MLB revenue sharing and stadium financing

Readers of the Sports Economist are likely to be familiar with revenue sharing in professional sports. Leagues have different approaches to sharing revenues, and the extent to which revenue sharing affects competitive balance is an interesting topic of conversation. I am afraid I have to admit that the inner workings of some of the revenue sharing arrangements are, to me at least, cures for insomnia. But I have just learned of one aspect of revenue sharing in MLB that overlaps with one of my favorite sporting issues, stadium finance.

In particular, consider that MLB allows team expenditures on stadium finance to offset revenue sharing. This has, apparently, been going on for a couple of years or so. Enter the Yankees and the financing of Yankee Stadium using PILOTS (payments-in-lieu-of-taxes). PILOTS are a way by which state and local governments, or quasi-governmental agencies like the New York City Industrial Development Authority, borrow money which is used to finance essentially privately owned development projects which are “owned” by the pubic agency. Interest costs are about 25% lower this way than if the private company had borrowed directly. (PILOTS sprung up in response to restrictions on the use of state and local government debt for essentially private purposes, of which stadiums and arenas were a prime example. NY Senator Moynihan was instrumental in getting such legislation through Congress.) The new development does not pay property taxes, for instance, because the public agency owns the property. To offset the loss in taxes, the user of the facility makes payments in lieu of taxes, which are used by the agency to pay the principal and interest on the borrowing. The Yankees secured agreement from MLB to count the PILOTS toward their revenue sharing obligations.

Congressional hearings on the use of PILOTS and Yankee Stadium financing are set for later this month. Allegations of inappropriate assessment of the land on which the new stadium sits are also under investigation. It promises to be a pretty interesting set of hearings.

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Author: Dennis Coates

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