Monday, September 22, 2008

At Kucinich hearing, the question arises: why do cities give away naming rights?

Though the Congressional hearing Thursday, “Gaming the Tax Code: Public Subsidies, Private Profits, and Big League Sports in New York,” (video) focused on Yankee Stadium, the issues raised do apply the planned Atlantic Yards arena, as I wrote.

Atlantic Yards came up exactly once, near the end of the hearing, when Rep. Dennis Kucinich (D-OH), asked a basic but important question about naming rights--and got back an answer that actually underestimated the value of the Barclays Center deal.

Kucinich (right), who chairs the Domestic Policy Subcommittee of the Oversight and Government Reform Committee, addressed his question to Brad R. Humphreys, Associate Professor, Department of Economics, University of Alberta, and a critic of sports facility deals.

Kucinich "mystified"

"Can you explain how cities who build stadiums for teams typically deal with stadium naming rights?" Kucinich asked. "I’ve always been mystified at how cities can make a rather enormous investment of tax dollars, whether it’s local, state or federal, into these facilities, and then have somebody else come along and put their name on it."

"How do these cities who build these stadiums deal with naming rights and, to the extent the teams are typically granted these rights, how much are these rights worth and why are cities willing to grant them to teams?"

Teams have power

"Well, the details of naming rights are hashed out in the negotiations between the teams and the cities when they’re building new facilities," responded Humphreys (right). "The teams always have the upper hand in that negotiation for reasons we’ve talked about in the course of this hearing. You can always threaten to move. There’s all sorts of reasons that teams have this power in negotiating. So they hash those things out."

"It’s, I think, a sort low-cost concession that a city or local government can give to the team: OK, we’ll give you the naming rights, even though they’re incredibly valuable," he said.

Whose cost?

Note that it's a low cost only in that the city does not put forward resources, but, as Humphreys acknowledged, the city is giving up resources.

In the case of Atlantic Yards, naming rights have been granted not in response to a threat to move but as a carrot offered to the team owner.

In January of last year, I asked the Empire State Development Corporation (ESDC), "Given that the arena is publicly-owned, should the Local Development Corporation [set up to own the arena] be in charge of naming rights? Can the LDC pass them on to Forest City Ratner?"

An ESDC spokeswoman responded: "Financing for the stadium comes ultimately from the team. The team has the naming rights. It's the same deal as with the Mets - who also sold naming rights to their new stadium."

Well, there's not much evidence that any deal was negotiated--an argument that the arena financing lacks the democratic accountability and transparency that law professor Clayton Gillette testified gives legitimacy to sports facility deals. Nor would financing come solely from the team, given the significant subsidy--perhaps $165 million--from tax-exempt bonds.

Notably, the city's Independent Budget Office never counted naming rights as a benefit. But surely someone should’ve been on notice, especially given this quote from a 1/23/04 New York Times article, after the Nets were sold to an ownership group led by Bruce Ratner:
Marc Ganis, president of Sportscorp, a sports economic consulting company based in Chicago, said, "It will generate the largest naming-rights fee in the history of professional sports, because it is in New York City and the only other arena, Madison Square Garden, can't change its brand name without losing a lot of cachet."


AY a "classic example"

Humphreys continued his answer: "That’s one of the reasons it’s often given to the team. Now it’s not always given to the team. There are instances where cities have retained the right to name the stadium or have control over the name of the stadium. So I wouldn’t say it’s always given away, but it’s basically because of the power the teams have in these negotiations that awards them that."

"And it’s incredibly lucrative," he added. "It’s tens or hundreds of millions of dollars for these naming rights deals. The Atlantic Yards case in New York is a classic example, right. A bank paid almost $200 million for the naming rights to that facility."

Actually, the Barclays Center deal is for $400 million over 20 years--apparently, even more of a classic example.

Neil deMause's criticism

In July, I published an interview with Field of Schemes co-author Neil deMause, in which I asked him why naming rights aren't counted as a subsidy.

"Because it’s industry standard, don’t you understand?" he replied, in a mocking tone. "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."

How it happened

The process, deMause suggested, started small: "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."

"[I]t’s absolutely a gift," he said. "There’s no reason that the state could not have said: OK, we’re selling the naming rights"... The problem was it wasn’t trying to negotiate an equitable deal, it was about trying to get a deal done."

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