Sunday, January 23, 2005

Here we go

Bill Steigerwald discusses his waning passion for the Steelers in his Trib column:

What has turned me off most, however, is the slimy politics practiced by the NFL. The league and wealthy owners like the Rooneys have cynically exploited their local popularity and exaggerated economic clout to extort billions in taxpayer dollars for dozens of new football stadiums.

But no matter how much we love them or think we need them for economic or psychological reasons, the Steelers don't deserve a dime of public subsidy, any more than Eat 'n Park or the Penguins do. Even if the Steelers go to the Super Bowl, which I hope they do, accepting stolen goods from politicians is still a major penalty.

Driving home Bill's point is this profile of the Rooneys and how they have turned the Steelers into one of the nation's most profitable sports franchises. The Rooneys told public officials in 1994 that they were considering selling the team. What a coincidence that a few years later city, county and state officials agreed to bankroll the cost of a lucrative new stadium:

The Rooneys put up $100 million of the $281 million construction price, but recouped more than half of their investment by selling naming rights to H.J. Heinz for $57 million. Another source of revenue were controversial seat licenses, which ranged in price from $200 to $800.

The trade-off for up-front construction costs was a lease agreement that allowed the team to keep more of the revenues generated by the new stadium. Under their lease, the Steelers keep the big-ticket items -- revenue from 6,600 club seats, a portion of parking fees, the naming rights and most of the gate proceeds. At Three Rivers, the team paid $70,000 per game, plus 10 percent of the revenue, as rent to the Stadium Authority.

One estimate put the lease cost to the Steelers of $2.5 million in their last year at Three Rivers Stadium. At Heinz Field, the team pays the Sports and Exhibition Authority $250,000 a year in rent.

Don't forget that the Steelers also share development rights with the Pirates for the land between their two publicly funded playgrounds, and that the Rooneys got a $4 million state grant to build an amphitheater next to Heinz Field. Also interesting in this article is Dan Rooney's unsentimental attitude towards winning a Super Bowl:

Although he is excited by the prospect of the Steelers' winning a fifth Super Bowl, Rooney said winning an NFL championship actually reduces profits because of additional daily expenses while adding little more than "emotional" value to the franchise's net worth.

The Forbes franchise survey seems to support Rooney's contention. It estimated the value of the New England Patriots increased by 14 percent over the past year, less than the Steelers' 18 percent gain.

I love the Steelers, and I hope they win today. But let's not forget Bill's point--the Steelers are a business, whose primary motivation is to maximize profits. They are no more a community asset than any other local business. When it comes to public policy, let's stop treating them as such.


Blogger Mark Rauterkus said...

What other business would treat its favorite customers to four hours of bitter cold seats at expensive prices?

I wonder about wellness.

And another business example, the NHL. They treat customers to year-long vacation.

10:29 PM

Anonymous Anonymous said...

What went unremarked in the Trib's business story about the Rooney deal was the fact that the people screwed most by shifting revenues to parking, luxury boxes, naming rights and related taxpayer-assisted development projects abutting the stadium were the players.

The CBA in effect until 2007 gives players a 67% cut of gross revenues from various streams (mostly broadcast, licensing and clothing profits). They get nothing from parking concessions, outside (but related) development deals and the big, fat cash cow of naming rights.

So, in effect, the Rooneys found revenue that they could squirrel away from the players and taxpayers which, by rights, should likely be theirs. Why not Taxpayer Stadium and not Heinz Field?

Ironically, the only story I've read in either the PG or the Trib that really gets sort of close to this is the Trib's recent thing on injuries. And that didn't really address this imbalance between labor (the players) and management (the Rooneys) behind the stadium deal.

That the franchise increased in nearly exponential value because of the deal, however, surprised no one. Good catch by the Trib for seeing that the value of sports clubs isn't really in the cash flow. It's in the equity that accrues to the investment.

Like Holland's tulips and the dot coms, zillionaires love to buy high for things with values far below the prices they command. Credit the Rooneys for realizing that, and leveraging it, to get concessions that locked in better cash flow, too.

6:49 PM

Blogger Jonathan Potts said...

I was intrigued by the Nordstrom's plan. I wonder if the Rooneys planned to pursue without public funding and if so, that means the mayor tried to quash a privately financed development deal in pursuit of a publicly financed one. But I have a hard time seeing Nordstrom's settle on the North Shore.

8:49 AM

Anonymous Anonymous said...

By the way, Forbes had a brief piece today on the financial status of the two Super Bowl teams.

4:36 PM


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