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PRIMER ON MINNESOTA VIKINGS STADIUM FINANCING PLAN

By Jaboner Jackson 8 a.m. | Last week, footballphds.com detailed the reasons why the Minnesota Vikings were not relocation candidates for either Farmers Field in downtown Los Angeles or LA Stadium in City of Industry.  This was in response to a Minnesota House Committee action last week to vote against a stadium financing plan for a new Vikings stadium in Minneapolis.  The NFL and Vikings, both of whom understand that the Vikings are not true threats for relocation, subsequently met with Governor Mark Dayton and state politicians to revitalize the legislative bill for a new Vikings stadium.  Accordingly, the Minnesota Senate voted on Friday to move forward with the financing plan for the "The People's Stadium."  Today, footballphds.com strips away the political debates to break down the financing plan of the Vikings' proposed stadium in downtown Minneapolis.   Furthermore, we detail why the People of Minnesota can do better than the current legislative bill.

 

Public Versus Private Contributions

 

The financing plan for the proposed Vikings stadium in downtown Minneapolis is as follows per Table 1:

 

Table 1: Proposed Financing Plan for The People's Stadium

Financing Responsibility	Amount	Comments
Minnesota Vikings	$427 million	$200 million will secured by the Vikings through the NFL's stadium loan program, which we have referred to previously as G4 Financing   $227 million will be secured through a construction loan through an investment banking syndicate
State of Minnesota	$398 million	The State of Minnesota will obtain construction loan financing from an investment banking syndicate and then arrange for takeout financing in the form of appropriation bonds.
City of Minneapolis	$150 million	The City of Minnesota will obtain construction loan financing from an investment banking syndicate and then arrange for takeout financing in the form of appropriation bonds.
TOTAL	$975 million	Footballphds.com

 

Accordingly, private financing would amount to $427 million while public financing would amount to $548 million.  This means that 44% of the stadium construction costs would be privately financed while 66% would be publically financed.

 

Repayment of Public Financing

 

As delineated in Table 1, the public sphere will ultimately finance $548 million through the issuance of bonds.  These bonds will in turn be repaid through convention taxes and gambling revenues.  Table 2 illustrates these sources below:

 

Table 2: Debt Repayment Sources for Public Financing of The People's Stadium

Revenue Source	Amount	Comments
Convention Center Taxes	$150 million (present value)	Over a period of 25 years, the equivalent of $150 million in today's dollars will be taken from the Convention Center Taxes to repay stadium debt.    The plan anticipates only 3% inflation.  Accordingly, the total dollars will actually be $314 million over 25 years.    Taxes will be appropriated for financing the stadium.  Total taxes from which appropriation can occur will include at least: a. 0.5% general sales tax; b. 3% downtown restaurant tax; c. 3% downtown liquor tax; d. 2.625% hotel tax
Gambling Revenues	$398 million (present value)	Pull-tab gambling involved the gambler buying a paper card, pulling a tab, and matching images to garner a win.  Minnesota is looking to appropriate revenues from pull-tab gambling by continuing to expand to electronic pull-tab gambling.  This involves a digital "tab pulling" on an electronic device.  Electronic pull-tab gambling will be overseen by the Minnesota Gambling Control Board.    In 2010, paper pull-tab gambling generated approximately $40 million in revenue for Minnesota.

 

 

Tax Breaks

 

As is oftentimes the case for new stadium construction, the State of Minnesota will heavily subsidize construction cost not only through the issuance of $548 million in debt but also through significant tax breaks and benefits.  Specifically, the State and City will provide immediate tax exemption for construction materials.  Long-term exemptions will involve property taxes on the stadium. 

 

Cost Overruns and Savings

 

The Vikings will provide the first $50 million of design and development of the stadium. The State and City--through the Stadium Authority--will provide the next $50 million.  Thereafter, expenses will be shared per the financing schedule.  The Stadium Authority will be responsible for paying for cost overruns.  However, cost savings will be deposited into the Capital Reserve account, which will fund ongoing improvements to the stadium.

 

Capital Improvements

Capital improvements refer to ongoing stadium improvements after stadium construction is completed.  Such improvements are commonly related to seat upgrades, scoreboard upgrades, and addition of other "modern" stadium improvements.  The Vikings will contribute $1.5 million annually to a capital improvements funding plan.  However, this team contribution will be adjusted at an annual inflation rate of only 3%. 

 

Lease

 

The Vikings will sign a thirty (30) year lease with four (4) additional five (5) year options.  Not more than one Vikings home game per year will be allowed to be played offsite.

 

Stadium Revenues, Expenses, and Rent

 

The Vikings will pay $8.5 million per year in rent to the Stadium Authority.  This will adjusted by 3% annually. 

 

The Vikings will retain all revenues on game days, including club seat and suite revenues and concession revenues.

 

The Vikings will retain advertising revenues, including naming rights. 

 

The Vikings will pay game day expenses in the stadium. 

 

The City will pay game day expenses outside the stadium for police, security, traffic control, trash removal, etc.

 

Personal Seat Licenses

 

The Stadium Authority will retain revenues related to the sale of Personal Seat Licenses.  These revenues will be used to pay down public construction loan debt as detailed in Table 1.

 

Analysis

 

Footballphds.com expresses concern over two key assumptions in pro forma analyses by the State and Vikings used to determine stadium financing provisions for The People's Stadium.  These assumptions relate to an annual inflation rate of only 3% for the next 30 years and discount rate of only 4%. 

 

Inflation of 3% is a conservative estimate, especially during more prosperous economic times.  But more concerning is a discount rate of only 4% in the pro forma financials.  A discount rate is used to represent an investor's minimum desired return.  Accordingly, The People's Stadium is projected to provide a promising financial return on its investment only because projections are requiring a 4% standard return. 

 

For comparison, both Farmers Field and LA Stadium have discount rates from AEG and Majestic Realty respectively of almost double the 4% found in the projections for The People's Stadium.  Additionally, private stadium developers generally look to at least a 15% return on their investment when conducting their due diligence.  Accordingly, the value of The People's Stadium as a new financing project is likely significantly overstated. 

 

Additionally, the current stadium plan allows the Vikings to keep naming rights for the stadium.  This is in contrast to the stadium financing plan for Santa Clara Stadium for the San Francisco 49ers, in which the Santa Clara Stadium Authority holds onto naming rights revenues. 

Furthermore, the Stadium Authority for The People's Stadium will also be responsible for cost overruns, which are commonplace in stadium construction projects and can easily reach $150 million for The People's Stadium.  This is also in contrast to Santa Clara Stadium, where the 49ers will be responsible for cost overruns rather than the Stadium Authority.

In summary, The People of Minnesota can surely do better than the current financing plan for The People's Stadium.

 

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Need help with stadium financing?  Check out our NFL in LA Glossary here.  And as always, take our NFL in LA Challenge here.  And later this week, we finish off our definitive and widely circulated three part series on the Environmental Impact Report for Farmers Field, the first two parts of which can be found here and here. 

 

Photo: Development Plan for The People’s Stadium

jaboner@footballphds.com

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