Today, Explained - Buffalo Billions

Episode Date: April 7, 2022

The Buffalo Bills are set to receive a record-breaking $850 million in public funds to build a new stadium — even though they’re owned by a fracking billionaire. An economist explains whether publicly funded stadiums ever work out in the public’s favor. This episode was produced by Hady Mawajdeh, engineered by Paul Mounsey, fact-checked by Laura Bullard and Matt Collette, and edited by Sean Rameswaram, who also hosted. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

The Bills make me wanna shout! Ahead on Today Explained, it's the offseason, but that is not stopping the Buffalo Bills from setting records. The Bills are making it happen now! The football team just struck a new $1.4 billion stadium deal with New York State and local government picking up $850 million of that tab. That is the largest taxpayer contribution for an NFL facility ever. And that's $850 million of public funds, even though the team is owned by a fracking billionaire. Why New York is handing over nearly a billion dollars to the Buffalo Bills and whether these publicly funded stadium deals ever work out in the public's favor.

That's ahead on today's show. Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. Today Explained, Sean Ramos for him. I grew up in Toronto, Canada, right across the Great Lake from Buffalo. So the Buffalo Bills were the closest thing I had to an NFL team growing up.

That being said, I was into hockey. Sort of comes with the territory. But Jerry Zaremski was into the Bills. I am a Buffalo Bills fan, but I don't believe it affects my reporting. Jerry's the Washington bureau chief for the Buffalo News. We asked him what the Bills mean to Buffalo. The Buffalo Bills franchise really lends kind of a big city feel to a city that's been kind of on the cusp of being a major city and a middle-sized city over the last few decades. It's a few decades in which the city's economy and the region's economy has been very much on a downbound train until recently. And recently, there's real signs that population

and the economy are picking up. But all through the troubled times of Buffalo's recent history over the last 50 to 60 years, the Buffalo Bills have been central to bringing the community together and giving the community something to root for. It's a very unique relationship between a town and team that's really only like one other in the NFL, and that's the Green Bay Packers. Most other NFL cities are much bigger than Buffalo. The metro areas that they serve are much bigger.

But the Bills, for the longest time, have been just a central part of our identity in western New York. This is Breaking News from News 8. Good afternoon. Breaking news on this Monday. A hefty price tag for a new Buffalo Bills stadium. Governor Kathy Hochul confirming the state and Erie County taxpayers will be asked to contribute $850 million in public funds for the construction of a new Bills Stadium.

If the state legislature approves it, the Buffalo Bills will likely be set in Buffalo for the next three decades. And there's a sense of security to that that would be very important to the community. This is a city that did lose an NBA franchise, that's lost industrial power after industrial power over the years. There is, of course, another side to this story. There are significant numbers of people in Buffalo and in other parts of New York State that look at this as too much public money going to a business entity, that is the Buffalo Bills, owned by a billionaire. So there's a debate in Buffalo, just as there is in other parts of the state. However, the current stadium will soon be 50

years old. Orchard Park, the new stadium, the new home of the Buffalo Bills. More than 600 men and machines labor to complete the new facility in time for the 73 Buffalo Bills football season. It is in very rough shape and would need an awful lot of work. And even with a lot of work, it would not meet the modern day NFL standards. So the presumption has been that if the Bills could not get a new stadium, there would be the grave danger that the Bills could end up leaving town sometime in the next few years, because the lease is up only in a couple of years. So is that how this deal came about?

It was just sort of proactive? Do we have any idea? Well, the Bills made clear that they need a new stadium. Ron Rakuya was asked if a stadium deal was not reached, would the Bills continue to play at Highmark Stadium? No, we absolutely will not. The NFL made clear that the Bills need a new stadium. No, we absolutely will not. The NFL made clear that the Bills need a new stadium. I do believe that a stadium long term is going to be needed in that marketplace. I love Ralph

Wilson Stadium, but it's got to compete against a lot of these new stadiums that have a lot of very important features that that stadium doesn't have. So basically, this was bound to happen. Whomever was governor, be it Andrew Cuomo or Kathy Hochul, would be at this point in time looking to come up with some sort of a deal with Erie County and with Kim and Terry Pagula, the owner of the Bills, to build a new stadium. Clearly, as soon as Governor Hochul took office in August, people started asking questions. So I come with the Buffalo question. We know you have a study underway. What we're wondering about is, what is your timeline for a deal? Are you hoping to see a deal by the end of the year? And we have heard over the last few weeks that there was going to be a deal. There's going to be a deal.

My desire is, I'm a Buffalo Bills fan. Let's lock this down. Let's get it done. So we are very intently focused on keeping the bills here. Orchard Park's their first choice, their only choice. It's Orchard Park, and we'll make it all happen. It was only announced a week ago, which some people clearly don't like because it was very late in the state budget process. The state budget was due on April 1st,

which is now late. And it did take place in secret. The negotiations did take place in secret, but all business negotiations take place in secret. There is concern among some that the deal came so close to the budget deadline that it couldn't be properly vetted, that there couldn't be, say, legislature hearings on it. And that is a much more legitimate concern

than the idea that this thing would be negotiated publicly because deals like this are never negotiated publicly. So the state of New York pays the lion's share. Yes. And it's a record-breaking sum of money. Well, it depends on how one looks at it. The public contribution, according to our analysis at the Buffalo News, is less than the 73% public contribution to stadium deals in smaller NFL markets over the past two decades. Things are different in a place like Los Angeles or Las Vegas. We are so ready for major league sports in this town. But there have been very major subsidies there as well. So for example, there was a public subsidy to the new stadium in Las Vegas for the Las Vegas Raiders.

There, the state paid $750 million to build a $1.9 billion stadium. It's the biggest dollar amount, but it's not the biggest share ever. And I have a feeling that part of the reason there is some blowback is that the Pagoulas are billionaires. And not only are they billionaires, but they're fracking billionaires. And this is a state which rejected fracking years ago. And a lot of public figures have spoken out against that form of natural gas drilling. And here we have a fracking billionaire getting a lot of state money to build a stadium. Okay, the fact that the Pagoulas are getting a single dime of public funds is kind of a shocker. I thought those days were long gone, especially when you're cutting funds for, you know, regular people. Has Hochul

responded to that particular criticism yet? No. And she has some personal ties to the team, yeah? There are personal ties in that, number one, Kathy Hochul's a big Buffalo Bills fan. I'm a Buffalo Bills fan. But more importantly than that, her husband is the general counsel for Delaware North Companies. I have the coolest job in the world. I have the coolest job in the world. I have the coolest job in the world. I have the coolest job in the world. I have the coolest job in the world. I have the coolest job in the world. I have the coolest job in the world

because I work for Delaware North Companies. Delaware North Companies is one of the largest concessionaire companies in the entire nation. Ha! Currently, Delaware North handles the concessions at Highmark Stadium, the Bills Stadium today. And so the company that Kathy Hochul's husband works for benefits whenever a Buffalo Bills fan buys a beer at the current stadium. There's a lot of questioning of that. However, that contract for the concessions

doesn't carry over to a new stadium. OK, but there's a lot of reasons for people to think this is suspicious or at least sticky or maybe a little clumsy. I mean, the governor herself has a direct tie to the business operations of the stadium through her husband. She's financing a stadium for a team that's owned by a fracking billionaire while she's running for re-election. And this is a huge giveaway of public funds to the NFL, to the Buffalo Bills. Is there a chance that while she's running for re-election, this sort of goes south on her? It is certainly possible. Looking at the race for governor here in June, neither of her two opponents have really caught fire yet.

I think both of them are going to try to use this to catch fire. Do these publicly funded stadiums actually benefit the public? In a minute on Today Explained. Support for Today Explained comes from Ramp. Ramp is the corporate card and spend management software designed to help you save time and put money back in your pocket. Ramp says they give finance teams unprecedented control and insight into company spend. With Ramp, you're able to issue cards to every employee with limits and restrictions and automate expense reporting so you can stop wasting time at the end of every

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with iGaming Ontario. I'm a Buffalo Bills fan. All right, we're back. Today explained the Buffalo Bills are on track to get a new stadium with nearly a billion dollars in public funds. It's a record setter, but it's far from the first. There's a rich history here, and Andrew Zimbalist knows it.

I'm a professor of economics at Smith College. We asked him to share. Well, there were a couple of anomalies, such as the old Memorial Stadium in Cleveland. That was built during the 1930s. Other than those anomalies such as the old Memorial Stadium in Cleveland that was built during the 1930s. Other than those anomalies, the time that the government really got involved in the United States in financing stadium construction was in the 1950s. And basically what happened was that Major League Baseball, which back then was the predominant spectator sport, Major League Baseball

had not expanded the number of teams since 1903. Of course, the population expanded enormously between 1903 and the early 1950s, and people's incomes expanded enormously. And that meant that there were a lot of cities out there, particularly west of the Mississippi, that didn't have baseball teams. And then what we had is that these cities out west are trying to lure baseball teams and they start competing against each other. And the owners, of course, playing the capitalist game well, say to their existing cities, build me a new stadium or I'm going somewhere else. And so that's that was really when the professional sports leagues got the idea that, gee, we have some market leverage here that we might as well use. And the leverage they

used was, you've got to build me a stadium. If you want me to come to your town, put down public money. Back in those days, a stadium might have cost $70 or $80 million. And basically, 100% of the stadiums were being financed publicly. And then what happened was in the 1960s and 70s, as the United States goes through this period of automobilization and suburbanization. So we went through a period in the 60s and 70s of building of these cookie cutter stadiums that were also publicly financed. And at that point in time, they cost maybe 150, 200 million dollars.

And then it continued again. We have another wave in the 1990s, which flipped the model back. Hey, let's let's put the stadiums back in the center of the city. That's where the businesses are. That's where the most money is. So that was a new model. And again, it was overwhelmingly publicly financed. Most of the stadiums in the 90s were more like 70% to 85% publicly financed.

But that varied a great deal from city to city. The smaller cities, of course course had much less leverage. In any event, that's the basic evolution of this pattern and one of the things that's happened in the last 10 years or so is that stadium costs have gone up from being 300, 400, 500 million dollars up to a billion dollars and more all the way up to the stadium in Englewood, California that Stan Kroenke built for $5 billion. It's the first indoor-outdoor stadium of its kind. We created an open stadium, completely open on all its sides, all the concourses.

You feel the ocean breeze right now where we're standing on the field. As stadiums have grown more and more expensive, it's less and less politically feasible for mayors and city councilors to say, okay, we'll pay for 80% of that because they don't have the money. So what they do is they make these deals with the team owner that says, since you're putting up more money nominally or putting up more money up front, what we'll do since you're putting up all that, we'll give you 50 acres of land around the stadium to develop as you see fit. And we won't charge you property taxes for the next 20 years. Or they make some such deal. So the model has changed a little bit more recently, in part because of a lot of bad publicity that these deals have gotten,

but in part also because it's just too expensive for cities to be taking up, at least up front, paying that kind of money. But of course, when they give a tax exemption for 10 or 20 or 30 years, that leads to the same thing because they're giving up revenue that they would have otherwise gotten. And if they're giving them land for free, same thing again, they're giving them something of value. It's just not cash up front. So that was like the entire history right there, which is incredible. I wonder if I can go back and sort of pull on a string connected to one word you use somewhere in the middle of that history lesson, which was leverage. Yeah. Tell me more about the leverage these teams had against cities, because you think they need the cities more than the cities need them. But is that the case? Look, fact of the matter is, and the U.S. court system has validated what I'm

about to say over and over and over again, is each of these major leagues in the United States, whether it's MLB or NFL or NBA or NHL or whatever it is, they're monopolies. MLB, Major League Baseball, is the only producer of top-level baseball in the United States. Same thing with the NFL, NBA, etc. So they're monopolies. And as monopolies, they do what all monopolies do. They restrict their output relative to demand, and that enables them to charge higher prices. One way they charge higher prices is by charging more for tickets and concessions. Another way they charge higher prices is by charging more for tickets and concessions. Another way they charge higher prices is by extracting public subsidies to build their stadiums. As these deals have evolved, I wonder who benefits more? Does the city benefit more

or does the team benefit more? Well, it's case by case always because the devil's in the details. But if you're going to generalize about it, the generalization is that having a professional sports team in your city or having a stadium, a new stadium or a new arena in your city doesn't lend itself to promoting economic development. It doesn't lend itself to generating more jobs or raising per capita income in the population. That's what virtually every single academic scholar, independent scholarly study has found, that having a professional sports team

is not a driver of economic development. It's promoted that way because politicians and the team owners want to find political support for it. No politician wants to spend $500 million or $800 million and then say, oh, by the way, I have bad news. We have a big deficit and I have to cut the school budget this year. But that's exactly what happens. Well, sometimes it happens. When all these academics and scholars and economists look at this in the aggregate and say, oh, this never really works out. Is there one example everyone looks at and goes, well, that was the worst one we ever did. That was the Hindenburg of stadium deals.

I don't know if there's a worst example. Maybe it's cute to say, oh, this one is worse than all the others. And this one is second worst and so on. I think that pretty much 90% of the deals that were cut over the last 40 or 50 years have not been economically beneficial or financially beneficial to a city. They've created a budgetary hole that has to be filled. How do you fill it? Either by raising taxes or lowering other services. I think that's the reality. Now, if public treasuries are putting down an initial $850 million, as Buffalo is, then they're obligated to do another $280 million of maintenance and improvements to the stadium. And they're hoping that they're going to be able to generate enough revenue off of the stadium in order to cover their debt service.

But I don't see it. So I think there are cases like Buffalo and there are cases, other cases, what happened in Oakland recently where the team left before the bill was paid. And the city is having to pick up all the dead surfers even though the team went to Las Vegas. Look at what the mayor of Oakland just tweeted out yesterday calling the NFL a billionaire boys club that ditched Oakland out of sheer greed. They go on to call the NFL a cartel and says some of their practices are bribes in this lawsuit that they've put forth. What's the city of Oakland to do? They've got this massive stadium.

They don't even have a football team. Even when they had the football team, they only used it, you know, 20 nights out of the year. What do you do then with this massive investment you've made? I think what you have to do is, first of all, make sure that you've negotiated as hard and as effectively as you can. The notion that you would

have debt service on hundreds of millions of dollars of bonds for 30 years, but the team isn't obligated to stay for 30 years, that makes no sense to me. As I understand the Buffalo deal, by the way, it stipulates that they're supposed to stay for 30 years, but it gives the bills an out after 15 years. So they might get in the same situation that Oakland is. Now there's a little penalty if you leave before 30 years. There's a penalty that diminishes between year 15 and year 30. But that doesn't make sense to me. You shouldn't sign bills like that. What's a situation that went well for a city and the team? What's like the gold standard of this kind of deal? I think the Atlantic Yards deal in Brooklyn that brought what was then the New Jersey Nets to Brooklyn and now the Brooklyn Nets. The Brooklyn Arena is the first

deliverable of the planned $4.9 billion project that's supposed to eventually have 17 structures in all. It was financed by the Ratner Corporation, which at the time owned the Nets. The Atlantic Yards project received upwards of $300 million in public funds and subsidies from the state and the city. And developer Forest City Ratner and its CEO Bruce Ratner made a lot of promises. So you have a public investment on the one hand that is $800 or $900 million. You have a private investment that's close to $5 billion. We are finally here to celebrate the grand opening of the Barclays Center Arena. Okay, and you know what?

Here it is. And you brought an area to life. So, you know, it seems to me that that's a plus plus. Remember at the beginning of this interview when I asked you about the history and you gave it to me starting about in the 1950s, right? That was the moment where cities said, we'll throw you some money if you build a stadium. Yeah? Yeah. What if that moment never happened? What if cities back then said, to hell with you, you need us more than we need you. We're not giving you a nickel. They'd have to just front the money. They'd just have to ask their billionaires to build these stadiums, right?

The answer is we wouldn't have nearly as many modern stadiums. Stadiums would be a lot simpler than they currently are. Biggest cities might have slightly more elaborate stadiums, but they would be a lot simpler than they currently are biggest cities might have slightly more elaborate stadiums but they would be a lot less elaborate than they are now and one of the one of the consequences of that is that the teams would be less profitable and hence they would have lower franchise values than they have now and the players by the way would be playing in stadiums that had fewer people who were spending less money on the tickets so they're they're what economists call marginal revenue product or the value of what they produce would be lower, and the players' salaries would be lower.

So yes, that could happen, but it's a counterfactual. And it's not something that somebody can be elected president and snap his or her fingers and get that to change. It's very useful to say, gee, if we didn't spend 800 million dollars on the stadium we could spend 800 million dollars improving our school system yeah if it were the case that building the stadium actually will produce more tax revenue than it will produce obligations financial obligations for the city then that then that actually enriches the city's ability to provide services.

And so that's potentially a good thing. But the issue is, you're saying, by and large, the stadiums don't bring that kind of revenue to cities. That's right. That's right. I'm just not willing to say they never do, because I think there are exceptions. Well, I hope for the people of Buffalo this is an exception. Yeah.

Professor Andrew Zimbalist, he's with Smith College out in Northampton, Massachusetts. Before him, you heard from Jerry Zaremski. He's the Washington Bureau Chief for the Buffalo News. You can find his work at buffalonews.com. Hadi Mawagdi produced today's show. Laura Bullard and Matthew Collette fact-checked it. Thefim Shapiro and Paul Mounsey engineered and I edited. I'm Sean Ramos for him. It's Today Explained. explained. you