Jan 25
2022
The Pegulas should pay up
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by Jim Heaney, editor of Investigative Post
Note: A version of this column first appeared in the current issue of Buffalo Spree. It’s been updated to reflect recent developments.
Let’s suppose a company wanted to build a factory in Buffalo.
The plant would be used only 10 times a year.
It wouldn’t employ many people, and a fair share of its front-line workers would suffer injuries that would haunt them later in life.
The factory owner is wealthy – a billionaire, in fact – and his business highly profitable.
Nevertheless, the owner demands that taxpayers provide hundreds of millions of dollars in subsidies to build his factory.
Such a proposal would be derided, denounced and dismissed.
Unless the owners were Terry and Kim Pegula and their business was the Buffalo Bills.
No, their demand for a new stadium is being taken seriously by the politicians that taxpayers have no choice but to trust with their money.
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The Bills are demanding a 60,000-seat, open-air stadium across the street from what many old-timers still refer to as Rich Stadium in Orchard Park. The projected cost is $1.4 billion.
Who pays for what is the subject of negotiation, but the taxpayer contribution is presumed to be hundreds of million of dollars. A figure of $1 billion has been bandied about, although the politicians and Pegulas say that figure is incorrect. Of course, they’re not willing to provide a number of their own.
The case against a significant taxpayer subsidy begins with the wealth of the Pegulas and the profitability of the team.
Forbes pegs the Pegula’s net worth at $5.7 billion, a number that has steadily grown in recent years. They rank as the 15th richest owners in all of professional sports in North America.
Contributing to the growth is the ever-increasing value of the Bills, up from the $1.4 billion the Pegulas paid for the team in 2014 to $2.27 billion today, according to Forbes.
The Bills are, as are all NFL teams, profitable, and about to be more so thanks to a new television contract that kicks in next year. Payouts from cable and network outlets will jump from $220 million per team this season to $377 million in 2032. For perspective, the Bills are spending about $200 million this season on player salaries.
But wait, there’s more money coming to the Bills. There’s the contract with DirecTV and the NFL’s venture capital arm, 32 Equity, which have grown in value to some $100 million per team. Another venture is in the works, in which the league would partner with investors and media and tech companies to distribute assets that could include NFL Films.
In addition, there’s proceeds from ticket sales, concessions and local sponsorships, although these stadium-generated revenues are small potatoes compared to television.
So, how profitable are the Bills?
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It’s tough to say, as only one team releases its financials, the publicly held Green Bay Packers, the smallest of the league’s small-market teams. In July, the team announced a record profit of $70.3 million for the 2019 season, the last before the COVID-19 pandemic struck.
Put it all together and it’s safe to say the Pegulas can afford to build their stadium without help from New York’s overtaxed residents and business owners.
If there were to be a public investment, what might that look like?
Five NFL stadiums have been built in the past decade. The one in Los Angeles, a $5 billion palace, was built for the Rams and Chargers with private money. The other four, built for the Vikings, Falcons, Raiders and 49ers, involved taxpayer subsidies ranging from $114 million (Santa Clara, CA) to $750 million (Las Vegas).
Conclusion: Anything in Buffalo approaching $1 billion would represent the biggest subsidy in league history. That should be a non-starter.
The cost of building a stadium is only part of the expense of hosting the Bills. Their current lease on Highmark Stadium enables the team to keep virtually all revenue generated at the stadium – the county used to keep naming rights and half the net proceeds from parking and concessions – while saddling Erie County and the state with $13 million in expenses. If those terms carry forward for a new stadium, the cost to taxpayers could exceed $300 million over a 30-year lease.
Stadium supporters tout the economic impact of a new facility. The claims are bunk.
Football stadiums produce very little new spending.
Research has found stadiums, especially football stadiums located on the outer edges of suburbia, generate little new spending. They simply redirect how leisure dollars are spent.
In other words: money spent at a football game is money not spent at the theater, restaurant or bar. It’s why most government subsidy programs bar tax breaks for retail operations.
“The typical baseball team has no more impact on the local economy than a mid-sized department store and a football team, which is there for only eight or nine games per year, has even less,” said Micheal Leeds, a sports economist with Temple University and co-author of the book “The Economics of Sports.”
“So, they’re really not that big a business but, because they are so much a part of the sort of cultural fabric of a city, we don’t realize just how small potatoes they are.”
Which brings us to, as the professor put it, the “cultural fabric” of the community.
Let’s face it, no one wants to lose the Bills. I mean, is there a more devoted fan base in the entire league? One that stands by their team through rain, snow or shine, which will travel here, there and everywhere to cheer their heroes.
Losing the team would be a gut punch, one that neither the fan base nor community deserves. Yeah, we’re going to have to pony up to help finance a stadium, but it’s incumbent on state and county leaders to drive a hard bargain with the Bills. That’s what officials did with the Minnesota Vikings and the team ended up agreeing to lease payments of $8.5 million per season. Compare that to the $902,582 the Bills are currently paying.
Given the secrecy surrounding negotiations here, it’s tough to tell how hard of a bargain county and state negotiators are attempting to drive with the Bills. Given fawning statements from Gov. Kathy Hochul, there’s reason for skepticism.
As Neil deMause, a stadium subsidy expert, told Investigative Post: “It really is going to come down to whether the elected officials who are negotiating this are more interested in getting a good deal or just in getting a deal.”
