Reject the PawSox deal, top economist tells RI

Holy Cross economist Victor Matheson calls money sought by team 'way out of line'

An artist rendering of what the new PawSox owners' proposed downtown Providence ballpark would look like. (credit: DAIQ/Populous, via PawSox)

PAWTUCKET, R.I. (WPRI) – One of the nation’s best-known sports economists traveled to Rhode Island on Wednesday with a clear message for taxpayers: don’t subsidize a new downtown Providence stadium for the Pawtucket Red Sox.

Victor Matheson, an economist at the College of the Holy Cross in Worcester, made his case during an hourlong talk at the Blackstone Valley Tourism Council headquarters in Pawtucket, as the city fights an uphill battle to convince the team to stay at municipal-owned McCoy Stadium.

Matheson’s argument was wide-ranging. He questioned the impact stadiums have on the local economy. He questioned how easily the team will find a better deal elsewhere. And most of all he questioned why taxpayers should transfer enormous amounts of money to a profitable private enterprise.

“In some ways the amount of money being asked for for the Providence stadium is not out of line with what other people have received over the past couple of decades,” Matheson told a crowd of roughly 100 people that included a handful of elected leaders. “It’s way out of line compared with what we should expect, but certainly not out of line with what we have seen.”

Matheson’s intervention comes at a sensitive time in the stadium discussions, which began after the new owners bought the PawSox in February.

The team’s first request – for $120 million from the state, plus free land and no property taxes – has already been rejected by Gov. Gina Raimondo, but her administration is continuing closed-door talks to see if a lower-cost deal is possible. House Speaker Nicholas Mattiello has continued to express support for the idea, though many rank-and-file lawmakers are wary. Jim Skeffington, the team’s new president, has said he wants a decision by next month.

‘Somehow we lose our heads’ with baseball

Victor Matheson, center, speaks to reporters. (photo: Ted Nesi/WPRI)
Victor Matheson, center, speaks to reporters. (photo: Ted Nesi/WPRI)

Matheson pegged the total cost of the PawSox’s initial request at $142 million at “net present value,” which estimates the value of future money in current dollars. He said the net present value of the $120 million in payments from the state to the team over 30 years is about $69 million, and put the net present value of the 30-year property tax exemption at $73 million. On top of that, he said, there would be the cost of the free land and any infrastructure changes that have to be made.

“Let me say right up front I think this would be a fantastic stadium – sorry, Pawtucket, a fantastic stadium – for the owners to spend their own money on,” he said.

Matheson said total attendance at PawSox games was 540,000 last year, while attendance at the average 16-screen Regal Cinema multiplex was 478,000. “But nobody is talking about building movie theaters for folks,” he said. “We would say that’s crazy, but somehow we lose our heads when we’re talking about minor-league baseball.”

As another example, Matheson compared the subsidy sought by the PawSox with the one South Carolina just agreed to provide to lure a new Volvo factory there. The stadium’s roughly 100 jobs would be subsidized to the tune of $80,000 each, while the Volvo factory’s roughly 2,000 jobs will be subsidized at only $3,500 each, he said.

PawSox officials have countered with an estimate that their facility would generate $2.4 million in direct tax revenue to the state, reducing the net subsidy from taxpayers back to the team. As evidence for the plausibility of that number, they’ve cited the $3.6 million in tax receipts the Dunkin’ Donuts Center reported generating in 2013.

Matheson predicted a move to a new downtown stadium would lead to a bump in attendance and revenue for the PawSox, particularly initially thanks to the “novelty effect.” He cited an estimate that new minor-league stadiums lead to average revenue increases of $2.7 million a year.

“Why does the owner want to move out of Pawtucket?” he asked. “It’s not because he hates Pawtucket. … It’s this: more revenue. That’s a totally reasonable thing for the owners to want to do – maximize their revenue – but if they want to maximize their revenue they should be paying for the extra revenue, not someone else.”

The problem for the team, Matheson said, is that the additional revenue wouldn’t be nearly enough to cover the roughly $6 million to $7 million cost of paying off the new stadium. For them it “makes no sense to build their own stadium,” he said, describing their vision of a $70-million facility as “expensive.”

Economic forecasts may not come true

Matheson urged Rhode Islanders to treat the economic-impact study of the stadium commissioned by the PawSox with extreme skepticism, although Skeffington has called its assumptions “conservative.”

“If I could basically say any single piece to take home from this talk, it’s any economic-impact study published by the people who are trying to justify public subsidies you should always take with a grain of salt – and many grains of salt,” he said.

The consultants hired by the PawSox estimate the stadium would generate about $12 million a year in economic activity. But Matheson said that projection ignores substitution effects – the fact that many of the people who spend their money attending a game would otherwise have just spent it at a different local venue if the ballpark wasn’t there.

PHOTOS: Artist renderings of proposed Providence stadium >>
PHOTOS: Artist renderings of proposed Providence stadium »

“They’re assuming if that event or that team or that place wasn’t there, that the people who are there would instead be at home huddled in their closet with the lights out fasting, spending no other money,” he said.

“In general, there’s remarkable agreement among economists … that we cannot find big bumps associated with sports and big benefits for host cities,” he added. “Study after study, event after event, league after league, this is about as close as you get to economists actually agreeing.”

Matheson cast doubt, as well, on the owners’ argument that the new stadium would be a multi-use facility that regularly hosts concerts and other sports games when baseball isn’t being played there.

“They can be used but they’re terrible facilities for that, because you want everyone around home plate, so you have all your stands in the corner of the field, you have pitching mounds and dirt in the middle of your field,” he said, adding: “It certainly can be done but these aren’t usually a great way to do things.”

Outlandish proposal ‘in the real world’

Matheson isn’t the only prominent sports economist weighing in on the stadium proposal, however.

Speaker Mattiello recently hired Smith College’s Andrew Zimbalist – whom Matheson described as a friend – to advise him on the proposal. Matheson expressed high regard for Zimbalist’s integrity, though he acknowledged the Smith professor has conflicts of interest due to his work for the Red Sox and other baseball organizations.

Zimbalist told The Providence Journal last week he sees the original $120-million-plus request from the PawSox as “aggressive” but “not outlandish.”

“I will agree with Andy on the aggressive part,” Matheson said. “I will also agree with Andy that it’s not outlandish – only if you compare it to other baseball deals, not if you compare this to anything in the real world.”

“It was really a terrible deal for Rhode Island taxpayers,” he said.

Still, Matheson acknowledged that professional sports is a heavily subsidized industry in the United States and always has been. As for why, he cited a 1976 quote from Minnesota’s late U.S. Sen. Hubert Humphrey: “Without professional sports, the Twin Cities would be just a cold Omaha.”

According to Matheson, 26 of 30 Major League Baseball stadiums have been built since 1990, and $5.5 billion of their construction costs – or 60% – have been covered by taxpayers. He said the estimates run even higher in minor league baseball, with public subsidies covering 85% of the cost.

Taxpayer subsidies for McCoy criticized

McCoy Stadium bleachersMcCoy Stadium is no exception. The ballpark was an infamous boondoggle when it was built during the Great Depression – using New Deal money – by the Pawtucket mayor who became its namesake. At the time, McCoy Stadium’s $1.5 million cost made it the most expensive stadium in the country. State taxpayers have continued to pour money into McCoy throughout recent decades to renovate and maintain it.

McCoy is now the third-oldest Major League, AAA or AA baseball stadium in the country, younger than only Fenway Park and Wrigley Field, Matheson said. “This is definitely an old, historic stadium,” he said.

In fact, Matheson cited the failure of Pawtucket to take advantage of McCoy’s presence to uplift its neighborhood as a reason for caution about the impact of a potential Providence ballpark.

“My view: this is a place that’s had 70 years to develop a thriving entertainment district around it,” he said. “We have a little bit … but I don’t think anyone would call this that, despite the fact that this has been a huge entertainment draw for now 75 years.”

Matheson said he generally thinks it’s a mistake for Rhode Island to subsidize McCoy, too, though he said spending a small amount to protect the investment already made there may make sense. But if the choice is between $85 million for a new Providence ballpark or $65 million to renovate McCoy – the team’s estimate for what it would take – Matheson said the new stadium would be a better investment.

Mass. ‘reluctant to use tax dollars’ for sports

Finally, Matheson expressed his doubts about whether the PawSox will easily bolt Rhode Island for Massachusetts if state leaders refuse to accede to the new team owners’ wishes. He noted that the Bay State rejected public financing for Gillette Stadium in Foxboro, which eventually led the Kraft family to build the facility themselves.

In the case of Worcester, he pointed to a recent comment by former Mass. Lt. Gov. Tim Murray, who now heads up the Worcester Regional Chamber of Commerce: “The doors are always open, but everyone recognizes this requires significant municipal assistance. Massachusetts, traditionally, has been reluctant to use tax dollars to those kind of things, and I think in most cases, appropriately so.”

“No one I’ve talked to in Worcester is looking like they want to put out $100 million – literally, no one,” Matheson said. “Everyone would love to have a minor league team come and build a stadium. But no one is talking about, let’s build a stadium to get a minor league team.”

The Providence metropolitan area is the 38th-largest in the United States, and it would be “a remarkable hole” for minor-league baseball not to have a team here, Matheson said. However, a PawSox spokesman said the team has territorial rights to Southeastern New England and would have to allow a different minor-league team to move to Rhode Island.

Robert Billington, the Blackstone Valley Tourism Council’s president, said his group will compensate Matheson for his visit by taking him to a game at McCoy.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

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