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The Real Deal

Once a point of civic pride, the stadium could end up being another mistake on the lake.



Around Cleveland City Hall, the salt really hit the wound when the price started circulating.

Somewhere around a billion dollars: That was reportedly the figure when the Cleveland Browns franchise passed from the standoffish Randy Lerner to Tennessee businessman Jimmy Haslam. A billion.

The figure wasn't much of a surprise to anyone who pays attention to sports economics. NFL franchises — even the ones with only one winning record in 10 years — have only ballooned in value in the last decade. What irked local officials, particularly Cleveland Councilman Mike Polensek, is that the same team price-tagged at a billion dollars was at City Hall earlier this year, asking for another handout.

The request stirred up old resentment. Under the contractual obligations of the city's lease with the Browns, Cleveland is required to make annual payments of $850,000 to the team for major repairs to the stadium. This time, the Browns asked for the next six years' worth of payments up front, in one $5.8 million bundle, for "urgent work" on structural repairs and seat refurbishment. City Council agreed.

But in the aftermath of the Browns' sale, with hindsight, the request for that much money from a cash-strapped city struck some as unseemly.

"Here's the Browns at the time, they don't want to spend a nickel for anything or contribute to it, but then Randy Lerner sells the team for a billion dollars," Polensek tells Scene. "With all the issues we're contending with in this town, you would think the people who have the financial wherewithal would step up to the plate. But that don't happen. That's life."

More specifically, that's life for cities with publicly funded stadiums, which today translates into just about every stadium built in the last 20 years.

While everybody loves the hometown team, the house of play is likely a strain on public coffers, largely thanks to tax-code gymnastics, jaw-dropping subsidies, and bond debt. Cleveland's deal for Browns Stadium was one of the first such arrangements, and set the tone for much of what followed.

"There are a lot of bad [stadium deals]," says journalist Neil deMause, author of Field of Schemes, an exhaustive look at stadium deals and their fallout. Of the deal the City of Cleveland made for Browns Stadium, he says, "It's definitely not a good one. But it's hard to say it's the worst, because there are so many competitors for that title."

And Cleveland's stadium deal is reaching a critical point. It's powered largely by the sin tax, which not only hits a significant milestone this year in its funding schedule, but also is set to expire in 2015. Talk has already been percolating about extending the tax. But politically, the prospects are tough.

At the same time, the team's new ownership has been looking for ways to improve and repair the facility. And city officials are clamoring for anything that will wave a magic wand and change the stadium from the city's greatest welfare recipient into a money-generator.

When Art Modell announced that he was moving the Browns to Baltimore in November 1995, the question of whether Cleveland would get a replacement team was still up in the air. A year later, after the city took the NFL to court, a settlement was reached that would return football to Cleveland in 1999. What wasn't settled was whether another team would jump its market and relocate to Cleveland, or if the new Browns would be an expansion club.

That question was largely settled after teams like Cincinnati and Tampa Bay used the threat of a Cleveland relocation as leverage to get new stadium deals. NFL officials finally green-lit an expansion team for Cleveland in in 1998. Al Lerner stepped up and paid the $530 million expansion fee.

But the team needed a new stadium.

The facility was paid for by a package of taxes, including a sin tax on alcohol and cigarettes; a two percent admission tax on all city events; an 8 percent parking tax; and a $2 fee attached to car rentals. This was combined with chunks of cash from the Browns and the NFL, who as part of its settlement with the city kicked in $48 million -— money that the league immediately recovered from Lerner's expansion fee.

In the end, the cost of a new stadium ran to an estimated $314 million. The split came down to roughly 75 percent public funding, and 25 percent private money.

According to the new deal, the city owns the structure, but derives no taxes from the facility, nor any profits from what the Browns pull in on game day. And the city pays the debt service. At last count, the city will be making payments until 2027 totaling near $141 million. In return for all this, the Browns pony up $250,000 a year for the nearly exclusive use of a facility.

"Obviously, it was one-sided," says Polensek. "As I said publicly at the time, the team, and the NFL, they got all the profits. We got all the bills. We have the liability."

John Vrooman, a sports economist at Vanderbilt University, agrees.

"The public/private split probably should have been more like 25/75," he says. "But try telling that to a city government and electorate that had just lost their beloved Browns."

A lot of books have been pushed into print recently unpacking the long-con that is stadium construction. The timing isn't coincidental. The first stadium building bonanza kicked off in the mid-'90s, and by now sports economists and researchers have finally put their arms around enough data to box the phenomena into trend analysis that cuts through the fog of boosterism usually attached to such projects.

In the hierarchy of money sinkholes, NFL stadiums tend to be deeper than baseball stadiums and basketball and hockey arenas because they're used so seldom, thanks to the brevity of the football schedule. "It's really hard to do worse than spend your money on a stadium, especially a football stadium," says deMause. "It's only in operation 10 days a year, so you're getting zero economic spin-off from it."

When stadiums are pitched to the public, they're often trumpeted as economic engines. Supposedly, the activity in the stadium on game day causes a chain-reaction of spending in the neighboring bars, restaurants and hotels. According to researchers, this is largely smoke.

"Smaller sports venues may have economic spin-offs, but they must anchor larger redevelopment projects, like Jacobs Field and Gund Arena being linked to the Gateway Project in Cleveland," Vroomman says. "In this large development scheme, there are linkages to the economic grid that can deliver multiplier effects. The irony here is that the new breed of stadiums are built to internalize almost all spending connected with the sporting events or concerts, and therefore there is really no new money injected into the local economy. If there is any spending down by the lake, then it comes at the expense of business somewhere else."

Cleveland is far from alone in the pain. It's become standard operating procedure in cities with sports teams for the owners to demand a new facility, often at public expense. To understand why, you have to throw your brain back into the mindset of the mid-'90s.

At that time, shock waves were still reverberating from the unthinkable: In March 1984, the Baltimore Colts packed up literally in the middle of the night and moved to Indianapolis. That gave team owners everywhere the threat, whether spoken or implied, to move their teams to more lucrative cities and venues. As a result, public officials across the country became terrified of having their careers or legacies tarnished by being branded as the one who let a beloved franchise get away. So when the time came to belly up to the bargaining table, they were willing to sign off on complex stadium financing plans that parked much of the fiscal burden on the public sector.

Vroomann's upcoming book slaps the time period with a fitting title: "the relocation/extortion derby expansion," a run when 13 franchises leveraged possible relocation to win heavily subsidized stadiums. According to Vroomann's research, an average of just 26.6 percent of the funding for these facilities came from the private sector; the rest landed on taxpayers.

Things were bound to change, but only after the NFL deemed the extortion had gone too far — which is to say, when the league's own money was on the line. In 1999, New England Patriots owner Robert Kraft announced that he was moving his team from Boston to Hartford, Connecticut. The move would have screwed the NFL out of one of its biggest television markets, prompting the league to step in with a new initiative.

Called the G-3 program, it allowed the NFL to loan out money for new construction in top markets. The loan is repaid by the team from the profits made on luxury boxes. With this new source of funding in place, more private money has gone into newer stadiums. According to Vrooman's research, the 12 stadiums constructed under a G-3 arrangement had an average private share of 59 percent.

But even with more private money feeding construction, the current stadium arms race has jacked up prices to the point where the public is still opening its wallet wide. "There are more deals where there is more private money, but thing are just so much more expensive, the public money is still pretty high," deMause says. For example, Cowboys Stadium in Dallas opened in 2009 after racking up $1.3 billion in construction costs. The public share totaled $325 million — more than the entire Browns project.

The key piece of the Browns Stadium funding, the sin tax, was originally passed in 1990 to pay for construction of the Gateway complex. In 2005, the tax was extended to fund Browns Stadium.

Since then, the sin tax has steadily sent about $13 million annually to city coffers. Under the lease, the first $87 million collected was funneled into the debt service payments on the original construction of Browns Stadium. After that, the money changes course, heading directly into a $29 million capital repair fund. According to the city, that milestone was hit this year.

The new stash of money takes a significant burden off the general fund. Under the original contract, the city has been required to make yearly payments of $850,000 for repairs. Until the $29 million repair fund kicked in, those payments had come out of the city's general fund. But once the sin tax runs out, the city will still be obligated to make the annual repair payments — and those are expected to increase dramatically over the lifetime of the lease, jumping to $5.9 million in 2021 and hitting $7.5 million by 2025. Without the sin tax, that burden falls squarely on the general fund.

"If we don't have the sin tax as a cushion, it comes right out of the general operating fund for the city of Cleveland — police, fire, EMS, and all city services," notes Polensek.

But the extension could be a tough sell politically. After the state's food and beverage lobbies exerted a squeeze, the state legislature stuffed a provision into the 2008 budget that took away the power of local governments to raise such taxes. That means any extension of the sin tax would have to be green-lit by the Republican-controlled legislature. For their part, the Browns are interested in campaigning for an extension, and in the past have talked about mounting a joint effort with other local teams.

What Browns officials are thinking now is hard to say, as the team did not respond to repeated requests for comment.

Another concern: As a facility ages, teams tend to seek funding not just for basic maintenance and repairs, but "to keep up with the Joneses," as deMause says.

"All these stadiums are state-of-the-art when they're built, but now there are new buildings out there, and the state of the art has changed," he says. "I think that's a growing trend with the NFL, because you have all these stadiums that were built in the '90s. So it's a little too soon to come back and demand a new one."

When the Browns asked for the $5.8 million advance in January, the team presented City Council with a rare look inside its books, to confirm its claim that the team has shouldered more than $50 million in capital repairs and improvements in the 14 years it's occupied the stadium.

After Browns' new owner Jimmy Haslam took over the franchise, the team announced it would look at whatever improvements might be necessary to better the facility. Where that money would come from has yet to be addressed.

In the vacuum, various schemes are once again being floated, including a dome. Most experts question the ability of the existing structure to support a dome, as well as the feasibility of covering the entire site with one. But the longshot pipe dream points to something else: the need to squeeze more use from the facility. The additional revenue could be critical to replacing the lost revenues from the sin tax.

While it's too early to predict the outcome, Polensek feels sure about one thing: The new ownership will not be satisfied with a simple handout from taxpayers.

"Everybody is optimistic with Haslam. He has to figure out how he can recoup some of his investment," Polensek says. "If it can be done, this is the guy who can do it."

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