Triple-A duel: Zimbalist vs. Matheson
Economists argue the merits of Worcester’s minor league stadium
ANDREW ZIMBALIST HAS made a name for himself as a leading critic of public spending on private sports enterprises. The Smith College economist has long been one of the most prominent voices of skepticism about publicly financed sports stadiums, and Zimbalist was outspoken on what he considered the folly of Boston’s pursuit of the 2024 Summer Olympics. But when it comes to a plan to build a new home in Worcester for the top Boston Red Sox minor league team, Zimbalist is suddenly singing along to “Sweet Caroline.”
As a consultant for the city of Worcester, Zimbalist says the plan to bring the Sox Triple-A farm team to the state’s second-largest city makes sense. Fellow sports economist Victor Matheson, a professor at College of the Holy Cross in Worcester, says nonsense. The vast majority of economists are critical of publicly financed stadium deals as bad public policy, and Matheson says there is no reason to view the Worcester proposal any differently.
CommonWealth spoke with the two economists about their very different views on the Worcester proposal, which calls for economic development in the area around a new stadium to generate new tax revenue that will cover about two-thirds of the cost of a 10,000-seat, city-owned stadium, with lease payments from the team covering the other third.
Zimbalist says he hasn’t cast off several decades of opposition to ill-considered stadium plans. He’s still dubious of stand-alone stadium proposals, but he says the Worcester plan makes sense for the city because it comes with a broader development proposal that will generate revenue to help pay for the stadium. He criticizes fellow economists who have become “ideologues” opposing any public financing of stadiums, no matter the details. “I think that’s silly,” he says.
What follows are edited transcripts of our conversations.
COMMONWEALTH: You’ve obviously looked closely at this as a consultant for the city of Worcester. Do you think overall it’s a positive deal for the city and for taxpayers in Worcester?
ANDREW ZIMBALIST: I do. I was brought on for number of reasons, but one of my tasks was to make sure that a detailed financial plan resulted in either revenue neutrality or [a situation that was] revenue positive for the city, the basic idea being that Ed Augustus, the city manager, had gotten a charge from the city council. The city council said, do everything you can to bring the team to Worcester. The only thing they wanted was that it wouldn’t use taxpayer dollars, the theory being that if we can at least break even on this and not use taxpayer dollars, then we have a net benefit, which is that we have this ball team in our city which will provide the social and cultural benefits or psychic benefits.
What we did over the period of several months was negotiate a deal that we feel, or I feel, very solidly not only provides revenue neutrality, but provides, with a substantial cushion of 5 percent on costs, a revenue positive situation. We have a ballpark that itself will cost somewhere between $86 and $90 million to build. The city also has to assemble some land parcels and then provide for remediation and relocation. And that’s another $8.5 million. So, if the ballpark itself is $86 million, then it’s a $94.5 million investment, and if it’s $90 million, then it’s a $98.5 million investment. In order to finance that, the team is going to provide the debt service on bonds for between $28 and $30 million and provide a $6 million equity contribution. The city is going to do the debt service on between $68 and $70 million in bonds. We come to a situation where the costs in fiscal ‘22 are about $2.7 million and the revenues are about $3.5 million. Over time, the costs will grow about 1 percent a year. We are projecting the revenues to grow at 2 percent a year. The city will collect what are called transient occupancy taxes, more commonly known as hotel room taxes. The city will collect the local option tax. The city will collect, obviously, property taxes on all the land — 18 acres of development.
ZIMBALIST: No. The stadium, because the city owns it, won’t be subject to property tax. The stadium will yield some local-option sales taxes to the city. There will be property taxes on personal property that the team owns. The team will have furniture, computer equipment, and batting cages, and there’ll be a tax on all of that at the normal property tax rate, which would be about 3.2 percent. But the ballpark itself is not going to generate the bulk of the tax revenue. The bulk of the tax revenue is going to come from property taxes on the 12 acres that are part of the project and not part of the stadium. The stadium is going to be on six acres. There are two hotels, between 125 and 250 residences, a parking garage.
CW: You can say today’s taxpayers aren’t paying directly for the stadium, but it will be taxes generated through that development that will pay roughly two-thirds of the debt service.
CW: If there’s an economic rationale for that kind of development – hotels and apartments — wouldn’t it have happened anyway? Then we’d be looking at all that tax money going into the city coffers and not toward paying the debt service on the stadium.
ZIMBALIST: This is land that has sat fallow for 20 years and it’s close to City Hall in downtown. And Denis Dowdle of Madison Properties, who’s a very successful land developer in eastern Massachusetts, was looking at this property and he was thinking about making a small investment in the property. He hadn’t. He hadn’t entered discussions to buy the land yet. He hadn’t laid out what his plans would have been. And he says today that if there were no baseball team coming, that he probably would have gone ahead eventually and done a smaller development. But whether that would have happened and happened by the year 2021 or by the year 2028 or some other year is not something that he knew beforehand and it would’ve been a much smaller investment. The question you’re asking is, wouldn’t it have been developed eventually anyway? Sure. So other than Denis Dowdle, somebody else would have come along and there would have been development there. So the result of having the stadium and the team is that the investment and the development is happening much more rapidly and it’s happening on a larger scale. What you’d presumably want to do if you were just making a strict economic calculus is try to estimate how much time it would have taken for that development to come along, and what kind of incentives you would have had to give to have that development. We’re giving incentives to the team, obviously, and we’re giving incentives to Dowdle. If you want to get a commercial developer to build office space or to build hotels or to build residences, you’ve got to give them tax incentives. So there would have been a cost to the city also in those instances.
CW: You’ve long been associated with being pretty skeptical of publicly-financed sports facilities for private enterprises. I was looking at a recent review paper on this that cited your book Sports, Jobs, and Taxes, The Economic Impact of Sports Teams and Stadiums. It summarized the findings, saying, “In all cases, they find a new sports facility to have extremely small (or negative) effects on overall economic activity and employment.” That’s the broad conclusion that you’ve been advancing.
ZIMBALIST: That’s my first cousin, that’s not me! I’m glad you understood that was a joke. I hope I’m still associated with skepticism on that. The overwhelming majority of economists who have looked at [publicly-financed stadiums] voice skepticism. Let me try to be as clear as I can about this. I’ve also supported various stadium projects in the past. But there are economists out there, and maybe Victor [Matheson] is one of them, who are very ideological about it and say, under no circumstances do these things make sense, and, frankly, I think that’s silly. Most of the economic literature about these stadiums is looking at data that goes through maybe 2002, 2003, so there’s not a lot that’s been done recently. That literature looks at a period of 20 years, maybe 40 years going back to 1960 and looks at the various stadium and arena experiences. And these are almost all situations where the only thing that was being considered and the only thing that was being developed was a stadium or an arena. No ancillary developments. And the average amount of public financing in that period was around 70 percent, and the lease deals were not favorable to the city. So when you look at what the literature says it’s that, on average, these stadiums don’t promote economic development. I’m totally in agreement with that position, and more often than not when I’ve been asked by cities or others to look at stadium proposals, I’ve said it doesn’t make sense economically. That’s a position that I still hold. I think what’s different, or the main thing that’s different here, is that there’s a commitment of $90 million-plus from Denis Dowdle and Madison Properties for this ancillary development. There’s not an idea about it. There’s not an aspiration. There’s a commitment of that money. Dowdle spent somewhere north of $3 million to assemble the land that he needed, which he gave to the city. So it’s $90 million plus $3 million. So by the city investing something around $70 or $75 million, they’re leveraging somewhere around $30 or $35 million from the team and $90 to $95 million from Dowdle, and they’re accelerating state support from MassWorks and MassDOT [for infrastructure improvements] of another $45 or $50 million roughly. So it’s not the stadium itself that’s making this work. It’s the combination of all of those sources of revenue that’s generating enough economic activity to produce a surplus.
Here’s the question that I would ask of somebody who’s saying this is not a good deal based upon the economic literature: I’d say, well, if you don’t like this deal, would you like the deal anymore If instead of the team putting in $33 million the team put in $43 million? And if they say no, I still wouldn’t like it, then I’d say, well, what about if they put in $53 million? At which point would you say, okay, it’s a good deal? And I think there are a lot of people out there who will be knee-jerk and ideological and say, you know, they never saw a stadium deal they liked, and I just think that’s silly. If you’re trying to responsibly assess what the net costs or the net benefits are, then you’ve got to look at these details. The devil’s in the details.
Is there a risk? Of course there’s risk. There’s always risk whenever you invest in anything and particularly if it’s a 30-year contract, and there’s risk even in the three years between now and when the stadium will open. All sorts of things could happen. But I tried to be conservative in the numbers that I used and there are all sorts of revenue sources that I didn’t include. I didn’t, for instance, include the second phase of development that Dowdle is committing to because he hasn’t committed to a timetable for it. The second phase is going to have commercial buildings and more residences that’s going to generate more revenue. I also didn’t include revenue from the initial construction period. I also didn’t use a multiplier, which is almost always used in these studies. So I was being very conservative along the way to estimate these revenue sources. If somebody wants to come along and say they don’t believe it, I’d like to know what assumptions they’re making.
CW: When you said there are people who never see any stadium deal that they like, are there ones other than this deal that you’ve looked favorably on?
ZIMBALIST: There was one that I was involved in, which is the Atlantic Yards project in Brooklyn that ended up building Barclays Center. What happened there is that the investor, which was Forest City Ratner, spent private money — about $800 million to build the arena — and they spent about $3 billion, and are still spending it, to build the ancillary mixed-use development around the arena. The city and the state each had to put in about $200 million each, or the total might have been around $300 million, but it was somewhere in that neighborhood. So for a $300 to $400 million public investment, they were able to leverage a private investment that was close to $4 billion. I don’t know if you’ve been to that area of Brooklyn. There were a lot of opponents for a while to the development, but I don’t know anybody who lives anywhere around there who isn’t happy with what happened. Again, the economic success, and leaving aside the cultural and social impact, was dependent on the fact that there was a tremendous amount of committed private investment that was much larger than the arena.
CW: Under the Worcester proposal, the city is ultimately guaranteeing the debt on the stadium project. There was a recent case in Hartford where the city guaranteed the debt on a minor league stadium built there. The debt payment was supposed to come from ancillary development, so it sounds similar to the Worcester plan, but the development projects went south. Couldn’t there be another way of structuring this where Larry Lucchino and his deep-pocketed partners are the ones backstopping the debt?
ZIMBALIST: You’re mischaracterizing what happened in Hartford. You have a stadium that was entirely publicly funded and that had no committed private investment. There was aspiration that the stadium would provoke collateral development. Also, unlike downtown Worcester, which has [economic] momentum, there wasn’t such momentum Hartford, so it was an entirely different matter. In terms of the city backing the debt, the team is backing basically a third of the debt and the city is backing the rest of it. Cost overruns on the project are being assumed by the team. If the stadium ends up costing $95 million instead of $90 million because the price of steel has gone up or because of something else, that’s the team’s responsibility. It’s not the city’s.
CW: But if it stays at the same price tag and we hit a huge recession and somehow the ancillary development gets held up, then that’s a risk the city’s assuming.
ZIMBALIST: Yes, that’s a risk to anybody in the economy if the whole economy gets held up.
CW: You’re best known recently for speaking out against the Boston Olympics proposal. You coauthored a book with Chris Dempsey about that called No Boston Olympics: How and Why Smart Cities are Passing on the Torch. Is there any parallel at all here to that?
ZIMBALIST: First of all, to host the Olympics, you need between 35 and 40 venues and you need an Olympic village, a media village, and an international broadcasting center. You need to use up over a 1,000 acres of urban real estate to do it. You also need special infrastructure to connect the venues. So the amount of land commitment and the amount of capital and resource commitment to host the Olympics is much, much greater. Secondly, when you host the Olympics, you’re getting activity in these buildings for 17 days and the activity goes away, but when you build a stadium for a sports team, it’s a 30-year lease and it becomes integrated as part of the community. Third, when you host the Olympics, not only do you build the venues and use up thousands of acres of scarce urban real estate, you have to find some use for them after the games. And that’s not so easy to do because the reason why the venues didn’t exist before the Olympics is because the city didn’t have adequate demand to justify them being there.
CW: There hasn’t been a big run on velodromes lately.
ZIMBALIST: Exactly. So it’s a very different matter economically and socially.
CW: Is this, broadly speaking, a good deal for Worcester?
VICTOR MATHESON: When economists who are not being paid by a team go back and look at stadium deals, we typically find that they are pretty poor municipal investments. They tend to be pretty expensive for not much return in the way of jobs or returns. So we’re generally pretty critical of these sorts of projects.
CW: In terms of the specifics, each deal varies. What do the specifics in this one look like to you?
MATHESON: Of course everyone says, yeah, we know that’s the case [that economists generally view these deals negatively], but ours is special. It’s a little bit like Lake Wobegon — everyone thinks that their stadium project is above average. What’s specifically going on in this one is that the stadium is accompanied by a fairly substantial amount of commercial and residential investment, a couple of hotels, some potential second-stage retail and something like 250 housing units as well. So Andy Zimbalist, who is the economist who worked on this for Worcester, and who’s generally a stadium critic, he says, if you count all of the benefits of this — the tax revenue, the apartment buildings, and the commercial development, and if you direct all of those taxes towards paying off your stadium, it looks like you’re generating more in tax revenue than it’s costing you to build the stadium. While he’s right on that, I think there’s still tons of room to be critical about the deal.
The two big issues I would raise are how much of that extra investment would’ve happened without the stadium, and the unaccounted for costs of new city services generated by the development. Anyone who’s studying the hotel market in Worcester knows that we’re kind of under-hoteled right now. That makes this a good market to put in a new hotel. But instead of getting a hotel where you can collect that revenue and put it towards general Worcester purposes, you have a hotel that would have gone in [anyway] now tied to this deal, and you’re stuck with all the revenue generated by that going towards the stadium rather than general community needs. So that’s one major criticism. The other one is this: When businesses and residential housing units are added in the city, it’s not that they just provide tax revenue. They also demand services. You’re assuming that all of these new businesses and new residential units here are going to require no Worcester services at all and therefore you’re free to basically not tax them. Because the taxes you’re collecting from all these new businesses and residences are all going toward the stadium rather than going towards school, police, fire, roads, that sort of thing.
CW: So they’re assuming the money all flows in one direction or not really counting that there should be entries on both sides of the ledger sheet — expenses and revenues?
MATHESON: That’s right. And what we know from a typical city is an average tax unit is using as much in taxes as it is paying in taxes. Because a typical city runs a balanced budget. It brings in what it needs to operate. If there’s 250 new apartments, you don’t have to put many kids in those apartments before you have eaten up all of your projected surplus in needed costs to educate all those kids. And that’s just one component.
CW: So to say the stadium and associated development kind of will be no net cost to the city is not really, in your view, an honest appraisal of how these things work?
MATHESON: I think it’s actively wrong. And you have to make some pretty heroic assumptions to put forward something saying we’re actually going to make money on that stadium rather than it being a cost.
CW: Why, if the stadium were going to be such a great economic engine, should the city even be the one to construct and own it? Why couldn’t the team itself raise the $90 or $100 million?
MATHESON: Well, first of all, we know that the ownership group certainly has deep enough pockets to build the stadium themselves. But there was no way in a million years that they would be willing to put down $100 million for a new stadium out of their own money because they know that it makes no type of financial sense for them to do that. In order for them to cover the payments on this new stadium, they would essentially have to more than double the average ticket price and have that doubled ticket price cause no reduction in their attendance. So they know that a new stadium makes no economic sense from a business standpoint unless you can get someone else to cover, in this case, two-thirds of the cost.
CW: Are you saying a private group would never finance this on their own because once it’s completely a private deal, they don’t really have a claim on all that revenue kicked off by the associated development or taxes?
MATHESON: A team in Worcester, in a brand new beautiful stadium, is only going to generate enough additional money to pay for about $30 million of stadium. It’s not to finance an entire $100 million stadium. Minor league baseball is not big business. Not many people go and they don’t pay very much when they do.
CW: Even Triple-A Red Sox?
MATHESON: Even Triple-A. The piece that I try to throw out there is a minor league baseball team generates about as much attendance at a similar sort of price point as a large movie multiplex. We would never in a million years think that the city of Worcester should throw $70 million towards a private movie company in order to build their movie theater so that the movie theater can collect all the money from tickets and all the money from concessions. We just wouldn’t do that. But here with baseball, we’re basically doing that. We’re basically building the equivalent of multiplex, but we’re charging the team a third of what it costs to actually build the build the stadium.
CW: And we do that because we just get sort of taken by the idea of having a baseball team and the civic pride with that? That certainly is a lot more significant than the kind of pride you have over a movie multiplex.
MATHESON: The huge advantage that Lucchino has is he has one team and he had two cities fighting over one team, and Ed Augustus and the city of Worcester wanted to win. So they were willing to outbid their opponent for it. A movie theater is the opposite, right? There are three or four major movie theater companies around the country. They fight with one another for the cities to put their movie theater in. It’s always better to be the one where there’s lots of bidders and one item. You always want to be the person with the one thing, and it’s Lucchino here.
CW: Do you think that Worcester overbid or overpaid. I heard one person say they didn’t really think, given that Rhode Island’s much less attractive package, that Lucchino had as many cards to play as he may have wanted them to think.
MATHESON: I think when Lucchino bought the team he thought he was going to have a lot more bidders than he ended up having. I think he was thinking about moving right away and then all of a sudden cities weren’t lining up in a way that he thought they were going to. But then Worcester got into the deal. To make this work, all you needed was two bidders who really want to win. And once you had at least two bidders, you could really force a big number out of Rhode Island, and once you had a big number out of Rhode Island then you could force an even bigger number out of Worcester.
CW: Some people have pointed as a cautionary tale to what’s happened with the minor league team in Hartford — that the city has been on the hook for the debt to finance a stadium there. It’s somewhat similar to Worcester in that the idea was it was going to be financed by associated development in the area. That development didn’t actually happen there. On paper, Worcester could face the same thing – the city is going to guarantee the debt. But we’ve had pieces recently in CommonWealth on the renaissance in Worcester, so people are fairly bullish on things right now and the idea that all this development will come to fruition.
MATHESON: Hartford is basically a story of how badly can you possibly do it. Not only did they spend a huge amount of money to basically move a team less than 20 miles — at least it’s a whole new state that’s getting the team here — they had a stadium that had massive cost overruns associated with it. And I don’t think they had lined up that ancillary investment in a particularly good way. So, yeah, you’re certainly running a risk. The big risk would be, what if this hotel doesn’t happen? What if this additional housing doesn’t happen? But even if the investment comes, this isn’t a great deal because if the investment was going to come, it was likely going to come anyway without the ballpark. Which means that you’ve just built a bunch of millionaires a new stadium with taxpayer money in order to get a hotel that was going to occur regardless.
CW: The property where this is all slated to take place has sat fallow for a very, very long time.
MATHESON: That is absolutely true. So you can make a pretty good point by saying, hey, this is a place that doesn’t have a lot of hope because we see some pretty long-term blight there. That being said, the area that it’s in was up and coming way before the ballpark was going to come here with any certainty. We’ve got a huge amount of construction in the area. We’ve got three or four nice new high-end restaurants, or at least a very attractive restaurants in the area. We have new construction going on there before we’ve got a ballpark.
CW: Speaking of the comparison you made with a cinema multiplex, do you feel like you’ve seen this movie before?
MATHESON: For sure. I don’t want to say this stadium is going to end up like Hartford because Hartford is about the worst possible scenario. Worcester’s going to end up with a really nice ballpark and a nice entertainment district, but they’re going to end up with not much different than what they would’ve gotten otherwise and they’re going to end up paying $70 million for it. Worcester really wanted to win. A pro baseball team is psychically a much bigger thing than it is economically. Economically, it’s tiny. It’s smaller than a Macy’s in terms of economic impact. But think about buying on eBay. If you really want to win, you can win just by paying way more than anyone else. And I think that’s what they did here. In nominal terms, this will be the most expensive minor league ballpark in the history of the United States. And in terms of the public contribution, the dollar amount of public contribution is as big as we’ve seen anywhere, again, in nominal terms. After accounting for inflation, there’s a couple that are a little bit bigger or similar size. But this is an extraordinarily expensive project for a minor league ballpark, and when you’re talking about minor league sports, you’re talking about minor league economic impact.
CW: You’ve written about these kind of sports deals across the country and maybe even globally. Does it feel a little different, weighing in here on what’s happening there in the hometown? Do you feel like you’re the skunk at the garden local garden party?
MATHESON: My colleague Rob [Robert Baumann, chair of the Holy Cross economics department and frequent collaborator of Matheson’s on stadium research] and I are not making any friends down at city hall with this. I really have been a person for many years who said, look, Massachusetts really is above average. We have a long history of saying no to these sort of deals that will extort taxpayers for huge amounts of money. But we’re finally seeing Massachusetts act like the rest of the country here — in a bad way. We’re poised to throw more public money into this minor league ballpark than we threw into the Patriots, the Bruins, the Red Sox, and the Celtics combined. So we had a pretty good record – a privately financed NBA-NHL arena, a 90 percent privately financed NFL stadium. Massachusetts is pretty exceptional in those ways. Now we’ve shown ourselves to be like the rest of the country, falling all over ourselves to give out huge subsidies to those folks.
CW: Your first comment was that economists not involved in these projects have pretty universally looked askance at these things. Do you feel like your fellow economist Andy Zimbalist, who served as a consultant to the city of Worcester, has had a little bit of a change in his usual view?MATHESON: I know him very well and I like him. I think he’s done some parts his analysis in a very conservative way, in a way that does not exaggerate the economic impact of sports. He’s done a much more conservative job than we would have seen from a huge number of other economists out there. That being said, I don’t think he’s gone far enough along the lines of how much of this investment would have occurred anyway. And as far as I can tell, no one has any sort of analysis saying, OK we put in this big project, how much is it going to cost to actually provide normal city services? Are we going to plow the roads in front of the new development, because they didn’t pay for it. They paid for a stadium, not road plowing. Or are we going to provide police and fire for them, because they didn’t pay for that. They paid for a stadium and they didn’t pay for police and fire. Are we going to send their kids to public school, because they didn’t pay for that. They paid for a stadium.