Don’t Bribe ‘Em. Buy ‘Em: A strategic proposal on how New Yorkers can create–and control–a minor baseball league of their own

NOTE:  This is the full text of the paper written by ILSR’s David Morris and Daniel Kraker and published in November 1998

In the global economy, business enterprises have become more mobile, more demanding, and less civic-minded than ever before with sometimes dire consequences for the communities in which they are located. Mergers, relocations, and other day-to-day business decisions have littered our communities with the economic detritus of unemployed people, dispirited neighborhoods, and under-utilized public infrastructure.

Theusual response from local city hall has been to open its public coffers to private enterprises in order to keep businesses in place. Communities now offer up billions of public tax dollars in economic incentives to influence business decisions, but very few demand a public return on the public dollar.

Most states and communities have crafted their business subsidy programs as “off budget” items, meaning that very few of these incentive programs receive the public scrutiny of, say, public education, with one interesting exception-publicly funded sports stadiums. Exposed for the blackmail game that it is, public subsidies for privately owned team stadiums have been put under the microscope of public scrutiny. And what is visible makes for some interesting viewing.

Billionsare spent to build stadiums in order to immobilize professional sports franchises and keep them home where they belong. But it’s only a temporary fix. Once a team’s stadium lease expires, communities are left with an empty stadium, empty promises, and empty public coffers. The same scenario is often revealed when public scrutiny is focused on other economic incentives. Our business subsidies temporarily buy off business mobility rights at an enormous cost. Why not ask more in return? Why not think about permanently rooting business-including sports teams-in the home community by publicly investing in those businesses that are critical to the economic or cultural health of communities?

WHY SPORTS?

Tomillions of fans across the country, sports instill a sense of civic pride and identity. They provide a common ground for all parts of a community: black and white, old and young, rich and poor.

Thiscombination of emotion, history, and entertainment make sports a business unlike any other. New Yorkers don’t congregate around the television to cheer on Wall Street investment bankers, just as Detroit citizens don’t watch Ford or GM workers build cars. But rooting for the Yankees and the Tigers and the Knicks and the Pistons is a natural communal activity.

This intimate connection between cities, fans, and their hometown teams is what makes it so difficult to see those teams shipped around the country like so many packaged goods.

Teamshave been moving for several decades, but the recent quantitative increase in relocations and threats of relocations has led to a sense of crisis and widespread anger. More than 50 million people live in and around communities where major professional sports teams have recently moved or where they are threatening to relocate.1 The catalyst is the owners’ insistence on new sports facilities, often complete with luxurious skyboxes, built primarily at the taxpayer’s expense.

Recently, the owners’ demands for public assistance have reached new heights. Many owners now insist on subsidies from their host communities greater than their teams are worth. The Super Bowl champion Denver Broncos are threatening to leave Denver-The Sporting News’number-one rated sports town-if the city doesn’t ante up $250 million. The team is worth only $180 million. Estimates of the Yankees’ value range from $350 million to $650 million-significantly less than the $1 billion owner George Steinbrenner has demanded for a new stadium in Manhattan.

Communitiesare wondering why they should give the owner more than the team is worth simply to keep them local for another 10 to 15 years. Why not instead buy the team outright?

At the major league professional level, one community has done just that. The Green Bay Packers have been operating as a nonprofit corporation since 1923, during which time they have won three world championships, three Super Bowls, and recently financed two stadium upgrades from retained earnings. Their ownership has generated unprecedented fan support while maintaining the fiscal discipline exhibited by corporations.

Butthe Packers are an exception to National Football League rules that prohibit community ownership; their nonprofit structure was grandfathered into the league in 1961. Major League Baseball informally prohibits community ownership but has nothing written into their bylaws. Together these restrictions have conspired to make certain that another fan-owned team never occurs.

FAILED EFFORTS AT FAN OWNERSHIP

Communitieshave tried to bring fan ownership to the Major Leagues. While none of them has succeeded, there are lessons to draw from these attempts.

oOakland in 1982 and Baltimore in 1984 tried to seize football’s Raiders and Colts, respectively, through their power of eminent domain to prevent the teams from relocating. The courts denied both cities’efforts.2

o In 1997 Minnesota state Representative Phyllis Kahn introduced a bill that enabled the state to purchase baseball’s Twins and transfer the club to a nonprofit foundation, which would have been given a year to sell shares of stock in the team. The bill never came up for a vote.3

o In April 1998 New York state Assemblymen Richard Brodsky and Richard Gottfried combined the above two efforts in Assembly Bill 684, the Sports Fan Protection Act. The bill would establish a State Sports Authority that could condemn a franchise through eminent domain and sell shares in the team to the public if either the cost of a stadium to the public exceeded the value of the franchise or the franchise took action to move from the state. As of this writing, the bill is still in committee.4

oAnd at the federal level, U.S. Representative Earl Blumenauer, of Oregon, has introduced HR 590, the Give Fans a Chance Act, that would remove a professional league’s broadcast-rights antitrust exemption if that league prohibited a community or its fans from owning their team.5

FIVE REASONS TO FOCUS ON THE MINOR LEAGUES

Theseare important and valuable efforts, but the exclusive “old boy” networks of team owners will continue to lobby hard against fan ownership. It is simply in their best financial interests to allow team threats and relocations. Therefore, any movement to build momentum for fan ownership of sports teams most likely must come from the ground up. One strong possibility is through fan-owned minor leagues. Aside from effecting positive change at the major league level, there are five more fundamental reasons for communities to pursue fan ownership of minor league teams.

1. They are increasingly popular and successful.
Minor league attendance climbed to 34 million in 1997, up from 20 million only ten years earlier. This compares to 64 million fans attending big league games. To house these newfound fans, minor league stadiums are getting bigger at the same time that major league parks are getting smaller. The minor league Buffalo Bisons’ ballpark, for example, where attendance eclipsed one million six years running in the late ’80s and early ’90s, holds more than 20,000 people. By contrast, the major league Cleveland Indians play in a new park that holds only 43,000, down from their old stadium’s capacity of 80,000, and the new Camden Yards facility for the major league Baltimore Orioles holds only 48,000, as opposed to the old Memorial Stadium’s 61,000 capacity.
More action at minor league turnstiles has translated into fatter owner pocketbooks. Between the 1996 and 1997 seasons alone overall average net income climbed 20 percent.

2. Minor league teams have become as footloose as their big league cousins.
In the last decade more than 60 minor league clubs have changed Zip codes, moved by the same forces that have uprooted major league clubs: their host cities have proved unwilling to finance new stadiums or competing cities have dangled subsidies too sweet for the clubs to ignore.6

3. No legal obstacle exists in minor league baseball to prevent communities from owning their teams, even those teams that are affiliated with major league clubs. As the abridged list below indicates, there are growing numbers of examples of community-owned minor league teams.

oThe Memphis Redbirds are the only professional team recognized by the IRS as a nonprofit, tax-exempt, charitable organization. Owner Dean Jernigan spent $8 million in 1997 to bring the AAA Redbirds to town, promptly turned ownership over to a foundation made up of 17 civic and business leaders, and agreed not to take a salary. The team funnels all profits back into the community. “If the main identity of a city is tied to a sports team, who are we going to entrust this to?” asked Jernigan. “Who can be responsible? It’s not an individual, I assure you.”7

While there are other franchises structured as nonprofits (including the Green Bay Packers), the Redbirds are the first to receive a tax exemption because they serve a public purpose, not just intangibly, but in legal terms. Community involvement through structured youth programs such as Returning Baseball to the Inner City(RBI) and Stripes, which funds sports programs in the public schools, is an integral part of the team’s activities.

Theclub’s tax-exempt status has helped limit the public’s contribution for a new $130-million, 14,000-seat downtown ballpark to only $8.5 million, or 6.5 percent. This subsidy has generated little opposition because the team gives so much back to the community.

oHarrisburg, Pennsylvania, is the most recent city to directly purchase its team. In 1995 the city paid more than $6 million to acquire the AA Senators, who were planning to move to a new taxpayer-financed ballpark in Massachusetts. It was a steep price to pay as the private owners had bought the team only six months earlier for just $4.1 million, but the team was popular and the city had made the stadium the center of a redevelopment initiative.8 By all accounts the new ownership structure has delighted the city’s sports fans.

o Two community-owned teams play in upstate New York: the AAA Rochester Red Wings and Syracuse SkyChiefs. Both teams sold stock to the community in the late 1950s when their major league affiliates reduced their amount of financial support. The Red Wings are owned by 8,000 shareholders, most of whom own fewer than 5 shares. The team is technically a for-profit corporation, but the club has never paid a dividend and will not do so for at least another 20 years as part of its lease agreement with Monroe County for its new 10,600-seat stadium. The SkyChiefs have less than 4,000 shareholders and have turned a profit every year since 1970.9

Obviously there are many ways to structure a publicly owned franchise. One is the for-profit shareholder model as exemplified by the SkyChiefs and Red Wings. A second is the nonprofit model of the Memphis Redbirds. The single A Wisconsin Timber Rattlers are also a nonprofit but raised capital in a more “capitalistic” way-by selling non-tradable stock to local investors. Still other teams are owned by local governments. The Harrisburg Senators are city-owned, while the AAA Toledo Mud Hens (famed favorite team of Corporal Klinger of M*A*S*H) are county-owned. These different structures do have one common characteristic: they root teams permanently in their communities.

4. A community’s cost of entry into the minor leagues is exponentially cheaper than the majors.
Approximate values of minor league franchises range from $1 million to$2 million for a class A team to around $10 million for a AAA team, while major league teams are worth anywhere from $100 million to as much as $650 million.

5. In the minors, with the recent rise of unaffiliated leagues, there is the possibility of an expansion of supply if there is sufficient fan demand.
In big-time professional sports all leagues have an antitrust exemption that allows them to artificially restrict their number of franchises. In baseball major league teams are each allotted a certain number of farm teams; therefore, the number of minor league teams only expands when the majors expand. This restriction in supply helps to inflate the value of both major and minor league teams, and is also a driving force behind stadium blackmail because there are always fewer teams than there are cities willing to pay to acquire them.

Becauseindependent leagues aren’t affiliated with Major League Baseball, there needn’t be any restriction in supply in minor league baseball; there can be as many teams and leagues as there are communities that will support them. Their unaffiliated status also frees them from the standards of the Professional Baseball Agreement, which among other things mandates certain stadium requirements that all affiliated minor league teams must meet. These strict guidelines, along with the restriction in supply, have been at the root of many of the 60 minor league franchise relocations in the last decade, as many communities have proved unwilling or unable to finance stadium retrofits.

Unaffiliatedleagues date back to 1906 but were extinct for decades before enjoying a revival in the early 1990s, beginning with the rebirth of the Northern League in 1993. Its eight teams play to full houses in Minnesota, the Dakotas, Iowa, and Canada. With a combined population far smaller than that of New York City, the collective number of people attending Northern League games has exceeded one million the past two seasons. The market value of the entire Northern League, which plays AA-caliber ball, is less than $25 million.10

But its success goes beyond attendance figures and market values. Officials in the established minor leagues have questioned the quality of play of independents like the Northern League, claiming their rosters are filled with has-beens and never-will-bes. But in reality many independent players have made the jump to the majors and their farm teams. They also have rostered some big-name talent, including Daryl Strawberry and J. D. Drew, a former number-one pick who recently signed with the St. Louis Cardinals.

In the Northern League’s footsteps followed the Northeast League and the Atlantic Baseball League, which recently expanded into Suffolk County. The Long Island Ducks will play in a sparkling new 6,000-seat, $14.4-million ballpark, funded completely by the State of New York. Team owner Frank Boulton has tried to bring a Yankees farm team to the area in the past but had the deal fall through when the New York Mets invoked their territorial rights.

Boulton is clearly a civic-minded businessman, but $14.4 million in taxpayer dollars is likely seven to ten times the value of the team itself. The Yankees’ proposed $1 billion ballpark, by contrast, is only one-and-a-half to two times greater than the value of the team. Boulton might want to take a play from Dean Jernigan’s playbook and donate or sell his club to Suffolk County.

THE TIME IS NOW FOR FAN OWNERSHIP IN NEW YORK

Communityownership clearly works, both at the minor and major league levels. Its spread has been impinged, however, by legal barriers in the major professional leagues. Therefore, any movement to bring down those obstacles most likely must begin in the minors, create a groundswell of support, and then proceed to the majors. There are five reasons why New York is the ideal locale for this movement to begin.

1. No other city approaches New York in terms of the number of teams seeking facilities and the sheer dollar amounts being thrown around. Hockey’s Islanders and baseball’s Mets and Yankees all want new stadiums. Public contribution for all three could reach beyond $1.5 billion.

2. New Yorkers clearly support fan ownership. Sixty-six percent of respondents to an October 1998 Working Families poll, a new party formed this year in New York for the governor’s race, felt the City should buy the Yankees and renovate Yankee Stadium rather than build a new taxpayer-funded stadium in Manhattan. Fully two-thirds of that 66 percent felt “very strongly” that New York should purchase the Yankees. And of all people polled, more than 40 percent said they would be “very likely” or “somewhat likely” to purchase a low-cost share in the Yankees if they were community-owned.

3. There’s money on the table. The City has budgeted nearly $50 million for minor league ballparks in Staten Island and Brooklyn. Given this, the question isn’t whether taxpayers should pay, but what kind of return on their investment should the public receive.

4. New York has a high media profile. If New York were to buy minor league teams, it would generate a lot of media attention and help fuel other communities’ efforts to buy their own teams.

5. Then there’s the Yankees. The team’s popularity and the sentimentality of the possible return of baseball to Brooklyn place New York even further in the spotlight.

Togetherthese factors place New York in a unique position to forever change the terms of the debate. To do so, New York policy makers must begin to think in terms of ownership, not subsidy.

To date, however, Mayor Rudolph Giuliani and City Council President Peter Vallone have limited their thinking to the issue of stadium subsidy. They disagree over the merits of spending $1 billion on a new Yankees ballpark in Manhattan, but they see eye-to-eye on the value of spending$40 million in city dollars on two minor league stadiums, one on Brooklyn’s Coney Island and the other in Staten Island. The borough of Brooklyn has also pledged $7 million to the development of the Coney Island site.

To add insult to injury, the nearly $50 million in city and borough money for the two ballparks is slated to be used to attract short-season class A teams, which are only one step up from the bottom of the minor league totem pole-the Rookie League-and a far cry from the quality of play the big league Dodgers displayed in Brooklyn in the 1950s. The Pittsfield (Massachusetts) Mets have already committed to moving to Coney Island. While welcoming the potential return of baseball to Brooklyn, Borough President Howard Golden wants more than the Rookie League, saying that Brooklyn is “clearly a major league town.”11 Demographics punctuate Golden’s point. With a population of 2.3 million, Brooklyn is larger than the metropolitan areas of Milwaukee, Kansas City, and Cincinnati, all of which play host to major league clubs.

For the kind of money the City and State have committed to stadiums they could easily purchase a half dozen higher-quality teams and still have remaining funds with which to build and refurbish more modest ballparks to house them. But that would rob other communities of their teams, a process that has left many smaller communities emotionally and economically scarred. Brooklyn’s gain would be Pittsfield’s loss. A better strategy would be for New York to create its own independent minor league.

Basedon the size of other minor league towns, New York, with a citywide population of 7.3 million (more than 10 million including Nassau County), could easily support dozens of minor league clubs. And based on the explosion of unaffiliated minor league clubs over the past six years and the attendance boom in all of minor league baseball, there is clearly a demand for more minor league teams.

By establishing its own minor league, New York City can:

o host the number of teams that its citizens are able to support without ripping teams away from other supportive communities.

o instill neighborhood pride and create friendly rivalries between the boroughs and Long Island communities.

obring minor league baseball to the city without having to gain the permission of George Steinbrenner, who must grant approval to any major league-affiliated team seeking to play in the city. He has no such veto power over independent minor league teams because they are free of the constraints of the Professional Baseball Agreement.

POLICY RECOMMENDATIONS

Atask force should be immediately created to explore the option of fan-owned minor league teams. It would be made up of representatives of the five boroughs, Nassau County, and possibly additional Long Island counties.

If community ownership was deemed a priority, the first decision would be whether to create New York’s own independent league, purchase expansion teams to play in existing independent leagues, or purchase existing teams and transfer ownership to fans or the community.

Each borough or county could structure its team as they see fit:

o The teams could be owned by a governmental entity, a foundation, fans, or a managing partner.

oTradable or non-tradable stock could be issued to raise capital or another body such as the borough or a foundation could put up the initial funding.

o The teams could be structured as nonprofits or for-profit entities. A creative managerial solution proposed in Minnesota was to sell a slightly larger percentage of stock(say 25 percent of the shares) to a managing partner who in turn can retain all profits but would also be responsible for any losses incurred.

If the issuance of stock is agreed upon, an initial offering could be made available to citizens of each borough or county as a litmus test. Other leagues have methods of gauging fan demand. The Women’s National Basketball Association (WNBA), for example, only grants an expansion franchise if a city can sell a certain number of refundable commitments to purchase season tickets. If during an agreed-upon period of time an adequate number of shares has been sold to the community to demonstrate that enough fan support exists in the area for a team to succeed, then the community can proceed with arranging the team’s management structure.

Oncea franchise is established, it must have a place to play. The most economical choice would be to play in an existing stadium. If none exists or if necessary upgrades are too extensive to be practical, then community-owned teams are much better positioned to acquire funding for stadiums without plundering public coffers. Because they are permanently rooted in and intimately connected to a community’s fabric(assuming there is adequate support), citizens will be much more willing to subsidize stadiums. If the teams are actively involved in their communities, as are the Memphis Redbirds, then corporate and philanthropic support will be easier to obtain. And if the franchise is structured so that profits are recirculated internally, a well-run team could repay the stadium debt with retained profits.

WHY NEW YORK SHOULD OWN MINOR LEAGUE TEAMS

Whenit comes to Steinbrenner’s stadium demands, policy makers are faced with two no-win choices: say no and bid the Yankees good-bye or acquiesce and empty the city’s coffers at the expense of more vital city projects. Fan ownership, although supported by a majority of the public, is not an option. Because of major league rules, decision makers’ hands are tied.

In the minor leagues, which are beginning to suffer from what were once exclusively major league ills-such as stadium blackmail and franchise free-agency-there is room for creativity because there are no rules prohibiting alternative forms of ownership. Minor league cities have the opportunity to replace absentee ownership with local authority and citizen involvement. New York City has made the decision to spend public dollars on the minor leagues; what still needs to be determined is how to spend it.

To summarize, there are three reasons why New York should take this important step and encourage fans to own their teams.

1. Most important, to keep home teams at home.The only way to guarantee that a team will be around a generation from now is to have the fans own that team. If anyone understands this simple truth, it is the good citizens of Brooklyn.

2. To show the way for other cities.Dozens of cities, like Pittsfield, Massachusetts, today are watching their hometown minor league teams leave, lured away by public subsidies from other cities. New York can show them a better way. Rooted teams can only help the minor leagues by strengthening the fan base and creating rivalries between nearby teams with long histories of competition.

3. To force major league teams to end their prohibition on fan ownership.
Only when fans and communities purchase their ball clubs will we be able to root for teams that are truly rooted.

NOTES

1DavidMorris and Daniel Kraker, “Rooting the Home Team: Why the Packers Won’t Leave and Why the Browns Did,” The American Prospect, Sept.-Oct. 1998, p. 38.

2In City of Oakland v. Oakland Raiders, 85-1969, the California Court of Appeals ruled that condemning a football franchise violated the commerce clause of the U.S. Constitution. This overturned an earlier decision by the California Supreme Court that upheld Oakland’s right to condemn a professional team through its long-held powers of eminent domain.

3In Baltimore v. Baltimore Football Club, Inc., 84-1294, the city of Baltimore’s claim was rejected not on technical merits but because the city did not declare its intention to condemn the team until after the team had already moved to Indianapolis.

4 See New York Sports Fan Protection Act

5 See the Give Fans a Chance Act

6 Charles Mahtesian, “Major Problems for Minor League Towns,” Governing, April, 1994.

7Tom Goldman, Memphis, and Daniel Zwerdling, Washington, D.C., “Home Town Team,” NPR Weekend All Things Considered, September 26, 1998.

8 Charles Mahtesian, “Memo to Cities: If You Can’t Bribe the Owner, Maybe You Can Buy the Team,” Governing, March, 1996, p. 42.

9E.G. Nadeau and David J. Thompson, Cooperation Works! (Lone Oak Press, Rochester, MN: 1996) Chapter 9, “The Green Bay Packer Model: Community-Owned Teams,” pp. 123-134.

10 Kevin Reichard, “Major Fun, Minor League,” Corporate Report Minnesota, September 1998, p. 36.

11 Andy Newman, “Mets Accord Could Return Pro Baseball to Brooklyn,” The New York Times, September 16, 1998, Section B, p. 3.