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  1. #1
    singersp's Avatar
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    If stadium funding falls short


    "If at first you don't succeed, parachuting is not for you"

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    Good article.

    Bottom line, if the state cannot fund its portion of the stadium through the pull tab measure (did anyone really think that would work?) then it will implement the NFL-themed lottery sales, followed by the 10% tax on luxury suites.

    And more importantly, the stadium construction will not be delayed.
    Zeus wrote:
    When are you going to realize that picking out the 20 bad throws this year and ignoring the 300 good ones does not make your point?

    =Z=

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    They will end up raising regular seating prices and adding taxes to make up any differences. In the end I would be very surprised if they added any costs to suites as the people that are going to lease them are generally the ones who have the resources to make sure they are not on the receiving end of fee and tax increases.

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    Quote Originally Posted by Purple Floyd View Post
    They will end up raising regular seating prices and adding taxes to make up any differences. In the end I would be very surprised if they added any costs to suites as the people that are going to lease them are generally the ones who have the resources to make sure they are not on the receiving end of fee and tax increases.
    Well for starters, the tax on the luxury suites is already in the bill. It is a 10% tax that is already approved and will be activated if the first two funding options do not cover the state's contribution.

    Second, raising regular seating prices will not have any impact on the money that the state has to pay for its portion of the stadium. That would increase sales revenue for the NFL, but not for the state.

    I know from previous posts that you are convinced that seat prices will skyrocket, but I still don't think that they will. The market determines the seat prices, not the stadium bill. And while a new stadium will increase demand for tickets (thus likely raising the ticket price a bit), it won't be in reaction to the stadium finances. This is especially true considering the NFL revenue sharing model - it would take an enormous increase in seat prices to significantly affect the amount of revenue generated for the Vikings from ticket sales, and that price increase would put it outside the market value of the ticket. The Vikings would benefit much more from increasing ticket prices on non-revenue sharing seats like luxury suites and club seats. Economics 101.

    Finally, if the state decides to step over the bounds of the stadium bill and add an additional tax on the tickets (they already are taxed at 16%)... well.. OK. I will admit, I don't have a problem with that. I have always felt that the most (not all) of the financial burden of the stadium should fall on the people who use it. So add an additional 4% tax or whatever on every single ticket for every single event that occurs at the stadium. I am just fine with that. But in all honesty it won't happen, because using the combination of the pull tabs, NFL lottery, and luxury tax will more than likely cover the state's contribution.
    Zeus wrote:
    When are you going to realize that picking out the 20 bad throws this year and ignoring the 300 good ones does not make your point?

    =Z=

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    Quote Originally Posted by NodakPaul View Post
    Well for starters, the tax on the luxury suites is already in the bill. It is a 10% tax that is already approved and will be activated if the first two funding options do not cover the state's contribution.
    Unless they come up with something else. If you think that these bills and legislation never change i would point you towards how MPLS is handling the contribution restriction voted on some time back.

    Second, raising regular seating prices will not have any impact on the money that the state has to pay for its portion of the stadium. That would increase sales revenue for the NFL, but not for the state.
    Well, until someone lays out on paper how the team is going to come up with their 400 plus million that doesn't include ticket prices i will stand by what I have said.

    I know from previous posts that you are convinced that seat prices will skyrocket, but I still don't think that they will. The market determines the seat prices, not the stadium bill.
    No, the cost of operation/units sold determines the price. The fixed costs are always the determining factor and they will be set by the projected revenues that the seats and suites plus whatever else the team controls will bring in at a certain capacity level. If the amount of fans attending goes up from the projected number they will generate surplus revenue and if they fall lower they will run a shortfall.


    And while a new stadium will increase demand for tickets (thus likely raising the ticket price a bit), it won't be in reaction to the stadium finances. This is especially true considering the NFL revenue sharing model - it would take an enormous increase in seat prices to significantly affect the amount of revenue generated for the Vikings from ticket sales, and that price increase would put it outside the market value of the ticket. The Vikings would benefit much more from increasing ticket prices on non-revenue sharing seats like luxury suites and club seats. Economics 101.
    Ticket surcharges are one way to get around this and my guess is they will be used.


    Finally, if the state decides to step over the bounds of the stadium bill and add an additional tax on the tickets (they already are taxed at 16%)... well.. OK. I will admit, I don't have a problem with that. I have always felt that the most (not all) of the financial burden of the stadium should fall on the people who use it. So add an additional 4% tax or whatever on every single ticket for every single event that occurs at the stadium. I am just fine with that. But in all honesty it won't happen, because using the combination of the pull tabs, NFL lottery, and luxury tax will more than likely cover the state's contribution.
    Well, you are starting to catch on. However, in your last sentence- Just how are they going to raise that kind of additional money? I am not saying it can't be done, I am just skeptical because it is a hell of a lot of money and considering the 400 million plus the team is on the hook for is something they didn't even have in the dome and they still couldn't make money, nor could the dome create enough revenue to cover it's basic operating expenses, just what will be the price of these seats and suites, how many regular seats that were at the dome will be displaced by these club seats and why couldn't that have happened at the dome (thereby eliminating the need for a new stadium).

    Interestingly this whole bill is just like Obama care when Pelosi said “But we have to pass the [health care] bill so that you can find out what’s in it....”


    If you think a 4% ticket tax would bridge the gap, I would love to sell you that bridge.

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    Quote Originally Posted by Purple Floyd View Post
    No, the cost of operation/units sold determines the price. The fixed costs are always the determining factor and they will be set by the projected revenues that the seats and suites plus whatever else the team controls will bring in at a certain capacity level. If the amount of fans attending goes up from the projected number they will generate surplus revenue and if they fall lower they will run a shortfall.
    No, the cost of operation sets the minimum cost. The market determines the final cost, which has to be higher than the minimum cost to be solvent. Pricing the tickets outside what the market will allow results in less profit, not more. Doubling the cost of tickets will not double profit. It will more likely reduce profit.

    Quote Originally Posted by Purple Floyd View Post
    Well, you are starting to catch on. However, in your last sentence- Just how are they going to raise that kind of additional money? I am not saying it can't be done, I am just skeptical because it is a hell of a lot of money and considering the 400 million plus the team is on the hook for is something they didn't even have in the dome and they still couldn't make money, nor could the dome create enough revenue to cover it's basic operating expenses, just what will be the price of these seats and suites, how many regular seats that were at the dome will be displaced by these club seats and why couldn't that have happened at the dome (thereby eliminating the need for a new stadium).
    Great questions. And ones that have been covered many times in the stadium proceedings. Club seats do generate significantly more revenue. But teams aren't allowed to simply replace every seat with a club seat - NFL stadiums must have a minimum of 60,000 regular seats. Transforming regular seats in the dome into club seats would barely break 500 club seats - and even those would be fairly subpar by most stadium standards. Not to mention that the suites provide a large % of the revenue, and there is no way to add suites to the dome. There were several studies done here and none of them concluded that renovating the dome was a feasible option.[/quote]


    Quote Originally Posted by Purple Floyd View Post
    If you think a 4% ticket tax would bridge the gap, I would love to sell you that bridge.
    Well no, but the tickets are already taxed at 16%. Add another 4% and we are at 20%, or about $10 million per year given the current average ticket price of $75. That would more than bridge the gap.
    Zeus wrote:
    When are you going to realize that picking out the 20 bad throws this year and ignoring the 300 good ones does not make your point?

    =Z=

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    No, the cost of operation sets the minimum cost. The market determines the final cost, which has to be higher than the minimum cost to be solvent. Pricing the tickets outside what the market will allow results in less profit, not more. Doubling the cost of tickets will not double profit. It will more likely reduce profit.
    All the market determines is whether or not there is enough demand for a product at the price it takes to supply it. If the market will not support it at the levels necessary then there are 2 options- 1- the business fails or 2- the Government steps in and subsidizes the business so that it can offer the product at below break even price. The stadium falls into category 2.

    If you disagree then make sure you look at the P and L for the dome for the past say 15-20 years, probably more but the data sets only go back so far.This one will be no different and after 5 years or so will more than likely be much worse considering how top heavy it will be.

  8. #8
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    Great questions. And ones that have been covered many times in the stadium proceedings. Club seats do generate significantly more revenue. But teams aren't allowed to simply replace every seat with a club seat - NFL stadiums must have a minimum of 60,000 regular seats. Transforming regular seats in the dome into club seats would barely break 500 club seats -

    I thought the dome held 65000. Wouldn't that mean they could have 5,000 and not 500 then? Pretty big difference.



    and even those would be fairly subpar by most stadium standards. Not to mention that the suites provide a large % of the revenue, and there is no way to add suites to the dome
    .Yeah, but the cost of operation of a paid for stadium would be significantly less than the operating cost of a new stadium plus 1 billion dollars in debt. Do you understand the revenue needed to make up that difference in a 10 game year?Plus interest over 40 years?


    There were several studies done here and none of them concluded that renovating the dome was a feasible option.
    Sadly there have been zero studies that show a billion dollar stadium in the midwest for a team that has never won a SB is economically feasible either. However, there was a study that showed electronic pull tabs would be able to fund a big chunk of it.

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    Quote Originally Posted by Purple Floyd View Post
    I thought the dome held 65000. Wouldn't that mean they could have 5,000 and not 500 then? Pretty big difference.
    No, you cannot just replace a standard seat with a different color seat and call it a club seat. Club seats are bigger, have access to amenities like lounges, preferred site lines, etc. The metrodome could only fit in about 500 more club seats at the expense of 4000 standard seats. The stadium will have up to 150 suites, as well as bunker and end zone suites, and up to 7,500 club seats.


    Quote Originally Posted by Purple Floyd View Post
    .Yeah, but the cost of operation of a paid for stadium would be significantly less than the operating cost of a new stadium plus 1 billion dollars in debt. Do you understand the revenue needed to make up that difference in a 10 game year?Plus interest over 40 years?
    For a smart guy you seem to do your best to deliberately misunderstand how the operation of the stadium works. Either that or you are just trying to get my goat.

    1) The Vikings don't pay for operation costs of the stadium. They do not own it, they lease it. The State of Minnesota owns and operates the stadium. The Vikings pay rent.

    2) The stadium will require approximately $20.5 million annually for operating expenses/capital improvement funding, of which the Vikings have committed to contribute $13 million - or 63%. The City of Minneapolis will cover the remaining $7.5 million annually. From the Vikings $13 million, $8.5 million will go toward rent, the largest rent payment in the NFL where the team is a tenant.

    3) Of the project’s $975 million upfront capital costs, the Vikings have guaranteed that $477 million, or 49%, will be privately covered. The team will rely on a combination of private financing and equity, as well as NFL financing in the form of a loan repaid by stadium revenues. The Vikings also have the option to use Stadium Builder’s Licenses (SBLs), a financing mechanism used in many stadium projects.

    4) Yes, the Vikings will have higher cost associated with both the lease as well as their NFL loan. But they will also have significantly higher revenue - WITHOUT having to significantly raise the price of a standard ticket.

    5) Even if the Vikings did need additional revenue to cover their costs, raising the price of standard tickets will not help because of the revenue sharing model. The Vikings keep 60% of the gate for NFL games, and the other 40% goes into a pot that is divided equally among all teams. Right now their gate revenue is about $18 million per year. If they wanted to raise another $10 million per year to offset stadium costs, they would have to raise ticket prices by about 50%. So that $80 average ticket price would jump to $120, making it the most expensive average ticket price in the NFL, beating out the New York Jets at $117. That kind of ticket price works in New York, but simply wouldn't work in the Minnesota market. That is exactly why the NFL has revenue sharing plans in place - so teams like the Vikings could have comparable revenue in markets that can't support exceedingly high ticket prices.

    Bottom line - the Vikings are NOT assuming the operating costs of a stadium that is $1billion in debt. In fact, no entity is because the Vikings are putting a significant portion of the money up front via existing capital and SBLs. And even if the Vikings DID need to find additional revenue to pay their portion, raising ticket prices WILL NOT achieve this.

    The entity that may struggle to maintain its end of the deal is the state, which issued appropriation bonds for $348 million. This is the largest financed amount. The state does not have to pay any additional money for operating costs - that is covered by the Vikings and the City as discussed earlier. There are three funding options in place to cover the state's contribution. If those options are not enough, then they may have to look elsewhere, such as ticket tax or general fund. But either way, claiming that the operating costs of a "new stadium plus 1 billion dollars in debt" will cause ticket prices to skyrocket is wrong on so many levels. It's not $1b in debt, ticket prices do not contribute significantly to operating revenue, etc.




    Quote Originally Posted by Purple Floyd View Post
    Sadly there have been zero studies that show a billion dollar stadium in the midwest for a team that has never won a SB is economically feasible either. However, there was a study that showed electronic pull tabs would be able to fund a big chunk of it.
    lol, there have been many studies on the economic feasibility of stadiums. most of them agree that they are NOT financially solvent for a private entity to own unless it is a very large market. That is one of the reasons that most stadiums are funded with a private/public partnership, so that all benefiting parties share in the cost.

    And I don't think anyone REALLY thought that the pull tabs would cover the state's part of it.
    Zeus wrote:
    When are you going to realize that picking out the 20 bad throws this year and ignoring the 300 good ones does not make your point?

    =Z=

  10. #10
    NodakPaul's Avatar
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    One final note - I am not saying that ticket prices are not going to rise... they will. But it will be in response to market demand, not because of the stadium cost. A new stadium will cause demand to go up, and the Vikings will raise ticket prices to whatever the market will be able to handle. It IS a business after all.
    Zeus wrote:
    When are you going to realize that picking out the 20 bad throws this year and ignoring the 300 good ones does not make your point?

    =Z=

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