This is the second of a multi-part interview with Neil deMause, the Brooklyn-based co-author of the book Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, and writer of the companion web site. He testified at a 3/29/07 Congressional hearing that questioned taxpayer financing of stadiums, convention centers, and hotels.Q. Why aren’t naming rights counted as subsidies or, value? Forest City Ratner's deal with Barclays is worth a reported $400 million over 20 years. [Update: It was later adjusted to $200 million+.]
(Imagine a mocking tone to the first sentence of his response.)
A. Because it’s industry standard, don’t you understand? That’s the only answer--the teams always said: we always get the money for this, so therefore it’s private money. There’s no reason for this to be private money. If the public is building the stadium, if the public is owning the stadium, why should the team get to slap a name and get the money from it, or consider the money from it that pays off the stadium as paying off their share?
Y’know, I rent; if I decide to put a giant billboard on the roof of my house here--if my landlord lets me do it, I really don’t think he could let me keep all the money from it. If I say, I’d like to move into your apartment, but in order to pay my rent, I have to put a big billboard outside, he’s going to look at me as if I had two heads.
I think what happened was, originally it was not very much money and the teams said, we can sell naming rights and we use that to help raise money and the city says fine. Now, in many cases, especially the Nets, it’s a huge amount of money… The arena will be owned by the state in order for them to use this PILOT dodge and be exempt from property taxes… It’s very odd that the state will own everything about the arena except the part that makes money.
Subsidy list doesn't quantify naming rights
Q. One of the things that struck me: even the IBO [Independent Budget Office] report on AY didn’t try to quantify the value of naming rights.
A. Yeah. I think it’s just something people stay away from, because they don’t want to get into an argument: is this private or public money? But it’s absolutely a gift. There’s no reason that the state could not have said: OK, we’re selling the naming rights.
What would Ratner have done? There’s no reason the state couldn’t have said: Fine, you’re paying PILOTs, but we want you to pay rent. There’s all kinds of things the state could have done. The MTA could’ve said: We want you to pay more for the property. The problem was it wasn’t trying to negotiate an equitable deal, it was about trying to get a deal done.
Once that’s your goal--how do we get a deal done--then you’ve lost the game, because the developers can basically say: well, I’m not going to do this unless you give me X, Y, and Z.
The value of the naming rights is so substantial and the amount of equity that Ratner is putting into the arena so minimal that when you take the naming rights into account Ratner will net a muti-million $100 million+ gain on day one even before he starts collecting any income in connection with the arena operations. This is no matter how you calculate the exact amount of the billion plus in tax payer subsides that will pay for the arena.
ReplyDeleteThis is the way the calculations come out even when treating the value of the naming rights conservatively as an amount worth less than the total $400 million that will be collected over time. To be fair, because this money will be paid over time, in these calculations, the value of these naming rights should be discounted. $20 million a year will be paid for 20 years. (Ratner may securitize this to take his money up front.) - If the naming rights income stream is converted to its PRESENT VALUE, its value should be approximately $187.30 MILLION.
But that figure will be more than sufficient to reimburse Ratner and company on day-one of the arena’s completion for any “equity” that they would otherwise be considered to be invested in the arena.- No matter what, rather than putting in equity, Ratner should be taking out a minimum muti-million dollar day-one profit of over $100 million.
But (just as “naming rights” are generally disregarded and not counted) this bottom line $100 million day-one profit doesn’t count other things:
IT DOESN’T COUNT
- It is not counting a number of other subsidy amounts for the arena that have not been counted.
- Like “Hollywood accounting,” the Nets ownership and arena also generate a lot of additional franchise and licensing income that is treated as off the radar screen as not directly related to the real estate transaction in the strictest sense.
Michael D. D. White
Noticing New York