Commissioners, here's the other side of stadium giveaway
By Michael Lewis
Attention, commissioners who'll vote next week on binding us for 50 years to a Marlins stadium contract: Your city and county managers and the team have told you privately how good the deal is. As a Marlins fan who spent nine hours digesting the paperwork, let me tell you the other side.
This vote assumes that you'd dream of spending $1 billion, including interest, to build a stadium when we have one already and we're fighting the worst recession of our lives. You've been crying for funds to meet public needs, and you'll have to explain big-time if you squander them.
It's not as though you must use money targeted for the stadium for baseball or lose it. The $50 million from general obligation bonds could build any public project. The rest is targeted to tourism, like the convention center upgrade we desperately need.
As county Mayor Carlos Alvarez correctly argues, a stadium would create 2,000 construction jobs. But just spending $600 million-plus to build anything would add 2,000 construction jobs. The goal is spending that creates not just jobs now but future jobs — like a convention center that pulls money into the county — rather than just shifting workers from one stadium to another.
Still, some of you genuinely believe in a stadium, even in a bad site, although it may not add jobs. If so, at least get a decent deal for us taxpayers. The deal on the table is great for the Marlins, terrible for the public.
Look at some pitfalls in this package.
First, could the team keep its bargain, even on this one-sided deal? The Marlins insist on proof that the county and the city can uphold their end but won't unveil their own financials.
All we're told is that a team in debt to Major League Baseball owes less than 10 times average earnings for the past three years before interest, taxes, depreciation and amortization — and we have only the team's word for even that.
Commissioners, you wouldn't sign a deal like this with anyone else. Why the Marlins?
Next, who owns the team? Who owns the shell Delaware companies that are part of this deal? At least four entities are involved. You don't have a single person's name. One entity runs construction, one the stadium, one the team, and another partnership controls the partnership that runs the team.
In your documents, even the name of the person who'll sign is blank. You won't know it until after you vote. It violates the oldest rule in business: know who you're dealing with.
Everyone assumes Jeffrey Loria owns the team, but he has lots of partners in multiple entities. Who?
Answers are vital for two reasons beyond knowing whether the folks you're dealing with can keep commitments.
First, the county and city must know not only the owner but how old and healthy he is. That's because papers specify that a slice of profits from an early sale of the Marlins after a stadium is approved would partially repay the public that made the windfall possible. But contracts say that if the owner dies, the county and city get nothing. The deal is a publicly financed life insurance policy for the principal owner.
Second, profit sharing depends on who owns the team after commissioners vote to approve this deal but before the papers are signed. If majority interest is sold after a vote and before signing, the public gets repaid not a penny of windfall profits. The absence of Mr. Loria's name in any of the documents raises that concern.
About that windfall profit-sharing: the provision is barely better than a year ago, when the deal was outlined. Then it was a decreasing share of profits split by the county and the city over the first five years. That's been increased to seven years — though, based on construction schedules, it would actually expire in a bit more than six years after signing.
But the formula is still lopsided.
For example, if the team were sold for $600 million in six years (it's worth $250 million today, contracts say), the owners would have invested under $300 million in team and stadium combined and government would have invested above $455 million, plus land. But the owners would get $592.5 million and the city and county would split $7.5 million.
Commissioners, that's so unfair that it alone should be a deal-breaker, not something to brag about. Building the stadium simply guarantees the owner a massive profit.
The team says it has no plans to sell within five years, but there's no penalty for a sale and we have no idea if side contracts among the entities related to the team could trigger one.
A sale wouldn't require government approval. But Major League Baseball would have to give it. In fact the contracts give Major League Baseball the right to change almost every provision anytime. Again, who could responsibly agree to that?
More lemons in this deal:
nThe stadium belongs to Miami-Dade in name only. The team could use if for 50 years with no county say-so in almost anything. While the city and county could use it for charity events by paying expenses, each use is at the pleasure of the team, and only after 30-day notice.
nFor-profit stadium events other than baseball profit only the Marlins. They keep all profits for the first 10 events each year and a quarter of the rest. The other three-quarters of those profits go to improve the stadium that the Marlins control.
nThe Marlins are to pay as rent a total of $35 million. And, get this: the county is to borrow that money at interest cost, give it to the Marlins as a loan, and the Marlins can pocket interest on the money until they put the $35 million into stadium funds 12 months before completion. Then the Marlins pay that loan back at $2.3 million plus a 2% increase annually. The Marlins get to count that $35 million from the county in their share of stadium funding. What a deal.
nThe whole deal rests on Miami-Dade issuing bonds to fund construction. But last week, the county had to delay $600 million in airport bonds until at least April because it couldn't sell them in today's financial upheaval.
For the stadium, the county must get bonding done by June 30 and in the interim would have to advance funds from elsewhere.
The contract would let the county or the city exit without penalty by June 30 — but you commissioners wouldn't make that call. The contract specifies that only the county and city managers can cancel, and in a crisis you may not have the time or the votes to order cancellation.
And guess what? If government doesn't cancel, come July 1 the contract requires the city and county to tap any revenues they can get to keep building the stadium, bonded or not, regardless of other local needs. That could mean the taxes that pay police and fire and other expenses.
If you approve this contract, you're gambling that the municipal bond market is suddenly going to reverse course after a year of first uncertainty and high interest rates and now a frozen pipeline for funds.
You cannot safely make that bet, any more than you should gamble millions on the health of the Marlins' principal owner.
There's a lot more in this deal (I spot 32 more pitfalls) to make even the most rabid baseball fan tremble and the most pro-stadium commissioner reject it.
If you're not yet persuaded, I'll list those pitfalls next week. Meanwhile, please study the contract. You'll probably find more than 32.