Cowboys Stadium Financing

This story from the Dallas Morning News has some good details on the public/private contributions to paying off the bonds which support the $1.2 billion Cowboys Stadium.

Both public and personal Dallas Cowboys stadium revenues are exceeding projections.

Judging from the article, the city of Arlington contributed $325 million in financing. Their share of the bonds is paid “with proceeds from a half-cent sales tax increase, 2 percent hotel-motel tax hike, and 5 percent increase in car rental tax.”  According to the paper, Arlington owes $20.4 million this year and is on track to recoup over $27 million from these taxes. Leaving aside the issue of funding these projects with local sales taxes, that’s good news since plans to finance the stadium were developed before the onset of the Great Recession.

What’s particularly interesting to me are the figures for the Cowboys’ side of the ledger. From the report:

A second group of bonds – nearly $147 million – issued to help finance a portion of the Cowboys’ debt is also faring well, maybe even better than the city’s share.

Those bonds would be paid by the Cowboys if the ticket and parking taxes, which the city has referred to as user taxes, were inadequate to make debt payments. But for the stadium’s first year open, those taxes raised about $15.2 million compared with the $9.3 million originally projected.

The city’s term “user taxes” is entirely appropriate here since, in contrast to the local sales tax, taxes on tickets and parking are fees are paid by direct beneficiaries of the stadium. The parking tax is $3, and the ticket tax is 10% of the ticket price. Why, then, is this revenue running 60% ahead of expectations? As the article points out, both ticket sales and ticket prices are considerably higher than projections:

70,058 ­Projected average attendance for Cowboys games

86,990 ­Actual average attendance for Cowboys games

$83.80 ­Projected average ticket price for Cowboys games

$159.65 ­Actual average ticket price for Cowboys games

2 ­ Projected and actual number of soccer matches

30,000 ­Projected average attendance for soccer

69,741 ­Actual average attendance for soccer

Those projections appear to be conservative, to put it mildly. The Cowboys need not worry about paying off that $147 million of the city’s debt.

But the Cowboys are directly responsible for about $875 million in stadium costs. And since the ticket tax is not subject to revenue sharing while the team’s net ticket revenue is, the question for me is, why didn’t the Cowboys increase the ticket tax to, say, 20%? The idea would be to keep the gross ticket price constant and double the revenue earmarked towards paying for the stadium through the ticket tax itself:  a rough estimate is from $15 million to $30 million.

Doing so would increase the Cowboy’s bottom line by the amount of revenue spared from the revenue sharing rule multiplied by one minus the sharing percentage.*  The city would be acting as a passive pass-through entity for the extra 10% of ticket taxes, as with the existing revenue from this source.

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Several possibilities come to mind. First, perhaps revenue sharing of the local gate in the NFL is quite limited, making the issue minor. Alternatively, the politics of a more significant ticket tax and the possibility this revenue would be diverted towards non-Cowboys infrastructure is a concern. Also, the ability of Arlington to shoulder more debt may be limited, even with the Cowboys serving as a backstop and assuming ultimate liability for these bonds. But at a minimum, a swap whereby Arlington’s share shifted incrementally towards “user taxes” and away from the local sales tax would be feasible. And from a public finance perspective, more equitable and efficient. Bot, the Cowboys, and the citizens of Arlington would be better off.

This could happen in the long run if the city’s revenue fund is sufficient to pay off the bonds early. But can the town be trusted to return the 1/2 percent sales tax to its citizens?

At this time, around two months out from the scheduled start of the new NFL season, the Cowboys are considered favorites to win their Division by the latest betting sites. As for winning Super Bowl, 55 are slightly less benevolent, with the Texans being way behind the main choices, the Chiefs and Ravens.

*Suppose ticket sales (R) are $150 million, 50 percent (s) of gate revenue is shared, and one doubles the 10 percent (t) of ticket sales revenue shifted into “ticket tax revenue.” The gain to the bottom line of the Cowboys is $2.5 million per year, i.e., Rt(1-s).