Dome to nowhere (I)

TORONTO’S SKYDOME is the mother of “public-private partnerships” (P3) championed by neo-liberals as the template for economic development. It siphoned off hundreds of millions of dollars in public money to benefit private sports teams, the coffers of the construction monopolies and the finance capitalists who own Ontario’s debt. Whether the SkyDome ultimately came in “on budget” or not was irrelevant to the monopolies that were guaranteed their profits. As author/journalist Neil deMause reveals in his indepth exposé, when the budget was exceeded, in 1991 the financial oligarchy quickly swooped in to lend yet more money guaranteed by the state. The SkyDome reflects a medieval character of spending for the pleasure of a tiny aristocratic elite leaving the people to be spectators of the narcosis of American professional sport and consumers of a giant circus in which they participate only in a marginalized way. – Tony Seed

By NEIL deMAUSE*

IT WAS THE FINAL INDIGNITY. Last October, after a ten-year history in which it had suffered through a delayed opening, hundreds of million of dollars in cost overruns, and a cut-rate sale to private investors, the Toronto SkyDome came to this: The Blue Jays, the baseball team that just five years earlier had celebrated a World Championship beneath SkyDome’s retractable roof, were threatening to move out. And not to just anywhere – to their old, unloved home, “The Ex,” Exhibition Stadium. A stadium with no roof. No luxury boxes. With no seats, in fact, since it was targeted for demolition before the year was out.

Like so many sports teams’ threats to move across town or across the continent, the Jays’ threatened Ex-odus was a ploy – one that paid off in $72 million in lease concessions for the team a few weeks later. The revised lease would keep the team in the dome for the next ten years. But for SkyDome, now run by a private consortium that includes the Jays’ owner, Interbrew, it also removed the last hope of paying its own bills, and the building’s owners promptly filed for bankruptcy protection.

… there are signs that the looting of the public purse may not have ended.

The decline and fall of the World’s Greatest Entertainment is an ironic cautionary tale on the excesses of ‘80s development, to be sure. But the current wrangling over the dome – the Jays’ move threats, the bankruptcy filing and subsequent sale at auction – is something more. In the ten years since SkyDome opened, public subsidies to the sports industry have exploded, to the point where Ontario’s $600 million retractable-roofed gift to the Blue Jays looks like a cheap stocking stuffer. And as everyone from Interbrew to ex-Jays general manager Pat Gillick to the city of Toronto itself circles around the dome’s bankrupt body, there are signs that the looting of the public purse may not have ended.

* * *

ON SkyDome’s opening day in June 1989, bankruptcy was the furthest thing from anyone’s mind. The stands were filled, the start of a streak that would see hardly an empty seat for the next five years. And best of all, the retractable roof – three enormous panels of steel and plastic – opened and closed as advertised.

When city planners had first dreamed up what would become SkyDome in the early ‘80s, they had a clear vision of what they didn’t want. It sat 300 miles to the northeast, in downtown Montreal: Olympic Stadium, Canada’s monument to mismanagement. Everything that could have gone wrong did: the planned retractable roof (the world’s first) was 12 years late in being installed, then promptly jammed shut; meanwhile, in the push to ready the stadium for the the 1976 Olympics, cost overruns and rush charges drove the building’s cost to an astonishing $1 billion – a record that has yet to be broken, and one that earned Olympic Stadium the enduring nickname of the Big Owe.

Toronto’s new stadium, its planners promised, would learn from the mistakes of Montreal, with an improved roof design, and, most importantly, a financial plan that would pay for itself. “Before debt service, the project will throw off something like $30 million in the first full calendar year,” said Chuck Magwood, president of Stadco, the crown corporation formed to run SkyDome, shortly before the building’s grand opening. In ten years, he figured, that level of revenues could pay off the building’s debt.

To fully pay off its debts, it was estimated, the dome would have to be in use 600 days a year.

The good news lasted less than a year. By the time Bob Rae’s NDP took power in October 1990, it had become clear that Magwood, who left SkyDome shortly after its opening, had been unbelievably rosy in his predictions: operating profits the Dome’s first full year in business were a mere $17 million, while debt service amounted to $40 million. To fully pay off its debts, it was estimated, the dome would have to be in use 600 days a year.

What precisely happened to drive SkyDome’s costs through its retractable roof is somewhat of an official mystery. Late-’80s grandiosity played a role, no doubt – in the midst of construction, Stadco abruptly decided to add a hotel and health club to the building, a move that would end up tacking an additional $112 million onto the price. And as with Olympic Stadium before it, rush charges to meet the dome’s planned opening day (it missed anyway, by nearly two months) tacked on additional costs.

Rae appointed University of Toronto professor Bruce Kidd and then-Canadian Auto Workers president Bob White to the Stadco board to address the dome’s growing debt. But as Kidd explains, “We didn’t look as much into the reasons for the cost overruns as we tried to solve the problems.” There was talk of a public inquiry, recalls Kidd, but “although we talked about it and seriously considered it, we thought it was more productive to just get out of the damn thing. And the people we had been negotiating with may well have been embarrassed by a public inquiry, and we needed their cooperation.”

Those people were SkyDome’s private investors – the 28 companies that kicked in $5 million apiece to construction costs as part of the dome’s much-ballyhooed “public/private partnership.” In exchange for $5 million each, the 28 private investors had gotten ownership of one of the dome’s 161 Skyboxes and preferential vending rights to the building. The exclusive-rights earned some public criticism – especially when consortium member McDonald’s turned out to be paying a low yearly fee to the dome and charging exorbitant prices for stadium food – but another element of the original deal may have been even more damaging to the public’s interest.

Public/private partnership or no, the province of Ontario would end up holding the bag for the entire stadium debt.

Someone, at least, had foreseen the possibility of cost overruns gobbling up dome profits; unfortunately for the public, it was corporate takeover king (and current senator) Trevor Eyton, head of the private consortium. “The arrangement that the private consortium had was that assuming the stadium was completed satisfactorily, and the related debt was less than $165 million,” the private companies would take partial ownership of the dome, explains Eyton. “As you well know, by the time SkyDome was completed, the debt was significantly ahead of $165 million, so we had no responsibility to form the joint venture that we had contemplated. That meant that the province had the stadium entirely, and we were off to the sidelines.” Public/private partnership or no, the province of Ontario would end up holding the bag for the entire stadium debt.

Unable to cover even interest payments on its bonds, Stadco saw its staggering debt continue to rise, to nearly $400 million by the end of 1993. If a debt-ridden stadium was a liability, one whose debt load grew each year was an unacceptable one, and in March 1994, the Rae Administration finally paid off the remaining debt from the provincial treasury, then sold off SkyDome to a consortium of private corporations (including Jays’ owners Labatt, who were later purchased by Interbrew) for a bargain-basement price of $151 million. “It was important to get the Ontario taxpayer off the hook for a deal made by people I’d love to play poker with,” commented then-Finance Minister Floyd Laughren at the time.

By the time the government finally rid itself of its white elephant, the Ontario public had taken a $262.7 million bath.

* * *

STORIES like this have become all too familiar in the sports-stadium craze that has swept pro sports in the decade since SkyDome’s opening. While Olympic Stadium may have set the standard for extravagence, there are plenty of other contenders giving the Big Owe a run for its money. Seattle’s new Safeco Field, originally tabbed at $320 million (U.S.), has already passed the $500 million mark on its way toward its July opening, the bulk of which will be paid by the people of Washington state. Milwaukee’s Miller Park, originally budgeted at $250 million, is likewise nearing the half-billion-dollar mark, even as its opening has been delayed from 1999 to 2000. Then there’s the infamous renovation of Yankee Stadium, which began in 1973 with a $19 million pricetag, and didn’t stop until it had devoured $125 million in New York City money. Ask any stadium expert how much a new ballpark is likely to cost, and you’ll likely get the answer: “more than you’ve budgeted.”

There are several reasons why. Economic down times can cut into projected revenue; boom times can drive up the cost of construction. The sheer size of modern stadiums, which are packed with high-tech gadgetry and can easily take up two to three times the land area as a traditional ballpark, likewise lend themselves to exploding pricetags – the new baseball stadiums in both Milwaukee and Seattle have seen their budgets fall victim to retractable roofs that proved far more costly than originally planned.

Perhaps most significantly, stadium builders tend to lowball estimates to get a project approved, confident that once a hole is dug and a foundation poured, no one will be willing to cut off funds on a half-finished project. One stadium consultant recalls researching costs for another architect on a publicly funded minor-league pallpark project, and finding that the team owners’ exorbitant demands for luxury suites were driving the price up. “I suggested that he warn the political powers-that-be that there might be major problems with leasing that many suites in a small market. He said, ‘They really want to get this team. They’re afraid the owners will walk, so they won’t question that – they’ll find the money to build the suites.’” The architect added that strict economies were not a priority for this stadium, because “public projects are always better funded than private ones.”

The problem here is that ‘generating’ spending is a dodgy concept.

Stadium boosters often argue that these mammoth public investments in sports facilities has a broader payoff: The fans who crowd into a sports stadium or arena, they claim, also stay at local hotels, eat at local restaurants, and otherwise generate economic activity far beyond the ticket revenue earned by the building itself. The problem here is that “generating” spending is a dodgy concept. If fans are spending money in and around a ballpark, many economists ask, where aren’t they spending their money? Might increased tax revenues for, say, restaurants nearby a new stadium be offset by a drop in other neighbourhoods, as people save their consumer dollars for a night at the ballgame? After consultants Ernst & Young conducted one particularly rosy economic analysis for the Expos, Hautes Etudes Commerciales economist Francois Richer remarked that the study assumed that if the Expos left town, “people who spent in relation to the team’s presence in Montreal [would] put that money into their mattresses.”

The body of independent economic studies backs them up. In probably the most comprehensive, Lake Forest College professor Robert Baade looked at 30 cities that had built stadiums or arenas over a 30-year period, and finding no sign of any increased economic activity as a result. And as far as job creation goes, stadium projects routinely clock it at well over $100,000 per full-time job – one of the worst ratios of any industry, and a figure that has prompted University of Chicago economist Allen Sanderson to remark that if the money were “dropped out of a helicopter over [your city], you would probably create eight to ten times as many jobs.”

Not that that’s stopped municipalities from continuing to sing the praises of the stadium-enhanced economy. Last August, the city of Phoenix, Arizona, announced that sales tax revenues in the downtown area were up 34.1 per cent since the opening of the Arizona Diamondbacks’ new Bank One Ballpark. The actual figure, it turned out, was $352,961 in new tax revenue over the first six months of 1998, not accounting for the substitution effect.

At that rate, Bank One Ballpark would pay for itself in exactly 358 years.

* * *

FOR its $300 million, the Toronto public got a more modern stadium than the jury-rigged Ex, one sheltered from frigid April and October nights on the lakefront. But as would become the trend with most of the stadiums built in the waning years of the century, most of the innovations were in selling things: cavernous concessions areas and in-house restaurants, all equipped with prices designed for an upscale clientele. (The dome’s $7 hotdogs would become internationally infamous.) And tickets were pricey: in place of the Ex’s $4 bleacher seats, all but a few SkyDome tickets ran $10 and up, as the outfield hotel usurped most of the space that could have gone for bleachers.

For the stadium’s primary tenant, though, SkyDome was a windfall beyond belief.

For the stadium’s primary tenant, though, SkyDome was a windfall beyond belief. Spared the trouble of risking their own money on a stadium venture, the Jays were the envy of the baseball world, with a state-of-the-art ballpark packed to the rafters with money-making machinery. “I’d seen the ultimate marriage between government, which builds these facilities, and the corporations and the people who tie into them,” then-Seattle Mariners owner Jeff Smulyan raved upon visiting SkyDome soon after its opening. “You take the suites, the signage, throw the media on top, and you have an economic juggernaut.”

All this, in exchange for a single $5 million private investment share, the same as that put up by McDonald’s for the concessions rights.

Indeed, even as SkyDome and its provincial backers swam in red ink, the Blue Jays were on top of the baseball world, raking in World Series championships and record profits alike. The Jays saw their gross revenues double in 1989, the year SkyDome opened; with yearly attendance topping a then-incredible 4 million, team owners Labatt’s were launched into baseball’s elite, as the team’s value soared to an estimated $180 million, ranked behind only the New York Yankees and Dallas Cowboys in all of pro sports. All this, in exchange for a single $5 million private investment share, the same as that put up by McDonald’s for the concessions rights.

But in the sports stadium biz, even the most sweetheart of deals has a limit to its honeymoon period. Smith College economist Andrew Zimbalist, author of the book Baseball and Billions, estimates that a news stadium’s term at the top of the heap “can go anywhere from three or four years up to about ten years, depending on how well the team is doing.” If everything goes right, he says, the team can use the increase ticket revenues to buy better players; more success on the field translates into more fan interest, and keeps ticket sales high. But there is a limit: “What will happen eventually is that there will be a new tier of stadiums above yours that will be able to earn more money, and will enable those teams to draw the better players.”

In the 1980s, under $2 billion in public money had been spent on stadiums in North America; in the following decade, that figure would top $11 billion.

For SkyDome, “eventually” came sooner rather than later. Within two years of SkyDome’s opening day, Baltimore introduced its Oriole Park at Camden Yards, an artful blend of exposed steel and luxury club seating that sent ballpark architects back to their drawing boards, and Oriole revenues soaring into the stratosphere. (The state of Maryland, which had bankrolled Camden Yards with a new pair of state lotteries, saw little of the proceeds, as it had locked itself into a lease that guaranteed the team all revenues in exchange for a minimal rent.) Two years after that, Cleveland’s Jacobs Field opened, with still more exposed steel and a solid wall of luxury seating wedged between the lower and upper decks. From there, it was off to the races, as teams threatened that the new sports palaces would leave them uncompetitive or even force them to move, and largely credulous local governments plunked down up to half a billion dollars apiece for new sports palaces for their pro teams. In the 1980s, under $2 billion in public money had been spent on stadiums in North America; in the following decade, that figure would top $11 billion.

By 1994, everything was going wrong for the Jays and SkyDome: In one year, SkyDome turned five, new tourist-friendly ballparks opened in Cleveland and Texas, the team went from World Series champion to division cellar-dweller – and baseball went on strike, wiping out a third of the season and sending fan interest into a nosedive from which it has only recently begun to recover. For the Jays, this meant dwindling revenues just at the time that other team’s lucrative new playpens were flooding the sport with money, and enabling teams to bid up the price of player contracts. Last year, the Jays claimed to have lost a whopping $40 million. And though there’s some reason to be skeptical of the figure – Zimbalist recently calculated that the Florida Marlins’ claims of $34 million yearly losses were actually hiding a $14 million profit, and Interbrew’s ownership of the Jays’ TV outlet, TSN, leaves plenty of room for creative bookkeeping – it’s clear that the Blue Jays’ days among the baseball elite are behind them.

And so, with their 10-year lease at SkyDome expiring and their four division rivals either moving into or negotiating new ballparks, the Jays played the Ex card. If the threat made for plenty of public snickering, it also landed Interbrew what it was looking for: A new 10-year lease that would redirect an estimated $72 million from SkyDome to the baseball team over the next decade. That Interbrew itself owns 48 per cent of the stadium was no obstacle – when you’re talking about tens of millions of dollars, better to get all the money (or rather 90 per cent – the Jays do have a handful of minority owners) than just half.

The same week as the new lease with the Jays was announced, SkyDome filed for bankruptcy protection.

Even with its debtload reduced from $300 million to $151 million – with, in effect, its cost reduced to what it was supposed to be before all the cost overruns – the building was still losing money. Current SkyDome CEO Patrick McDougall blames the exchange rate, for one, which affects not only ballplayer salaries, but prices for musical acts and other imports from the U.S. “Also, the tax situation is quite strenuous here – we pay in excess of $12 million in [property] taxes a year,” says McDougall. “And the fact that the Blue Jays attendance has dropped from 4 million down to 2-1/2 million – which is very good for major league attendance, but we’re living in a very unreal world, I guess. When you do projections on four million, and then you get 2-1/2 million, you’ve got a problem.”

In fact, many sports economists openly wonder whether any large stadium can be made profitable, no matter how little you spend on it. According to Sanderson, “The closest you can come is the United Center in Chicago, which is privately financed – I want to say, ‘in quotes, privately financed,’ because there’s some infrastructure, and they also pay far less in taxes that they should be paying, so they’re getting some other kinds of breaks. But you can make a closer go of it there because you’ve got a hockey team and a basketball team, and a circus and an ice show and an Elton John concert. But a domed stadium that has 60 or 70,000 seats, I really think it’s just financially impossible to make a go of that.”

“There’s almost no price at which one of these things would pay,” explains Sanderson, pointing out that because the pro sports leagues have a monopoly on teams, stadium owners are left in an impossible negotiating position. “The cartel element is that any money you potentially could have made, they’re going to extract from you up front as a condition for coming there, or as a condition from not leaving. At that point, you’re pretty much indifferent whether they break your left arm or your right arm.”

* * *

AT THIS POINT, SkyDome is out of arms to break. So where do the Jays – and the dome’s new owners, once approved by bankruptcy court – plan to find the money to right the sinking finances of both team and venue? Asked what would have to change for the dome to get back on its feet, McDougall seems taken aback. “There’s a tremendous amount that would have to change. But one of the major things is the tax situation.”

That “situation” is the $12 million in property taxes paid by SkyDome each year, which has been a bone of contention between the stadium and the government from day one. While Toronto Mayor Mel Lastman has insisted publicly that there will be “no free ride” for sports teams, the province could yet revise the dome’s assessment, effectively propping up the dome with a influx of public money.

Tax breaks, in fact, are on top of Canadian sports teams’ policy agenda. MP Dennis Mills’ Sub-Committee on the Study of Sport in Canada, in its final report last December, recommended extending a 10 per cent tax credit on pro teams’ first $50 million in revenues. (The government has until April to formulate a response.)

As U.S. sports subsidies have escalated – and two hockey teams, the Quebec Nordiques and the Winnipeg Jets, have fled for greener pastures in Denver and Phoenix, respectively – there has been an increasing clamour from some quarters for Canada to catch up to its southerly neighbour. The owners of the Expos have demanded “creative solutions” – $150 million worth – toward their dream of a new open-air ballpark, and so far been rebuffed by the government of Quebec. Several Canadian hockey teams, including the Edmonton Oilers and Ottawa Senators, have demanded government bailouts to prevent them from bolting across the border. Even Victoria, B.C., has been the target of stadium demands, as the owner of a bankrupt minor-league hockey team has been demanding government loan guarantees for a $125 million, 12,500-seat arena as a condition of moving his franchise there.

In the U.S., certainly, tax subsidies to pro sports teams are thought to approach the $1 billion in annual direct cash payouts for stadium construction.

In the U.S., certainly, tax subsidies to pro sports teams are thought to approach the $1 billion in annual direct cash payouts for stadium construction. The San Francisco Giants’ “privately financed” Pacific Bell Park (set to open in April 2000) will receive $15 million in property tax breaks. The Cleveland Teachers Union estimates that city schools are losing $3.5 million a year from tax abatements granted to that city’s Gateway sports complex.

The irony, however, is that Canadian teams are trying to bring subsidies up to the U.S. level at precisely the time that many U.S. politicians and community activists are trying to eliminate them. Take tax-exempt bonds, a favorite gimmick of U.S. teams that effectively allows them to artificially lower stadium construction costs at federal government expense. But while importing tax-exempt stadium bonding is one of the stated priorities of Canadian sports teams, the U.S. Congress is considering eliminating the subsidy – one attempt was already made in 1986, and a bill is currently under consideration to close the loopholes left by that year’s legislation.

Moreover, after several years of voters’ unquestioned acquiescence to stadium plans, last year saw a nine-month span in which five consecutive U.S. stadium deals were rejected overwhelmingly at the polls – despite backers’ multimillion-dollar ad campaigns in support of them. And citizen activist groups are continuing to challenge stadium plans in Boston, Hartford, and elsewhere.

Another less-publicized recommendation of the Mills committee was to explore challenging U.S. sports subsidies as a violation of NAFTA. It’s a tactic that Kidd, for one, endorses wholeheartedly: “What Canadians should be doing, instead of digging deep to level that playing field, is taking advantage of the provisions of the free trade agreement to say, this is unfair subsidization, and it should be eliminated – the same way the Americans in the case of lumber, and wheat, and a number of other products, say Canadian subsidies are unfair.”

* * *

AS THIS ISSUE went to press, SkyDome’s fate was in the hands of a bankruptcy court, which was to decide in March which set of private bidders would end up with the dubious prize of SkyDome. As of late January, a possible surprise bidder had entered the ring: Toronto city councillors Jack Layton and Dennis Fotinos called for the city to expropriate the dome “to protect the public’s investment of over $350 million.” Toronto would, however, have to pay market value for the building in any expropriation – putting the public back in the position of paying off bonds with a thin trickle of stadium revenue.

For Kidd, who spent four years trying to unload SkyDome, the last thing in the world he’d like to see is it ending up back in public hands. “First and foremost, I’m greatly relieved that this is not a public responsibility,” he say. “That needs to be said over and over and over and over again. When homelessness is a huge issue, when we need to restore the public sector in so many ways – housing, health, education, and so on – the people of Ontario need not to be concerned about the fortunes of one sector of the entertainment industry.”

*Neil deMause is co-author, with Joanna Cagan, of Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, and maintains the Field of Schemes website at http://www.fieldofschemes.com.

(A slightly different version of this article appeared as “Can A Ballpark Figure?” in the March/April 1999 issue of This Magazine.)

* * *

Related reading

Dome to nowhere (II) – SkyDome Redux?

Dome to nowhere (III) – a timeline

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3 responses to “Dome to nowhere (I)

  1. Pingback: Dome to nowhere (II) – SkyDome redux | Friendship First, Competition Second – An Amateur Sport Website

  2. Pingback: Dome to nowhere (II) – SkyDome redux | Friendship First, Competition Second – An Amateur Sport Website

  3. Pingback: Dome to nowhere (III) – a timeline | Friendship First, Competition Second – An Amateur Sport Website

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