Bloomberg Businessweek (North America)
“If there’s one thing the Braves know how to do, it’s how to get money out of taxpayers”
Is building a stadium for the Braves a good deal for anyone but the Braves?
Sometime in 2003, when he was the mayor of Pearl, Miss., Jimmy Foster got a visit from a man he’d never met. The stranger, Tim Bennett, came to City Hall, an old brick schoolhouse on Pearl’s church-lined main street. “He just showed up in my office that day,” says Foster, “and started talking about baseball.” Specifically, Bennett wanted to know if Pearl might be interested in building a stadium for a minor league team.
A ballpark, it turned out, was just the kind of project Foster was looking for. Now 62, with gray hair and a potbelly, Foster, who spent 19 years as a policeman in Pearl before becoming mayor, was desperate to help his hometown shed its reputation as a poor neighbor of Jackson. “There just wasn’t a lot of commercial or retail in town,” he says. “And there wasn’t a lot of money.” The sewers, the streets—it all needed attention. “Having a baseball team in Pearl? That was a pipe dream.”
Nobody had sent Bennett to Pearl. He was working in construction and trying to launch himself as a dealmaker. “I was really a rogue,” he says. Now 47, he came to Mississippi from central Florida, where his father ran a lawn-mowing business. “We grew up in a double-wide trailer with six of us and a bunch of dogs and cats,” he says. “And we cut grass for the right people.” One of the lawns Bennett used to tend belonged to a part- owner of the Tampa Bay Rays, and he learned that the franchise’s Double-a team was looking to move elsewhere.
Bennett had no special fondness for baseball and never played, but he saw a chance to make some money: sell a Southern town on a team, get the Rays on board, and collect a piece of the action. He started in Jackson, the biggest city in Mississippi, which lost its Double-a team in 1999. The city wasn’t interested, however, and the Rays’ affiliate wound up moving to Montgomery, Ala. Bennett, close to broke, needed a new team and a new town. If Jackson wouldn’t listen, maybe Pearl, a scruffy suburb of 26,000 next door, would.
“Pearl was the trailer park capital of Mississippi,” Bennett says, “so that basically means it was the trailer park capital of the world.” He went to Foster’s office in City Hall with a blind offer. Bennett didn’t have a team in mind yet, but he figured if the mayor was willing, he could find one. He left with a handshake agreement. “I’ll handle the politics,” he recalls Foster saying. “You handle the baseball.”
Bennett caught wind that the Atlanta Braves’ Double-a team in Greenville, S.C., was coming to the end of a 20-year lease and potentially in the market for a new home. He saw an opening. In December 2003, with negotiations inching along in Greenville, he persuaded the Braves to let him pitch them on Pearl, only a 50-minute flight from Atlanta and with a mayor eager to make a deal. The Braves liked what they heard. A few weeks later, Foster found himself driving Bennett and John Schuerholz, then the Braves’ general manager, in his pickup truck at night to the acres of swamp near Highway 80, where a ballpark could go.
Over the last 15 years, the Braves have
extracted nearly half a billion in public funds for four new homes, each bigger and more expensive than the last. The crown jewel, backed by $392 million in public funding, is a $722 million, 41,500-seat stadium for the major league club set to open next year in Cobb County, northwest of Atlanta. Before Cobb, the Braves built three minor league parks, working their way up the ladder from Single A to Triple A. In every case, they switched cities, pitting their new host against the old during negotiations. They showered attention on local officials unaccustomed to dealing with a big-league franchise and, in the end, left most of the cost on the public ledger. Says Joel Maxcy, a sports economist at Drexel University: “If there’s one thing the Braves know how to do, it’s how to get money out of taxpayers.”
The Atlanta Braves own most of their minor league farm system, including, along with a Double-a team, the Triple-a team in Gwinnett County, Ga.; the Single-a team in Rome, Ga.; and lower-level teams in Danville, Va., and Lake Buena Vista, Fla. It’s an unusual arrangement. Major League Baseball teams always manage their players at every level, but they usually leave the day-to- day operations of farm teams to independent owners. The Braves prefer more control. “We can create a seamless thread all the way through our system,” says Mike Plant, the team’s president of development. The teams are all named the Braves and wear near-identical uniforms. Even the “Tomahawk Chop” chant is the same from Atlanta to Rome. “We definitely extend that Braves brand through everything we do,” says Plant.
The Braves are similarly methodical about using other people’s money to build their ballparks. In 2001, for example, while trying to persuade Rome to build a $15 million, 5,105-seat stadium for the Single-a Braves, who then played 150 miles south in Macon, the Braves brought local officials to Turner Field for executive dinners and to watch games from the owner’s box. “It was hands down the highlight of my life,” then-floyd County Manager Kevin Poe says. That November, Rome voters approved a 1¢ sales tax to pay for the stadium by a 142-vote margin.
In those days, the owner’s box belonged to Ted Turner, who bought the team in 1976 and used it to fill out programming on his cable superstation, Turner Broadcasting System. Now that box belongs to John Malone, the billionaire chairman of Liberty Media. Malone and Liberty picked up the Braves for $450 million in 2007 as part of a larger deal with TBS’S parent company, Time Warner. Malone, 75, has been assembling and disassembling media companies for more than 40 years. His dealmaking helped drive the rapid expansion of the cable industry in the U. S., made him a billionaire
eight times over, and earned him a reputation as a master of arcane financial engineering.
Not long after Bennett first visited Pearl’s
City Hall, Foster brought his baseball dreams to the city’s bond attorney and financial adviser. They told him a standalone stadium wouldn’t pay for itself, no matter how you crunched the numbers. Foster was undeterred. He’d been chatting with Bass Pro Shops, the hunting and outdoor retailer, about opening a store in town. So he went to Bass with the idea of building next door to a new stadium. Bass Pro was interested. Early in 2004, Foster and Bennett worked with Plant, the Braves executive, to outline a plan to bring the team and a Bass Pro Shop to Pearl, with the city issuing bonds to pay for both.
For Plant, who was still in talks with Greenville, Pearl’s eagerness for a stadium was a useful bargaining chip. Greenville’s city manager at the time, Jim Bourey, says the Braves were clear about their expectations. “They said, ‘We have a stadium that’s going to be built for us in Pearl, Mississippi,’ ” he recalls. “‘If you’re going to be competitive, you need to build a stadium.’ ” Greenville scraped together some money to help pay for a new ballpark; the Braves wanted more. On April 1, Greenville and the Braves announced that the coming season would be the team’s last in South Carolina. The next day, Foster stood at a podium at the Mississippi state Capitol in Jackson before a crowd of about 200, by an AP reporter’s estimate. “Ladies and gentlemen, we got ’em,” he said.
A few days later, Plant hosted Foster, Bennett, and a handful of Pearl aldermen at Turner Field in Atlanta to watch the Braves play the New York Mets. They sat in Turner’s personal suite and met the team’s manager, Bobby Cox, and Hall of Fame slugger Hank Aaron. “They really pulled out the red carpet for us,” Foster says.
Under Pearl’s stadium agreement, which Foster closed in a marathon phone session with Bennett and Plant just before the announcement, the city would raise $78 million through a series of bonds, with $28 million set aside to pay for the ballpark. “The whole deal was very much behind closed doors,” says Michael Hotchkiss, a Pearl native, then an editor at the Clarion-ledger. “By the time it was public, the whole thing was done.”
The terms span almost 5,000 pages in three dusty blue hardcover books now kept in a windowless backroom at the law offices of Bob Wood, the Pearl bond attorney who worked on the deal. “Unless you were involved in it, you couldn’t know all the ins and outs because it’s a flipping huge book,” says Brad Rogers, Pearl’s current mayor. Rogers, 46, is sitting in the conference room in City Hall. He slowly taps both feet on the floor and drums his finger on the long wood table. After weeks of unanswered phone calls, he agreed to an interview when a reporter showed up unannounced. The bond books for Trustmark Park, as it’s now called, detail, among other things, how Pearl paid Bennett a finder’s fee of more than $1 million, about a fifth of what the town collects each year in property taxes.
Pearl planned to pay back bondholders through more than a half- dozen revenue streams, including a $1 surcharge on every game ticket and half of the sales tax from the Bass Pro Shop. (Bass didn’t respond to requests for comment.) The city also planned to collect $ 3 or $ 4 per car for
parking. “That didn’t go over too well,” says Foster. Fans screamed at the parking lot attendants and jumped the fences. So Pearl swapped out the parking money for a new sales tax on a shopping and restaurant district near the ballpark.
Altogether, the taxes and fees were supposed to be more than enough to pay the debt back. But just in case, Pearl pledged to cover as much as $950,000 annually from other sources if money didn’t come in as planned. It hasn’t. In 2014, the most recent year on record, the city paid $911,748, more than 5 percent of its general fund spending for the year, to cover shortfalls. The year before, it paid $967,944. Rogers says he isn’t sure why Pearl paid more than it pledged.
The math is almost always the same when
cities build ballparks: Teams keep most of the money spent by fans, and the share that cities get—rents, ticket surcharges, parking fees, cuts of concession sales—is rarely enough to keep up with debt costs, let alone generate a surplus. “You can’t sell enough hot dogs, and get a penny or two in sales tax, to pay off a $50 million stadium,” says Nola Agha, a University of San Francisco professor of sports management, who’s studied minor league financing.
Cities keep trying, but the economic stimulus provided by pro sports teams—the parking lots full of out-of-state license plates, the overflowing restaurants—is more anecdotal than real. Agha looked at 283 cities with minor league teams from 1985 to 2006. While she found modest increases in per capita income in some cases (mostly midsize cities with Triple-a teams), the tax gains rarely covered stadium expenses. In another study, she found that people will sometimes pay a little more in rent, all other things being equal, to be in a town with a minor league team. Again, the increases didn’t justify the levels of public spending. “In general, it doesn’t pay off,” she says. “You can look at the numbers up and down and sideways.”
In December, Moody’s Investors Service cut Pearl’s debt rating four notches, to junk status, citing ongoing stadium liabilities. Wall Street sees Pearl about as likely to repay its debts, in other words, as Detroit just before it went bankrupt. With credit this poor, Pearl can’t borrow money to fix a road or build a fire station without paying interest rates that might make a credit card user think twice, assuming it can even find a willing investor. Moody’s also put Pearl on review for further downgrades. When it asked Pearl for details on the stadium deal, the city brushed it off. “Nobody but us needs to understand how this ballpark works,” says Rogers, claiming the downgrade was unwarranted.
Foster, who lost his bid for a fourth term in 2009, blames his successor, Rogers, for the town’s financial troubles. “There was more than enough to cover those bonds, and you can’t convince me otherwise,” he says. “If there’s still not, I don’t know what’s going on.” Rogers says he was saddled with a bad deal and has revised the bonds four times in the last five years. To help keep lenders whole, according to Pearl’s financial adviser, Demery Grubbs, the city has taken on more of the debt burden.
After the credit downgrade in December, Rogers looked to refinance again. Grubbs told him there wasn’t a market. “That’s fine by me,” Rogers says. “We don’t need any of the fancy New York banks who don’t understand us. There’s plenty of Mississippi banks that will be happy to have our business.” Grubbs says the town raised property taxes to pay back debt on the ballpark.
The downgrade is still news in Pearl. “As far as I’ve heard, this stadium is the town’s biggest moneymaker,” says Bruce Jenkins, an usher at Trustmark Park. “We’re in the best shape we’ve ever been in.” Even Rogers says the stadium, despite his complaints about the financing, has been good for the town. “How many people leave that ballgame and go down to the local convenience store and get gas and a candy bar and a drink, or, I don’t know, a six-pack of beer for the drive home?” he asks. Plant, too, says he was unaware of the downgrade or the millions coming out of Pearl’s general fund to cover the stadium bonds. “It’s the first time I’ve heard that,” he says. When presented with details on Pearl’s financials, he says the “numbers don’t add up” and points to the revenue the team provides. (It pays $100,000 to $200,000 per year in rent.) He maintains that the Pearl deal has been a success for everyone. “The socalled sports economists,” he says, “are just wrong.” Pearl, he notes, now has taxpaying businesses where 162 acres of swamp used to be. “We employ a lot of people,” Plant says of the Braves as a whole. “Those jobs become consumers. We have people that create economic impact by going to the restaurants and shopping for the day.”
After Pearl, Plant went to work getting a stadium for the Triple-a team. In January 2008, the Gwinnett County board of supervisors announced a plan to spend $45 million on a new stadium to lure the team from Richmond, Va., to Lawrenceville, just northeast of Atlanta. “We anticipate it paying for itself from Day One,” then-County Administrator Jock Connell said. (Connell didn’t respond to requests for comment.) Costs quickly rose to $64 million, with the county drawing $19 million from its general fund to cover overruns. Like Pearl, Gwinnett pledged to make up any revenue shortfalls. Instead of padding the city’s budget, the stadium has so far drained $1.6 million, according to J.C. Bradbury, a sports economist at Kennesaw State University.
Plant had a hand in the Cobb deal, too, which came together quickly and mostly behind closed doors. “There was no transparency,” says Lisa Cupid, one of the county’s five commissioners. By the time the commission got the chance to see the documents, the details had already been negotiated. Her fellow commissioners, she says, “were all just excited to be asked to the dance.”
Bennett, the middleman in Pearl, has no regrets. Whatever the cost, he says, the stadium helped to put the city on the map. “That deal was successful for me personally,” he adds.
His million-dollar finder’s fee helped keep him afloat while he worked on his most recent project: a $36 million minor league ballpark, paid for in part with settlement money from the BP Gulf oil spill, for the Biloxi Shuckers, the Double-a affiliate of the Milwaukee Brewers. The Shuckers paid Bennett with a piece of equity in the team, and he’s got an office overlooking the field and the Gulf of Mexico. “It’s not a bad gig,” he says.
On opening night at Trustmark Park this
year in Pearl, the Mississippi Braves can’t score a run for the first six innings against the Pensacola Blue Wahoos. It doesn’t seem to matter much to the fans. It’s $2 beer night. The air is warm and the sky is clear, perfect for a lazy evening of baseball. In the third inning, Kathy Ann Foy sits bouncing her infant daughter on her lap. She’s come straight from her nursing job at a local hospital, still in her bright purple scrubs, ID tag around her neck. Her three boys are scrambling for foul balls near the wall. They have an entire section to themselves along the first base line. “The kids can just run around,” she says. “It’s like I have the night off.” Official attendance for the night is 4,101, a little less than halffull. A few hundred stragglers stay for the fireworks show after the Braves lose, 3-1.
The big-league Braves started the 2016 season with nine losses in a row and currently sit at the bottom of the National League East. Like all bad teams, they’re rebuilding. The club is counting on talented prospects working their way from Rome to Pearl to Gwinnett to Cobb County when that stadium is ready. The decision to leave Atlanta proper was controversial, but the team says the suburbs north of the city are where most ticket buyers live anyway.
Like Pearl and Gwinnett, Cobb thinks it can come out ahead. The county expects the new stadium to generate about $24 million per year, $3 million more than the annual debt service requirement, according to Moody’s. The plot where the stadium and surrounding 57-acre mixed-use development will go, Plant says, currently generates $305,000 a year in property tax. In 2018, the Braves’ first full year in the stadium, he expects the project to generate $28 million in property and sales taxes. As with Pearl and Gwinnett, Cobb’s taxpayers will be on the hook to make up the difference if revenue falls short of estimates. According to bond documents, there’s no cap on how much the county may have to spend.
In April, in a characteristic Malone move, Liberty broke the Braves off into a pair of tracking stocks, separating the team from the rest of the company’s balance sheet so investors could bet on the team by itself. After a week on the market, shares were selling at prices that put the value of the Braves at about $ 775 million. If Malone were actually to put control of the team up for grabs, says Rob Routh, an analyst at FBN Securities, that number would likely double overnight. That’s because team owners tend to reap profits only when they sell. In the meantime, franchises don’t usually make much money. The Braves spend just about every dollar they take in, with operating income of $3 million on $243 million in revenue last year. During a question-and-answer with shareholders in April, Malone shrugged off the Braves’ slow start. “Keep in mind,” he said, “the Braves now are a fairly major real estate business as opposed to just a baseball club.” <BW>
“In general, it doesn’t pay off. You can look at the numbers up and down and sideways”