Financing a Stadium: Keeping the Bills in Buffalo

Twenty-five years ago, when the Bills were on the way to the golden era of Bills football, there was another golden era: that of Rock n Roll, specifically the category broadly referred to as “stadium rock.” Classic rock bands from the Grateful Dead to U2, Aerosmith to Foreigner to Journey, glam rock bands like Bon Jovi, hard rock / heavy metal bands including Metallica, Motley Crue, and the Clash of the Titans tour with Megadeth, Anthrax and Slayer, with opening act Alice in Chains. These were huge concerts with massive audiences. Whatever your style of music, there was a concert. More importantly, there was a stadium for said concerts. Whether the stadium was baseball or football, the big concert was there. Everyone from teenagers to veteran rock fans went. It wasn’t just a concert, it was an event. It was part of a tour that you had to be at.

(Photo: David Duprey, AP)
Financing a new stadium won’t be easy, but it’ll be worth it. (Photo: David Duprey, AP)

Fast forward to 2014. Concerts at the Ralph? I haven’t seen any scheduled. Why? There’s no big acts, no Beatlemania, as it were. Sure, some pop star might occasionally drop by and sell out the safe confines of First Niagara Center, and there will always be pop stars with short careers that cater to teenage girls who will, in most cases, actually acquire some musical taste. Once a decade, an international mega-act like AC/DC might show up (Get well, Malcolm!). Why do I talk about music and stadiums? What does that have to do with keeping the Bills?

A stadium is likely to be a billion dollar investment over 50 years or more. Between 1962 and 1992, stadium concerts, particularly in summer, could make some revenue. So could high school championships in football. The demand for alternative use of stadiums as a second source of revenue has become significantly less. So, what do we have that has often replaced them? Parking, concession fees, personal seat licenses in some stadia, etc. In addition, as stadia have gotten more extravagant – I mean, really, a water slide? – there’s costs added to the whole of the experience. Those costs have to be paid for by continuous revenue streams.

Sure, maybe Buffalo can have a stadium with some frills, maybe a beautiful façade or a do-it- yourself wing bar on every level. However, I’m thinking the water slide probably isn’t good after Columbus Day weekend – even though I know some of you would do it anyways. Actually, after Columbus Day, maybe we should just convert it to a sledding hill. However, the frills, even ones that pay for themselves, are only a small portion of what is important revenue: ancillary sustaining revenue.

In order to sustain income, the stadium complex is going to have to likely combine a few things in one major effort. In my prior article, I identified five sites, but this larger idea would only really fit 3 areas: Niagara Falls, Tonawanda and Buffalo. Senator Kennedy recently identified Erie County as the only location for the Bills, but he would be well-advised to not solely consider Erie County if the site is poor and won’t have ancillary revenue. Instead, by combining a potential stadium, transit center and perhaps a convention or conference center and hotel, the county becomes more attractive to large events that would require these facilities. In addition, there may be more public and private money available to a combined facility if managed correctly.

Be warned: Dense, boring economics discussion ahead. Feel free to take a No-Doz or have a cup of your favorite premium coffee before reading. I’ll give you a moment … Okay, now that you’re full of caffeine.

Now, for those who love these sort of buildings as economic engine, they are not a panacea. The vast majority of jobs created at stadiums and convention centers are not high income. However, the goal is not to establish the jobs, but rather the destination. Buffalo is often viewed as a minor league city with two major league teams backed by a rabid fan base that is larger and more intense than one might suspect of a city its size. Buffalo, in combining a number of major facilities into one project, may be able to reap the long term benefits of a massive project rather than attempt to piecemeal the projects. This combines two economic principles: “Agglomeration” and “sunk costs.” Sunk costs are the reality that if one is already going to pay a large amount, no matter the size of the project, then the best way to maximize the use of those dollars is to build the maximum reasonable project with the costs already accounted for. This is not to say that a project should be enlarged just to do so. I’ve seen several projects in government increased to satisfy egos rather than smart investments. Agglomeration occurs when a close concentration of complementary facilities or businesses serve to increase their effect beyond more than just the sum of their parts. For example, having easy access to transportation, a stadium, and a convention center may provide a reason for a conference to prefer Buffalo to another city’s site, thus increasing the amount of use and positive economic effect. I’m saying that if a good core agglomeration of buildings with positive economic multipliers can be built that diminishes labor costs by building at one time in a specific area, then make the investment.

What’s an economic multiplier? It’s a form of economic investment where the amount of money invested in a facility or policy yield far greater economic benefit than the original investment. For example, if the roads in an area are a disaster, then investments in improved roads, along with buses and special surface and sub-surface treatments for heavy truck operations may give the road a longer life. If because of that road improvement traffic flows faster and the economy is better off than it was without the investment in roads, then it can be said that the road has a positive economic multiplier effect. In the case of a stadium, you are talking an investment of a billion dollars, with interest. This doesn’t even include likely renovations. So, a stadium must generate that and more in tax revenue and incomes, from its operations and the spin-off operations, both onsite and offsite that come with it. This is no small task.

First, let’s talk football economics. I know some of the people reading will scream that no NFL team that makes a bazillion dollars should ever receive public funds, but a stadium is not just a spectator venue. It is an economic generator, expense and a source of civic pride to many people. We fund with taxes, fees or grants everything from museums to libraries to zoos. These are financed by entry fees, public grants and private foundations. Stadia are no different: entry fees in the form of tickets, public grants, and revenue from one of the larger non-profits in the world: the NFL. Don’t forget, Ralph Wilson Stadium was constructed for $22 million using public financing (Warning: may have a paywall), with an agreement to pay ~1% of it for naming rights bought by Rich Products (thus, named Rich Stadium from 1973-98 for a now-meager cost of $250,000). Does anyone think we didn’t get $22 million of use? Even with subsequent renovations totaling more than $200 million, we are looking at a 50 year stadium for a total of about $225 million. I’d say that’s more than fair. Going forward, we should expect a similar value from our tax dollars.

As a reviewer of government grant applications, I have seen poor ones and great ones. I’ve sent back grants that are poor, even from experienced grant writers who have won grant money annually. They thought they could just “fill out the form” and no one would care. The taxpayers deserve better than that. It is the same with stadia: the government grants and loans that will be applied for must be done correctly and well. If we are firm with our expectations, and we expect good service from our public investments, we will gain a great deal. There are public implications to not having a stadium. Done poorly, you wind up with the Cincinnati Bengals or Miami Marlins financing fiascoes. Done wisely and well, you wind up with a strong investment that benefits the public. A good debate is here regarding the Browns’ stadium. The Economist puts it more harshly regarding baseball in Atlanta. I am a full proponent of what many have proposed for Buffalo: If the public helps finance a stadium, it should have a say in its team and its workings. I don’t mean that the fans or politicians would select a GM or head coach, but local elected officials should have a seat on a forum of Board of Directors, as it were, to voice public interest. While current NFL rules bar community ownership of a team such as in Green Bay, I think the NFL would be wise to understand that some flexibility in partnerships ought to be arranged. This is where having a good partnership between the team, local and state politicians, and a working group that represents public and fan interest is critical. I hope the current stadium working group evolves into a standing working group to review all aspects and work together in community engagement.

So, let’s assume that in present dollars, the state, county, and the ownership group of the Buffalo Bills find an agreement that mixes public and private dollars to the benefit of the taxpayers, the team and the community at large. From 2006 to 2013, Erie County sales tax receipts grew an approximate 2.35% annually (Figures from Erie County’s office of Budget and Management). I chose those years to cover economic expansion years 2006-2007, recession years 2008-2009, and recovery years 2010-2013, to get a good cross-section of growth rates. The Bills are a direct taxable impact of $20 million per year, according to a few outlets. In 2063 this will be $63,888,449.08, assuming the same fairly conservative growth rate. Over 50 years, the total direct tax revenue of the Bills would be $1,931,482,027.07 (or, almost $2 billion). Now, this doesn’t mean the Bills just get that nearly $2 billion and claim it as “look what we provide!” There’s expenses involved in owning a stadium, as Erie County does, and we’ll look at that later.  It means, however, that the Bills have a very strong economic argument for remaining in Western New York. Losing that kind of economic impact is not something that the area, already lacking its former industrial base, can weather. I know many people in the area, including Olean Times-Herald columnist Chuck Pollock, whom I respect, don’t understand the principle of public investment. I don’t expect him to understand 50 year economic forecasting, but I think people like him should at least say to their readers: Let’s look at how this type of financing shapes up compared to other similar cities and make a rational decision. It’s important that those writers who have influence over local readers are responsible and even-handed in any new possible stadium discussion.

To continue the financial discussion, the almost $2 billion in direct taxation generated is a summed total of state and local tax receipts. This doesn’t mean that you can simply subtract the $1 billion cost of a stadium building from the 1.931 billion above and net a profit. You then have to consider annual costs, which total a little over $3 million per year now, and will probably, at a 2.35% rise in annual operational costs, total just shy of $11 million. Even at a more expansive rate, say 3.5%, this is just over $15 million per annum in 2063. Most salaries, presumably, would be paid by the teams or entertainment companies that would use the stadium. In sum, we can now add a total of $423.5 million to the costs of the stadium above, $1.030 billion in construction plus renovation at $300 million, for a sum of about $1.726 billion and expected net revenue to the state and local government of $1.9 billion. The taxpayers are likely to see about $.18 billion, or $180 million dollars, of positive investment over 50 years (in 2013 dollars), a rough positive of $3.6 million per year in net taxable benefits.

So, what does this all mean? All of these calculations? It means that a well managed stadium deal that watches its costs and is realistic about its revenues can be of some benefit economically, and perhaps more important, psychologically to the people of Western NY. However, I think the stadium could be even better as a centerpiece to a major development. If we presume from the numbers above that football operations are self-sustaining, then it can be an anchor for other developments that may be sustainable as well. If the current renovation financing ratio of approximately 28% private (from the Bills) and 72% public funds is maintained, then the benefit to the public can be pretty well demonstrated over the long term. It will make the net public investment approximately $927,000,000 in building plus $423 million in maintenance for $1.35 billion in total costs with a $2 billion benefit. I’d say that’s fair.

To return to other possible site revenues, Buffalo could be a good home for a convention center, but it would have to understand what kind of convention center. It would have to be a less-expensive alternative to Toronto. A conference center needs ready transport access. Albany is slated for a new convention center to handle the many government-focused conferences that are there. While I do remain skeptical of the need in a city of around 100,000 for a major convention center, the first proposal was an astronomical $400 million! Thankfully, this poor project idea was stopped before it ever got going. It is now a much smaller and more rational project, appropriate to the area and size of conventions likely to occur.

As I alluded to in the prior article, a stadium is a natural densely populated environment. Creating a transit hub with access to rail, bus, parking and airport would greatly expand the ease of getting to and from the stadium. In addition, with a retractable roof, the venue becomes viable for indoor events and easily accessible. While this may reduce some of the venue strength of First Niagara Center, I believe there’s enough in the area to have two viable concert venues for large acts. With variable seating for concerts, the new stadium can flex the amount of seats. Perhaps Buffalo can host a bowl game or another open air hockey game – college or pro. The First Niagara Bowl, anyone? Why not Buffalo? The bottom line is that there’s plenty of potential here for a rich return on public investment. Let’s not squander what may be Buffalo’s only opportunity to do so.

The problem with any large project is going to be getting the various political groups (GOP, Democrat, and every party in Canada) to work with local leaders and government agencies with a stake, including DEC, DOT, and economic development agencies at every level. The larger the project, the more funding available, and the more the people at the table. The more people, the longer it takes to get to a final, approved design. So, it is critical that a new stadium get sited, funding approved, and stakeholders get to the table and stay at the table.

We need a sober, intelligent group of hands at the wheel of this project. It is vital that all of us who are Bills fans, particularly who live in Western NY, elect responsible politicians who will forge a good working relationship with the new owner, whomever it may be. A fouled relationship, no matter how good the financial numbers, will guarantee the Bills move after 2020. Just look at the Browns moving to Baltimore (Sorry, Ryan!). If there’s a great working relationship, then the new owner will be able to enjoy both good profit and a great influx of fans for generations to come. A new owner will come to realize that other places may offer more incentives, but there’s something to be said for owning a steady revenue stream.

We can only wish that our next owner views ownership like Mr. Wilson once said (taken from the Daily News): “I came into this game 50 years ago because I enjoyed the game of pro football. Not to make money,” Wilson said. “In those days, everybody was hoping to break even. We lost money for a number of years. I am really not into the game to make money, but I would like to break even or make a little.” I think that’s a fair statement and hopefully the NFL honors the commitment of Mr. Wilson to its creation by finding an owner who is looking for a fair deal. The legacy of Ralph Wilson, Jr. isn’t just the Buffalo Bills, it’s a spirit of generosity and fairness to keep a team for its fans, not for the money. Mr. Wilson fought in World War 2 not because he was looking for glory or money, but for the cause of freedom for people all over the world. That is sacrifice and dedication. Then, as most Bills fans know, he gave $400,000 to the Raiders to keep the AFL afloat. The NFL owes its existence in no small part to a man who was less interested in principal than in principle. Maybe I’m being “foolish,” but I don’t think it’s too much for Bills fans to ask the NFL for a return of the favor.

About Rich Quodomine

Rich Quodomine is a writer for the Bills Mafia Blog and a bunch of other publications. He is the founder of his own firm, LocalPoint Technologies & Consulting, Ltd. . He’s from Rochester originally, is a two-time SUNY Buffalo Graduate, and currently resides in Cobourg, ON, Canada. He is the proud Dad of two boys, ages 14 and 13. Feel free to follow him @RDQ_Geography, but be warned: in addition to Buffalo sports ranting, you’ll find lots of material on mass transit, geography, and the occasional traffic and weather reports. Thank you for reading.

One Reply to “Financing a Stadium: Keeping the Bills in Buffalo”

  1. Pingback: Financing a Stadium: Keeping the Bills in Buffalo – My Buffalo Sports