, permits, and applicable taxes. Notwithstanding the provisions of Section 9.1 regarding material changes in the Plans and Specifications and Budget, if at any time after commencement of construction of the Project, the Landlord reasonably determines that the maximum cost set forth in this Section 9.5 may be exceeded, the Landlord and Tenant shall negotiate in good faith modifications in the approved final Plans and Specifications and Budget, consistent with the Project Description and contemplated use of the Sports Complex, to maintain the maximum costs below the amount set forth in this Section 9.5. SECTION 10 — UTILITIES AND SERVICES Tenant shall make ' all arrangements for and pay prior to delinquency all utilities and services furnished to or used by it or its licensees or sub- tenants, including, without limitation, gas, electricity, - water, telephone service, communications, cable television, trash, collection, sewer and storm drainage. 'Landlord shall, as part of its construction obligations, contract for and pay all necessary charges to connect the Sports Complex, and all necessary locations within the Sports Complex, to, or to access, gas, electrical, water, telephone, communications, cable television lines or sources and sewer and storm drainage. SECTION 11— MAINTENANCE AND REPAIRS 11.1 Tenant's Obligations. Except as provided in Section 11.2 below, throughout the Term, Tenant shall, at Tenant's sole cost and expense, maintain the entire Sports Complex in a safe . and first class condition and in good repair, including but not limited to replacement of FF &E (damage by casualty described in Section 1.3.1 excepted) and in accordance with (a) all applicable. Statutes; (b) the insurance underwriting board or insurance services office having or claiming jurisdiction over the Sports Complex; (c) all insurance companies insuring all or any part of the Sports Complex; and (d) standards consistent with other Big League Dreams Sports Parks. r Qid (5) 5 64. 11.2 Landlord's Obligations. For a period of two (2) years from the (erm .,A 4;,,, Commencement Date, Landlord shall, at Landlord's sole cost and expense, make all repairs and replacements in the Sports Complex required because of latent defects or latent faulty installation or construction by Landlord or as the result of the . act, default, omission or negligence of Landlord, its employees, agents, licensees, contractors or subcontractors. 11.3 Maintenance and Replacement of FF &E. A11 FF &E shall be maintained and replaced by Tenant pursuant to Section 11.1. 16 8/16/2001 12:17 PM SECTION 12 — ALTERATIONS Tenant shall not make any alterations or additions to the Sports Complex after completion of the Sports Complex without the prior written consent of the City Manager, which consent may be withheld in the sole discretion of the Landlord. Subject to the prior written consent of the City Manager, the alterations or additions shall not be commenced in any case until twenty (20) days after the City Manager has received written notice from Tenant stating the date the construction of the alterations or additions is to commence so that the City Manager, on behalf of Landlord, can post and record an appropriate .notice of nonresponsibility. Any alterations or additions or changes to the Sports Complex made by Tenant shall be done at Tenant's sole expense and in accordance with all applicable laws, rules and regulations, including but not limited to public procurement laws (as applicable) and building codes. All such work requiring 'a building permit shall be performed under the direction and supervision of a competent contractor(s) licensed and in good standing under the laws of the State of Washington. Tenant shall not permit any mechanic's or materialman's liens to remain against the Sports Complex for work or materials furnished in connection with any such alterations, additions or changes to the Sports Complex. If Tenant shall, in good faith, contest the validity of any such lien, Tenant shall, at its sole expense, defend itself and Landlord against the same and upon Landlord's request, furnish to Landlord a surety bond in an amount equal to one hundred twenty percent (125 %) of such contested lien indemnifying Landlord against the liability for same and holding the Sports Complex free from any effect of such lien. All alterations and additions to the Sports Complex shall become the property of Landlord and shall remain on and be surrendered with the Sports Complex at the expiration or sooner termination of this Agreement. SECTION 13 - DESTRUCTION 13.1. Partial Destruction; Restoration by Tenant. If the Sports Complex is damaged or destroyed during the Term other than by a flood, earthquake or other casualty not covered by the all risk property insurance required to be maintained. by Tenant, and the cost of repairing the Sports Complex is less than thirty percent (30 %) of the replacement cost of the Sports Complex and the Term has at least ten (10) years remaining, then Tenant shall promptly restore the Sports Complex to substantially the same condition it was in immediately before such damage or destruction in accordance with the original Plans and. Specifications (except for changes as may be required by changed building and safety codes, which Tenant shall make at Tenant's sole cost and expense). Such damage or destruction shall not terminate this Agreement. Tenant shall use commercially reasonable efforts to complete such repairs and endeavor to do so within one - hundred eighty (180) days from the date of the casualty. . 13.2 Major Damage or Destruction; Tenant's Right to Terminate. If the Sports Complex is damaged or destroyed by flood, earthquake or other casualty not covered by the all risk property' insurance required to be maintained by Tenant during the Term, and the cost of repairing the Sports Complex is thirty percent (30%) or more of the replacement cost of the Sports Complex. or. the Term has less than. ten (10) years remaining, then Tenant shall have the option of either repairing and reconstructing the : Sports Complex or of terminating this Agreement. .'17. 8/16/2001 12:17 PM 13.3 Damage Covered by Insurance. Notwithstanding the foregoing, provided that damage or destruction to the Sports Complex is due to a cause covered by the all risk property insurance required by this Agreement or by insurance otherwise maintained by Tenant, then Tenant shall restore the Sports Complex to substantially the same condition it was in immediately before such damage or destruction, in accordance with the original Plans and Specifications (except for any changes that may be required by changed building and safety codes, which Tenant shall make at Tenant's -sole cost and expense) to the extent of insurance proceeds received; provided, however, that (1) if the cost of the restoration of the Sports Complex shall exceed the insurance proceeds available to Tenant to perform such restoration by an amount in excess of $100,000, or (2) there is damage to or destruction of the Sports Complex and the governmental restrictions then in effect with respect to the Sports Complex prohibit construction of economically viable replacement improvements with respect to a use which Tenant has a right to make under this Agreement, or (3) such destruction occurs during the last ten (10) years of the Term or during any extension term of this Agreement, then Tenant shall have the right to terminate this Agreement.. 13.4 Right of Termination. To exercise the right of termination described in Section 13.2 or 13.3, Tenant must comply with all of the following conditions: (a) Give Landlord notice of termination within sixty (60) days .after the damage or destruction, specifying the date of termination which shall be not less than sixty (60) days nor more than one hundred twenty (120) days after the date such notice of termination is given; (b) Prior to the termination date, cure any defaults on Tenant's part under this Agreement; (c) Continue to make all payments when due (including :. without limitation the prorated portion of any additional rent, including any rent due under Section 4, becoming due .after Tenant has given the notice of termination but .prior to the date of termination), if any, as required by the provisions of this Agreement until the date of termination; (d) Prior to the termination date, pay in full any outstanding indebtedness incurred by • Tenant and secured by an encumbrance or encumbrances on the leasehold, or alternatively, deliver to Landlord the written consent of the holders of all such encumbrances to the early termination of this Agreement and extinguishment of their liens; (e) Prior to the termination date, cause to be discharged. all liens and encumbrances encumbering the Sports Complex or Tenant's leasehold interest resulting from any act or omission Tenant; (f) On or before the termination date, deliver possession of the Sports Complex to Landlord, quitclaim all right, title and interest in the Sports Complex to Landlord and cease to do business on the Sports Complex, and vacate the Sports .Complex; 18 8/16/2001 1.2:17 PM (g) Prior to the termination date, effectively relinquish, assign and deliver to Landlord all insurance proceeds resulting from the casualty. In the event of any such termination, any additional rent paid in advance shall be prorated through the date the Agreement is terminated: 13.5 Abatement or Reduction of Rent. In case of any damage or destruction where this Agreement is not terminated, there shall be no abatement or reduction of Percentage Rent or additional rent; however, during the period of reconstruction, Tenant may continue to conduct business from the Sports Complex from temporary facilities or temporary structures subject to compliance with local building and safety codes or other applicable municipal• codes. Tenant shall use commercially reasonable efforts to complete such reconstruction and re -open the Sports Complex for business within a reasonable time. 13.6 Insurance Proceeds. If Tenant is obligated or elects to restore the Sports Complex pursuant to this section, the proceeds of any insurance maintained under this Agreement shall be disbursed pursuant to a customary construction disbursement system or service for payment of costs and expenses of repair. If the insurance proceeds are insufficient to cover the cost of repair, and Tenant is nonetheless obligated to repair under .Sections 13.1 or 13.2, then Tenant shall deposit the amount of the deficiency with Landlord, and such funds shall be disbursed first, and - the balance of the construction costs shall be disbursed from the insurance proceeds by Landlord. SECTION 14 — INSURANCE AND INDEMNITY 14.1 Liability Insurance. Effective as of the Term Commencement Date, Tenant shall procure at its sole .cost and expense, and thereafter keep in effect at all times until the end of the Term, commercial general liability insurance which shall include broad form contractual liability insurance coverage insuring all of Tenant's . indemnity obligations under this Agreement. Such coverage shall have a minimum combined single limit of liability of at least .$1,000,000 per occurrence and an umbrella or excess liability policy of not less than $4,000,000 per occurrence. •If commercial general liability insurance or other form with a general aggregate.limit is used, the general aggregate limit shall be twice the required occurrence. limit. Tenant's public liability insurance shall include liquor liability insurance and shall not exclude liability for athletic participants. All of Tenant's public liability insurance policies shall be written to apply to all bodily injury, property damage, personal injury and other covered loss, however occasioned, occurring during the policy term, and shall be endorsed to provide that such coverage shall be primary and that any insurance maintained by Landlord shall be excess insurance only. Tenant may satisfy the requirements of this Section 14.1 by having BLD USA obtain a master policy of liability insurance applicable to multiple Big League Dreams Sports Parks which shall, by endorsement, specifically name Tenant as an insured with respect to the Sports Complex and comply with other requirements of this Section 14.1 applicable to such insurance for the Sports Complex, including but not limited to the liability Limits: 14.2 Workers' Compensation Insurance. Tenant and Tenant's sub - tenants and concessionaires shall maintain workers' compensation insurance in accordance with Washington law and an employer's liability insurance endorsement with customary limits. 19 , 8/16/2001 12:17 PM 14.3 Property Insurance. (a) All Risk Coverage. Tenant shall at Tenant's expense obtain and keep in force during the Term of this Agreement (commencing as of the Term Commencement Date) a policy of insurance covering loss or damage to the Sports Complex, all FF &E and other personal property of Tenant and Landlord, in the amount of the full replacement value thereof, including inflation guard endorsement, as the same may exist from time to time, .against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief and special extended perils ( "all risk," as that term is known in the insurance industry), but excluding damage due to flood or earthquake. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $20,000 per occurrence. Tenant shall be liable for such deductible amount. Tenant shall obtain such endorsements as are reasonably recommended by Landlord's risk manager, including, without limitation, an endorsement for changes in building codes, provided such endorsements may be obtained on commercially reasonable terms. Landlord shall be the loss payee on such policy. Landlord shall receive and retain all insurance proceeds to the extent they are not used to rebuild the Sports Complex following an insured casualty. (b) Replacement Value. The "full replacement value" of the property to be insured under this section shall be determined based upon the cost to the Landlord for such property. Not more frequently than once every five (5) years, ,either party shall have the right to notify the other that it elects to have the replacement value redetermined by an independent appraiser as provided in this subpart (b). The redetermination shall be made promptly and each party shall be promptly notified of the results by the appraiser. The insurance policy shall be adjusted according to the redetermination. 14.4 Insurance Policies. (a) : Coverage Re Evaluation. Not more frequently than once every five (5) years, if in the reasonable opinion of Landlord the amount or type of any insurance at that time is not adequate or not provided for herein, Tenant shall either acquire or increase the insurance coverage as required by Landlord provided Tenant may obtain such increased coverage on commercially reasonable terms. (b) Policy and Company Requirements. Tenant shall deliver to Landlord copies of policies of such insurance or certificates with attached original endorsements evidencing the existence and amounts of such insurance with loss payable clauses as required by this Section 14. Tenant shall, at least fifteen (15). days prior to the expiration of such policies, furnish Landlord with renewals or binders thereof Insurance is to be placed with insurers with a current A.M. Best's rating of no less than A -:VII and licensed to do business in the State of Washington. All policies of insurance must (other than the property insurance, which shall name the Landlord as the loss payee) be endorsed to contain the following: (i) The 'Landlord, its elected officials, council members, officers, employees, agents and volunteers as additional insureds. The coverage shall contain no special limitations on the scope of protection afforded the Landlord. 20 8/16/2001 12 :17 PM (ii) The insurance coverage shall be primary. insurance as respects the Landlord, its elected officials, council members, officers, • employees, agents and volunteers. Any insurance or self - insurance maintained by the Landlord, its members, council members, officers, employees and volunteers shall be excess of the insurance and shall not contribute with it. (iii) No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Landlord. (iv) As respects workers' compensation insurance, the policy shall be endorsed with a waiver of subrogation clause for Landlord, its elected officials, council members, officers, employees, agents and volunteers. (c) Policy Compliance. Tenant shall not use the Sports Complex in any manner, even,if the use is for the purposes permitted herein, that will result in the cancellation of any insurance required under this Agreement. Tenant shall not keep on the Sports Complex or permit to be kept, used or sold thereon, anything prohibited by any fire or other insurance policy covering the Sports Complex. (d) Failure to Obtain Insurance: If after written notice and a fifteen (15) day opportunity to cure, Tenant shall fail to obtain any insurance required under this Agreement, Landlord may at its election, obtain such insurance and Tenant shall, as additional rent, reimburse Landlord for the cost thereof plus a five percent (5%) handling charge, within five (5) days following demand therefor. If Tenant fails or refuses to maintain insurance as required hereunder, or fails to provide the proof of insurance, Landlord shall, subject to the notice and cure provisions of Section 17.1, have the right to declare this Agreement in default, and - Landlord shall be entitled to . exercise all legal remedies for breach of this Agreement. (e) Relationship to Indemnities." . All insurance required to be provided hereunder is in addition to, and not in lieu of, the indemnity provisions of Section. 14.6. The procuring of such required policies of insurance shall not be construed to limit Tenant's liability hereunder, nor to .fulfill the indemnification provisions and requirements of this Agreement. 14.5 Waiver of Subrogation. Tenant and Landlord each hereby release and relieve each other, and waive their right of recovery against the other, for loss, or damage arising out of or incident to the perils insured against under Section 14.3, which perils occur in, on or about the Sports Complex, whether ' due to the negligence of Landlord or Tenant or their agents, employees, contractors and /or invitees, but only to the extent of insurance coverage. Tenant shall, upon obtaining the policies of insurance required hereunder,• give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Agreeme16, 1.4.6 Indemnity. Tenant shall, commencing with the Term Commencement . Date, indemnify, defend, protect and hold harmless .Landlord and its respective elected . officials, council members; officers, employees, agents and contractors ( collectively the "Indeninitees ") from and against any and all claims, losses, . proceedings, damages, causes of action, liability, 21 8/16/2001 12:17 PM costs and expenses (including reasonable .attorneys' fees), related to, arising from or . in connection with, or caused by, directly or indirectly (a) any act, omission or negligence of Tenant or any sub - tenant of Tenant, or their respective contractors, licensees, invitees, agents or employees, wheresoever the same may occur; (b) any use of. the Sports Complex, or any accident, injury, death or damage to any person or property occurring in, on or about the Sports Complex, or any part thereof, or from the conduct of Tenant's business or from any activity, work or thing done, permitted or suffered by Tenant or its sub- tenants, contractors, employees or invitees in, on or about the Sports Complex, or elsewhere (other than when arising as a result of the negligence or intentional misconduct of an Indemnitee); and (c) any breach or default in the performance of any obligations on Tenant's part to be performed under the terms of this Agreement, or arising from any negligence of Tenant, or any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against an Indemnitee by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant shall have no duty to defend or indemnify Landlord or any other Indemnitee from any Legal Challenge. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to person in, on or about the Sports Complex .arising from any cause other than the negligence or intentional misconduct of an .Indemnitee or Hazardous. Materials existing on the Land prior to the Term Commencement Date as provided in Section 30:4 and Tenant hereby waives all claims in respect thereof against Landlord. Tenant specifically waives any immunity that may be granted it under the Washington State. Industrial Insurance Act, Title .51, Revised Code of Washington. Further, the indemnification obligations of Tenant to Landlord shall not . be limited in any way by any limitation on the amount or type of damages, compensation, or benefits payable to or for any third party under workers' compensation .acts, disability benefit acts, or other benefit acts; provided, that Tenant's waiver of immunity by the such provisions shall extend only to claims against Tenant by Landlord and shall not include or extend to any claims by Tenant's employees directly against Tenant. These provisions are in .addition to, and not in lieu of, the insurance required under this Section 14. SECTION '15 CONDEMNATION 15.1 Definitions. (a) "Condemnation" means (i) the exercise of any governmental power, whether by legal proceedings or otherwise, by. a Condemnor and (ii) .a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. (b) "Date of Taking" means the date the Condemnor has the right to possession of the property being condemned. (c) "Award" means all ,compensation, sums or anything of value awarded, paid or received on a total or partial condemnation: (d) "Condemnor" means any public or quasi- public authority (other than the City, which shall not exercise rights of condemnation with respect to the Land during the Term), or private corporation or individual, having the power of condemnation or eminent domain. 22 8/16/2001 12 :17 PM • 15.2. Rights and Obligations Governed by Lease. If during the Term there is any taking of all or any part of , the Sports Complex or any interest in this Agreement by Condemnation, the . rights and obligations of the parties shall be determined pursuant to this Section. Each party waives all statutory rights allowing either party to petition a court of competent jurisdiction to terminate this Agreement in the event of a partial taking of the Sports Complex. 15.3 Total Taking. If the Sports Complex is totally taken by Condemnation, this Agreement shall terminate on the Date of Taking. 15.4 Partial Taking. If any portion less than all of the Sports Complex is taken by Condemnation, this Agreement shall remain in effect, except that Tenant can elect to terminate this Agreement if, in the reasonable judgment of Tenant, the portion of the. Sports Complex not so taken cannot be so repaired or reconstructed, taking into consideration the amount of the award available for repair, so as to be suitable for Tenant's continued use of the Sports Complex for the, same use as the Sports Complex was being used immediately prior to the taking and, the remaining Sports Complex would not be usable by Tenant on an economically feasible basis. If Tenant elects to terminate this. Agreement, Tenant must exercise its right to terminate by giving notice to Landlord within sixty (60) days after the Date of Taking. If Tenant elects to terminate this Agreement, Tenant also shall. notify Landlord of the effective date of the termination, which effective date shall not be later than ninety (90) days after Tenant has notified. Landlord of its election to terminate. If Tenant does not terminate this Agreement within the sixty (60) day period, ,this Agreement shall continue in full force and effect. . 15.5 Restoration of Sports Complex. If there is a partial taking of the Sports Complex and this Agreement remains in full force and effect pursuant to Section 15.4, Tenant shall commence all necessary restoration as,, promptly as reasonably practicable under the circumstances but in all events within thirty (30) days after receipt of the Award, and shall thereafter diligently pursue such restoration work to completion.. - 15.6 Temporary Taking. On any taking of the temporary use of all or any part or parts of the Sports Complex for a period, or of any estate less than a fee, ending on or before the expiration date of the Term, the Term shall not be reduced, extended or affected in any way, and Tenant shall be entitled to any Award` for the use or estate taken. If a result of the temporary taking is to necessitate expenditures for changes, repairs, alterations, modifications or reconstruction of the Sports Comp lex, the Award shall be paid to Tenant, and Tenant shall commence all necessary changes, repairs, alterations, modifications or reconstruction of the Sports Complex as promptly as reasonably practicable under the circumstances but in all events within thirty (30) days after receipt of .the Award, and shall thereafter diligently pursue such • restoration work to completion. At the completion" of the work and the discharge of the Sports Complex from all liens and claims, Tenant shall be entitled to any surplus and shall be liable for _ any deficit. If any such taking is for a period extending beyond the expiration date of the Term, the taking shall be treated under the foregoing provisions for total and - partial takings, depending upon whether the temporary taking is of all or only a part of the Sports Complex. 15.7. Application of Award. No Award for any partial or entire taking shall be apportioned.. Awards for partial or temporary takings, where this is not terminated, - shall be .applied by Tenant to restoration of the ,Sports Complex as provided above. Tenant. 23 • 8/16/2001 12:17 PM ; hereby assigns to Landlord any Award for a total taking which may be made, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any Award made to Tenant for the unamortized value of any additions or improvements on the Sports Complex constructed by Tenant in accordance with this Agreement (amortized on a straight line basis over the remainder of the Term of this Agreement from the Date of Taking), the taking of personal property and fixtures belonging to Tenant and removable by Tenant at the expiration of the Term hereof, as provided hereunder, or for the interruption of, damage to, or loss of Tenant's business and goodwill, or for relocation expenses recoverable against the Condemnor, or in the event of .a partial taking, the cost of restoring the Sports Complex to a usable condition. SECTION 16 — ASSIGNMENT, SUBLETTING AND ENCUMBERING 16.1 Prohibition Against Assignment. Subletting and Encumbering. Tenant shall have the right to assign this Agreement to an entity as to which a Controlling Percentage is owned by BLD USA or by Tenant or which shall have purchased all or substantially all of the assets of BLD USA or Tenant. Tenant shall not otherwise assign, transfer or encumber all or any portion of its interest in this Agreement or in the Sports Complex, or sublease all or any part of the Sports Complex, or allow any other person' or entity (except Tenants or BLD USA's authorized representatives) to occupy or use all or any part of the Sports Complex, without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. No licensees, concessionaires or sub - tenants of all or part of the Sports Complex shall, without the prior written approval of Landlord, be Affiliates of Tenant. In the event Landlord approves any assignment, subletting or encumbering of the Sports Complex, Landlord shall cooperate with Tenant in effectuating the reasonable requirements of prospective 'assignees, sub - tenants or encumberees to complete any such transaction. Landlord shall not assign this Agreement to any entity other than a political subdivision of the City or its . Redevelopment Agency without the Tenant's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned: `(a) Approval Procedure for Assignments. Subleases and Encumbrances. Tenant shall first notify Landlord at least sixty (60) days prior to the- proposed effective date of any assignment, sublease or encumbrance, in writing, of its desire to do so and shall submit in writing to Landlord (1) the name of the proposed sub- tenant, assignee or encumberee, (2) the terms and conditions of the proposed sublease, assignment or encumbrance (including a copy of • the written agreement for same), (3) financial statements for the two most recent completed fiscal years of the proposed sub- tenant or assignee, and (4) .a bank reference for the proposed sub- tenant or assignee. Thereafter, Tenant shall furnish such supplemental information as Landlord may reasonably request concerning the proposed sub- tenant, assignee or encumberee. At any time within thirty days. after Landlord's receipt of the information .specified above, Landlord may by written notice to Tenant elect ` °to (1) consent to the sublease, assignment or encumbrance, or (2) disapprove of the sublease, assignment or encumbrance in Landlord's reasonable discretion. Such grounds may include, without limitation, a possible material adverse effect upon the reputation of the Sports Complex from of the sub- tenant or assignee, a reputation for financial reliability on the part of the proposed sub- tenant or assignee which is unsatisfactory in the sole judgment of Landlord; :insufficient experience of the sub- tenant or assignee to operate the Sports Complex; likely adverse impact on Gross Revenues; or 24 8/16/2001 12:17 PM inexperience in the performance of Tenant's other obligations under this Agreement. If Landlord consents to the sublease, assignment or encumbrance (or fails to respond to Tenant's request) within the sixty (60) day period, Tenant may thereafter enter into such assignment, sublease or encumbrance of the Sports Complex upon the terms and conditions and as of the effective date set forth in the information furnished by Tenant to Landlord. (b) Executed Document Copy. Notwithstanding Landlord having granted its consent to any assignment, subleasing or encumbering, prior to the effective date of any assignment, the commencement date of any sublease or the recordation date of any encumbrance, Tenant shall furnish Landlord with a copy of the fully executed sublease, assignment or encumbrance , agreement. (c) Minimum Term. No sublease of the Sports Complex or portion thereof, or . assignment of this Agreement, shall be for a period of less than one (1) year, nor shall any sublease or encumbrance extend beyond the expiration date of the Term of this Agreement. (d) Assumption. Each permitted . assignee or transferee shall assume and be deemed to have assumed, and each sub - tenant shall be bound by, this Agreement. In the case of an assignment of this Agreement where Landlord's approval is required and Landlord so consents in writing, Landlord shall not release Tenant from any further obligations arising under this Agreement after the date of the assignment unless such assignment specifically provides for such a release. No assignment shall be binding on Landlord unless such assignee or Tenant shall deliver to Landlord a counterpart of such assignment which contains a covenant of assumption by the assignee, but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the .assignee from its liability as set forth above. 16.2. Additional Provisions. No consent by Landlord to any assignment, sublease or encumbrance shall constitute a waiver of the provisions of this section. Tenant shall not make any modifications to an approved sublease without Landlord's prior written consent. For the purposes hereof, an "encumbrance" shall mean a mortgage, deed of trust, land sale contract, lease or other financing device. Any attempted assignment, sublease or. encumbrance, . if not approved by Landlord in advance pursuant to this Section 16, shall be voidable by Landlord and, at Landlord's election, shall, subject to the notice and cure provisions of Section 17, constitute a default hereunder. 16.3 Liens. Tenant shall not cause or permit any liens of any nature to be placed against the Sports Complex except liens placed thereon by Landlord or approved by Landlord as provided in this Section, and Tenant shall save Landlord harmless from and on account of all liens and all expenses and indebtedness connected therewith, including but not limited to Landlord approved hens, except those relating to liens placed thereon by Landlord. SECTION: 17 — DEFAULT 17.1 Tenant's Default. The occurrence of any of the following shall constitute a default by Tenant: 25 8/16/2001 12:17 PM. (a) Failure to Pay Rent. Failure to pay rent (whether Percentage Rent, or any other rent due to Landlord) or any other additional payment required to be made by Tenant to Landlord hereunder as and when due, where such failure continues for ten (10) days after delivery by Landlord to Tenant of written notice of such failure. (b) Failure to Pay Taxes. Failure to pay any Taxes on a timely basis, or the failure to provide any insurance required hereunder, where such failure continues for fifteen (15) days after delivery by Landlord of written notice of such failure to Tenant. (c) Surrender. Abandonment or surrender of the Sports Complex or the leasehold estate by Tenant. (d) Default Under Related Agreements. Tenants default under any Related Agreement, where such default is not cured by Tenant (or BLD USA; as applicable) within the cure period applicable to such default under such agreements or within ten (10) days after delivery by Landlord to Tenant of written notice of such failure, whichever shall later occur. (e) Default Under this Agreement. Failure to perform any other covenant or • provision of this Agreement, if the failure to perform is not cured, within thirty (30) days after delivery by Landlord to Tenant of written notice. If the failure to perform cannot reasonably be cured within. thirty (30) days, Tenant shall not be in default of this Agreement if Tenant commences to cure the failure to perform within the thirty (30) day period and thereafter diligently and in good faith prosecutes the cure to completion. (f) Attachment. The subjection of any right or interest of Tenant to attachment, execution or other levy, or to seizure under legal process, if not released within sixty (60) days after written notice from .Landlord to Tenant. (g) Insolvency. An assignment by Tenant for the benefit of creditors or the filing of a voluntary or involuntary petition by or against Tenant under any law for the purpose of adjudicating Tenant a bankrupt; or for extending time for payment, adjustment or satisfaction of Tenant's liabilities; or for reorganization, dissolution or arrangement on account of or to prevent bankruptcy or insolvency; unless the assignment or proceeding, and all consequent orders, adjudications, custodies and supervision are dismissed, vacated or otherwise permanently stayed or terminated within sixty (60) days after the assignment, filing or other initial event: (h) Receivership. The appointment of a receiver, unless such receivership is terminated within sixty (60) days after the appointment of the receiver, to take possession of Tenant's interest in the Sport s Complex or of Tenant's interest in the leasehold estate or of Tenant's 'operations on the Sports Complex for any reason, including but not limited to, an assignment for 26 8/16/2001 12:1.7 PM the benefit of creditors or voluntary or involuntary bankruptcy, but not including receivership (i) pursuant to a permitted first leasehold encumbrance, or (ii) instituted by Landlord, the event of default being not the appointment of a receiver at Landlord's instance but the event justifying the receivership. 17.2 Landlord's Remedies. (a) Cumulative Nature of Remedies. If any default by Tenant shall continue uncured, following notice of default as required by this Agreement, for the period applicable to the default under the applicable provision of this Agreement, Landlord shall have the remedies described in this Section 17.2 in addition to all other rights and remedies provided by law or equity, to which Landlord may resort cumulatively or in the alternative. (b) Termination. Landlord may at Landlord's election terminate this Agreement by giving Tenant written notice of termination. In the event Landlord terminates this Agreement, Landlord may recover possession of the Sports Complex (which Tenant shall surrender and vacate upon demand) and remove all persons and property therefrom. Landlord shall in addition be entitled to recover as damages all of the following: (i) The worth at the time of the award of any unpaid rent or other charges . which have been earned at the time of termination; (ii) The worth at the time of the award of the amount by which the unpaid rent and other charges which would have been earned after termination until the time of the award exceeds the amount of the loss of such rental or other charges that Tenant proves could have. been reasonably avoided; (iii) The worth at the time of the award of the amount by which the unpaid rent and other charges for the balance of the Term after the - time of the award exceeds the amount of the•loss of such rental and other charges that Tenant proves could have been reasonably avoided; and (iv) Any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant's failure to perform its obligations under this Agreement. (c) Worth Defined. As used in subparts (i) and (ii) above, the "worth at the time of the award" shall be computed by allowing interest at the rate of seven percent (7 %) per annum: As used in subpart (iii) above, the- "worth at the time of the award ". shall be computed by discounting such amount by the discount rate of the Federal Reserve Bank of San Francisco at the time of the award. (d) Continuation of the Agreement. Even in the event Tenant has breached this Agreement and abandoned the Sports Complex, at Landlord's option this Agreement shall continue in effect for so long as Landlord does not terminate Tenant's right to possession. 27 8/16/2001 12:17 PM Landlord may enforce all of its rights and remedies hereunder, including the right to recover rent as it comes due under -this Agreement. In such event, Landlord will permit Tenant to sublet the Sports Complex or to assign its interest in this Agreement, or both, with the consent of Landlord, which consent will not unreasonably be withheld provided the proposed assignee or sub-tenant is reasonably satisfactory to Landlord as to credit and reputation and will occupy the Sports Complex for the same purposes specified herein, and provided that Tenant shall cure all defaults to Landlord as a condition precedent to the effectiveness of Landlord's consent. For purposes of this subsection, the following shall not constitute a termination of Tenant's right to possession: (i) acts of maintenance or preservation or efforts to relet the Sports Complex; or (ii) the appointment of . a receiver under the initiative of Landlord to protect Landlord's interest under this Agreement. (e) Use of Tenant's Personal Property. Landlord may at Landlord's election use Tenant's personal property and trade fixtures located on, about or appurtenant to the Sports Complex or any of such property and fixtures without compensation and without liability for use or damage, or store them for the account and at the cost of Tenant. The election of one remedy . for any one item shall not foreclose an election of any other remedy for another item or for the same item at a later time. (f) Assignment of Subrents. Tenant assigns to Landlord all subrents and other sums falling due from sub - tenants, licensees and concessionaires during any period in which Landlord has the right under this Agreement, whether exercised or not, to reenter the Sports Complex due to Tenant's default. Tenant shall not have any right to such sums during that period: This assignment is subject and subordinate to any and all assignments of the same subrents and other sums to the lender under a permitted first leasehold encumbrance. Landlord may at Landlord's election reenter the Sports Complex with or without process of law, without terminating this Agreement, and either or both collect these sums or bring action for the recovery of the sums directly from such obligors. Landlord shall receive and collect all subrents and proceeds from reletting, .applying them: first, to the payment of reasonable expenses (including attorneys' fees or brokers' commissions or both) paid or incurred by or on behalf of Landlord in recovering possession, placing the Sports Complex in good condition and preparing or altering the Sports Complex for reletting; second, to the reasonable expense of securing new sub - tenants, third, to the fulfillment of Tenant's covenants to the end of the Term; and fourth, to Landlord's uses and purposes. Tenant shall nevertheless pay to Landlord on the due dates specified in this Agreement the equivalent of all sums required of Tenant under this Agreement, plus Landlord's expenses, less the proceeds of the sums assigned and actually collected under this provision. 17.3 Late Charge: Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other charges due under this Agreement will cause Landlord to incur costs not contemplated by this Agreement, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any indebtedness of Landlord related to the Sports Complex.. Accordingly, if any .delinquent installment of rent or any other charge due from Tenant is not received by .Landlord or Landlord's designee within ten (10) days after written demand for payment shall have been delivered by Landlord to Tenant, then, at Landlord's :.election and upon Landlord's demand, Tenant shall pay to Landlord a late charge equal to ten percent (10 %) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by of the . 28.. 8/16/2001 12;17 PM late payment by Tenant. No late charge may be imposed more than once for the same late rental payment. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount. If Tenant fails to pay any two installments of Percentage Rent in the time (including applicable notice and cure periods) required by this Agreement, then Landlord also shall have the right, for a period of three (3) Lease Years, to require that all future Percentage Rent be payable monthly rather than quarterly. Landlord shall give Tenant written notice of such election at least five (5) days before the next monthly payment shall be due. 17.4 Landlord's Default. The occurrence of the following shall constitute a default by Landlord: Landlord's failure to perform any covenant or provision of this Agreement or of any Related Agreement, if the failure to perform is not cured within thirty (30) days after delivery by Tenant to Landlord of written notice specifying the specific nature of the aIIeged default. If the failure to perform cannot reasonably be cured within thirty (30). days, Landlord shall not be in default under this Agreement or under any Related Agreement if Landlord commences to cure the failure to perform within the thirty (30) day period and thereafter diligently and in good .faith prosecutes the cure to completion. 17.. -5 Tenant's Remedies. If any default by Landlord shall continue uncured, following notice of default as required by this Agreement, for the period specified in Section 17.4 above, Tenant may terminate this Agreement and/or pursue any and all other rights and remedies available at law or in equity under the laws of the. State of Washington. SECTION 18 — LANDLORD'S ENTRY ON SPORTS COMPLEX Landlord and its authorized representatives shall have the right to enter the Sports Complex at all reasonable times for any of the following purposes: (a) Verify Condition To determine whether the Sports Complex is in the condition required by this Agreement and whether Tenant is complying with its obligations under this Agreement; . (b) Post Notices To serve, post or keep posted any notices required or allowed under the provisions of this Agreement; (c). Show Property To show the Sports Complex for any reasonable purpose . at any time during the Term; and (d) Business Purposes To carry out any building or property management business purpose in or about the Sports Complex. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising out of Landlord's entry on the Sports Complex as provided in this Section, except damage resulting from the acts or omissions, of Landlord or its authorized representatives. Tenant shall not be entitled to an abatement or reduction of rent -` Landlord exercises any rights reserved in this Section. Landlord shall conduct its activities on 29 8/16/2001 .12:.17 PM the .Sports Complex as allowed in this Section in a manner that reasonably attempts to minimize any inconvenience, annoyance or disturbance to Tenant's business operations. SECTION 19 — NOTICES Any notice, demand, request, consent, approval or communication that either party desires or is required to give to the other party shall be in writing and shall be given to the addresses set forth below, and shall be deemed delivered three (3) days after deposit into the United States mail, postage prepaid, by registered or certified mail, return receipt requested. Unless notice of a different address has been given in accordance with this Section, all such notices shall be addressed as follows: If to Landlord, to: City of Yakima 129 N. 2nd Street Yakima, Washington 98901 Attention: Richard A. Zais, Jr., City Manager If to Tenant, to: Big League Dreams Yakima, LLC 10550 Galena Street Mira Loma, California 91752 Attention: Scott Parks LeTellier, Chief Executive Officer SECTION 20 — ATTORNEYS' FEES If either party commences an action against the other arising out of or in connection with this Agreement, the prevailing party shall be entitled to have and recover from the losing party its reasonable attorneys' fees and costs of suit. SECTION 21 — LITIGATION CONCERNING VALIDITY OF THIS AGREEMENT In the event any Legal Challenge is undertaken, Landlord shall have the right, exercisable not later than ninety (90) days from the date of this Agreement, provided the Legal _Challenge shall not sooner have been dismissed, settled or otherwise resolved, to terminate this Agreement by thirty (30) days written notice to Tenant without any further liability to Tenant whatsoever. Landlord shall have no liability to Tenant if this Agreement is terminated by reason of such Legal Challenge. SECTION 22 ESTOPPEL CERTIFICATES At any time and from time to time, within thirty (30) days after notice of request by either party, the other party shall execute, acknowledge and deliver to the requesting party, or to such other recipient as the notice shall direct, a statement certifying that this Agreement is unmodified and in full force and effect; or, if there have been modifications, that it is in full force and effect as modified in the manner specified in the statement and acknowledging that there, are no uncured defaults or failures to perform any covenant or provision of. this Agreement 30 8/16/2001.12:1'7 PM on the part of the requesting party or specifying any such defaults or failures which are claimed to exist. The statement shall also state the dates to which the rent and any other charges have been paid in advance. The statement shall be such that it can be relied on by any auditor, creditor, commercial banker or investment banker of either party and by any prospective lender with respect to the Sports Complex or all or any part or parts of Tenant's or Landlord's interests under this Agreement. Either party's failure to execute, acknowledge and deliver, on request, the certified statement described above within the specified time shall constitute a breach of this Agreement. If Tenant fails to deliver the certificate within ten (10) days, Tenant constitutes and appoints Landlord as its special attorney -in -fact to execute and deliver the certificate to a third party, which appointment is irrevocable and is hereby coupled with aninterest. SECTION 23 — SUBORDINATION This Agreement is subject and subordinate to all prior leases and underlying liens, mortgages and deeds of trust which now encumber the Land, and to all renewals, modifications, consolidations, replacements and extensions thereof If the holder or holders of any such . mortgage or deed of trust shall advise Landlord that they desire or require this Agreement to be prior and superior thereto, upon written request of Landlord to Tenant, Tenant agrees promptly to execute, acknowledge and deliver any and all documents or instruments which are reasonably necessary or desirable for purposes thereof. Landlord shall have the right to cause this Agreement to be and become and remain subject and subordinate to future and further ground or underlying financing leases, mortgages or deeds of trust which may hereafter be executed covering the Sports Complex, or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof. Tenant shall, within thirty (30) days after Landlord's written requests therefor, execute, acknowledge and deliver any and all documents or instruments requested by Landlord, or that are . necessary or proper to assure the subordination of this Agreement to any such mortgages, deeds of trust or leasehold estates; provided, however, that the foregoing provisions with respect to such election of subordination by Landlord shall not be effective unless the owner or holder of any such mortgage, deed of trust or leasehold estate shall execute with Tenant a nondisturbance agreement under which such owner, -holder or. Landlord shall agree, in the event of termination of such leasehold estate or upon the foreclosure of any such mortgage or deed of trust, that. Tenant's quiet enjoyment of the Sports Complex will not be disturbed so long as Tenant pays rent and observes and perform all of the provisions of this Agreement to be observed and performed by Tenant. Notwithstanding anything to the contrary set forth in this Section, Tenant hereby attorns and agrees to attorn to (at the option of) any person, firm or corporation purchasing or otherwise acquiring the Sports Complex at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such mortgages, or deeds of trust, or ground or underlying leases, as if such person, firm or corporation had been named as Landlord herein. SECTION 24 - SALE OR TRANSFER BY LANDLORD In the event of any transfer or transfers of 'Landlord's interest in the Sports Complex, . other than a transfer for security purposes only, the City, as transferor, shall automatically be relieved of any and all obligations and liabilities on the part of the Landlord accruing from and after the effective date of such transfer provided that any funds in the hands of the City to which. . 31 8/16/2001 12 :17 PM = Tenant is entitled at the time of such transfer shall be turned over to the transferee and the City shall have .satisfied all obligations and liabilities to Tenant arising under this Agreement or under any Related Agreement as of the effective date of the transfer. The covenants and obligations of Landlord contained in this Agreement shall be binding upon Landlord, its successors and perniitted assigns only during their respective periods, of ownership. SECTION 25 — SURRENDER'OF`SPORTS COMPLEX At the expiration or earlier termination of the Term, Tenant shall surrender to Landlord the possession of the Sports Complex. Surrender or removal of improvements, fixtures and trade fixtures shall be as directed in the provisions of this Agreement on ownership of improvements, fixtures and trade fixtures at expiration or termination of this Agreement. Except as provided in Section 13 to the contrary, Tenant shall leave the surrendered property and any other property in good and broom clean condition. All personal property that Tenant is not required to surrender but that Tenant does a bandon shall, at Landlord's election, become: Landlord's property at expiration or the sooner termination of this Agreement. SECTION 26 — NONDISCRIMINATION, NONSEGREGATION.AND DIVERSITY CLAUSES 26.1 Nondiscrimination and Nonsegregation. Tenant covenants by and for itself, its successors and assigns and all persons claiming under or through it that it shall not discriminate against or segregate any person, or group of persons, on account of race, color, creed, religion, sex, marital status, national origin or ancestry in the subleasing, use, occupancy or enjoyment of the Sports Complex nor shall the Tenant itself, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of licensees, concessionaires, sub - tenants or vendees in the Sports Complex. Nothing herein shall be construed to limit or restrict Tenant from organizing men's, women's, girls, boys, church, company or other group leagues, tournaments or other programs. 26.2 Diversity of the Workforce: Tenant affirms, as an aspirational goal, diversity in employment at the Sports Complex comparable to the ethnic composition of Yakima County and will use due diligence to realize this aspirational goal. The Landlord will help Tenant affirmatively market opportunities at the Sports Complex. The parties understand and agree that this aspirational goal and efforts related to it is not a contractual requirement and is not subject to any contractual penalties. SECTION 27 — HOLDING OVER If Tenant remains in possession of the Sports Complex or any part thereof after the expiration or termination of the Term of this. Agreement, such occupancy shall be a tenancy from month to month upon all the provisions of this Agreement pertaining to the obligations of Tenant, except that the Percentage Rent shall be increased to Twelve percent (12%) of the Gross Revenues and the Percentage Rent shall be payable in arrears on a monthly basis. 32 8/16/2001 12:17 PM SECTION 28 — REPRESENTATIONS. WARRANTIES AND ACKNOWLEDGMENTS • Tenant makes the °following representations, warranties and acknowledgments as of the date of this Agreement, ' which representations, warranties and acknowledgments shall survive and continue thereafter: (a) Status. Tenant is a limited liability company, duly formed and validly existing and has all power and authority to perform the obligations contemplated hereby. On or before execution of this Agreement,. Tenant shall supply to Landlord, certificates of formation for Tenant and BLD USA. Throughout the Term of this Agreement,. Tenant shall be and remain a single - purpose, bankruptcy remote entity. (b) Authority. Tenant has complied with all laws and regulations concerning its organization, existence and transaction of business. Tenant has the right and power to lease and operate the Sports Complex as contemplated in this Agreement. To the best of Tenant's knowledge, Tenant has, or at all appropriate times shall have properly obtained, all permits, licenses and approvals necessary to occupy and operate the Sports Complex and in so doing has, or shall have (as . appropriate), substantially complied with • all applicable Statutes. • (c), No Litigation. There is no litigation, action, suit or other proceeding pending or threatened against Tenant which may in any manner whatsoever substantially adversely affect the validity, priority or • enforceability of this Agreement or the construction, use, occupancy or operation of the Sports Complex. (d) Enforceability. Tenant has full right, power and authority to execute and deliver this Agreement and the Memorandum of Lease executed pursuant hereto, and to perform the undertakings of Tenant contained in this Agreement. This Agreement constitutes valid and binding obligations of Tenant which are legally enforceable in accordance . with their terms, subject to the laws of bankruptcy, creditor's rights exceptions and equity. (e) No Breach. To the best of Tenant's knowledge, none of the undertakings • of. Tenant contained in this Agreement violates any applicable Statute or any order or ruling of any court, or conflicts with, or constitutes a breach or default under, any agreement by which Tenant is bound or regulated. (f) Accuracy. To the best of Tenant's knowledge, all documents, reports, instruments, papers, data, information and forms of evidence delivered to . • Landlord by Tenant with respect to this Agreement are ° accurate and correct, are complete insofar as completeness may be necessary to give Landlord true and accurate knowledge of the subject matter thereof, and do not contain any material misrepresentation or omission. 33 8/16/2001 : 12:17 PM , (g) Taxes. To the best of Tenant's knowledge, Tenant has filed all federal, state, county and municipal tax returns required to have been filed by Tenant, and has paid all taxes which have become due pursuant to such returns or to any notice of assessment received by Tenant. Tenant has no knowledge of any basis for additional assessment with :respect to such taxes. SECTION 29 SPECIAL PROVISIONS. 29.1 City Use of Sports Complex. Tenant agrees. to make the Sports Complex available to the Landlord four weekdays each year for City employee or non -profit community activity use. Such days shall be reasonably selected by Tenant and 'Landlord, which selection shall be based, among other factors, on space availability, and shall not be on holidays. The Landlord shall give Tenant at least three (3) months prior written notice of the date or dates it proposes for use . of the Sports Complex. On such dates (hereinafter "City Days "), the Sports Complex shall be made available to Landlord free of charge, provided .however, all hourly (but not salaried) labor employed to service City Days activities shall be charged to the Landlord based on Tenant's actual cost. Food and beverages shall be sold to guests and invitees of Landlord at regular retail prices. • 29.2 Pre- Opening Expenses. Tenant acknowledges that Tenant will be responsible for the initial capitalization of Tenant's business operations on the Sports Complex and will be responsible for start-up expenses in connection with Tenant's business operations including, without limitation, hiring and training of employees, .acquisition of inventory and pre-opening marketing expenses. 29.3 Signage. Tenant shall not accept ..or display tobacco product or adult entertainment advertising in the Sports Complex. During the Term, Tenant shall permit Landlord to display one non - commercial, public interest sign per stadium replica field without payment of any advertising fees. Landlord shall, at its aoption, fabricate and provide the signs to Tenant according to specifications Tenant shall develop for advertising signs generally or reimburse Tenant for Tenant's actual costs in fabricating the signs for Landlord. 29.4 Competing Business.. :Commencing with the date of this Agreement and continuing during the Term of this Agreement or, in the event this Agreement is terminated as a result of.a default by Tenant or as a result of Tenant's surrender or abandonment of this Lease, for a period of twenty -five (25) years from the date of this Agreement, whichever is longer, neither Tenant nor an Affiliate of Tenant, shall own, lease, or manage, nor license the use of the name "Big League Dreams" in connection with a competing sports park facility similar in nature . and function to the Sports Complex or any other sports park or sports facility located within the state of Washington: 29.5; Regulation of Smoking. Pursuant to Chapter 70.160 of the Revised Code of Washington, the Washington Administrative Code, and City of Yakima Administrative Code § 700, employees and members of the public are not permitted to smoke in any City owned facility. Tenant shall establish and enforce '_a :policy of prohibiting smoking in the Sports Complex; provided, however, that designated smoking areas may be established outside of the g4 8/16/2001 12:17 PM entrances to the Sports Complex or any structures of the Sports Complex, so long as the designated smoking areas are no closer than 30 feet from any entrance doors or gates. For purposes of this Section, "smoking" is defined as the carrying or smoking of any kind of lighted pipe, cigar, cigarette, or any other lighted smoking equipment. • 29.6 Judicial Determination. If after good faith negotiations, the parties cannot agree upon modifications as provided in Sections 4.2 (a), 8.2 or 9.5, either party may petition the Superior Court of the State of Washington in and for Yakima County to have the issue determined by a judge of said court after a hearing at which each party may present - evidence. Not withstanding the provisions of Section 20 which shall apply to all other action, in any judicial proceedings to determine such modifications, the Landlord and Tenant shall each bear its respective costs and expenses, including attorneys fees. • SECTION 30 — HAZARDOUS MATERIALS 30.1 Hazardous Materials. Tenant shall not store, generate, treat or dispose of any hazardous substances or hazardous waste, on the Sports Complex; provided, however, that Tenant is permitted to bring onto the Sports Complex Hazardous Materials (defined below) contained in emergency back -up batteries, under the condition that Tenant will treat all such Hazardous Materials brought onto the Sports Complex by it in accordance with all . applicable federal, state, and local laws and. regulations. . 30.2. Definition of "Hazardous Material ". When used in this Agreement, the term "Hazardous Material" shall be defined to mean any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, flammable explosive, corrosive, toxic, or radioactive substance, or other similar term, by any federal, state, or local environmental statute, regulation, or ordinance presently in effect or that may be promulgated in the future, as such statutes, regulations, and ordinances may be .amended from time to time, including, but not limited to, the statutes listed below: (a). Federal Resource Conservation and Recovery .Act of 1976, -42 U:S.C....§ - et Seq (b) Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et seq. (c) Federal Clean Air Act, 42 U.S.C. § 7401 -7626. (d) Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33 U.S.C. § 1257 et seq. . • (e) Federal Insecticide, Fungicide, and Rodenticide Act, Fed: Pesticide Act of 1978, 7 U:S.C..§ 13 et seq. (f). Federal Toxic Substance Control Act, 15 U.S.C. § 2601 et seq. (g) Federal Safe Drinking Water Act, 42 U.S.C. § 3000(f) et seq. 35 8/16/2001 12:17 PM (h) 'Washington Clean Air Act, RCW Chapter 70.94. (i) Washington Solid Waste Management - Recovery ' and Recycling Act, RCW Chapter 70.95. (j) Washington Model Toxics Control Act, RCW Chapter 70.105D. (k) 'Washington Hazardous Waste Fees Act; RCW Chapter 70.105.A. (1) Washington Nuclear Energy and Radiation Act, RCW Chapter 70.98. (m) Washington Radioactive Waste Storage and Transportation Act of 1980, RCW Chapter 70.99. 30.3 Tenant Indemnity. Tenant shall indemnify, protect, hold harmless and defend the Landlord, its elected officials, council members, officers, employees, agents and volunteers from and against any and all liability (including reasonable attorneys' fees), directly or indirectly arising from (a) the use, generation, storage or disposal of Hazardous Materials by Tenant, and, (b) the cost of any required or necessary repair, cleanup or detoxification and the preparation of any closure or other required plans, to the full extent that such liability is attributable, directly or indirectly, to the presence or use, generation, storage, release, threatened release or disposal of Hazardous Materials on or with respect to the Sports Complex after the Term Commencement Date or by Tenant, its officers,: employees, agents and/or invitees on or with respect to the Sports Complex after the Term Commencement Date. 30:4 Landlord Indemnity.. Landlord shall indemnify, protect, hold harmless and defend the Tenant, BLD USA and their officers, : directors, members and employees from and against any and all liability (including reasonable attorneys' fees), directly or indirectly . arising from the use, generation, storage or disposal of Hazardous Materials to the full extent that such liability is attributable, directly or indirectly, to the presence or use, generation, storage, release, threatened release or disposal of Hazardous Materials on or with respect to :the Sports Complex prior to the Term Commencement Date or from the actions of the :Landlord or the Landlord's elected officials,. officers, employees, agents or volunteers that result in Hazardous Materials being brought to the Sports Complex after the Term Commencement Date. 30.5. Tenant Release. Other than indemnity claims under Section _30.4 above, Tenant releases the Landlord from any and all claims Tenant may have against the Landlord of whatever kind or nature resulting from or in any way connected with the environmental condition of the Sports Complex, including any and all claims Tenant may have against the Landlord under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), or any other federal, state, or local law, whether statutory or - common law, ordinance, or regulation pertaining to the release of Hazardous Materials into the environment from or at the Sports Complex. 30.6 Survival of Obligations. Tenant's and Landlord's obligations under this Section shall survive termination or expiration of this Agreement 36 8/16/2001 1 :03 PM