COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Friday, December 1, 2000 9:50 a.m. - - - BILL NOS. - 721, 722, 723, 724, 725, 729, 730, 731, 732, 733, 705, and 706 - - - PRESENT: COUNCILWOMAN ANNA C. VERNA, Chair COUNCILWOMAN JANNIE L. BLACKWELL Vice-Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILMAN FRANK DiCICCO COUNCILMAN DAVID COHEN COUNCILMAN MICHAEL A. NUTTER COUNCILMAN DARRELL L. CLARKE COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center Plaza, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 I N D E X BILLS , 722, 723, 724, 725, 729, 730, 731, 732, 733, 705, and 706 Derrick Hansell, Managing Director, Commerce Capital Markets----------------------------- 3 Sam Katz, CEO, Greater Philadelphia First------- 13 Joseph Banner, COO, Philadelphia Eagles--------- 76 Dennis Biggs, Representative, Kojima------------ 100 David P. Montgomery, CEO, Philadelphia Phillies------------------------------------ 104 William P. Hankowsky, President, PIDC----------- 191 Charles Pizzi, Chamber of Commerce-------------- 214 Joseph Vignola, PICA---------------------------- 311 - - - 3 STADIUM HEARINGS
Good morning, everyone. This is the continued Public Hearing of the Committee of the Whole regarding Bill Nos. 721, 722, 723, 724, 725, 729, 730, 731, 732, 733, 705, and 706. Mr. McPherson, who is our first witness? MR. McPHERSON: Representatives from Commerce Capital.
Kindly identify yourself for the record and proceed with your testimony.
My name is Derrick Hansell. I am the Managing Director with Commerce Capital Markets here in Philadelphia. Commerce Capital Markets has been retained by City Council --
Excuse me. Do all Council Members have a copy of the report? This is what it looks like. 4 STADIUM HEARINGS I'm sorry, please proceed.
Thanks. Commerce Capital Markets has been retained by City Council to assist in the review of the financial projections developed by the Administration and Arthur Anderson with respect to the stadium economics and the impact on the city's General Fund. In addition, we have performed some sensitivity analysis to test the impact of changes in certain key assumptions upon the city's General Fund over time. And, finally, we have attempted to highlight areas of potential up side or down side in the economic projections from the assumptions that the Administration has made. The Administration has performed and we have reviewed an analysis which has compared the revenues directly generated by the stadium agreements to the city's projected debt service and operations and maintenance obligations both at Veteran's Stadium and at the new facilities for the next 33 years. This analysis is considered only in-stadium revenues, with the exception of parking 5 STADIUM HEARINGS taxes generated during game days and the new vehicle rental tax. It does not include, as Mr. Hankowsky identified yesterday, any ancillary out-of-stadium economic activity and the benefits therefrom which might happen. Again, it does give credit for the vehicle rental tax. It does not adjust for any revenue which may have been received during the remainder of the Veteran's Stadium leases, and it also does include projected construction-related tax revenue. On the next page I have attempted to identify the key areas which produce the city's income over the next 33 years indirectly related to these facilities. The city's profit at the Veteran's Stadium, taxes associated with the construction of the new facilities, the new vehicle rental tax, wage taxes on team payrolls both players and nonplayers, city amusement taxes, city parking taxes, city concession taxes, wage taxes on third parties employed at the new facilities, corporate taxes PAID by the teams, tax revenues associated with other 6 STADIUM HEARINGS events which may be held at the new Eagles stadium, and payments in lieu of taxes. We have compared that stream of revenues over the projection period to the city's expenses, which include debt service on approximately $312 million worth of bonds, $90 million of present value of the Eagles stadium operations and maintenance expenses, and foregone tax revenues from the properties that will be acquired to achieve the plan. Yesterday during PIDC's presentation, they showed you their complete analysis. We have prepared a complete analysis that kind of mirrors the way that they have done that and allows us to perform our sensitivity analysis. But I wanted to show you on a one-year basis how this all works, how we are comparing the cash inflows to the cash outflows, so that you could understand the analysis that we are doing. I'd like to highlight that we chose 2003 as an analytic year because it has the most stuff going on. It happens to be the one year in the 33 years that produces a negative net loss for 7 STADIUM HEARINGS the city, as opposed to a net benefit. But we chose it because there is the most stuff happening. All of their -- you still have the Veteran's Stadium facility in existence, you will have the new Eagles facility in operation in '03. So it allowed us to compare the most things. So what we have done on the city income side, we add up all of the items in the left-hand column, we compare that to the new debt service, and the foregone tax revenues. And again in 2003 there happened to be a negative net loss of approximately $3 million. 7 million of net benefit to the city. Again, that's the number that PIDC had prepared, and we have confirmed that number.
The results of our base-case analysis utilizing the key assumptions developed by the teams, Arthur Anderson, and the Administration, and which we have reviewed, and to the extent that we have been able to determine, appear to be reasonable as base-case assumptions, the revenues generated by 8 STADIUM HEARINGS virtue of the new stadium deals exceed the city's expenses and foregone tax revenue over the 33-year projection period. 7 million. There's several key assumptions implicit in the base case, changes to which may change the economics and which may make the city's economic performance under these deals better or worse. What is the actual tax revenue received from the new vehicle rental tax? What is the Phillies payroll and attendance over the next 33 years? What's the Eagles payroll and attendance over the period? What do wage tax rates do beyond the five-year plan horizon? What happens to concession sales? What happens to the parking charges at the facilities? What other events are utilizing the Eagles stadium over the period? Again, changes in these assumptions could change the impact of the stadium deals on the city's General Fund either to the up side or the down side. 9 STADIUM HEARINGS In order to assess the impact of changes in certain key assumptions, primarily those related to the teams, we have attempted to analyze the sensitivity of the city's economics to changes in three key areas. First, changes in the Phillies' pay roll and attendance; second changes, in the Eagles' payroll; and, third, changes in other events at the Eagles' stadium. The following page just highlights the three sensitivity cases, a couple of the keep assumptions we have looked at there, and what that's done under the city's economics under the cases we have run. In the Phillies' case, we said, what if they don't pay their players what they have assumed they will pay them, but what if we cut that by a full third? 5 million. Again, we are not saying that's a 10 STADIUM HEARINGS realistic assumption, but we are saying, what happens if. 5 million to the negative. With the Eagles, we have assumed that the base assumption in the base case is that the Eagles and every other NFL team pays at the salary cap level for the period. One of the key areas of revenue is wage tax revenues from the NFL teams, both the Eagles and the visiting teams. And, again, what happens if they don't pay quite at the cap? What happens if they pay something less than that? So they will pay at 95 percent of the cap. 8 million impact. With other events, frankly, we took a look at cutting a lot of the other events that are projected there. Not because we don't think they are going to happen, but there are a lot of uncertainties associated with them. And, again, we are testing what happens if. We completely eliminated MLS as a revenue generator. We reduced the number of 11 STADIUM HEARINGS concerts from the PIDC projections. We cut the Army/Navy game from every year, to two out of every three years. 7 million from the city's economics. 7 million to the city over the period, you would still have a net benefit to the city of $49 million. Not on a present-value basis but on a gross-dollars basis, over the 33 years, if all of these things happened. Our goal here hasn't been to identify doomsday scenarios, but to identify what happens if, so that you have more comfort that if bad things happen, your financial position, the city's financial position, is still sound. Again, there are significant possible up sides to the projections that we have not analyzed. 5 million stabilized, but it is 3 12 STADIUM HEARINGS million stabilized? The city gets significant additional economic benefit from that. So we think there are up sides. We have attempted to analyze some of the key down sides and take a look at that.
Our conclusions from our analysis, both base case and the sensitivity analysis, are the following: Under the base case, as developed by the Administration and confirmed by our analysis, the revenues generated by virtue of the stadiums exceed the city's financial obligations in foregone tax revenue; Second, the combined financial impact of the three sensitivity cases that we have analyzed would not be sufficient to change this conclusion. That is, the city's revenues would still exceed its expenses; Third, there are potential additional direct and indirect benefits to the city, depending upon the actual team payrolls, stadium attendance, and in- and out-of-stadium spending that could change these projections to the plus. Thank you.
Thank you. We 13 STADIUM HEARINGS don't have a monitor this morning. So if there are any Council Members that would like to ask questions, if you would give me some indication that you do, I would be more than happy to recognize you. Any members of City Council have questions of this witness? Thank you very much.
Good morning, Madam President. Thank you for the opportunity to testify this morning.
My name is Sam Katz. I am the CEO of Greater Philadelphia First. And I am here representing an organization of 31 CEOs of the region's major business employers. S. GPF has long supported the city's efforts to develop new stadiums for the Philadelphia Phillies and the Philadelphia Eagles. Our support is motivated by a firm belief that the loss to the city and to the region from the failure to develop these facilities will be far greater than simply the prospect of losing professional sportss. That is, if these teams, which are community assets, were allowed to flee Philadelphia, it would send an unintentional but powerful message to a much broader constituency and the region's employers that it is okay to go. If the South Philadelphia Sports Complex Development Plan is implemented, Philadelphia will have a sports complex with 37,000 seats in two indoor venues, and 115,000 seats in two outdoor venues, all in close proximity, and an array of sports facilities unrivaled in any American city. 15 STADIUM HEARINGS How to capitalize on these assets presents an extraordinary challenge and opportunity for Philadelphia. Over the past ten years, Major League Baseball and the National Football League have seen a tremendous growth in the development of new facilities. The vast majority of these facilities have been funded substantially with public funds. In evaluating the business deals that are before the Council today, it should be recognized that Philadelphia is building at the end of a development cycle of major stadiums. Our stadiums will enjoy the benefits of design and fan amenity learning curves from other new stadiums and also learn from their mistakes. At the same time, 12 years after Oriole Park at Camden Yards and Comiskey Park in Chicago put their shovels in the ground, the fact that building costs have risen is indisputable. The basic business terms of the Eagles' football project reflect a creative and innovative approach and one that in all likelihood will not be seen again. The NFL has approved the use of 16 STADIUM HEARINGS low-interest credit agreements secured by NFL broadcast revenues for teams developing new facilities. This enables the league to fund up to 50 percent of a team's share of the cost of construction. By swapping capital and operating expenses with the city, the Eagles will bring low-cost debt from the league credit and relieve the city of the ongoing interest burden that would have been imposed had the city had to borrow. In funding nearly 80 percent of the direct stadium construction and development expenses, the Eagles have created a new standard of private investment for these projects. The Phillies' deal must also be examined from a peer-group perspective. In baseball today, with the exception of PacBell Park in San Francisco, where four failed public referenda required private finance to make that ballpark happen, new parks have been largely publicly financed. In Baltimore, Chicago, Cleveland, Denver, Arlington, Atlanta, St. Petersburg, Phoenix, 17 STADIUM HEARINGS Seattle, Milwaukee, Detroit, and Cincinnati, public funding has dominated in the financial structuring of these facilities. The Phillies have found themselves in a position where they are increasingly competing with clubs that enjoy the benefits of new facilities, without significant diversions of facility cash flow to pay for these projects. In providing 172 million, which represents 50 percent of the prospective construction costs of a new baseball park, and not including land, the Phillies are investing at higher levels than most in their peer group in both absolute and relevant terms. GPF believes that the business arrangements that have been negotiated by the city and the teams represent a fair balance between the naturally competing interests of both public and private parties.
These transactions also have what in GPF's view are basic prerequisites to protect the public tax-paying interest, including assuring the long-term tenancy of both teams. Shifting the risk of construction 18 STADIUM HEARINGS cost overruns to private parties, defining and limiting the public financial exposure in both operating and capital costs, protecting the Packer Park neighborhood from excessive stadium nuisance, committing to the creation and funding of a Special Services District for the impacted community, and developing a world-class sports complex that will strengthen the competitiveness of the Eagles and the Phillies and that could make Philadelphia competitive for many new sporting events. There can be no question that city General Fund tax revenues being committed to this enterprise represent a significant investment of municipal resources. This represents a very tough vote for you, the members of Council. But it is imperative to recognize that the Commonwealth's $170 million investment, granted through the expenditure of significant political capital by state lawmakers, Governor Ridge, and local officials, and also the auto rental tax that was made available exclusively for stadium development, would not be available if we did not pursue these projects. Each of these resources imposes 19 STADIUM HEARINGS little or no financial hardship on local residents and has no direct impact on city General Funds. The city's present value commitments require careful scrutiny by City Council. In GPF's view, the underlying premise for the use of these resources to support development and operations is a sound one. Without these stadiums, Philadelphia will lose these clubs and their current and future tax yield. Having worked with the City of Los Angeles on its NFL initiative, I know well that the Eagles would have been a significant target for that city. S. And for those who believe that Major League Baseball or the National Football League would never have allowed Philadelphia and its sizable media market to remain vacant property, one need only look to Los Angeles. What the experience there teaches us is that without facilities, the leagues are not motivated to locate expansion franchises or to allow 20 STADIUM HEARINGS relocations. Finally, GPF fully appreciates the potential impact that these investments could have on the city's financial position in the future. Even without the stadiums to consider, new contracts with city workers, the new schoolteacher's contract, blight removal, and PGW issues all impose pressure on an already financially stretched municipal budget. The unmet needs of the city's children are an additional ongoing concern, as is wisely recognized in this stadium proposal. The continued good health of the national economy may be very telling for the city's fiscal future. I want to make clear that GPF remains steadfast in its support for reducing wage and business taxes. We trust that this Council's vigilance over city spending and revenues will, despite these other pressures and commitments, enable such reductions to occur in the years ahead. In closing, GPF urges members of the City Council to approve the package of ordinances 21 STADIUM HEARINGS that are under consideration. We applaud your diligence in evaluating their fiscal impact and encourage your efforts to enhance and strengthen them in appropriate ways. Rather than retreating to a safe and risk-free position of inaction, GPF is convinced that approving new stadiums will send a message that Philadelphia has confidence in its future and is prepared to do the things that can make that future a better one for all residents. Thank you very much.
Thank you, Madam Chair. Thank you, Mr. Katz, for your testimony. The theme, I think, of yesterday's testimony and now today is the issue of risk. And it is, I guess, GPF's position that the risk, in their opinion, is being shared equally, or as equally as possible in this particular industry based on other scenarios from around the country. 22 STADIUM HEARINGS But it is an issue of risk. The money that the city puts up, the money that the teams put up to do these projects all entail a certain element of risk based on history, historical information of assumptions that are being made about revenues generated from the new facilities. Is that an accurate statement?
The city's potential up side in this deal, in this arrangement, is based primarily on attendance at the facilities? Is that a fair statement?
It is based primarily on attendance, sales within the facilities by those present, and pricing.
But the critical mass of people coming to the facilities creates the potential strong up side for the city?
Okay. And on the converse of the argument is, if it isn't what is projected or it is less than what is projected, that we will maybe not realize as much money as we would like or possibly, in the worst-case scenario, not 23 STADIUM HEARINGS gain a return on our risk investment?
No. I would say that the principal element of risk in a transaction like this is event risk. Event risk being all the things that go into producing the revenue on which the tax rates are applied. And that's the same risk, by the way, that the think the clubs have.
I don't think it is a solely shared risk by the city. I recognize from Mr. Hankowsky's testimony yesterday that the teams, the Eagles and the Phillies, are putting substantial sums of money up and also sharing in that risk. The question I have for you is, is attendance at these events, attendance at these facilities, driven by the facilities themselves or the success of the teams that are playing at the facilities?
First of all, let me make one point that I think is worth noting. That is, in most stadium financing, the public finance is not event-risk driven. For example in Baltimore, Chicago, in many of the cities I mentioned, those communities 24 STADIUM HEARINGS created new tax sources which were not building related. Whether they were a lottery, as was the case in Maryland, or a hotel tax in Chicago, or a sales tax in Denver, or a sin tax in Cuyahoga County. So this makes this project in many ways unique. Because, in fact, rather than going to find, other than the auto rental tax, a new source of income to support the stadium, the city and the teams have evolved a strategy in which they are reliant on building revenues and building performance. That imposes up-side benefits and down-side risks. To your question, there is now approximately a ten-year history of the attendance impact of new stadiums. There are some good stories and there are some bad stories. The Chicago story is not a particularly good one. The Baltimore story is a particularly good one.
What do you believe the bad Chicago story is related to? What are the elements that have created the bad Chicago 25 STADIUM HEARINGS scenario?
Well, a bad team, I think a bad location. And I hope I don't offend an architect who might be in the building who designed the building, but I think a bad design. I don't think that it is nearly as fan-friendly as, for example, Oriole Park or Coors Field. And I think they located the stadium in a place that wasn't advantageous. But at the end of the day, I think that the stadium did well for a few years, and the team stopped, and then, you know, stadium attendance went down. Oriole Park, on the other hand, which is extremely accessible to people, draws from a very large market when you consider Northern Virginia, and is a great experience -- I mean, anybody who has been there, it is a great place to watch a baseball game. And I think it has been extremely well marketed, even when the team hasn't been very good.
Just to give you an example of my own personal experience with Camden STADIUM HEARINGS Yards. And that is, when it first opened, I went there with my family every year for a couple of years, and then found myself going maybe every other year, and now I haven't been back for probably two or three. And in order for the projections that we expect to happen, the Phillies really need to do well, in addition to having a new facility that people are attracted to and want to come to. On the other hand -- and this is the thing that makes me feel a little better about the deal as far as the Eagles are concerned -- is that the Eagles have been in a pretty bad building for a while, have not always had great teams, have had some pretty poor teams, but still have had a very loyal attendance at those games, despite how bad the team may have been doing. So from an Eagles perspective, I have a little more confidence. On the Phillies' side, I have some concern. Because we had those spikes in attendance '93, you know, when the team came out of nowhere, in a bad building, and really, you know, rocketed attendance. 27 STADIUM HEARINGS So the reason I raise that, I just want to know what you believe drives. Is it the combination of building and success, or will success -- if the Phillies had been in the world championship over the last three consecutive years, would the Vet be filled every game?
The Phillies' stadium today has too many seats for baseball. And I think that's the reason why the last 10 or baseball 14 stadium buildings and designs have averaged about 15 40, 45 thousand seats. And that's probably from the standpoint of the sight lines and fan amenities the better sized building. Plus, you are talking about a building that, you know, was -- in its genre, you know, the Veteran's Stadium, riverfront, Three Rivers, Busch Stadium, all built in the mid '60s to late '60s, all look pretty much the same and maybe don't provide some of the opportunities that the newer parks do. I think, Councilman, it is important 28 STADIUM HEARINGS to recognize that one of the things that drives attendance initially is new buildings. I want to make this very clear. Every team argues and will that a new building will help drive them to better economics, which will enable them to afford a better team, which will make them more competitive on the playing field. At some point every team has a new stadium, somebody still is going to come in last place. The fact here is that for the next five to seven years, the Phillies and the Eagles will have a new stadium, and that a lot of people from York who now drive to Baltimore, or from Lancaster who used to be Phillies fans, where the Phillies could draw, who now go to Baltimore, will be finding this stadium to be the one that really hopefully grabs their attention. At some point when it transitions from being an new park to being a teenager, and eventually a middle ager, the performance of the club and the marketing of the club are going to drive attendance. So I think in the short run, the two 29 STADIUM HEARINGS and a half million attendance fir the Phillies is probably conservative. And in the long run, two and a half million on a consistent basis would be the product of both good perform and good marketing. And I agree with you that the Eagles' attendance does not represent a significant risk to either the city or the team.
You are not a stadium financing expert. I don't know what your expertise is in sports generally.
Has baseball's attendance nationally been problematic? Is the national pastime having a difficult time in general attracting fans, or is it a city-by-city issue?
Well, I think on a national basis, sports is having more challenges because of the choices that people have, both for participating and for watching. I mean, there are sports now that draw fans that nobody heard of five, ten years ago. I think there are some baseball markets which are doing superbly well. And there 30 STADIUM HEARINGS are other markets for which, a market like Philadelphia, although large, has lots of choices. And the Eagles and the Phillies and the Flyers and the Sixers have lots of competition. The fact is that I think that, you know, sports are challenged, and baseball particularly. Because when you and I were kids, when I was a kid, we played baseball. And kids play soccer and they do all other kinds of things today. And I think one of the things about this ballpark, which is absolutely true in Baltimore, is that hopefully the design and the way that it appeals to families will have a positive impact on resuscitating the enthusiasm that young kids have for baseball, and that will drive fans in the future.
Okay. Thank you for your insight. Thank you, Madam Chair.
Thank you, Madam Chair. 31 STADIUM HEARINGS I think the experience of the Eagles and the Phillies are different based on just the fact of the way the NFL is structured financially, in terms of how their income is shared by all of the teams in terms of their TV contracts and so on. So the financial risks for one team is less because of that structure that we have between the two institutions? Is that so?
I think it is fair to say that the National Football League has probably a much fairer revenue-sharing arrangement, that small-market teams participate equally with large-market teams in the distribution of broadcast and properties revenue; that the collective bargaining agreement is probably a little firmer from the standpoint of salary caps in the NFL; and that in baseball, small-market teams, for example, the Pittsburgh Pirates, Milwaukee Brewers, have suffered as a result of the absence of a revenue-sharing arrangement.
Right. And in essence, so that you have an economic viewpoint different in those two leagues. But it intrigues me the way the 32 STADIUM HEARINGS argument in terms of stadium has gone in the city. We have gone from the stadiums being a source of economic development and motive for economic development and the production and creation of new revenue; now we are in a situation in which we are building stadiums in a locale where the new revenue aspect of it is going to be very limited, according to testimony given here by Mr. Hankowsky and other representatives of the Administration. So, as Jimmy says, the city's contribution, which is up front, because we have to pay and give up money and pay for clearing the land, buying the land, and then pay that out through bonds through over a 30-year period, the city's contribution is at greater risk. Because you say attendance is the key issue. And attendance in the first few years -- like Jimmy I used to go to Baltimore, just like I go to the Vet and so on. I like stadiums. I like baseball. But attendance and the attraction of the ballpark falls off after a few years, especially in baseball. Football and the NFL don't worry me 33 STADIUM HEARINGS because of their economic structure. So the city's aspect, because no new revenue is going to be forthcoming, the stadiums are not engines of economic development. And we still have a $54 million hole in this whole deal that no one expects to give us an answer before we are supposed to approve this.
Well, the economic engine argument, I don't disagree that direct economics of a stadium have, I think, limited performance. But there is another economic issue here, and that's the one that I have tried to make reference to. And that is, you know, we have lost a lot of business, and we have lost particularly a lot of larger businesses, but also smaller ones. And I think there is a very significant psychological argument to be made that, you know, there are only 30-some major league teams, and averaging in both leagues, I think 32 football. But there are increasingly more cities that think of themselves as major-league cities, and population and demographics are enhancing that. When a city like Philadelphia loses a major-league asset, I think it has a very 34 STADIUM HEARINGS significant negative impact. How you calculate it, I don't know. But I can tell you that as somebody who has lived his whole life here, and gets in a lot of taxi cabs around the country as I travel, that hearing about, oh, you just lost your team, I think it has a negative impact on the image of the city, I think it has a negative impact on the psychology of people trying to locate or retain business here. So that is an argument that, you know, obviously, how much you spend for that, you can have a debate about. As far as the risks are concerned, I think the attendance risk in Philadelphia is a lot less than people are anticipating. Because I think the Phillies have played in a facility that increasingly is unappealing to baseball fans because they have seen or heard or even visited places where watching baseball is truly enjoyable. And I don't mean to criticize the Vet, because in its time it was a good facility. But this is a market in which competition is important. 35 STADIUM HEARINGS Many Philadelphians have seen Oriole Park, many Philadelphia baseball fans have been there. And given the choice between watching a ballgame there and watching here, they have chosen in many cases not to. And I think once the Phillies get into that building, even after it is seven, eight, nine years old, that it will be designed with a lot more intelligence than the Vet was as it relates to the fan. I think we will do well there.
I don't think the argument is about whether to build them or not. I think building them is part of what everybody accepts. And I agree with you in terms of Comiskey. Comiskey is an awful ballpark to go watch a ballgame. But what we're talking about is that, given the responsibilities that the city has, and just during the last few months this City Council has been asked to begin dealing -- and we are not through dealing with this problem as of yet -- the Gas Works, in which $45 million alone, that we don't ever expect to be repaid or whatever, plus the $18 36 STADIUM HEARINGS million that contribution we got from the gas company, that was also contributed back to the Gas Works; the school system; plus now new responsibilities in terms of the debt paying for new stadiums, given together and putting it all together into one situation -- and we're not arguing here whether the stadiums should be built or whether the city should contribute something to that -- what we're arguing is, what is the level of responsible, given all of the other situations that the city is confronting. We had hearings about libraries, in terms of whether we have the ability to be able to put $60 million in terms of capital into one of our greatest institutions, that we have to put it in. Because it is going to benefit in the future much greater than just going to see a ballgame. So it is taking into context. We are not looking at the baseball stadiums in an isolated situation. It is taking it into context, and whether what should be the city's contribution. Should it be at this level, or at this level.
And given the situation that the premise have been eliminated of the creation of new revenues, a creation of new jobs, the only thing that we are hoping to get out of this deal is that we make enough just to be able to pay the debt service.
Councilman, there is always a risk of taking an action. But I think you have to balance the risk of taking this action, and the uncertain future revenue stream that will come from taking this action, with the risk of taking no action, which I know was not your point. But which if you do not do this, or if you try to structure a deal which is going to make the economics for baseball or football in Philadelphia or these teams directly cause them to leave, then all of the revenue that we are using to invest in this facility will disappear.
But I think that assumption of restructuring a deal and them leaving -- I mean, LA you mentioned LA. The NFL is not in LA because the NFL has not wanted to go to LA. The NFL is not in LA 38 STADIUM HEARINGS because the city government of LA has said, this is the type of situation we are willing to negotiate. And instead of accepting that, they went to Houston, because Houston offered a better deal along that line. But in the last ten years, the job that -- maybe the psyche of LA is better and it is not hurt by not having an NFL team. But the situation I'm saying is, it is that they have viewed what the priorities are that they have, and they have allocated the same, in a way. I don't believe that the Phillies or the Eagles are in danger of just picking up and leaving. Maybe I am wrong. And, you know, they left Cleveland, and Cleveland has a team. And we are not Cleveland. And Jacobs Field, not giving everything, Cleveland is still Cleveland and Baltimore is still Baltimore. The two fields have not changed the characteristics or the economics of the city.
I hate to disagree with you, but I have to tell you that on the specific cases that you just made reference to, I think that 39 STADIUM HEARINGS there are some facts that you probably would want to know. First of all, Los Angeles committed a substantial amount of public capital to the reconstruction of the LA Colosseum. And I will tell you, the NFL people can give you their own reasons, but I will tell you that I believe the NFL chose not to come to LA because the vast majority of the ownership hated the Los Angeles Colosseum location. Not because we couldn't finance it, because we could. We had a financing that worked, that would produce a very exciting, historically significant building, the home of a former Olympics. And the NFL chose Houston because, I think, the Houston deal was a better deal, not because LA wasn't committed to a significant level of public resources. Secondly, the circumstances in Philadelphia, to the credit of the Phillies and the Eagles, are vastly different than Cleveland and a number of other cities where team owners threatened to leave. 40 STADIUM HEARINGS Dick Jacobs threatened to leave and move the Cleveland Indians to a building that was built in St. Petersburg on spec, and used the leverage that came from his chance to leave to negotiate a very good, but not, you know -- but a fair deal. Art Modell left. He took the Cleveland Browns to a building that was significantly publicly financed. In fact, I can tell you that the PSI Net Stadium, in which the Ravens play in Baltimore, has about 30 million or 40 million dollars of private money in a $240 million stadium.
And, thirdly, as a result of that, and in direct reaction to it, the City of Cleveland and Cuyahoga County then built an extraordinarily built, expensive, and publicly financed building in order to get the NFL to commit 41 STADIUM HEARINGS to relocate an expansion team. And I don't mean to debate this with you. But the fact is, and I think it is really important, that these two teams have not threatened to leave, and that changed the dynamics for them.
We are not discussing that there is not going to be some public financing of the stadium. It is taking into context the overall responsibilities that we have, and bringing that into a more responsible focus. So it isn't that we are saying, no public financing. And the cost of the current one, the cost of the current locale, that has gone up from, I remember discussions early last year about building in South Philadelphia were like $500 million less than it has become. Because we were not thinking at that point of having to buy a whole series of new properties. And so that what we're saying is that there has been a whole series of decisions, badly taken or badly assumed at times, and that has added to the cost that the citizen of Philadelphia is going to have to bear in terms of the overall 42 STADIUM HEARINGS subsidies that these stadiums get. So we are not talking about not building it, no public subsidy. What we are talking about is, what is the agreement and how is it that the city begins to get some sort of responsible feedback and return on what it gives. Because, remember, we are not risk-takers, supposedly, in terms of -- because we are spending, as Republican party likes to say, this is not our money we're spending, this is the people's money.
Well, I don't know what the Republican party is saying. But I can tell you that the one thing that I think is important, Councilman, is, these leases at the Vet expire 2011. These teams have not threatened to leave. But I think it is fair to say that, assuming that they stayed in the Vet until 2011, and assuming that Philadelphia did not in 2011 build much more expensive new stadiums, they would leave Philadelphia. Because if they didn't leave Philadelphia, they would both be absolutely assured 43 STADIUM HEARINGS of being in last place for a long time, because their payrolls would never be able to compete with the teams in the league. Now, that may not be the city's problem, and I should not argue that it should be a taxpayer's problem. But I think it is fair to say there is a risk. And I want to come back to your point. There is a risk that a restructured deal, one that we might feel, might be more comfortable with, or is defensible to the taxpayers, would not produce the result you are looking for. And that's the risk that you take in trying to change the deal.
I'm not sure this adds to what you just said. Let's assume that one of the teams decided to leave. Can you ever imagine our getting a new team and they would play in the Vet Stadium?
No. No. I think there's no lure. We might get a new team, but I think it would probably be a Double A team.
Thank you, Madam President. I am intrigued by your statement that the teams haven't threatened to leave. Because --
Councilman, could you pull the microphone closer to you, please, so we can hear you.
Because I think just about everybody else in Philadelphia believes that there have been threats about leaving. There have been threats about practicing outside the city, there have been threats about maybe the lease conditions, the current lease conditions haven't been met, maybe there are weaknesses in the lease, maybe the current leases could be broken. It seems to me it has been quite clear that the threats, often subtle, have been part of the game. And I am not objecting to them. I am only taking issue with the statement that the teams, to their credit, have not made any threats. 45 STADIUM HEARINGS I think there have been threats. I don't know who has made them, but it seems to me that that's clearly been part of it. But, look, what would you do as a businessman if you were asked to sign something giving some other body total authority, as the City Council is being asked to sign, to approve leases that have not yet been drawn up, where we are not sure of what the terms are, where the leases will never be reported back to City Council for approval, and where, for the term of the lease, during the 30 years, those leases may be changed without ever City Council having any part to play in it? How would you feel, if you had the responsibility and you were asked to agree to such a proposal? I'd like your view on that. Because that's what City Council is being asked to do. Let's assume the terms are fair, ultimately. But we don't know what those terms are. Should we as a legislative body abdicate our responsibilities of examining a lease carefully, where it involves not just the $394 million, which is plenty to be concerned about, but 46 STADIUM HEARINGS over the next 30 years a billion dollars in tax funds?
Yes, I would like you to answer the question. What would your advice be to a client who says, should we sign an agreement the other side to the proposal says, "Sign and trust me"?
To the best of my ability to understand this body's process, that there are going to be quite a number of ordinances which are not yet before you, which will require your approval, not the least of which are bonding ordinances, which, in my mind, the Eagles and the Phillies can't close on their financing until those documents are available; and if I was in your shoes would not authorize the issuance of and closing on your financing until those documents were reviewable. And if as a result of your review of those documents you found significant and material variations from the commitments which you are being asked to make, you have the ability to not vote for 47 STADIUM HEARINGS and not approve the ordinances authorizing the financing. Unfortunately, the timing of this is what it is. And the risks that you run of delay under the circumstances of the agreements that were made between the teams and the city, involving commitments to fund Veteran's Stadium and to fund the practice facility, would, if those commitments were fulfilled, I think, undermine the ability of the city to finance a new stadium. Because precious resources would be diverted to the Vet and the practice facility that are needed for the stadium. So my only advice to you is -- and I said, and GPF's position is, we know that it is vital that you exercise diligence in this matter, and we are encouraging you to do it. And we believe you have other points along the way, as I understand it -- and I might be wrong about that -- but I don't think you are being asked to vote on the finance ordinances today. And that's your final leverage. As, by the way, a lender to the Eagles is going to have to be satisfied. They have 48 STADIUM HEARINGS a provision in their term sheet that requires them to sign a nonrelocation covenant for the term of the financing. If the language of that nonrelocation covenant is not acceptable to a lender to the Eagles or the Phillies, they will not get closed. Because the lender is going to want to know that they are irrevocably and unalterably committed to that lease. And those are the kinds of things you are going to want to see, as well.
Well, I know of absolutely nothing that City Council will be able to do in the future, if we pass these ordinances. I might be able to be lulled a little bit into feeling a little more comfortable if what you have presented existed. We know of nothing. This is clearly designed to make the final decision by City Council on the question of stadium financing today's decision, meaning the period between now and December 14. And nothing that I know of is going to come before City Council once we approve these bills, if we do that, which will enable City Council to exercise any oversight judgment, other than to 49 STADIUM HEARINGS say, as one Councilman says now, we made a mistake last spring when we passed legislation putting up an $80 million penalty, as some people interpret it, with respect to repairs of Veteran's Stadium as the alternative option to building new stadiums. We know of nothing. And I would appreciate if you could give us, if not now, within the next few days, a more definitive piece of information on what rights we have. Because I know of none.
I know of none either in my role as a veteran legislator or as an attorney. I know of no rights we will have. And I have never known of any professional person who ever authorized anybody to sign something blind. And I think we are being asked to do that. And the terms we talk about are terms that we're told are being contemplated. And we don't have any assurance that those will be the final terms. We are also told that there will be a 50 STADIUM HEARINGS provision that's going to permit changes in the lease during its 30-year life. And, again, we are told that those changes will not come back to City Council for approval. I think with respect to the responsible way in which the Greater Philadelphia First dealt with the school situation, they studied it for years and made proposals with respect to control of the budgeting of the school district, and to the credit of that organization, I think they acted very responsibly. But I would like to feel that Greater Philadelphia First is acting in that same responsible fashion on the stadiums as they did when they made the studies of the school district's finances. And I don't see it here, and I'm very concerned about that aspect. Secondly, why are baseball stadiums being built in smaller size today?
Well, first of all, Councilman, I am looking back at the materials that I have. And I suspect you may be right. I 51 STADIUM HEARINGS spoke without really understanding or at least without thinking clearly about what the process that you are engaged in is and how the financing was being done. And since the financing is being done through PAID, and you are authorizing that today, my sense is, without studying it -- and I will and get back to you -- that Council well may not have another look at this. And I apologize for that. Stadiums are being built at smaller size because the nature of the fan experience in baseball is for a more intimate, closer, closer to the field, closer to the players, better sight lines. And if you think about the geometry of a stadium, in order to accommodate 60,000 or 70,000 people, the geometry is generally up or out. But, in any event, in the last 15 to 20 rows, further and further away from the field, if you have ever sat on the 800 level of Veteran's Stadium to watch a baseball game, you probably better bring a television set because it is very hard to see. Whereas, the upper-deck seating at 52 STADIUM HEARINGS Oriole park or Coors Field still gives that person a very close, reasonably close, view of the stadium. Plus, baseball can't produce 60,000 people 81 dates a year; whereas, football can produce 60,000 people for ten days a year.
What's been the role, do you think, of the vastly increased price charges?
Because I find in years, many, many years back, even when Baker Bowl existed in Philadelphia, the fact that you sat, as I did very often, in the 800 row, later on in Vet's Stadium, the enthusiasm of the young people for sports then did not go away because of some difficult, you know, spots from which to see.
It seems to me that's what's happening today and the real danger to baseball as the national pastime is the fact that it is just outpricing itself from consideration for ordinary working people. A husband, wife, two kids wanting to 53 STADIUM HEARINGS go to the ballgame, it is a very expensive proposition. And it seems to me that baseball ought to be moving in a direction to solve the question of the size of stadiums by making itself more available to working-class families.
Because don't the statistics show that of those people going to Veteran's Stadium, that of the audience, only about percent of them come from the main population 13 source, the City of Philadelphia? 83 percent of 14 them appear to be from out of the city? 15
To your question about the 16 affordability of sports and baseball to families, I 17 think the affordability issue is a major problem for Major League Baseball. It accounts for why the Trenton Thunder and the Reading Phillies and the Wilmington team are doing so well, because they provide affordable baseball for a family and affordable food for a family.
On the other hand, the 54 STADIUM HEARINGS more -- and this is the quandary that public sector partners are in -- the more that you ask the private side to finance, the more pressure on the private side for pricing, the more -- one of the reasons why Oriole Park, in my opinion, is successful is because it is more affordable than a lot of parks as a result of the extent to which it was publicly financed. The team -- they have been aggressive in the last couple of years raising prices in Baltimore. But when Edward Bennett Williams and later Eli Jacobs owned the team, the early pricing of Camden Yards was very, very competitive. And that was because they didn't divert much of their cash flow to pay for a mortgage; they had that mortgage essentially assumed by the state. But baseball as an industry has a challenge to make itself more attractive to families at a price they can afford to pay. And that is a big problem.
Why doesn't the usual rule of business and capitalism apply to 55 STADIUM HEARINGS sports teams? Why is it that those -- with respect to profit making, it does. And the profit making, where it exists -- and sometimes it is very substantial -- is justified on the basis that we take the risk, therefore we are entitled to the profits. And that may be a very sound theory. But it doesn't seem to apply here, where the risk taking -- I won't say the teams take no risks, but their risk taking is very heavily reduced by the fact that the city is making contribution of tax funds, largely paid by people who cannot afford to go to see the teams play. And that seems to me to be a kind of contradiction that's very difficult to justify.
Well, taking that question outside of Philadelphia, and just looking at the industry of professional sports, by keeping the number of franchises under some control, professional sports leagues, knowing the demand for franchises, have been able to capitalize on that demand as an industry by negotiating deals with their host municipalities that have been very favorable to the industry. 56 STADIUM HEARINGS And on industrywide basis, I think you can look across football and baseball particularly, but hockey and basketball as well, and understand that what professional sports is, is something that a lot of cities want and not all cities can get. And, as a result, some will work very hard and finance very aggressively to get them. And that's the economic factor. As opposed to looking at it on a microeconomic level, which we do in Philadelphia, if on a macro level there is a limited supply and a growing demand, and that makes this a seller's market.
Well, tell me, is the ability of the teams to pay no longer a factor in determining the extent to which they are assisted by public funding and public subsidies?
I think it differs from market to market. The ability of teams to pay I think is a factor here in Philadelphia. And I think that certainly in the case of the Eagles, the Eagles have a deal on the table which involves considerable funding and considerable risk by the team and the 57 STADIUM HEARINGS league.
Well, the National Football League gets how many billions of dollars from their TV contracts? Over a six-year period, don't they get an average of $3 billion a year, perhaps even more?
I don't have those numbers in front of me. I don't remember. They have a very, very sellable product, which they have created, which has driven advertisers to their product, which they are generating and distributing to their members.
Well, doesn't it come in terms of dollars to something like $75 million a year to the Eagles?
Has anybody, has your organization, been able to study the finances of the teams to determine whether or not there is a need? For example, does your organization, before it came here today, did it ask to see the 58 STADIUM HEARINGS books of the Eagles and the Phillies to determine whether or not there is this kind of a need?
Well, my organization did not ask to see the books of the Phillies or the Eagles, nor would we have expected to get to see the books of the Phillies or the Eagles. But I can tell you, away from my organization, and based on my own professional experience, having done this for years, that it 11 is not just the books of the Phillies and the Eagles 12 that matter; it is also the books of all the other 13 teams which the Phillies and the Eagles compete with 14 that matter. 15 Because, at the end of the day, we 16 could cut a very good deal for the citizens of 17 Philadelphia. We could have 100 percent privately financed baseball stadium, like they do in San Francisco, and the Giants may well find themselves five or six years from now unable to field the team and unable to pay the mortgage costs of their building because they took too big of a burden onto themselves and they can't compete with the Phillies or any other team.
Well, how would 59 STADIUM HEARINGS your organization evaluate the financial credibility of an organization that seeks to change terms of agreements just at the point when the contract requires them to begin making payments to the city on a promise they made years ago that there would 7 be income at that time it was said to be 6 million 8 over the years, it was brought to 4 million, for the 9 superboxes? 10 You know, payments are scheduled in 11 Philadelphia beginning February 2001. 12
Well, I think that's an 13 issue to be taken into consideration as you make 14 your decision about voting on this matter. 15 My organization, Greater Philadelphia 16 First, supports these ordinances, supports the 17 construction of these stadiums, believes that the 18 results of the negotiations produced a fair and 19 defensible deal. 20 Could it be better? Could it be worse? We could sit here and speculate. But that, in the long run, this will be good for Philadelphia and good for the teams and good for the fans and good for the city and good for its image. 60 STADIUM HEARINGS And we think that the risks, which we recognize exist, are worth taking.
But is it any surprise that an organization composed of the major business organizations would be supportive of a proposal that turns over large sums of tax money to two business organizations? That's no surprise, is it?
Councilman, worded that way, that would not be a surprise. However, that's not the way we look at it. We are not trying to give large sums of money to two major business organizations. We are trying to assure that the people of Philadelphia and of this region, who through their contributions and through the State of Pennsylvania are making a contribution to this, continue to enjoy both the assets of the Eagles and the Phillies and the experience of being pro baseball and pro football fans for a long time to come. I can assure you that as a policy matter, Greater Philadelphia First is not concerned about the financial or capital gains or position of 61 STADIUM HEARINGS the ownerships of either the Eagles or the Phillies, per se. And that's not what motivates us.
We will have to let the people of Philadelphia judge. Thank you, Mr. Katz. And thank you, Madam President.
Thank you very much. The Chair recognizes Councilman Rizzo.
Thank you, Madam Chair. Mr. Katz, or Sam, you may have answered this question, but I want to ask it again. I know you would have enjoyed the opportunity to negotiate this deal with the Phillies and the Eagles. I really know you would have personally liked to, enjoyed that opportunity. But if you had that opportunity to negotiate the deal between the Phillies and the Eagles, and you were coming to City Council to present the deal, would you personally have been pleased with the deal that you would have 62 STADIUM HEARINGS presented? If this were the deal that you had negotiated with the Phillies and Eagles, you personally, would you have been pleased that this was the best you could do?
Councilman, first of all, let me say, I am the CEO of Greater Philadelphia First, that's the capacity I am here in. And I appreciate the question. And I really haven't thought about it in the way you are asking me. I think that the city has been very well represented. I thought that the committee that the Mayor put together, led by Bill Rouse, was a very good and very broad and very bright group of people. I know a lot of the principals who actually negotiated -- I assume that when you say would I have looked to negotiate it, you mean as the financial adviser for the city?
No. If you were the Mayor; that's what I was getting at.
I don't think about that too much. So I would say that the answer to 63 STADIUM HEARINGS your question is, I have been on both sides, the public side and the private side, of stadiums and 4 11 arenas in the last 17 years. 5 I haven't seen very many deals like 6 this that put this much private capital into a 7 building, or into the buildings. The costs, I haven't seen billion-dollars stadium projects, either, I must say. But that's the nature of where we are in the inflation curve. And I am here comfortably as GPF's representative on both the professional and personal level, as a citizen of this city, supporting this project.
I thank you and appreciate your answer. Thank you, Madam Chair.
Thank you. Are there any other questions? The Chair recognizes Councilman Clarke. 64 STADIUM HEARINGS
Thank you, Madam Chair. How are you, Mr. Katz? Mr. Katz, one quick question. In yesterday's testimony, there were references to two particular stadiums, the FedEx Stadium and the Patriots Stadium, both in terms of location and in terms of the financing structure. Can you give me a comparison between those two, if you are familiar with the deals on those two at all?
I am not really familiar with them. And the ones that I am familiar with are the ones that I actually was involved with and worked on. One of the things that you have to recognize about the Patriots, without commenting about the structure, is that the Patriots made a deal to leave New England and cut a deal with the State of Connecticut and moved. After they could not get the Massachusetts legislature to act on the first pass-through of the proposal that they had, they couldn't get the support of the state. So the extent to which there are 65 STADIUM HEARINGS private funds in that project to the same degree that they exist in PacBell Park in San Francisco is a product of a lot of failure in both Massachusetts and Connecticut. FedEx Stadium, I really don't have any information about.
There was also this question about the cost of doing business as it relates to building stadiums in municipalities, particularly large municipalities, verses suburban sites. Do you have a sense of that? Is it that much cost in terms of the end operation of those stadiums?
Well, I think it is not really all that different from the cost of building anything in a green field or an open space, versus a more constrained space, as compared to the 12th and Vine site, where there were going to be extraordinary pressures on the contractors to get equipment in to move materials around because they had to be concerned with the businesses that operated in the area that would be adjacent to the site. 66 STADIUM HEARINGS Although, you know, the South Philadelphia site is not entirely a green field. Once the warehouses are cleared, it will be a relatively suburban-like site. And there is a difference. But given the numbers we are talking about, it is not $100 million of difference. It is going to be --
Not minimal, but not material over a 30-year amortization period.
Do you recall in the stadium bills that you worked on in urban versus suburban, where there are certain ancillary types of obligations from the social standpoint on various teams, in terms of participation, in terms of such as we have here today, a children's fund and things of that nature, did you find that it was --
I think that not nearly as explicitly as you have here with the children's fund. There have been conditions imposed on tenants, for example, to provide affordable tickets or to provide free tickets to groups; to make the field available; to do things that might be of a 67 STADIUM HEARINGS community-spirit nature, not as explicit as a million dollars a year per building to a children's fund. More recently I think that those kinds of considerations are being put into transactions. But most of the transactions that I worked on did not have those kinds of features. Nor do many transactions have a feature involving participation by the host municipality and the capital gain from the sale of the franchise. Which we did in Denver, but I haven't seen very many of those. And I think that's a positive thing here, at least for the five years or so that that applies.
That makes it really impossible to just flip the asset to a new owner. Because you have got the new stadium, which the city will have created the value in by investing in the stadium. I think that's a very positive feature.
Thank you. 68 STADIUM HEARINGS The Chair recognizes Councilman Goode.
Thank you, Madam President. Mr. Katz in your experience with the public financing of other stadium deals and major economic development projects, could you speak a little to participation goals for disadvantaged persons and businesses? And the goals for this deal have been set now at 49 percent for disadvantaged businesses in design and construction, and 50 percent in terms of work force hours. How does that stack up against other deals?
To the extent that these facilities have been developed in communities which had existing disadvantaged business programs and initiatives, which obviously many of them did, those programs were highly critical to the success and to the implementation of the construction and to the operations and the concessions. The numbers that you just described represent a significant increase over what I have 69 STADIUM HEARINGS normally seen or have heard about. But I think that that's to the benefit of Philadelphia, that those kinds of objectives and those kinds of goals be established. And I think GPF is very supportive of that. And I think that will make this facility one that people have not just the sense of ownership because they like the teams, but a sense of ownership because they actually have an interest in the economic up side of the construction and operations.
As a short followup, could you envision any other type of means of infusing that type of investment in minority- and women-owned businesses?
If we were not doing stadiums. Would there be any other vehicle right now to make that level of investment in minority- and women-owned businesses in Philadelphia?
Well, not under the current conditions of the capital redevelopment assistance funds that the state has provided or the 70 STADIUM HEARINGS auto rental tax or the fact that you are using tax revenues from an existing business to reinvest in the facilities to retain that business. I mean, the funding of this facility, not to mention the private financing, is creating probably something on the order of 750 or 700 million dollars, $750 million of construction. And I would be guessing, but to 50 10 million -- well, probably 50 to 75 million dollars a 11 year of annual business operations and sales and 12 operating expenses, that would be hard to generate 13 quickly, given the absence of resources. 14
So, in essence, 15 while people question whether this is an economic 16 engine or not for the city in general, it is 17 definitely an economic engine for disadvantaged 18 businesses and persons? 19
Certainly to the extent 20 that disadvantaged businesses are engaged in 21 providing services, that's the case. 22 The reason I took the position I did, 23 Councilman, was that this is disposable income 24 that's being spent. People go to ballparks to be 25 entertained. 71 STADIUM HEARINGS The absence of a ballpark doesn't necessarily mean that they won't be entertained somewhere else. They will find a way to spend their money doing something. But this is a place where concentration for participation of minority- and female-owned, women-owned businesses, disadvantaged businesses, would exist in ways that I don't think would necessarily avail themselves otherwise.
Thank you. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam President. Good morning, Mr. Katz.
Good morning, Councilman. COUNCILMAN DiCICCO: I think it is safe to say that, based on some of the conversations I have had and a lot of the discussion that has occurred over the last the couple of days, that the majority of the folks in City Council would agree that we do need two new facilities. 72 STADIUM HEARINGS The question is as to what level of the public contribution should be made to accomplish that. I am going to create a scenario for you, and maybe you could give me an analysis of it. Assume for a moment that the support is not in City Council to fund the two stadiums. We're left with the Vet. The teams stay in place; they don't leave, they don't threaten to leave. Everything is basically status quo. The city will make an $80 million or so contribution to maintain the Vet over the next 10 to 11 years. Assuming any unforeseen problems with the stadium at that time, during that ten-year period, 80 is our cap, and that's where we are. As an elected official, we have to make responsible decisions today that will affect future generations. So I am going to fast-forward a bit. The stadiums are in place, the Vet is in place, the teams stay here. Ten years out. We have a facility that's ten years older. And although we have made 73 STADIUM HEARINGS $80-million-plus investment to maintain it, I think everyone would agree that, from a practical standpoint, that the integrity of the building then will be much worse than it is today. And, in fact, the City Council ten years from now -- and I think probably David Cohen may be the only one left -- but the rest of us, whether we are here on not, have to make decisions today on what that investment ten years out may have to be. I would assume -- and if you can elaborate, if you can, and give me an analysis -- wouldn't it be in the best interest of the city today to do that, based on what we think the anticipation of costs would be ten years out? Costs of development will be higher, materials are higher. So we as elected officials, I think, have a responsibility to pave the way so that the taxpayers of the future may not have to be responsible for even a greater tax burden, or greater contribution.
Well, I think it is very hard to make projections about what the status of 74 STADIUM HEARINGS the sports are going to be ten years from now, what the nature of the facility technology is going to be ten years from now. There are things that are going on in buildings now that were unforeseen and unforeseeable ten years ago. I would suspect that on the assumption that you were going to develop two new buildings, separately for the Eagles and the Phillies, that the costs would be dramatically higher; that the land costs would be dramatically higher; that on any calculation that you might make the political costs would likely be higher because you would be dealing, I think, in a much different environment, assuming you could keep the teams here for those ten years. And then there are all the uncertainties that, you know, you can't even forecast. But I think that's part of the reason why we believe at GPF that -- this is a 30-year-old building now. The assumption that you made that we would only have to put 80 million bucks into the building to keep it workable I think is probably not 75 STADIUM HEARINGS a very reasonable one. Because the rate at which it is depreciating now is faster than the rate at which it depreciated over the last ten years because of its age. Things are going to start going wrong at a faster clip now and at a more expensive replacement cost than now. So I think that if you do that analysis, although I have not done it, GPF has not done it, you will reach the conclusion that this is the better time and at a cheaper present and future value cost to invest now. COUNCILMAN DiCICCO: I guess that's the answer I was looking for. If we have to bite the bullet, you do it now, you get it done a lot less expensive than we would have to in ten years.
Thank you. Are there any other questions from members of the committee? Seeing none, I thank you, Mr. Katz. 76 STADIUM HEARINGS
Okay. Our next witnesses are? MR. McPHERSON: Will representatives of the Philadelphia Eagles and Philadelphia Phillies please come to the table.
Good morning. Mr. Banner, are you going to testify first?
We are doing it in alphabetical order, Madam President. I am Joseph Banner, Chief Operating Office for the Philadelphia Eagles. On behalf of the Philadelphia Eagles, I would like to thank you for this opportunity to testify. We sincerely appreciate the efforts of the Mayor, City Council, PIDC, and all others affiliated with the city in joining us in our mission to create world-class, state-of-the-art football stadium. We feel the proposal before you today is unique in many ways, unprecedented in the world of sports. The agreement between the city and 77 STADIUM HEARINGS the Eagles represents the most public-friendly deal of its type in the history of our league. It also features the largest private contribution towards a stadium --
Anybody having conversations, again, I am going to request that you do so in the corridor. And perhaps we can close these doors. Thank you. I'm sorry.
This deal also features the largest private contribution towards stadium construction in the history of professional sports in the United States. And as Bill Hankowsky of PIDC has referenced previously, it represents a revenue-positive deal to the General Fund, which is certainly not the case for the vast majority of cities doing stadium deals. While the economics of the deals are positive, from a public standpoint we feel we ultimately -- what is ultimately as compelling, and not moreso, is the end product of the proceedings. As we have referenced previously, we are among the last teams in the NFL to have a 78 STADIUM HEARINGS stadium situation resolved. A major advantage of this time line has been the opportunity to review and learn from developments and innovations in new NFL stadiums, as well as ballparks and arenas around the country. While the Eagles' ten home games a year are all major events in their own right, the new stadium represents so much more for this community. It enables us to be in a position to retain the Army/Navy game, help Temple retain its Big East status, and potentially attract a new franchise to the market with major league soccer. In addition to concerts and other special events, it provides us a facility capable of attracting national and international events; such as, the NCAA Lacrosse Championships and World Cup Soccer. Finally, our project will help create a sports complex that is truly one of a kind for major league franchises in state-of-the-art buildings that will attract millions of fans into our city each year. As I think we have shown with the 79 STADIUM HEARINGS completion of our NovaCare complex facility, we are committed to making the complex work better not only for our fans, but for the community. We also are committed to making sure that workers in business from all backgrounds in the city have an opportunity to participate in this project. At this point I would like to briefly walk you through a Power Point presentation regarding what we believe is a historic opportunity. I think everybody is aware it is a $395 million construction project. $85 million of that will come from the state, the remainder coming from the team. The city will contribute the site acquisition and preparation costs. In the deal there are a series of other commitments that the team has made. And I would like to walk you through those, because they go well beyond the 310 million we have offered to put up. As everybody knows, there is a children's fund. We have build the NovaCare complex. We have capitalized interest costs, pilot 80 STADIUM HEARINGS payments, and Special Service District payments. The first, third, and fourth items on that list are all up-front contributions, totaling just short of $350 million. In addition, the city is making contribution operation and maintenance expenses, but it still will leave the team with about percent 9 of those costs of operating and maintenance for the 10 first 25 years and also, as Bill Hankowsky testified 11 yesterday, the last five years of the deal the team 12 will have 100 percent of that obligation. 13 We will also pay what will amount to 14 be about 90 percent of the capital repair obligation 15 over the course of the lease. 16 This is a little bit hard to read, 17 but the left column here are all the teams in our 18 league that are in new stadiums. 19 The second column is a series of 20 teams of which we count ourselves as one that are in 21 the planning stage of a new stadium. 22 The third column are teams that have 23 accepted renovations and new leases. 24 So you will see that if we are able 25 to succeed here, the Minnesota Vikings will be the 81 STADIUM HEARINGS only and the last team in the NFL to satisfy its stadium needs. Again, this is difficult to read. And the next section will both promote this deal, but also start to speak a little bit to some of the things that you heard yesterday I want to speak to more specifically.
You will see on the right end of this deal is the Eagles. And across there you will see that there are a significant number of deals there with 250, 300 million dollar public contributions towards construction. If you look at the bottom of that, you will also see that, in addition to that, many of these deals also include operating and maintenance payments and capital repair payments from the public sector. So we are comparing apples to apples in the public money invested in the construction of our project. And, more importantly, the amount that leaves us contributing, the $310 million, as you see, most of the teams' contributions are a very small percentage of that amount. 82 STADIUM HEARINGS Yesterday you heard testimony with regard to what kind of deals or what location deals you should be comparing to this deal. Somehow in that testimony it was acceptable to decide that the two markets we should be compared to are Boston and Washington. I want to remind everybody here that neither Boston nor Washington have NFL football teams. On the other hand, in the top five markets in the United States in this time frame, three of those five cities are in the process of doing stadium deals. I will go back to the Washington and New England examples in a moment. But Chicago, which is the third-largest market in the United States, in fact yesterday their legislators approved the deal that you see on the screen right there. There is $390 million in public money. Although it comes through the Illinois Sports Facility Authority, the city's portion of the state hotel tax is pledged against it. So the city of Chicago took hotel tax 83 STADIUM HEARINGS revenues that it could have spent in a variety of ways and chose to invest 390 million of it towards the construction of the project. Remember, the Eagles' number versus Chicago there is zero. In addition to that, the city will be paying the operating and maintenance expenses, of which this city is paying about 75 percent. And the city will be paying the capital repairs, of which this city is paying about 10 percent. So even on a present-value basis, the deal the Eagles are receiving is about $600 million worse than the deal the City of Chicago, in the third-largest market, just gave its team. And that is a stadium in a city. And it makes a very big difference, as you will see in a moment, when you are building your stadium in a city versus outside of the city. The second city in the top five markets -- and by the way we are the fourth market -- the other team in the fifth market is Houston. The deal that Houston just completed that's under construction has $374 million of public 84 STADIUM HEARINGS money up front. The team contributed 50. It was allowed to sell PSLs. It sold $80 million worth of PSLs. So it ended up with a totally free stadium and $30 million left over. In addition, the City of Houston is paying operating and maintenance expenses and capital repairs. So, in fact, the real reference point here is three of the five largest markets in the United States have recently or are completing stadium deals. And those deals, compared to our deals, as you can see, are not even close. Here is a quick chart relative to our league. You have heard us say many teams that we are making the largest contribution of any team in the United States. You will see even the Washington deal, which was referenced yesterday, the contribution to the construction of the stadium by the team is half what we are offering to put up. You will also see, relative to a number of other deals out there, one-tenth the contribution we are offering to make is what those 85 STADIUM HEARINGS teams made. So even in the instance of a Washington, that was referenced yesterday -- by the way, the team is in Maryland, in spite of being called the Washington Redskins -- the contribution is less than half what the Philadelphia Eagles are offering to contribute to build a stadium here in the City of Philadelphia.
And as some people have posed the question to us, you are getting money towards operating and maintenance expenses, so it is misleading to just use the amount of money that goes into the construction project. So to be responsive to that criticism, we produced a second chart that's the combination of team debt service plus the team's contribution to operating and maintenance expenses. So you could see that even after the inclusion of the city's contribution to maintenance and operating expenses, the gap between our deal and Washington narrows slightly. But when combining those two factors, we are still offering the city the best deal by a huge margin of any team in the NFL. 86 STADIUM HEARINGS You will see there are a number of teams down there where there is no yellow line, there is no contribution, debt service, operating and maintenance, and capital repairs from a number of the teams in our league. I hope you are able to read this chart, because it is not actually in your book. We generated it just last night, after hearing yesterday's testimony. But we are building a stadium in the city. The construction taxes alone -- for example, the second column there is the Washington Redskins' Stadium, which you heard referenced yesterday. The next column is our stadium. 5 million -- by the way, we are not complaining about this. We have agreed to a deal. We are comfortable with it. We want to proceed. We are just trying to point out the respective differences to the deals that were being compared to yesterday. 5 million in construction taxes that don't exist in the Washington project, and a 10 percent difference by virtue of building that stadium 40 minutes from the closest city, not 87 STADIUM HEARINGS even in the same state that the team is named after. 5 million. In addition to that, you see that the building of a training facility, you have construction taxes, as well. And because of the limited availability of sites in the city, we chose a site that had a huge site cost. Before we even got to build the building, which would probably cost similar in Washington. But the work involved in that particular site, in order to keep that building in the city, increased the cost of that project by $10 million. I won't go through every line item. One of the other ones, though, that is very significant, you see the cost of debt on stadium construction. Our number there, again, is almost twice what it was in Washington. If you focus on the bottom line, when the two teams start to generate revenues over the course of the deal, the Redskins will have $326 million in obligations in these categories, and the 88 STADIUM HEARINGS Eagles will have $1,151,000,000. This is before we get to any of the other issues that have been addressed in questioning here that the city is concerned with and that we similarly care about, like MBE programs, like the utilization of union labor in building the project. So before we even get to some of the intangible benefits that we all share goals in achieving, just on the pure economics, this is the kind of difference that exists between the Redskins and our stadium. We contributed the largest private contribution for that stadium. Now, we can sit here for the next two weeks and debate that, but it is just an absolute fact. In addition to that, there are two out of the six categories where we have given up and taken less than 100 percent of the revenues. At Redskins park, if the Redskins park evolves into the number of events they plan on having, they will have almost $10 million in parking revenues, more than the entire O & M contribution we are asking the city for. The Eagles in this deal will have minimal parking revenues. 89 STADIUM HEARINGS So in that one category alone, the Redskins are getting more than we are asking the entire city for between what we are asking for in our deal.
In addition to that, we have agreed to a pilot -- we are not aware of any other cities in the NFL that have pilots -- a Special Services District, a children's fund. And of course we have a preexisting amusement tax that exists in some other NFL cities, but also does not exist in many of the other cities, including some of the ones you saw up there, where towards the construction there were two and three hundred million dollar contributions. We have heard in the questioning the reference to what has been the totaling up of the city's payments on its debt service and O & M of being a number, I think, in the area of 900-plus million dollars. So we thought it would be worthwhile, and you will see in the Phillies presentation, as well, for you to get the comparable version of the Eagles' money. Of course this does not factor in the state money, as well. 90 STADIUM HEARINGS And you will see the city is getting a tremendous return on its contribution. 4 billion. The Phillies will show you shortly a similar number. 8 billion. And, again, in addition to that, you have a state contribution. You know, there has been a lot of reference about the risks of this deal. And I will tell you from the team's perspective, our view is that all the risks have been shifted to us almost literally. This is at the bottom there, you will see eight recently completed NFL stadium deals. If you look at the right column, you will see the negative impact on the General Fund to those cities each year on one stadium. So you are talking 18 to 20 million dollars per year in each one of those cities to build one stadium. 91 STADIUM HEARINGS In the very worst-case scenario, run by the city, run by Commerce, Capital Bank, with the worst-case scenario of assumptions over the 30 years of this deal, the city has a collective positive cash flow in the worst-case scenario. We actually believe the 159 million that's being referred to is a dramatic underestimation of what the outcome will actually be of these deals. You are competing with cities -- and, frankly, we are competing with cities, that are willing to take on an to million dollar per 14 year negative impact on their General Fund in order 15 to build these stadiums. 16 And I think most of you know that the 17 way those cities have dealt with that is, they have 18 increased taxes. Because they can't afford any more 19 than this city can to take that kind of money out of 20 other services. We are talking about a positive impact with no taxes directly to the citizens. And I agree with the categorization of a voluntary tax in the form of the car rental tax being the only thing involved in this entire deal. We think there are some compelling 92 STADIUM HEARINGS reasons to do this deal now. I will let you read those. I am just going to focus on the bottom one for one second, because I think it is a very compelling example of how significantly PIDC has been conservative in their numbers, which I think is perfectly appropriate. But I want to point it out to you. One of the things that's achieved in the deal is to keep the NovaCare complex in the city. 7 million. We think that's a conservative estimate of just the city wage tax revenues. But, in fact, I think everybody recognizes if that facility were to move, you would also lose our use and occupancy tax, our real estate, our business privilege tax, our gross receipts tax, our sales tax. And I won't keep going through the list, but all of the various taxes that we pay. We believe that number is over $4 93 STADIUM HEARINGS million per year. In fact, it is factually over $4 million a year. 3 million per year. And of course it is built all on things that escalate. So as you got five and ten years out, that number of over $4 million grows very dramatically. Here is what's meant to be a sampling.
Obviously one of the numbers you have that you have to develop a sense of confidence or comfort with whether this will really get developed, because there is a tax revenue number that's tied to it, is whether we will be able to generate in the building the kind of activity that's projected. This is not meant to be a precise list of what will happen. We fully recognize that some of the things on that list may happen and some may not. We think that there are other events that could replace some of those events that don't happen. But what I would like to focus your attention on, though, is that 25 of the 49 events 94 STADIUM HEARINGS there -- this question was asked yesterday -- actually already exist. And those are in the form of Eagles games, Temple football, Army/Navy, the concerts, and the Jehovah Witness use of the facility. So of 7 those 49 events already exist. 8 17 of the difference are MLS soccer. 9 We have -- and I will be happy to distribute 10 today -- a letter from the Commissioner of MLS 11 soccer indicating their enthusiasm about this 12 project going forward, their interest in this 13 market. 14 In the letter he identifies this as 15 the most desirable soccer market for them to expand 16 into, and their eagerness to sit down with us and 17 other people in the city that would like to utilize 18 this facility to bring the team here. 19 Obviously at this point they are not 20 prepared to make a final commitment. But the letter 21 gives a clear indication of the seriousness they 22 have about expanding, which was one of the questions 23 that brought up yesterday. 24 Yesterday it was said that Major 25 League Soccer isn't planning an expansion. And you 95 STADIUM HEARINGS will see in this letter that they are planning an expansion, and that they view Philadelphia as the most desirable city to look at for that expansion. Go ahead. I know, again, this chart is hard to read. But just moments ago in questioning, one member of Council said that there were going to be taxes here that were going to have to be paid by people who couldn't afford to come to our games. If you look at this chart, you will see that the increment that our stadium is going to create, which is the analysis that will be used to pay the O & M that we are asking for in the acquisition of the land that relates to our project, is in fact PAID only by people who either come to our games, play for our team, work for our organization. Nobody else will create that increment. And, in fact, even more significantly and beneficial to the City of Philadelphia is that 82 percent of those revenues are generated by people who do not live in the city. So if you have live in the City of Philadelphia and you can't afford to come to our 96 STADIUM HEARINGS game, maybe you don't even care that we exist, you will not contribute anything to this project. You will contribute absolutely nothing. Because the increment that we will be creating will be created by people who come to our games, or people who perform in our stadium, or people who play for the team, or people who work for our organization. You see the list on the left. There is the taxes, the categories of taxes, that are being used in the calculation to support the city's investment. There is nothing on that list that is paid for by anybody who doesn't attend an event or utilize the facility to play in. So the argument that this will be PAID for by people who can't afford it, or people who can't afford to come to the games, or people who don't even care about these sports teams is inaccurate in the instance of this portion of the revenues being generated from the Eagles' participation in the deal. I would like to spend a couple of minutes on what we believe is a very important 97 STADIUM HEARINGS subject.
Even though you do not have our final plans here -- they are in the process of being drafted, and we want to make sure everybody is comfortable with the language in them before we present them finally -- I do think you have been made aware of the fact that we have agreed to a plan that calls for 49 percent combined MBE/WBE participation. What I want to tell you about this is that the Philadelphia Eagles began over a year ago meeting with the people that were identified to us, primarily Jim Roundtree and Marla Hamilton, as the key people in the city, to start to educate ourselves as to what was going on in the city and what the city's expectations and needs would be. In that time frame, we have actually had some projects going on. We built a practice facility. There's no MBE plan with that practice facility. We were encouraged to make sure that we had a level of participation in the 20 to 24 percent range. 25 There was no monitoring of what we 98 STADIUM HEARINGS did in this area with our facility. At this point in the facility we are running a little bit over 34 percent. And we believe upon completion of this facility, we will be at 42 percent. That will be one of the best performances, some would even argue the best performance, of any project of this size in the City of Philadelphia. We didn't have an official plan. Nobody monitored us. We view this issue as very fundamentally important to the city, but it is also very fundamentally important to the philosophy of our organization. And, therefore, we went out and achieved those levels of participation without any concrete plan and without anybody monitoring what we were doing. In addition, as everybody knows, we have gone forward and had to develop the design for the stadium because of our timing needs. We were told that design teams in the city have generally been running in the 10 to 15 percent range for participation, it would be greatly appreciated if we could try to raise the bar and 99 STADIUM HEARINGS come into the to percent range. By the way, one of the other things we have been told is that the city doesn't like ranges because people generally tend to come in at the low end, if at all, in the range. Well, we agreed to try to raise the bar in this to percent range, and at the 9 moment are at approximately a 21 percent, with some 10 work remaining. And we think we will hold that 21 11 percent or even have a chance to slightly increase 12 it. 13 I would also like to just pause here 14 for one second. I have Dennis Biggs sitting next to 15 me. 16 The people managing our project is a 17 company called Kojima. And they will be the front 18 point people practicing the philosophy that we have 19 identified in our practices to this point. 20 And a significant reason that we hired them was, they are the people that led the project in the building of the San Francisco Giants Stadium. And we received word that that project was receiving tremendous praise for its 100 STADIUM HEARINGS success relative to the goals that were established in that community on its MBE plans. So I want to tell you that a factor in our hiring this firm was to make sure that we were backing up our commitment in terms of how important this was to us, and we were going to bring somebody in with a track record succeeding in this area. So I am going to give Dennis the mike here just briefly so he can tell you specifically what they were asked to do in San Francisco and what the succeeded in achieving.
As Joe mentioned, my name is Dennis Biggs. And I represent Kojima, who was the development manager in San Francisco on the Giants new Pacific Bell Park Project. We were asked in that community to also look at what could be done to raise the bar. In the community, to 30 percent 21 was the range that had been an acceptable level for 22 organizations in publicly financed projects. 23 Now, as has been mentioned, the 24 Giants project was virtually financed privately. 25 And because of that, it was very voluntary by the 101 STADIUM HEARINGS organization as to the level of commitment that they actually had to make legislatively. Instead of 30 percent being the number that we were able to achieve at the end of the day, we achieved a 43 percent participation. Most importantly was the impact we made on the community. By outreach programs and by innovative thinking in San Francisco, we were able to ensure that more of the entities within the city were able to participate in the project. We innovatively arranged for subcontracts to be sized so that we could get more participation by minority, women, or disadvantaged businesses. It is a success story that we are very proud of. We do the same thing on all of our projects. But San Francisco being a baseball park is very similar to the kinds of programs that we will be using here. We think that the work that has been done in the last year with Marla Hamilton and with Jim Roundtree are a good foundation for us to move forward. And we have been making contacts with 102 STADIUM HEARINGS the community to make sure that, as we move forward, we can set that goal higher for Philadelphia and achieve results that will be a leader in the industry and in this community.
And I think we have all said that we understand the need to not only commit to the numbers, but have to you the completed plan with all the different facets of it. And I think that will be forthcoming very soon. The next item that's been discussed, and we are working on and I think we are nearing completion on also, is a scheduling protocol that everybody is in agreement on. And we also expect to have that document in greater detail for you shortly. Now, we have tried to stay on the positive. We feel we have a good plan here. And we do feel it represents a very aggressive contribution from the private side. But obviously part of the analysis as reflected in the questioning is, what if we do things and what if we don't do this deal. So we do point out that there obviously is a buy-back of the NovaCare complex of 103 STADIUM HEARINGS $23 million if the deals don't go forward. We believe that over the source of the ten years, even 120 million is an extremely conservative estimate of the capital repairs that would have to be done collectively. And, as I reflected, if we were to relocate the NovaCare complex, we think the incremental tax revenue, in fact currently, is at a significantly higher level than is being reflected in the PIDC documents. I would just like to close with one comment that I think will come up in the questioning as we go forward. There's been questions about could the teams put in more money and could we restructure this deal so it was more friendly to the taxpayer. I think the fact that there is a gap kind of answers that question. The city has taken the position, obviously, that it is not putting anymore money in, and the teams have, as well. All three parties have said that if any one of the three is required to put in more money, we are all willing to say that we don't have 104 STADIUM HEARINGS a deal. So I think it is clear that the negotiating people representing the city have exhausted every possibility of getting any larger contribution from the teams, and has similarly drawn a line with respect to the city. So, in fact, we are at the point where we are making a choice, where we have maximized the contribution that the three parties can make of either doing deals or not doing deals. A choice that remains is not doing deals, but restructuring the deals. If that were the case, then we wouldn't have a gap; either the city or the teams would have put up the money and we wouldn't be sitting here with a gap. So that really completes our presentation. We look forward to the opportunity of answering all of your questions. And we very much appreciate your time in hearing our presentation.
Council President, members of Council, good morning. My name is David Montgomery, and I am President of the 105 STADIUM HEARINGS Phillies. I am clearly delighted to have the opportunity to testify today in support of the Mayor's proposal to create a new state-of-the-art baseball park and a new state-of-the-art football stadium in the Philadelphia Sports Complex. Obviously my remarks will center primarily on the baseball aspect of the proposal. We have provided written testimony, and attached to that a number of slides. I will take members of Council through a portion of that, and then I believe both clubs will be available to answer any questions. There's been a great deal of discussion in the last few days about our industry in toto and the Phillies' position in that industry. It has clearly been identified that a big issue concerning our franchise going forward is the attendance capability of that franchise; the additional revenue associated from that attendance, leading, we believe, to the additional payroll capacity of the club to create a more competitive club, to in turn ensure that that greater attendance 106 STADIUM HEARINGS will be something that will stay with us going forward. As was testified just earlier by others about, we are in a business where we must compare and compete with others. And one of the things that's happened on the subject of new facilities in Major League Baseball is that, since 1989, you see a list here of new ballparks that 10 have been developed since then. 11 Next April, Pittsburgh and Milwaukee 12 join that group. And by the Year 2003, Cincinnati 13 will also be included, with San Diego either in that year or following in 2004. What is significant as a result of these new ballpark creations is not only the attractiveness of the facility that has been discussed, but what it does to us from a revenue capacity and where it would place us in our ability to compete with those other 29 Major League Baseball franchises. This is one of the charts that's in the booklet provided to you. This is the one that shows the Phillies ranking in the category of net stadium revenues. 107 STADIUM HEARINGS They are all the revenues associated with attendance; the actual tickets, concessions, parking, et cetera, associated with the fan attending, less the stadium operations expense that the club bears. You can see that in 1999, our rank in that category was 24th of the 30 Major League franchises. Two of the franchises at that time that were to the right of us, that ranked lower, were the two that I mentioned that are going to go into new ballparks just next year in April, the Milwaukee and Pittsburgh franchises. So just by virtue of those new facilities, we will slip even further to the 26th ranking. We are excited about the opportunity to provide a new facility for our franchise, our fans, and for this city. It is interesting, there's been reference to Baker Bowl, Connie Mack Stadium, Shibe Park, et cetera. By the time that we complete what we hope will be our occupancy in Veteran's Stadium in 108 STADIUM HEARINGS the Year 2003, we will have been at Veteran's Stadium for 33 years. So happens that that's the exact same number of years that we spent in Connie Mack Stadium. Many people, it would seem like we were there forever. Our vision is the opportunity to move forward in a totally different environment. One of the questions that was asked of Sam Katz earlier was the size of the facility. Well, size really does work against us. We believe from a supply-and-demand standpoint, we want to go to a smaller facility to give our fans the opportunity to be right on top of the action. So it will be played on natural grass, grass-and-dirt field; it will have a capacity of no more than 45,000, as opposed to the 65,000 seat capacity today. We think that what that will enable us to do is to provide sight lines that are far different from the current situation.
The nature of Veteran's Stadium today is a compromise for two sports, such that it is 109 STADIUM HEARINGS created in a circle, in essence. And whether you are sitting at first or third base, in the lower, upper deck, and be back from the action as a result of the contour of the facility, or whether, frankly, you are at an Eagles game and sitting at the 50-yard line, you have a situation where you just are not on top of the action. Going forward, we will have an open ballpark, one that the previous slide indicated that you will be able to look in from the outfield side and, as this slide shows, one that you will be able to see through the facility. It will be created right at street level. If you were standing on Pattison Avenue looking north, you would look through the facility at this level. The field itself will be down, and you can see the see skyline in that openness in the outfield. The goal is that with enhanced sight lines and ticket pricing of all categories -- earlier Councilman Cohen, who has stepped out for a moment, was talking about the current pricing 110 STADIUM HEARINGS structure of our sport. I hope he is aware that today our general admission prices would allow that same family of four, four people, to come for $24. Right now the Phillies enjoy -- that's total, by the way. Right now the Phillies enjoy 70 percent of our fans coming with another family member. And one of the key concerns and goals of the organization is to be able to maintain that level of family support going forward. We think that by providing the sight lines that others have talked about that exist in some minor league ballparks and others, and the proximity to the action in general, the obvious advantages that have sprung up in other parks, there was much discussion of Oriole Park and Camden Yards earlier, that we will really significantly enhance our broad-based fan appeal. We have spent an awful lot of time talking about the siting of a ballpark in Philadelphia. Councilman Clarke. And there has been, during that period of time, in addition, a great deal of discussion of the appropriate siting 111 STADIUM HEARINGS in the sports complex. The proposed Jetro site plan we believe offers many advantages. But we would remind Council that in response to the request of the neighbors to have a very different experience going forward than they have today, we took the original location, which would be in the lower left-hand corner of this slide, Veteran's Stadium, originally moved it north, so that it would abut 10th Street and be primarily east of the homes that are commonly referred to as the Vet Stadium Neighbors' Association. Later we talked with the Administration about moving down to the corner of 10th and Pattison and still remaining on the North Lot. And ultimately, with the help of the Administration, our discussions led to the current siting, which has us on the Jetro location. We believe this is an enhanced location for the benefit not only of the neighbors, but also for the benefit, frankly, of our fans and the fans to those other excellent facilities either currently operating in the sports complex or the new 112 STADIUM HEARINGS football facility that Joe referenced. The reason for that is that this layout will show you that we now have distribution of parking, which will enable each of the facilities to have parking in close proximity with their own venue. In addition to that, we have more evenly distributed the parking to be somewhat similar on the north and south sides of Pattison Avenue. And what we think will be an enhanced element of this new layout is what we have referred to as four east-to-west highway, or road access points. Currently it is just Packer to the north and Pattison between the facilities. Our hope is to develop a similar opportunity through our facility on Hartranft Street, and then enhance the opportunity south of the complex on Terminal Avenue.
The other thing to note in looking at this site plan is that, although there is a great deal of parking, and that's been one of the key elements, to enhance the total amount of parking we are doing it in a way that we think are developing a 113 STADIUM HEARINGS lot of smaller lots. We believe that will create for our fans much greater ease of entry and exit and for the neighborhood itself much less traffic congestion in the area. This is a ballpark, not a stadium. What does that mean? Well, first of all, it means several things as far as the size of the facility is concerned. One of the questions that's been asked is, if we remain in the sports complex, what would be our distance from the existing neighborhoods that we just saw on the site plan? The top of this slide demonstrates in blue a home to the left and the distance to Veteran's Stadium, which is currently 310 feet. And it also gives you an idea of the size of the facility. We were moving in our proposal that we talked about a year ago to the 10th Street side of the lot, commonly referred to as the North Lot site, which would have increased our distance one and a half times. We would have gone from 310 feet 114 STADIUM HEARINGS to 490 feet. And the facility itself would have been roughly two-thirds the height of Veteran's Stadium today. You can see on the bottom of this slide what the Jetro site does to these dimensions. Veteran's Stadium in blue, obviously still 310 feet away. The new ballpark, 1250 feet away. The opportunity to build it in a way that it is at street level as you walk in, and actual field level would be feet below grade, 12 dramatically reduces the height of the facility. 13 So we are four times further away. 14 And, as the next slide shows, the actual height of 15 the facility above street has gone from 145, to 75 16 feet. 17 The distance from the neighbors we 18 just talked about, 310 to 1250 feet. 19 The acreage of the footprint, because 20 of no longer the need of the ramps -- I think 21 Councilman Kenney was talking about this in his 22 questioning yesterday -- the fact that the ramps are 23 not needed to have fans access the facility reduces 24 the acreage. 25 Obviously the other thing that 115 STADIUM HEARINGS reduces the acreage is the size of the facility going from 65,000 today to 45,000. And the good news is, parking for the complex has gone the other direction. We are seeing an increase in the number of parking spots from 15,000 to approximately 22,000 spots. Next we would like to quickly take you through a summary of the proposed arrangement with the Phillies. Sources of funds for the new ballpark have been discussed. We have the opportunity to take advantage of the money that we all went to talk to the state about now several years ago, and that is the state's participation of 85 million into the construction of the ballpark. The Administration has testified to their $89 million commitment. And the Phillies' commitment is the remainder, which is approximately half of the current cost of the project, $172 million. The reason I say, "the current cost of the project," is that if this grows, and instead of the total ballpark costs being 346 million, it would grow to, say, 366 million, that additional $20 116 STADIUM HEARINGS million comes one place, and that's the risk that our franchise is taking to take the cost overruns not only for the ballpark, but also we have been asked to take the cost overruns associated with all the site work associated with all the work done north of Pattison Avenue. An element of discussion, and it came up yesterday in the Professor Rosentraub's analysis, was the operation and maintenance associated with the facility. We have, unlike the current situation, 100 percent of the responsibility going forward falls to the Phillies. There is no 15 exposure, no cost to the city at all for operating maintenance of our facility.
Yesterday you heard a reference to the fact that -- and I don't know whether it was an estimate on the professor's part or what -- that he saw that value to be $89 million. Well, I beg to differ. Our expected expenditure in Year One is $13,870,000 for operating and maintenance. Present value of that, assuming 4 percent inflation and discounted back at 6 percent, produces this 117 STADIUM HEARINGS number of 243 million. And there have been some references today of what's that over 30 years. And I think that is 772 million. So I think that is substantially different from some of the information that you received yesterday. And, again, we do not receive any reimbursement. Here is the slide that talks about the total contribution. Joe just talked about a similar slide on behalf of the Eagles. And you will see, interestingly enough, the numbers, although they are constructed differently, come to a very similar amount, a total of $1,400,000,000, actually in excess of that, that the Phillies will be making in the way of contributions either in construction in the debt service associated with it, our various payments that we agreed to, an estimate of the capital repairs. Remember, right now City Council is asked on a year-by-year basis to consider the amount of dollars that would be necessary to repair capital repairs for Veteran's Stadium. 118 STADIUM HEARINGS Going forward, 100 percent of that responsibility has been passed to the ball club. And here is this number for operating and maintenance that I referenced just a little bit earlier. So on the whole issue that Council has concerned themselves with, and Councilman Ortiz has mentioned from time to time, which is the risk associated with it, let me show you a slide that summarizes what we believe is the risk associated today. And I apologize that our numbers are in red. Without the glare from the left here, excuse me, we would be able to see those better. But the costs of the ballpark when Veteran's Stadium was built, it was 100 percent city responsibility. Our new ballpark, 50 percent of it is the Phillies' responsibility. As far as cost overruns, going back, it was 100 percent city responsibility; going forward, 100 percent Phillies' responsibility. Cost overruns for site work, 100 percent city responsibility in the past; 100 percent Phillies' responsibility going forward. 119 STADIUM HEARINGS The facility operating and maintenance. Currently our ball club does pay the expense associated with a game-day staff. But as far as the full-time staff operating and maintaining Veteran's Stadium, that has been the city's responsibility. That will move to the team. All the capital improvements associated with the facility and the capital upkeep also shift from the city, to the team. So I think there has been a very significant shift. It was the goal of the Administration in their discussions with both the teams that the risk associated with running these facilities and, frankly, an expression that the city wanted to get out of the stadium business. And, therefore, it was imperative that we understand that a good bit of the risk was going to be shifted to us. I would like now to quickly take you through a comparison with other deals in Major League Baseball. This slide shows the amount of contribution into construction. You see the Phillies there in red, compared to the other numbers 120 STADIUM HEARINGS of stadiums that have at this point been completed. That number indicates the 172 million today that we have committed. It doesn't have any indication of what the exposure may be for cost overruns. But let us just add two things that are unique in the Philadelphia deal, which is the commitment that the teams have made to the children's fund and Special Services District. We add those two elements, and you will see that we will slide past the current situation, into the number two slot. And I agree entirely.
We heard yesterday testimony from the consultant that you brought in that says, there is a situation where the San Francisco Giants did put in more up-front dollars. That is correct. They are the one club to the left. However, for some reason the professor chose to ignore comparison with any of the other existing contributions made by the public sector or any of the ones proposed. So that there are 16 other situations where I think we compare favorably; in fact, exceed. 121 STADIUM HEARINGS The other thing -- I just want to pause for a moment here. Because a key element of the analysis that was done yesterday on behalf of Council centered on the expenses associated with our franchise. There was an estimate that was made that our nonplayer expenses were $32 million. I think on questioning the professor indicated he had no real knowledge of that, but he was taking it from third-party information, yet it was a key component in his computation of the return on investment concept that he was talking about. I would tell you that our actual nonplayer expenses are -- he only missed by a third. Our actual expenses are 48 million, versus 32 million. He did not include, although he testified, I was confused by this, but I think he testified to the contrary, he did not include the fact that those expenses are going to increase with our obligation to take all the capital -- I mean, all the maintenance responsibility of the facility going forward. Our current estimate of that is 122 STADIUM HEARINGS approximately an additional $12 million. And for somebody that was as knowledgeable as he was on sports, he did not at all talk about the revenue-sharing expense that our ball club will have in a new facility, as opposed to the situation that we have today, which would add another million. 9 So that if you would take that 10 expense number of 32 million that he indicated, and add approximately, say, 38 million of actual expenses that we're going to have, I think he would have come to a far different conclusion than the one that he presented yesterday. As far as the economic impact of the ballpark on the City of Philadelphia, there was a great deal of testimony by Bill Hankowsky on this subject, and the concept of the Arthur Anderson report, and the element of risk associated with attendance. We thought, as a result of that, everybody should know what our pro forma indicated on first year attendance. 3 million in attendance. 123 STADIUM HEARINGS We have been lucky, the Philadelphia Phillies have enjoyed great fan support from the fans of this area over a number of years. In fact, when our ballpark, Veteran's Stadium was new, through the late '70s and early '80s, we were, for a number of years, north of million in attendance. In 1993, clearly we were over million. We think that the experience identified in new ballparks justifies the number that we put in our pro forma. 9 million in attendance. million. million. 9, what would be the value just in three major categories? Again, it is Joe's point of how dollars are spent. These are tax dollars generated by those fans attending. The amusement tax additional dollars would be roughly $475,000, Council President. 475,000 a year. The taxes associated with concessions would be 125,000, approximately. And with parking, approximately 200,000 a year. So the opportunity in direct city revenue associated with 400,000 more in attendance would be another $800,000 on an annual basis. There are several slides at the end of our booklet talking about the sources of economic benefit. We have talked a great deal about tax revenue associated with ballpark operations. Clearly there are significant tax dollars associated with the construction of these new facilities. But we think at the same time there is a significant amount of out-of-park spending that is done in the City of Philadelphia.
125 STADIUM HEARINGS Anecdotally, we had a period of time there with, because of our labor issues in baseball, that we did not operate part of the summer of 1994. We had a number of restaurants in both South Philadelphia and Center City come to us and talk about the impact on their business. We think also in the area of new jobs, there are not only the construction jobs that we are looking forward to providing with our new facilities; we believe there is an expansion of the number of jobs in our ballpark operation. And, again, to the extent that there is out-of-park spending associated with the attendance of our games, we think that as well will generate additional jobs. And I would like to close as somebody that has also spent my entire life in this area and grown up in the city. Our franchise has been disappointed, A, in performance -- I think, Mr. Gillespie, I don't know where he is at the moment, referenced that earlier -- but we have also been disappointed in the way that the facility that our fans come to see us play is characterized both within the city and 126 STADIUM HEARINGS around the country. And so we are excited about, for our franchise's benefit, for our fans' benefit, for the city's benefit, to replace what is now a black eye on this city, a stadium that is certainly not state-of-the-art, with a brand-new football stadium that we think is going to be spectacular and with a state-of-the-art ballpark that we believe will be something that will make our fans in this city very proud of. So in closing, we think that what we are going to create is a Philadelphia Sports Complex that with four major sports teams, all playing within the City of Philadelphia, all playing within a quarter of a mile of each other, all playing in outstanding new state-of-the-art facilities, that that complex will become one of the premiere sports destinations in the entire country, if not the premiere. Thank very much for the opportunity to share our comments with you, Madam President.
Thank you. Mr. Banner, please explain what charter seats are, how much you will charge, and why 127 STADIUM HEARINGS are the proceeds from the sale going to PAID?
The charter seat is a similar arrangement with what is more publicly thought of as permanent seat licenses, or PSLs. It is a fee you pay, for which you get the asset of, in essence, you own the seat, or the right to purchase that seat. And it is something you literally own. You can buy it, you can sell, it it can become worth more, it can stabilize in value.
You would purchase the charter arrangement, or the seat license.
Well, we haven't priced them yet. What we have done so far is agree to minimize the quantity of seats, both as a request from the city and our own desire to make sure that people who have been long-term season-ticket holders of the Eagles will still be able to afford to come to our games. 128 STADIUM HEARINGS So we have agreed to a limit of 29,000 seats that could possibly be in the program, which is about 40 percent of capacity. Most of the stadiums being built have been in the 80 or 90 percent of the seats have been sold on these licenses. So if you are a season-ticket holder, and you want to continue to be a season-ticket holder, but you cannot afford a charter seat agreement, there will be about 40,000 seats in the stadium that will be available to you without having to purchase one. And, obviously, the seats we will be selling, the arrangement side, if we do it, will be the best seats. But the remainder of the seating capacity will be, in the new stadium, will be similar to the quality of the seats in the lower bowl that will have these arrangements because of the proximity to the field and the smallness of the stadium compared to Veteran's Stadium.
Well, it has ranged. 129 STADIUM HEARINGS Probably the most conservative program was actually run in Pittsburgh, where they sole them purely to their season-ticket holders through the mail. And I think they raised about $40 million in the 80 percent of the seats. The more extreme programs have been in places like Baltimore and St. Louis and Carolina, where they have raised anywhere from 80 to 150 million dollars, and sold them on almost the entire building. And, again, the seats, it is, in cities that have existing teams, have been primarily sold to existing season-ticket holders. The price ranges, by the way, in Pittsburgh I think the low price was like $600 and the high price was $2700. I think in Carolina the range was like from $1200.
That's for the 30 years of the lease. You pay that one time, then you pay the price of the ticket each year. But the license agreement you pay one time, and then you own it for the entire length of 130 STADIUM HEARINGS the stadium lease, so in this case for 30 years. And if ten years down the road you decide that you no longer want to own that license, you own the right to sell that license. And there are some instances where those licenses have appreciated and, in fact, people have sold them for more than they paid for them.
I guess my next question goes to both teams. What will your affordable seating policy be? And how many seats will fall within this category? And what will be their locations?
I am happy to go first, Council President. Unfortunately, we have had our ballpark moved so many times that we are not quite as far along in designing it as the Eagles are. And so I cannot answer that with specifics because we have not had the opportunity to lay out the facility. So my answer must be that we are committed, as we have said to you previously, to keeping our pricing in a way that our family audiences are still able to attend. 131 STADIUM HEARINGS You know, our pricing, because of the fact that we have 80 games and whatnot, is below that of the other three professional sports. And we believe that it is extremely important that we continue to remain significantly below them. And we really look at the opportunity to create a new facility like this as the opportunity to develop some additional upscale seating. Right now in Veteran's Stadium, we do have superboxes. They have been referenced before. Unfortunately, the best location for such superbox is past the bag at third, and runs all the way around the outfield to the right field corner. The other premium seating --
Mr. Montgomery, I am sorry. I think you deserve a little more respect, and so do we. Because we are having difficulty hearing you.
I am sorry. Gentleman, if you are having a conversation, please do so in the corridor. We are 132 STADIUM HEARINGS trying to conduct business. Thank you. Mr. Montgomery, proceed.
Thank you, Council President. The other premium seating in Veteran's Stadium are the sky boxes, which, as you know, are all the way at the top of the facility. And I think I demonstrated a little earlier just how high that is in Veteran's Stadium. So what we hope to be able to do is to have it approximately 5,000 premium seats that are well located. The pricing of that will be higher than our current pricing structure for sure. But what that will enable us to do is to continue to have what we believe are extremely affordable ticket prices, probably in a range, in our pro form as have been, south of $15 a ticket, somewhere between 10 and 15 dollars, probably in excess of 10 to 15 percent of the facility. As far as the location is concerned, again, they probably will not be the closest seats to the action, as they are today. Yet at the same time I will tell you 133 STADIUM HEARINGS they will probably be dramatically closer because of the size of the facility than the 600 and 700 level at Veteran's Stadium would be for those same fans.
Thank you. And, Mr. Banner, since you didn't have to change your plans and locations as much as the Phillies did, I am sure you can provide us with some information.
That was convenient. We really are further along in design, but we are not really to the point where we can give you a direct answer to that. I can tell you what we are doing, because of the point we are at. We are trying to accumulate. It is not an uncommon question for some of the new stadiums to have these plans as part of the deal. So we have been soliciting from other teams that have been required to do this what exactly they did to try to get a sense of what ideas are out there, as well as to add our own. Obviously there is a state requirement in this area, as well. So Pittsburgh is 134 STADIUM HEARINGS one of the places we reached out to find out exactly what they did. So as soon we kind of accumulate that information, I think we can be more specific.
Thank you. And this question goes to both teams. What types of other activities are you planning to have in your new stadiums and their frequency?
Well, Joe has shown a slide I think that specifically indicates the actual other activities. Our view is a little bit different, Council President. Our view is that this is going to be a baseball-based facility, so that we will be primarily playing baseball games. We clearly have made an obligation to both segments of the public sector to allow both the state and the city to have ten use days. And, frankly, I'm not sure what the restrictions are on the public sector's use of our facility. Beyond that, you know, we have talked about, from a scheduling standpoint, there may be 135 STADIUM HEARINGS events that currently utilize Veteran's Stadium that ideally would think about a football-based facility as their home; such as, the Jehovah's witnesses and the Promise Keepers. Yet if Joe is successful in the Major League Soccer, and they would be coming in on a weekend where he had home games, those people may be utilizing our facility. So for us, our goal is -- we are finally going to play on grass and dirt. Our goal is to have it be a pretty pristine environment, as far as our players are concerned. We do, however, anticipate, there are a lot of baseball games played today at Veteran's Stadium. And we hope to be able, primarily of amateur level, where we have been the host of the Carpenter Cup for the benefit of high school games, we have been the host of the Liberty Bell Classic for the benefit of the eight area college teams. We still expect to be able, on grass and dirt, to be able to invite amateur teams such as that to continue to play. And hope to be able to be a facility that the Department of Recreation can utilize, but 136 STADIUM HEARINGS perhaps not quite so frequently. Because the artificial surface allows you to do more of that than actual grass and dirt would.
I think, as the slide indicated -- and I know you asked this question yesterday, so I checked -- we are hoping to be in the area of 40 to 50 events a year. of those 11 already exist in the building. 12 So if you took the 25 that exist -- 13
25 events that exist in 15 Veteran's Stadium at this time. 16 We would be just moving over and 17 continuing to provide a facility that could house 18 those things, like the Army/Navy game, Temple 19 football, so on and so forth. 20 In addition to that, the major 21 addition, hopefully, would be a Major League Soccer 22 team, which is 17 additional events. 23 So just between existing activity and 24 Major League Soccer, we would be at 42 events. And 25 I think that we are maybe looking for some modest 137 STADIUM HEARINGS increase above that or some periodic championship-type events. But that's essentially what we would be looking to do.
Can you explain to me, because I have never heard of it, a Rib Fest. Where would that be located? Are you going to be having this outside of the stadium proper? Are you going to be having table and chairs out there? Are you going to be selling beer? Can you tell us what that is and how many people do you anticipate would be partaking of the Rib Fest?
Madam Chair, just so we get the full flavor of what that's all about, will there be chicken involved in that, as well?
I assumed that is directed to Mr. Banner. Because I am as interested as you are, Council President, in understanding what this Rib Fest is.
There have been a couple of -- one of my employees is in a lot of trouble for this, and he happens to be in the audience. There are a couple of areas. I think the first one was the indoor arena in Minnesota that created, literally, a Rib Fest. And it is a variety of people come in. It is almost kind of a competition. They can be done anywhere. They can be done within our building. In our instance we are creating kind of a plaza that surrounds our building. And I would think that would be the primary location, if we did this. As I said, that list is meant to be kind of a list of items from which some may happen and some may not. But that we would take advantage of the space within and immediately surrounding our building, if we were to do this. 139 STADIUM HEARINGS And it is kind of a weekend type of thing, and it is open to the public. And people come down and they --
So, in other words, if Councilman Nutter wants to come down there, he can take his own barbecue and set it up there? Or how does that work?
No. This is really people who are in the field of -- they either, I don't know, maybe Councilman Nutter does. People that compete as experts. Or there are businesses that are out there across the country that pride themselves in being great rib makers and barbecuers of ribs. And they create an event that's open to the public to come down. It would probably be a large version of -- Philadelphia has a number of kind of community almost local carnivals, where there is eating and maybe there is a little bit of music, and it is people just coming out on a sun afternoon, maybe with their families, and partaking in food in a celebration. It is a version of that around ribs.
Okay. I guess we will be invited to that one? 140 STADIUM HEARINGS
I read in one of the papers that the Eagles are supposed to have the biggest barbecue pit in the world. Where is that going to be, and what are you doing?
It is also in the baseball stadium. No. We thought -- and you can correct us -- there's been a strong desire to try to minimize tailgating in the area and to also try to minimize the consumption of substances that maybe once they get to our games and after our games is not healthy for us or the community. So we had an idea that in the plaza surrounding the stadium, again, similar to what we do in Veteran's Stadium on a very small scale, to try to create an event that would be kind of an outdoor barbecue pit, selling hot dogs and hamburgers.
Yes. I think on a bigger scale. But they do do this actually between 141 STADIUM HEARINGS the two stadiums in Baltimore, at least I know on a football day. But this would be a bigger-scaled version of that. We would literally attract people in, discourage them from participating in the manner they have been in the parking lots. Although we hope there is some level of that that would still be allowed. But hopefully we can kind of get it into a more controlled environment and in a manner that both for our games and the conditions people are in after the games will serve that goal then.
The question then becomes, what time would you have this operation start and what time would you have it end?
Well, I mean, I think the vision we have that there is a few hours before our game currently even that people tend to arrive and start to either barbecue for themselves or have beer or whatever it is that they are doing.
It is my understanding that some of the fans are out there at 8 o'clock in the morning.
I think that's true. 142 STADIUM HEARINGS I arrive relatively early. And I think it is a relatively small group. But there is no question that there are people beginning to arrive that early. So we are hopefully creating an environment in which we minimize that; it is more controlled; it is right by the stadium, which is now a much further distance from the communities even than we are now; and we have an ability to kind of control the crowd and the activities and the kinds of things that they are doing.
And how many concerts do you anticipate having on a yearly basis?
Well, I will tell you that, you know, our hope was to not have it be limited. In Foxboro and in Giants Stadium, where they have these kind of facilities, they are have having nine or ten concerts. We were told that was unacceptable, which we have accepted. I think the collective wisdom at this point was that since there have been running four, five, six concerts a year in Veteran's Stadium, that 143 STADIUM HEARINGS if we were to agree to five concerts per year as a limit, that that would be kind of a good balance of our needs to generate some revenue and the community's desire to have that activity limited.
I think somewhere it is written that you anticipate five rock concerts a year. I am sure it is not just five rock concerts.
Right. No. In fact, I think our preference would be to be in a different direction, but I think it says five concerts. I mean, I think just a couple of years ago --
So getting the Three Tenors here would be one of the five?
Certainly. That would be a great event to have in Philadelphia. And if they were on tour, we would be going offer that.
And, Mr. Banner, you are working with Mr. Hankowsky, and I hope you are, too, Mr. Montgomery, regarding the multiple events?
Yes. I mean, we had a version that was 144 STADIUM HEARINGS literally started a year ago, and then we just stopped. And over the last three or four weeks we have had a series of meetings. And I think we are very close to something that -- I think we are close to finishing that negotiation.
Thank you. I don't want to dominate the questioning. Councilman Clarke, I believe you had a question.
Yes. Thank you, Madam Chair. Mr. Banner, will I be allowed to bring my George Forman griller to the Rib Fest?
Thank you. I have a portable one. Mr. Banner, in your earlier testimony --
I may bring him. He is going to cook. Earlier in your testimony you 145 STADIUM HEARINGS indicated, I saw, a $120 million figure associated with the upgrade of the Vet, if you had to stay in the Veteran's Stadium. Where did that figure come from?
It is a combination of two sources, really. As we read the existing Ewing Cole report, it calls for $82 million that are identified. It also includes a list of items that are not included; things as kind of undebatable as the cost of inflation over the three years that the plan is implemented. We also believe that there are some items there -- for example, they only water-proof portions of the stadium, as opposed to all of the stadium -- that we believe, in addition to the 82 they have quantified, need to be done. So Source No. 1 is, we took their 82, plus some specific things that we could identify that we think need to be done. Source No. 2 was, when we were interviewing some of the firms who wanted to be the architects for our project, they were the same firms 146 STADIUM HEARINGS that had done analysis of Pittsburgh and Cincinnati, similar dual-purpose stadiums that had been built at about the same time, for what would it cost if we don't build new stadiums to fix this stadium up. And they told us their preliminary estimates in those ballparks was in the 110 to 130 million dollar range. So between the Ewing Cole report that was actually done and the work that those people had done in a more detailed evaluation of a Cincinnati and Pittsburgh similar building, similar age stadiums, that we believe that 120 is a more realistic estimate of what it would cost.
Was a document produced as a result of that study, or was it just --
There may have been a document produced in those cities. I don't know really whether they were just loose studies or a document actually produced. But we did not have any document produced with respect to Philadelphia.
Okay. Is there a salary cap currently in the NFL? 147 STADIUM HEARINGS
No, there is not, Councilman. We do not -- we probably would very much enjoy that from our perspective. Our last labor negotiation ended up with there being a luxury tax on salaries above a certain level. However, that is far from the restrictive nature of an actual cap.
Can you tell me about how -- well, Mr. Banner, in your case there is a salary cap in the NFL. How you can increase the salaries of your players? I mean, I don't know what sport it is, apparently in some sport there is an opportunity to exceed the cap if you sign your own players?
Talk to me about that. Because a lot of this discussion is based on the premise that there will be an increase in salaries; i.e., wage taxes. Talk to me about that.
Well, first of all, there's two aspects to answering that question. 148 STADIUM HEARINGS One is the NFL has now through the 2005 year its television contracts negotiated. And it is predetermined that 63 percent of the revenue from the television contract goes into the cap. So as the increase in revenues which are scheduled through the remainder of that contract go into the cap, our cap will automatically go up quite significantly. In fact, we negotiate an eight-year television deal where most of the payments come in the last three years of the contract. So literally in 2003, 2004, and 2005 there will be very, very significant jumps in the salary cap due to the television payment. That's part of our collective bargaining agreement with the players, that mandates that 63 percent of the revenue that we get from television must go straight into players' salaries. In addition to that, there are a number of new stadiums that are opening. The increase in the revenues in those stadiums, also a similar percentage goes into the cap. So there are projected caps through 2005 for the NFL that reflect the increases there. 149 STADIUM HEARINGS The second part of your question is, we have what's not considered a hard cap. In other words, it is not a year by year, here's the cap, in any given year you can't spend more than that. It is what in sports is called a soft cap. Which means that there are ways that you could actually spend in cash more than the cap and still be in compliance with the league rules. In our league, we believe that, over time, the cap serves to be an equalizer. What you can do is, if you have average spending over a cap about 5 to 10 percent per year, and did you that every single year, you would still technically be able to stay, over a period of time, under our cap. Now, what some teams in our league have done, the Washington Redskins did this this year, for example, they went out and they spent almost 100,000,000 in one year, when the cap is only 63. Now, over time you cannot continue to spend that far above the cap and not have what we call a cap problem. But with a cap of 63, you could 150 STADIUM HEARINGS easily average, say, 70, 71, 69. When the cap gets to be 80, you could easily be at 88, 90 on a regular basis and still be functioning within our cap rules.
The cap this year in the NFL is $62.6 million. Our cash payments to players this year will be about $66 million. So we will be in that about 5 or 6 percent this particular season in cash over the actual cap. And one thing I would like to reference here, because some of the information that was provided yesterday was kind of distressingly incomplete. For example, if you look at Dr. Rosentraub's testimony, he testified that the players' salaries for the Year 2000 for the Philadelphia Eagles were $54 million. Well, in fact they are $66 million. But one thing that was also omitted is that, as part of the collective bargaining agreement, in addition to the salary cap, we have a large number of categories that are called player benefits that the teams pay for that is in addition 151 STADIUM HEARINGS to the salary cap. That number in the Year 2000 is almost, just a few bucks, literally, short, of $10 million for our 53 players. So between the salary cap and that category, this year we will spend about $76 million on our players. In the analysis you saw yesterday, that number was listed at $54 million. So similar to what Dave was able to say about the Philadelphia Phillies, in that one category in the testimony you heard yesterday, it was underestimated in fact, not in theory, not in future projections, the projection, the numbers he gave you for the Year 2000, underestimated that one category by $22 million.
Mr. Montgomery, with respect to the Major League baseball people who know about the industry, pretty much say as long as there is no cap, the New York Yankees will continue to be the Major League Champions. I am assuming that at some point the owners will force a cap or request a cap? I mean, is that going to continue and require that we continue to build new stadiums to increase players' 152 STADIUM HEARINGS salaries, to keep pace with the New York Yankees, who has the largest media market? I mean, how far is this going to go?
Well, you have correctly identified a key issue within our industry. But the problem is that the only way we can create any more what I would call restriction on salaries is through a collective bargaining process. In 1994 and 1995, we actually had hoped to get through that process with establishing a minimum payroll, establishing not only the luxury tax that we talked about that is currently about 35 percent, but at one time the talk was that would be at high as 50 percent; instead of that threshold being at a floating amount, that it would be at a fixed amount. We are facing collective bargaining discussions beginning at the end of the 2001 season, Councilman. And, as a result of that, it is difficult for me to predict what success or lack thereof that we would have at the bargaining table. It is a goal of Major League Baseball 153 STADIUM HEARINGS to reduce the disparity between clubs for the very reason that you stated. And that disparity is, in my mind, a three-fold problem. It is the revenue disparity that we are hoping this opportunity gives the Phillies a chance on stadium revenue to get our situation back to be on a par with the type of fan support that this market, you know, can enjoy because of, A, the population base; B the media market. It is not New York, but it is a significant media market, as was testified to yesterday. And if we can get our stadium revenue situation more on a par, then we believe we can reestablish our franchise where we believe it should rightfully be based on market size, which is somewhere around the top of the second quartile as far as Major League Baseball is concerned. So there is the revenue disparity that needs to be addressed. That's why I referenced a few minutes ago the failure of the analysis yesterday to compute the additional revenue-sharing expense. And on the revenue sharing plan 154 STADIUM HEARINGS that's in place today, we estimate that we will be paying approximately $10 million in revenue sharing in the Year 2004. There is then the disparity as a result of that, which is the analysis that we have shown you, the correlation between revenue and payroll. So if we can reduce the disparity in revenue, that will have some effect on the significant disparity in player payroll. And one of the goals and objectives -- and I should be careful, I don't want to characterize it in a public setting necessarily what will be the discussions going forward by an entire industry -- but I know that at least in a Blue Ribbon Panel report, it was suggested that there be established a hard minimum salary, so that the disparity which today is about a multiple of seven -- you have some franchises payer payroll exceeding $100 million and some less than $20 million. And, actually, I think as a result, it is a seven-to-one ratio today. So our goal would be to establish a hard minimum, to put some more restrictive nature 155 STADIUM HEARINGS into going forward above a certain amount. The amount mentioned, interestingly enough, in that report was 84 million. That's very similar to the number that we have suggested and Arthur Anderson has suggested, where we would be in our pro forma. Now, keep in mind we were talking about in 2004, and that number was referenced earlier, I think, as 2002, Councilman.
Okay. You just made a statement that kind of caught my ear, when you talked about not wanting to talk about this issue as it relates to the industry in a public setting. That concerned me. We are talking about --
No. No. No. I am happy to talk about the Philadelphia Phillies. You totally misunderstood, Councilman. So let me just correct, for the record. What I was speculating about would be the objectives in our labor bargaining going 156 STADIUM HEARINGS forward. And I, as one franchise, I don't want to characterize -- you know, there are different views in our industry. For example, the New York Yankees would have a different view than the Pittsburgh Pirates and the Minnesota Twins. I am just, for the record, stating --
What's your view? Because I asked this question because, I mean, the person on the street, you know, without having participated in these hearings and read documents, they essentially believe that we are subsidizing millionaires. Right? And when you are talking about a public infusion of cash, although in this particular proposal it indicates that it is being generated by the stadium, but, you know, we increasingly feel like we have no wherewithal to impact upon that franchise discussion, that it keeps increasing the cost of these players, right, and ultimately it ends up being a burden on us. And at some point owners, I mean, you 157 STADIUM HEARINGS know are going to have to hold forth and just bring that discussion that we have here today to the discussion that you have as owners of these franchises.
Well, let me try to satisfy, to answer your question, and then you please follow up where I am incomplete. And the Philadelphia Phillies believe very strongly that, for the good of our industry, it is important to reduce the disparity that exists. I mean, one of the things that has been talked about, it is part of the comments, is that right now payroll dictates who the winners are in Major League Baseball, much more so than, for example, other sports that have different systems. So we think for the future interest in our game and the good of the industry at-large, our franchise's position is that we would like to see the disparity in those three areas be reduced. So clearly what that would do would be that there would be a system in place that would mean that the salaries paid to players would be more in line with the revenue going into the industry, and that that revenue would be more equally divided 158 STADIUM HEARINGS between franchises. I cannot sit here and predict how successful in the next negotiation, or the next two or three negotiations, that would probably -- or maybe four or five, for the life of this relationship that we are talking about, as to what that system would be. I think that it is important to note where we are today. Our salary-only commitments, and that's a big point that Joe just made, our salary-only commitments last year were approximately $48 million. Our pro forma going forward indicates that that's going to jump up by at least another 30-some million dollars. And we think that will result in a deeper talent pool for our club. And the reason we haven't been able to go more is the restriction that we have based on our current revenues. So one -- excuse me?
So, one, we think there is significant opportunity for payroll growth for our particular franchise, without even touching 159 STADIUM HEARINGS this area of, you know, caps or anything associated with that. So we would like to, A, take advantage of getting our club back to where we believe it would belong. Two, that if there was a relationship that was more directly tied to revenue going forward than exists in major league baseball, I think what would result is exactly what Joe described. That as the industrywide revenue goes up, that probably then the public sector would enjoy the commitment by our franchises and others, in other markets, to put more dollars into players as a result of that.
Councilman Clarke, I am sorry. We have any number of members who are waiting. Can we do a second go-around?
And I hear it. And I just wanted to indicate that I clearly understand the disadvantage that your franchise 160 STADIUM HEARINGS suffers as one of the lower paid teams as it relates to salaries. But it would help for me if you would be more public as it relates to this salary increase across the league. I think it is getting out of hand.
I am happy to be as public as I personally can be about our franchise. Just, again, I want to clarify that my only reluctance was, I didn't want to be characterizing on behalf of 29 other franchises what their particular clubs' bargaining objectives may be going forward. That's for others to say, rather than for me to speak on their behalf.
Thank you. Mr. Banner, I think I was sidetracked by the issue of the barbecue and I forgot to ask you a question.
You mentioned about 161 STADIUM HEARINGS the gap. In your view, what is the latest date that that $54 million gap could be filled?
The answer for the moment is, I don't know. We are, in about the next week to ten days, going to begin meeting with our banks. Obviously we cannot proceed with a financing deal and close it unless that gap is done. We will learn from them exactly, in order to -- if we were going to start working on the T warehouse site in February, and we are really going to be building a stadium in May, you know, when we will need the financing in our hands, and, therefore, when we will need to complete the financing deal. And that will really drive the answer to, you know, what's the last possible moment at which we either have to commit to the financing and stay on track for 2003, or it's too late. So I don't know that answer now. I don't think I will until we meet with the banks. I feel comfortable we have some time. It is not months; it is weeks. 162 STADIUM HEARINGS But, you know, we will not know, you know, literally, is that the 15th of December or the 25th of December or the 2nd of January? I mean, we are somewhere in the next three or four weeks until we are able to sit down with the banks and identify that.
Thank you, Madam Chair. Most of my questions will be pertinent to both of you. So if I make reference to one team's situation or the particular bill that I am holding, only because the bills are rather large and a little on the unwieldy side, but I am making specific reference to Bill 000721, which is the Eagles' ground lease bill, and I believe the Phillies' comparable bill is probably 722. I believe, though, at the back most of these items are pretty much the same. In Bill 000721 -- and I am again making the assumption that 722 says the same -- there is a sheet all the way at the back that says, "Eagles Lease Terms." It is Exhibit B, Eagles 163 STADIUM HEARINGS Lease and Development Agreement Terms and Conditions. And there is language at the top -- this is a document dated November 16, when the bills came in -- it reads, "Key terms of this agreement are subject to change due to finalization of the transaction and funding structure, as well as the requirements of state and local law and the requirements of tax exempt financing." Can you tell us at the moment what of these items -- and there are about eight pages -- what of these items are not final, which are final, or is everything final, and is it the expectation that these, what are, in essence, bullet points, although detailed descriptions for the most part, are you expecting that these items will turn into the ultimate leases? (Councilwoman Blackwell assumed the Chair.)
Yes, we are assuming that the terms identified in here will be ultimate leases. And I am just trying to read through quickly. I believe in the Eagles' term sheet, 164 STADIUM HEARINGS that everything in this term sheet is as it is at this moment and as we expect it to stay in the final document.
So for purposes of today's hearing, if this term sheet did not have that somewhat italicized type at the top, and what in essence is somewhat of a disclaimer, are you saying that, on behalf of the Philadelphia Eagles, that this term sheet is the term sheet, and this language at the top literally could be removed -- and obviously this language has to be turned into lease-type language -- but is this the deal?
I think with respect to the issues that it addresses, which I would consider kind of the main deal points, that it is an accurate reflection of what we have agreed to.
I think you have been very careful to say for what it addresses, which then naturally means there are things that are not addressed here that are somewhere else. And what are those items, and what are the outstanding issues that are not addressed by way of these lease terms?
I mean, there are not 165 STADIUM HEARINGS any, what I would call, major business terms that I think are not included here in addition to this. There is a tremendous amount of detail, aspects of enforceability, consequences of deviating from these kinds of things that exist in the, you know, lease that will be completed. You know, as I flip through here, the things relating to the size of the stadium and the limits in the contribution and whose obligations go forward with respect to operating and maintenance and capital repairs that are identified here, which I would call the primary business terms of the deal, are all consistent with what the final deal will be.
Again, just by way of the specifics, if you could give me, I guess, a little better understanding of some of the items that are not in either of these documents that are a part of Bills 000721 and 722. Tell me about the things that are not on these lease terms or ultimately will become the lease agreements that we don't have.
Councilman, my response would be that, as far as the details 166 STADIUM HEARINGS associated with it, again, I would agree with Joe's testimony, that they would be an expansion of that. Our understanding is that, for both parties, we don't expect the substance of the deal points to change. As far as my quick look in reflection on your specific question, I know, for example, some of the specifics associated with parking, as far as our broad responsibility north of Pattison, and exactly what the availability of all those parcels may be, the number of spots, for example, there may be a clarification ongoing on that, but I don't think it changes substantially what is presented to you, as far as the basic business terms associated with that relationship.
So, Mr. Montgomery, from your perspective, there are no 19 other lease terms or conditions that are not in this particular document in Bill 000722?
Well, Councilman, again, I believe that the elements that constituted a commitment that our club made to the Administration on going forward is captured in the document that you see. 167 STADIUM HEARINGS And our intent would be that, on behalf of the Phillies -- and as I am sure this is the Administration's intent -- would be to be consistent in going forward in developing this into a full lease. What I don't want to characterize is saying that when you look at definition of areas on the left-hand side here, I would not want my testimony to say, well, you know, in the full lease there were examples of other subheadings that do not exist here. At this moment I think this captures the relationship between the Administration as projected and the team. And, in essence, that would be my understanding of the situation.
And, again, still even with a moment to think, the only thing I would add is, obviously there's things that aren't specifically addressed here that need to be addressed. Like, well, what happens if the team can't get funding? What happens if the city can't acquire the properties either at all or in a timely manner? 168 STADIUM HEARINGS And those kinds of actions and consequences are not in the term sheet, and obviously will need to be in the lease. But with respect to who is responsible for what --
I thought I read, for instance, somewhere in here there was a provision that talked about, if the team didn't get its financing, for instance, you were able to terminate this agreement? Or if the city did not come forward with its dollars, you would be able to terminate the agreement? I thought I read that in one of these many items somewhere.
Well, I am where you are. That is the understanding. And whether or not that's actually included in the term sheet here or not or, it is just something --
Okay. All right. Why don't we go through the document, because I do have a few questions. And maybe we will even find a few things that we have been looking for. 169 STADIUM HEARINGS With regard to the Eagles' stadium, excuse me, the basic stadium elements, the document reads that premium seating initially consisting of approximately 120 suites and 8,000 club seats. Can you tell me whether the use of the term "initially," does that mean that there is opportunity for expansion of either the suites or the club seats? Or by way of "expansion," I mean an increase in those numbers.
Yes, that's exactly what it means. We are hoping, and we think we are pretty much there, to have a design that if the demand turned out to exceed this, there would be ways to accommodate it. We have done some market research and think this pretty much reflects where we should be, but we are trying to do something to provide some flexibility in case we have underestimated it.
So you are saying the way the stadium will be constructed is in such a way that if you wanted to add 10, 20, 40 -- I mean, I don't know what the ultimate number could be, naturally that would be the next question -- the 170 STADIUM HEARINGS stadium is constructed in such a fashion that if you needed to or wanted to increase the number of suites, you would be able to do so?
Yes. I think we are far enough along in design that I can be fairly specific with you. There are some areas that we are designing for uses that will be open to more of the general public, although for a fee, that if you wanted to, at a future time, you could build out into suites, if you felt that either there was the demand or the economics of the two warranted that.
We haven't finalized it. But, for example, we were just in Washington. And in an area that I think they originally actually conceived as being suites, and then they didn't sell them -- and they do this in Green Bay, as well -- instead, they just opened the front of really what amounts to a whole corner of the stadium, created a small restaurant and bar in the back of this, and then just sold the regular 171 STADIUM HEARINGS seats at somewhat of a premium. Almost like you were buying individual suite seats, but with not quite the level of amenity you would have in a suite. So individuals could purchase them, as opposed to corporations, who generally buy suites. So we may have some of those when we initially open the building.
It is a somewhat enclosed area? For inclement weather, you get a glass or something, sliding glass, or something like that?
Tell me a little bit about the suites, at least the initial 120. Is this kind of the condo kind of suite? I mean, will people -- maybe inarticulate terminology -- but essentially people will buy these or they will rent these at some particular amount, they get their name, I guess, on the outside, that's their box?
They would rent them on an annual basis. Most of the new buildings -- and I 172 STADIUM HEARINGS think we will be consistent with this -- have somewhere between five- and ten-year leases that they ask people to sign for their suite in the new building. And, yes, their name would go on it. They would own that suite, so to speak, for the events in the building. And they would pay an annual --
That's really a marketing decision. And, frankly, as we determine whether we have an MLS team and the arrangement with Temple football gets finalized, and so on and so forth, we will determine whether it is even an option for it to be all events, and whether we think that is what the market would prefer.
So far that decision-making process is, you could be a suite, quote, unquote, owner, but it is your suite for the Eagles season, and it could literally be someone else's suite for soccer season?
Yes. Or be sold on an individual-game basis for other sports, for 173 STADIUM HEARINGS example.
Can you give me a sense of the cost of such a suite? And are they pretty much the same across the board, or is that also a function of, I guess, a suite on the 50-yard line has got to be more expensive than a suite in the enzone?
Right. In football, the value of the suites is pretty much driven by what yard line they are on. We haven't finalized the low range to the high range. I will tell you this: Around the NFL, the average price for the suites, in other words, if you took the lowest and the highest and averaged them together, is about $100,000. So we will probably have some that will be below that and some that could even be significantly above that. I don't envision us being radically different than the norm, and that's what's going on in most of the new stadiums in the country.
A club seat is a prime seat. It is generally a very good located seat. In our building, it will be at the mid level, what people think of as kind of the 400 level in Veteran's Stadium. It includes a significant level of amenities. There will be a club built on both sides of our stadium that will be, basically, private to the people that purchase those club seats. It will include things like a pregame brunch, indoor restaurant opportunities. Indoor space, if the weather is louzy and you want to go indoors and sit down at a restaurant and watch the game on a big-screen TV, it will all be right there. If you want to go in for 15 minutes and get dry on a rainy day, it will be there. So the primary benefits are the location of the seat and the amenity opportunities in terms of this club that will have, you know, restaurants and food services that won't be available otherwise.
So it is kind of, in the positive use of the words, it is creating kind of a segregated area to which only club seat 175 STADIUM HEARINGS people are allowed to be, or it is kind of a mezzanine level? I mean, it is a place you can't get unless you have the right ticket, card, or something like that?
And the amenities, if you will, are not necessarily in the suite or in the box, but they are in the area.
If you are allowed in that area, you have access to all of those things?
Exactly. If we build 8,000 club seats -- and theoretically there will be 4,000 on each side of the stadium -- in our instances there will be about a 45,000-, 50,000-square-foot club, which will really include some of the basic hot dogs and hamburgers, we will also have some upgraded kinds of foods, and indoor space that people can utilize.
A PSL is the same as -- PSL is kind of traditional term for what we are 176 STADIUM HEARINGS calling a CSA. We are calling it a charter seat agreement. The more traditional terminology out there is Premium Seat License. And it refers to what the Council President asked about earlier, where on 29,000 seats in the stadium we will at least have the right to charge people a fee for which they will own the right to acquire that seat for the full length of our lease.
All right. So walk me through that. At some point in time you are going to start marketing this. I want to be out at the stadium. And I pay a CSA fee in order to have the right to then have, what, a season ticket in that particular seat?
Yes. And to say it clearly, so I don't mislead you, to purchase a season ticket for that particular seat. So if, for example, you were someone who was a die-hard fan, and you said, "I don't really care what it costs, I want the seat at the 50-yard line in the 15th row," you know, that -- if we do this, that particular seat will have a price. 177 STADIUM HEARINGS And if you are willing to pay that price -- and theoretically in this instance if you are the first person -- what's more likely to happen is, if you are the person who owns that seat right now, and we assign a price to it and say to you, "Look, if you want to keep that seat, you can purchase this or not. We can relocate you, and you don't have to buy a CSA anyway. Or you can get one at the 30-yard line in that 50-yard-line price is too high," then you will control the rights to that seat and the right to purchase a season ticket for that point.
Well, again, we are going to do some market research. Well, first we are going to meet with our banks to see whether we need to do it or not. We have taken a very conservative approach to this. We are the first team in our league to agree to a limit on the number of seats. I think we are the first, or one of the first, to agree that the revenues from this can only go into stadium construction, so people understand that we are not 178 STADIUM HEARINGS using it for any other means. So if we need to do it, I think the next step will be kind of a judgment as to what the market will bear, especially since we are selling such a small quantity of them. The only thing that I can give you more specific than that is, as I said earlier, the range in Pittsburgh on the lowest price was $600, and the highest $2700. I think the highest is in Carolina, where the lowest price, I think, was either 1000 or 1200 dollars, the top price was $5400.
And you mentioned later on in this document, or another document, the money from the CSAs is actually being deposited in a special account that is for stadium construction purposes?
The way we have structured this is that literally the fund would be to PAID, and then paid for by them into the construction project. So that it is uncomplicated and assures anybody who is purchasing one that our commitment that the money will go into stadium 179 STADIUM HEARINGS construction has to be kept.
All of the concessions, and in this same section it talks about retail spaces, restaurants, video score boards, and I am assuming that there are potentially would be advertising opportunities on these various score boards in between other action, the teams will control all of that?
And in terms of the retail space or the restaurants or concessions and the like, you also determine who the actual vendors are?
Yes. And, in a broad sense, it will hire kind of a general concessionaire. Again, because we are further along, we have literally done this, or at least we have an arrangement. It is not actually executed until the deal is done, but we really kind of have a mutual commitment. In that arrangement, it also allows us, though, if there are local vendors that maybe have food that's unique to this community, or particularly popular in this community, or that we 180 STADIUM HEARINGS think would add to the feel or even kind of the ambiance of the facility, we have the right, even within the contract, to insist upon those concessionaires being allowed to come in under the umbrella of the general concessionaire.
All right. So you are -- what is this entity called? If you haven't completed your deal, if you are comfortable saying who it is, fine. For the moment, I don't necessarily care. But what are they called, a concession manager?
So your statement is, the concession manager, even though they are ultimately responsible for who is in the stadium and in what spaces, within that you have some right to influence, if not dictate and determine, which restaurateurs or which commercial retail people or anyone else can be in the stadium? They can't just put together their own game plan and kind of go have a party and do whatever they want to do?
I think to be completely 181 STADIUM HEARINGS accurate, obviously they can, to some degree. But we have carved out some opportunities for ourselves so that they don't just have uninhibited control without our being involved at all.
NBBJ is an architectural firm out of Los Angeles, California. They are a group of individuals that formerly worked for one of the larger architectural firms that does stadiums. In fact, the lead principal was involved in the design of the First Union Center. And they have recently designed the Cincinnati Bengals Stadium that just opened, the Seattle baseball ballpark, and a couple of other recent projects. And they are our designated lead architect on the design of our stadium.
As I listened to the tail end of the statement, when you say, "lead architect," does that mean there are other architectural firms involved in this? And are there any local Philadelphia firms involved as a part of this larger architect team? 182 STADIUM HEARINGS
This is Dennis Biggs, who spoke a little bit earlier. And he can give you much more specific answers to those kind of questions than I can.
Yes. Councilman, the team of architects and engineers that's been assembled and have been working now for several months on the project is led by NBBJ out of Los Angeles. However, we have a local architectural firm of Agoos & Lovera, is the associate architect on the project. We have the lead structural engineer is a firm by the name of Ov Arup, A-R-U-P, who is an international structural engineer familiar with stadiums of this type, who has also done many football, soccer, and baseball stadiums. However, they are also in association with Ang Associates here in Philadelphia.
Ang Associates, A-N-G. They are the associate structural engineer here on the project. 183 STADIUM HEARINGS
Yes. Structural engineer. From the mechanical, electric, and plumbing engineering, Flack and Kurtz, again a firm who has done many arenas and stadiums around the country. However, we are using the firm of Spectra Engineering here as their associated mechanical, electrical, plumbing engineer. And we have --
Now, is this still all associated with the architectural team, or is this more into the construction?
No, this is all architecture. This is all the architectural and design team. We have Hunt Engineering, who is doing the civil engineering on the project. That is a local firm here in Philadelphia. We have Sentera Limited, it is also a member of our design team working on landscaping and site design issues. We have -- we haven't talked about the construction team. But the construction team is 184 STADIUM HEARINGS made up of Turner construction, Keating Building Corp., and McKissack & McKissack. Again, those firms are all here locally in Philadelphia.
What do you anticipate the architectural contractual work to amount to dollarwise? And what are the dollars that have been expended to date?
The total architectural fees for design, running through the observation phase, if you will, looking over the construction along the way, will exceed $18 million.
And do you have any charts or documents that indicate what the breakout is of the $18 million by way of the different firms that are on the team?
Currently those participants in the projects are exceeding 20 185 STADIUM HEARINGS percent of the design amount.
Currently the local business participants from the minority sector are exceeding percent of the total design amount. 7
Well, we have only hit 13 the first level. So we are at the construction 14 management level, between the Turner Keating and the 15 McKissack & McKissack Group is responsible for 16 16 percent of the construction management agreement. 17
What's the total 18 amount of the construction management agreement? 19
Well, they are 20 responsible for the total project, which will be the overall construction cost.
That number includes soft and hard costs. 186 STADIUM HEARINGS I think we think we are in, we are hopefully in, about the 310, 320 range on hard costs.
I am sorry. I may have cut you off on the construction manager team. Or maybe you gave me the first tier, and then there are others that have not been determined?
What are the other positions that are undetermined at this point?
Well, all of the construction trades, the contractors associated with that, are undetermined at this period of time. We still have not gone out for bids on the project. That will be taking place just after the first of the year, assuming the project is moving forward.
And is it to that group that the goals that were discussed earlier get applied? 187 STADIUM HEARINGS
Yes. As I mentioned earlier, historically -- not that we are going to be overly weighted on that -- historically on the design side, many of the projects in the city have been in the 7 to 15 percent range, on the combination MBE/WBE 8 plans. 9 And indicated to us was we wanted to 10 raise the bar here and get into the 15 to 20 percent range in that category. And, as I say, we are at about 21 percent. So we have actually exceeded the high end of the range, and significantly above the project. The construction end of the project relates to the 35, 12, and 2, or 49 percent goal, that we are committed to doing everything we can to achieve. And we have not hired anybody in that category, as you said, other than the construction manager. We are still finishing design. But we will in about the next four weeks beginning to go out to bid on those areas.
Okay. On , in the heading Stadium Complex Project Budget, 188 STADIUM HEARINGS letter B talks about, "The team is responsible for 100 percent of costs associated with the construction of the basic stadium elements within stadium site, including any and all cost overruns on stadium budget other than overruns that result from post-approval design changes requested by PAID not mandated by generally applicable laws and codes, if agreed to by team." I guess in somewhat more explanatory language, can you tell me what situation or circumstance would end up invoking this particular clause?
If the city insisted upon a change in the design that pushed us over budget, that they said we had to do, that was other than to meet code, then we wouldn't be responsible for it.
Give us an example of something that PAID would possibly require. These are things that generally have already been approved as a part of a design, and somewhere, while they are --
I honestly think in our 189 STADIUM HEARINGS project, where we are at, the chances of this happening got to be virtually zero. But I will tell you there have been instances, for example, in other projects where cities created an architectural oversight group, and maybe the stadium was designed, and the team had $300 million to spend, and they budgeted it, and they designed it, and the contractor said, "Oh yes it is 300 million bucks." And then somebody on the architectural design team said, "Well, wait a second. We want a roof on it. Or we want 50 more bathrooms in the building." It wasn't required by code; it was just the preference of that group. I can't see that being applicable here. But there is, obviously, oversight and permissions needed. And we didn't want to be in a position where the city would arbitrarily make some design choices that increase the cost of the project that we just were obligated to do, no matter what the cost.
Madam Chair, I am trying to be aware of my time. You have been most gracious and didn't even put the little timer thing 190 STADIUM HEARINGS into the microphone. I am well aware that some other colleagues may have questions, and I have a few more. So I am more than willing to relinquish and come back.
Let me ask, before we call my next colleague, it is our understanding that when it comes to site preparation and construction costs, that you are responsible for the cost overruns. However, in the information you provided, I see that we are providing 10 million of bond proceeds towards a maintenance reserve fund, and holding an additional 10 million for site work contingencies. And I want to ask about site work contingency money and environmental concerns. If construction does lag and costs increase, is it your intention to tap into these funds? 191 STADIUM HEARINGS If so, wouldn't that mean we are paying for cost overruns?
I am always ready, Councilwoman. I will reintroduce myself today. I see we have a new stenographer. Bill Hankowsky, President of the Philadelphia Industrial Development Corporation. Councilwoman, the $10 million line item in the budget that is contingency is the city's contingency, it is not the team's contingency. So it can cover a couple of different elements that might happen. As we covered yesterday, if we have to spend a little bit more money to acquire the properties, we can use that contingency line item. We do have one site responsibility, which is the demolition of the Navy Hospital and the creation of interim parking on that Site. If that costs more, we can use the contingency. We also might have just, you know, 192 STADIUM HEARINGS legal fees or consultants we would have to have, traffic studies, or something like that, and we can use it for those. It is not available to the teams. The $10 million capital reserve is meant to go to the Eagles for the ongoing capital maintenance of their facility. It does not go into the initial cost of construction. And I think, Councilwoman, that addresses those two pots.
I wanted to question you about the children's fund. It was explained that for tax purposes the city cannot directly receive these proceeds. Have you developed a plan on your portion of the fund? If not, how do you see your role in Administration of this fund?
I think that both teams have had discussions with the city on this. And I think the city is determining for its purposes what the best way to receive this would be. I think the latter part of your 193 STADIUM HEARINGS question, I think we really would love to be involved in how those funds are utilized. If there were to be a Board created on some kind of a charitable organization, we would certainly love to have some representation. But we fully recognize the intent of this is to create a fund that the city and this Council can utilize as it sees fit. But as we are making the kind of contribution we are, if there were a Board on this organization, or something like that, we would certainly love to have a voice on it, at least.
We are very, very concerned about this fund. And we want to be involved and need to be and intend to be closely connected with every aspect of it. This is very, very important to us, and very important to the future of our students. And so we want to make sure that we underscore that. So that it is understood we want to use this a special way, and we are really concerned about how this will be administered and through whom. 194 STADIUM HEARINGS My next question goes to minority participation. On the President's staff we have a gentleman, John Macklin, who will be back in town next week. And we are requesting that you be in touch with him. As well as, certainly, my colleagues, Councilman Clarke and others have raised many issues with regard to minority participation. But we are asking that you also keep Council fully informed and fully integrated into all discussions through Mr. John Macklin.
Thank you very much. Madam President, I have three more, but I will defer.
Thank you. Councilman Nutter, I know you yielded to Councilwoman Blackwell.
Actually, no, Madam President, it was not so much a yield as I thought that I had used my time.
I think you have. 195 STADIUM HEARINGS So if you don't mind...
So it was in the pure spirit of confession that I yielded for a next round.
Thank you, Madam Chair. Mr. Banner and Mr. Montgomery, I just want to say at the outset, I appreciate your testimony and I appreciate all the patience that you have shown throughout the course of this process. I know that for at least two years, and probably for longer, you have had to deal with this, and either by direction or by design have really not been able to say much about it until recently with the press conference that the Eagles have had. One of my concerns about this entire process -- and understand the critical questions that we ask in this process is not necessarily about the deal itself. Because I don't have a lot of problem with the financial aspects of this particular deal 196 STADIUM HEARINGS and the contributions of the teams to this process and the shared risk and investment that the city and the teams will participate in hopefully December 14, when we pass this legislation. I guess my concern is, the time frame which we're in, the situation of the city as we speak today, as it relates to our five-year plan and to our unanticipated expenses over the last or 10 months, and kind of on the edge that we are on being 11 totally solvent in our government, and then a bad-case scenario being presented to us with a bad economy, with other problems at PGW, our schools, and those kinds of things, that in the context of this discussion, taken alone, this is a slam dunk and we can move forward and should have moved forward six months ago. But I want you to understand as corporate citizens, and good corporate citizens that you are, it is the city's entire fiscal picture that gives some of us pause and concern and a need to question. And it is nothing to do with your efforts to bring these two new facilities to our city. 197 STADIUM HEARINGS
Certainly appreciate, Councilman, the magnitude of the task that the Council has to evaluate our deal not only on its individual merits, but in the context of the city at large.
You know, the only thing I would say in addition to that, and I share that view, is, really, by virtue of the NFL loan, we were able to at least do a little bit in helping that problem. Because by taking our payment and an O & M payment, as opposed to an up-front contribution, none of that money, at least, needs to be start to be paid until 2003. I know it is a portion, and there is a very significant amount of money in addition to that. But at least on really what amounts to one-quarter of the contribution that the city is making, we were fortunate, by virtue of this NFL loan program, to be able to structure it so that we have kind of a delay before that kicks in.
And I know the Eagles have always had the site of the T warehouse 198 STADIUM HEARINGS for their potential site for their new stadium, their new. And the Phillies I do empathize with. Because from the last Administration through this Administration to date, it seems that the process has moved forward atypical than what's happened in the rest of the country; in that, these franchises and the cities who build these facilities start out a year, two years in advance, beginning to evangelize the community, try to get a ground swell of support of labor and business and community people; and to kind of make people understand that this is good for them, it is good for the city, it is good for the city's image, and it is good for the city's tax base. We didn't do that. You know, the Phillies ballpark basically got dropped into Broad and Spring Garden without much discussion or much prework going into the community and trying to talk them. It was rejected there, and then was dumped, without much ceremony or much work, in South Philadelphia. And then the Mayor, Mayor Rendell at the time, decided he couldn't get it done and walked 199 STADIUM HEARINGS away. We start over again with the new Administration, and basically Chinatown gets the same experience that Broad and Spring Garden received, and had typically the same reaction that Broad and Spring Garden residents had. Now we are back to South Philadelphia again, with very little time or discussion with the community there. Although the Council President, as the District Councilperson, is doing her best to kind of deal with the neighborhood issues that have been going on for 30 years. And you are, at least Dave, I know, is well aware of some of the complaints that have gone on down there. Our frustration, as least I will speak for myself, my frustration is the time frame with which we have to do this and to understand and analyze and do our due diligence and basically to do our jobs. Mr. Montgomery, when I first met with you about a South Philadelphia site last year, I believe, you had shown me a schematic and a plan 200 STADIUM HEARINGS that was a North Lot scenario. And at the time you had indicated you were very proud of the design. And it indicated to me that you believed that it could be done, with enough time to deal with the neighbor's concerns and suspicion, I say. Do you still believe that we could have done that, given more than time than we have today to convince and to win over the community?
Well, Councilman, you are correct that I think your reference -- and we have had a number of stadium siting discussions through the years -- I think the one you are referencing was probably around this time of year last year, where we had felt that the initial characterization of the North Lot site, which was really depicted first originally in the paper, I think, inaccurately. Somebody had chosen to draw it --
Well, they put it, yes, at least one of the sitings that was just in general indicated -- had it all the way up in the northeast corner of what is referred to as the North 201 STADIUM HEARINGS Lot. And that was never planned, never contemplated. And I think, as a result, the neighbors that were north of the Walt Whitman Bridge access felt that we were all of the sudden moving towards them. The original siting that we took to some of the leadership was one that had us really adjacent to what I call today to be the existing practice fields for the Eagles, which are the two football layouts in the North Lot parking lot. And then as a result of the reaction, because, frankly, we are very proud of what our building is going to look like. We think that it, you know, with a stone or brick exterior, and a lower facility, it is going to cast a far different shadow, I use the term, than Veteran's Stadium does. So we really thought we were giving the neighborhood an opportunity to choose between having the attractiveness of this building nearby or parking. We got a very clear indication, at least from a few of the members in that meeting -- 202 STADIUM HEARINGS others have said that I was incorrect in my assessment -- that they would rather it to be parking near by, as opposed to building. And I think that's a specific reference you made to us moving the ballpark over to the adjacent to 10th Street position that I showed in that North Lot site slide that we showed.
Absolutely, yes. Right. But instead of being closer to the cluster of homes there, it was as close as we could get it to 10th Street. So that is correct. We still believe that the characteristics -- one of the tough things to communicate has been the characteristics of the ballpark, as opposed to a stadium. The fact that one can fit inside the other, the size, and the exterior attractiveness -- at least that's the term I will use -- of a ballpark, as opposed to the existing significant amount of ramps and concrete that are associated with Veteran's Stadium. 203 STADIUM HEARINGS I did reference that there were two subsequent moves in the sports complex since then. But you are correct that we felt that that was certainly something that we believed, you know, with the opportunity to discuss more fully with the neighborhood, gave us a chance of being sited there. I think the other level of understanding that we were not able to break through was the attractiveness of what we have always referred to as a "buffer state," Councilman, which is the 150-foot area that would be between any homes and any either ballpark, parking, et cetera. And we always felt that if you could create a gentle hill in that area, that if people found the view of the parking or whatever objectionable, that at least anybody at street level -- and even over time utilizing the trees that are there now, and enhancing them greatly -- that you could pretty much block, in essence, the view with the facility.
The move across 10th Street to the Jetro site, which is what we are deciding on now, is about a 700-foot difference from 204 STADIUM HEARINGS the last Phillies location on the North Lot. I think it was 490, was your last location?
About a 700-foot difference. What would have been the Phillies' response if they would have been asked to absorb the cost of the three parcels that they would have had to acquire in order to move that site to the Jetro site?
Well, it is tough to ask that just in the abstract, Councilman. What has happened, if we are asked to compare then and now, probably then I wouldn't have said that we could enhance our contribution at all. And, in our estimate, the difference between the Phillies' cost associated has gone up, combination of factors, associated with site, associated with a year later, et cetera. And then some of the additional 205 STADIUM HEARINGS contributions that we were asked in this negotiation, that didn't come up a year ago, has changed our contribution, we believe conservatively, by about $50 million. So to some degree we think we have participated in those parcels that you are referencing. We do think that this presentation of a site is an enhanced site. And I have said that, and I mean that very much. Because I think that some of the pressures on that whole neighborhood have been primarily parking, traffic, and access. And I really believe that what we have developed now by enhancing the parking, by taking the facilities, in moving them away, we have actually been able to, as I identified earlier, more surround each of them with parking. So I think for the benefit of our fans and our patrons, we will have greater adjacent opportunities for reserve lots, et cetera, than we do today. There are some very significant advantages beyond that from a layout standpoint. 206 STADIUM HEARINGS We feel the ability to have an open ballpark exists on the Jetro site moreso than, frankly, it did. Because it's now open to what I would say the vast majority of the North Lot parking. And that gives us probably a greater, you will know this term, Utah Street opportunity, Councilman. In addition, the fact that we have an address now on a street -- we were kind of stuck in the middle of parking before -- but the fact that we now have a street address we think is an advantage. So I do believe it is an enhanced layout, but it would be very difficult for me to characterize the cost benefits associated with that.
That enhanced layout is at substantially enhanced cost?
Well, I think that clearly the club believes it, yes. But part of that is also the timing associated with it. I mean, you correctly identified that this has been a long process. I know it is difficult to ask this body to consider it on what you perceive to be a 207 STADIUM HEARINGS short time frame. From the perspective of some of us that have been -- when we resited in Jetro, one of the things we did was to go back to some of the initial site work drawings, layout drawings, we had done. And I think it was interesting to note that one of those was dated December 1993 and the other January 1994. So, Councilman, we have been at this a long time.
Let me shift gears for a second. And as I look through the lease terms, I noticed an item that said, "City Suite." Could you describe what a City Suite is, and how it came about? And the other question I have is, is there a history or do other cities provide a City Suite in their ballparks?
I'm not sure that I could answer for around the country. I am sure it happens in some instances and doesn't in others. As you know, there is a history of this in Veteran's Stadium.
Do you know the 208 STADIUM HEARINGS history? Because you may have been around; I wasn't.
Yes, I have been around, unfortunately, Councilman. I have been around 30 years. Yesterday I was accused of being around 100, I thought, based on some of the testimony. But the fact is that, because it was a city-owned stadium, Veteran's Stadium was, and because of the location of the city offices, there has always been an area on the 400 level that was designated, it's been commonly referred to, as the Mayor's Box. It was a suite on that level that's been in existence since the opening of the facility in 1971. We have only yet begun to design what our suites would look like. They are probably going to be 12 to 14 seats in nature. And, hopefully, unlike the current situation, they will be closer to the action. They will probably be on the mezzanine level. But because of the general shape of 209 STADIUM HEARINGS the facility, we believe they will be closer than any of the super boxes we have today. And we have indicated that one of them will go to the city for its use.
We did not get into specifics on that. And I am going to leave that to the Administration and this body to have those discussions.
Mr. Banner, are you aware of items like City Suites anywhere else?
City Suite, I'm sorry. I meant City Suites around the country, but this particular City Suite.
I am really not familiar in terms of NFL stadiums whether those exist or not. We really were reflecting the status of the situation here and continuing at some level.
You are just 210 STADIUM HEARINGS continuing the status quo?
There are no 5 specifics from your end, since you are further along in design, where it would be located, who would control it?
Well, I think, I mean, we are slightly further along in the sense that I think we have at least been asked to make a commitment that it would be on a side line, as opposed to in an enzone. And I think it will be like all the other suites, we will be responsible for maintaining it. I think the food service would be the responsibility of the user.
Do you guys have, in your own deliberations and trying to figure out your revenues, have you assigned a value per suite to the layout in the Phillies facility and Eagles facility? Is there a number that's associated with each suite that the return or the profit that's made after its leased maintained? And I understand also is it 211 STADIUM HEARINGS anticipated that the teams would get part of the -- or all of the profit from food and beverage service within the suites themselves?
Well, let me, because I probably have less information on the subject, maybe Joe has more. First of all, we have neither priced the sale of our suites nor has our construction work progressed to the point where I could tell you what the cost would be, Councilman. As far as food and beverage for the facility, yes, part of this agreement is that that would flow to the team. And then the team would have the responsibility, unlike the current situation, of having a direct relationship with a concessionaire or concessionaires. Again, because of where we are in the process, we have not, we have not established any of those relationships at this point.
We have not priced our suites specifically. But, as I said earlier, the average suite in new stadiums in the NFL cost is about $100,000, just a little bit below. 212 STADIUM HEARINGS And we expect to be fairly close to what -- it could be a little higher, could be a little lower. We will be in those kind of ranges.
So if an individual who purchased one of your suites and then used that as a business, which I think a few do now in the 400 and in the sky box level, could perhaps be a lucrative or at least a profitable business to operate, once you pay your debt service on the cost of the lease and then factor in your mark-up on food and beverage and ticket sales and other things?
We are building it out. So once you really built a suite level, you really lose the hundred thousand dollars that you could collect if you are able to sell it. Plus, as you say, if people are buying food and so on and so forth, there is some profitability in those items, as well.
And there are people who do actually lease it and run it as a business. Are you aware of that? 213 STADIUM HEARINGS
I have been around long enough to be aware of that, Councilman.
Yes, I would think you would like to have a 15-minute break. Would you?
-- and in the interim we could hear people like Mr. Vignola and -- it is your call.
I prefer to make sure we finish today and take a quick break, if that helps do that.
Fine. We will take a 15-minute break. (Short recess.) 214 (By relief stenographer, Josephine Cardillo.)
Gentlemen, gentlemen? Mr. Banner, Mr. Montgomery, before we continue on with your testimony, would you mind if we had Mr. Pizzi testify. You could stay where you are. He has another appointment, and he's been waiting all day to testify.
It would be our pleasure. MR. BANNER it depends on what he's going to say. (Mr. Pizzi comes forward.)
Thank you, Madam President. Thank you for the courtesy, 'cause I know how busy we all are. And I would like to say good afternoon to members of City Council. My name is Charlie Pizzi, I'm president of the 215 12/1/00 STADIUM BILLS HEARING Chamber of Commerce. As with other major projects, this issue brings together diverse opinions and community concerns and fan interest. And all are equally passionate and significant. Let us remember the Center City tunnel project and the Convention Center project. As in those cases. The task and the process has been an arduous one, especially for the teams. And I, therefore, I would like to thank the Mayor, the Eagles, the Phillies, and the PIDC staff for doing such an incredible job during this process. And, therefore, I would also call on members of City Council to approve the legislative packages before you. Governor Ridge first called attention to the importance of sports exposition and cultural facilities in October of 1995 and has since devised a financial strategy to help local communities sustain and develop Pennsylvania's pressure community assets -- from sports facilities that are integral part of our community fabric to tourist and attraction convention centers. 216 12/1/00 STADIUM BILLS HEARING But State government will not be able to undertake these projects alone. We will have to work with the local and regional governments and in a partnership with the private sector. The Governor fulfilled the State government's role in this process and legislated a portion of $170 million to Philadelphia. The legislation before you today ensures our local government and its teams fulfill their responsibilities and the strategies outlined in the Governor's task force. By now, we have become with the construction of new facilities. Since 1991, new facilities have been built and 15 new 15 facilities are under construction. The short of 16 this is to say that we need these facilities to 17 become competitive in the United States. If we 18 want to be a first-class city, we have to act like 19 a first-class city. We have two teams that are 20 outstanding members of the corporate community and 21 civic community and charitable communities. Everyone has come together. And I just want to cut this very short, Madam President, to let you know that if we want to become a first-class city and remain one, and 217 12/1/00 STADIUM BILLS HEARING just as we've done with the tunnel project and the Convention Center project, the Chamber is fully supportive to have the teams build their new facilities under an entire complex, which will become a destination center. It will be unique because no other city in America has all four facilities within one complex. We think that the community is served well by how this has been arranged and also through your leadership, and we think that this can be an added benefit to the community as the whole. So I just wanted to say on behalf of the Chamber, we are strongly for this, we worked very hard in Harrisburg to get the legislation passed there, we came back here, we've been very supportive. We really do believe that this is in the best interests of the City for the City's future.
Thank you. Are there any questions from members of the Council? (No questions.)
Excuse me. Does the Chamber support the level of public funding --
We think that it is a fair level of funding, as we looked at all of the other cities, and it really puts us in synch when we look across the United States and the City is asked to pay its fair share.
Thank you. Any questions from members of the committee? (No questions.)
Was Councilman Kenney finished with his questioning? Councilman Kenney, were you finished with your questioning?
Thank you. 219 12/1/00 STADIUM BILLS HEARING Councilman Rizzo, you're being recognized.
Thank you, Madam Chair. During -- I will direct this to both of the teams, but during our briefing, there were some questions about the use of the facilities other than for actual game days, and the Eagles were very clear, and I think you confirmed today, that nothing would basically change, that the same activities that are held in Veterans Stadium today are the venues that you associate with are going to continue at the new facility; is that correct?
Yes, that's correct. And as I said, there's some additional activity. Hopefully, it's primarily an (unintelligible) soccer team that we would shoot for, but it's pretty much a continuation of what's been there.
And I don't think it was as clear as it could have been pertaining to the Phillies, and I apologize if you've already, Dave, addressed this issue, but has there been a written agreement on exactly what will occur in the new Phillies ballpark, other than Phillies 220 12/1/00 STADIUM BILLS HEARING games?
Well, Councilman, as I -- I did indicate earlier that, first of all, we -- each of the facilities has an obligation to the public sector for ten use days, both to the City and to the State. And my understanding is that there are some parameters in which that use is to be facilitated, but we are not necessarily restricting the use on those days. As far as we're concerned, the main -- the use of the facility for us is for the playing of baseball, and we would extend that beyond our games to include the games that -- the baseball games that are traditionally played there. In addition to that, we are going to be an outdoor facility, that I know one of the things that was contemplated in the discussions is that in a futuristic sense, because of the cluster of facilities in the sports complex, that whether it was Pan American games or something of that nature, that there may be a request that our facility be used. Our interest is to continue to use the facility to meet the current obligations of 221 12/1/00 STADIUM BILLS HEARING Veterans Stadium. And I think the example I cited that if the football-based facility has successfully developed a relationship with major league soccer and they happen to be home a weekend and we're away and therefore our facility is available and that became the facility of choice, for example, either the Promise Keepers or the Jehovah's Witnesses group, that would be the case, then we would feel we would make it available. I think our biggest concern is really the protection of the grass and dirt for the playing of baseball, Councilman.
The reason that I'm being -- that I'm really focused on this is because this is such a complicated deal, and four years from now, five years from now, and you remember the controversy -- I think you both do -- when there was an outdoor concert scheduled for one of the facilities down in South Philadelphia, and it created a lot of controversy in the community. Three or four years from now, I think that things are going to be attempted that we're going to be able to probably to have a discussion 222 12/1/00 STADIUM BILLS HEARING and say, Well, you know, it was never clear that that was a appropriate or that was it was inappropriate. And that's why I'm really trying to nail it down, even though they are a distance away from what we're really trying to do here, to get two new stadiums built, but I'm sure we just want to make sure that absolutely all of these little details are a mater of record because, again, I just don't want to -- To give you an example, I understand that if there was a major ballgame or a major event occurring at one of the complexes down there, that there's a -- there's an agreement that hospitality tents -- let's, say God willing, we had the Superbowl here.
That we could put hospitality tents up in the parking lots because most of the people coming probably wouldn't be driving, that -- these are the kinds of things that every day something new surfaces, some other little perk surfaces that could affect that community. And I think -- I don't know whether they're just buried away in the fine print or 223 12/1/00 STADIUM BILLS HEARING people aren't talking about it because they don't want the red flag to be raised. Do you really -- tell me about putting hospitality tents up in parking lots and having parties, outdoor parties in the parking lots during, hopefully, a major event.
Actually, I think you raise a good example of probably something that I would not have thought of, Councilman. And my guess is that if there were a Superbowl -- and I hope that that would be an opportunity -- then I could see perhaps a situation where there would be tents erected but perhaps on our playing field, given the fact that that event would take place during the month of January, late January, and I think that's one of the valuable ancillary uses that we could provide. In other words, taking them away from having those tents created maybe in a place where it wouldn't be wanted and move them inside on the playing fields itself and create ancillary hospitality within the bowl.
I appreciate that offer, and I'm sure the Eagles are going to accept it, but my point being today, I understand the 224 12/1/00 STADIUM BILLS HEARING agreement, if you didn't make that offer that hospitality tents of the sort could be presently -- according to this deal and, again, buried away in the fine print, permit hospitality tents to be erected in the parking lots.
Well, the only thing that I believe -- and I may -- I may look to the Council President on this on terminology, but it's my understanding that with the creation of the special service district, there will be some parameters placed. I mean, our -- let me try to be as specific as I can be in answering your question. Our goal is to create, as I think in my testimony in response to Councilman Kenney's question, is to create what we call "the Utah Street environment," Councilman, and to have that be a natural expense of our game. Right now, in Baltimore, Utah Street opens maybe two and a half hour prior to game time, as opposed to the gates totally open two hours or an hour and a half. So I do not want to create the wrong impression. In an environment like that, it's important that the club have the ability to create 225 12/1/00 STADIUM BILLS HEARING the type of atmosphere that we feel would be appropriate. And we think that primarily -- but, again, we're inhibited because we haven't laid this out. We think primarily that would occur on the 21-acre site that we've identified. Our goal in setting up smaller parking areas was to create parking areas. And our interest in those areas is to have them, you know, be utilized for parking. And I think we've created a new, I guess, potential boundary with our suggestion that Hartranft be included, and perhaps that appropriate in the type of discussion that you're suggesting. I'm not quite sure where your imagination's taking you, and I'm not sure I can project 30 years out. So please help me.
Well, I think that in both of our businesses, our imagination has to be a little part of it because, again, every -- after Veterans Stadium was built and after the Center was built, all of a sudden, there were issues that needed to be negotiated. And what I'm trying to do is look down the street basically and say, Hey, what could develop that could be a 226 12/1/00 STADIUM BILLS HEARING problem five, six years from now, after this facility's opened and maybe four years from now, that all of a sudden, tents start popping up in parking lot and other outdoor activities, and here we are, we're back right where we started with the Vet, people in the neighborhoods complaining about after Eagles games activities and tailgating and all of the things that become a nuisance. So I think that when it's pointed out that you have -- or the Eagles -- I'm not sure who has the right to erect tents in parking lots for a major activity, that puts a red flag up to me, saying, How would the community react to tents being put up in their neighborhood and people being drawn away from the complexes into those parking lots that you designed to alleviate a problem of on-street parking and put cars into the parking lot? Again, I said when I started that a major activity, people coming from all over the country won't require those parking lots. And in my opinion, those parking lots are locations where tents could be erected because there won't be any cars. 227 12/1/00 STADIUM BILLS HEARING
Excuse me. Councilman, are you specifically referring to the North Lot?
I'm not -- I'm not specifically referring to any location other than the fact that I understand that the teams, based on the deal that they've put together, have the ability to erect tents in parking lots. I don't know if that arrangement is specific to the North Lot or not, Madam Chairman. Again, that's what I'm asking the Phillies and the Eagles, to tell me where can they start putting tents up during a game?
Okay, let me try, Councilman, one more time, and then I may defer to Joe. But, this is -- I have two examples because I can draw on 30 years of being in this facility. Probably 30 years ago, there was not an expectation that Joe currently has that college lacrosse would reach the level of interest, that would generate the type of fan support that it currently does for the NCAA tournaments held roughly around Memorial Day in May. 228 12/1/00 STADIUM BILLS HEARING Conversely, we do not want to close an opportunity for ourselves and for the City to have, if women's professional baseball or women's professional softball would develop and they would be looking for a place to play ball in years 7 from now, frankly, we would want our facility to 8 be at least considered for that purpose. 9 As far as hospitality tents are 10 concerned, the only time that I can speak about a 11 proliferation, if that's the right word, of 12 hospitality tents just occurred this August, and 13 it was for the purpose of hosting the Republican 14 National Convention. 15 So I would hope that in our 16 deliberation as a body, both the teams and the 17 Council, that we wouldn't foreclose an 18 opportunity, because I don't believe those tents 19 -- I mean, I can't speak for the neighborhood. 20 Clearly, you would have that pulse better than I. 21 But I would hate to see that we could not 22 entertain the opportunity associated with the RNC 23 or associated with the Superbowl or whatever 24 because we were overzealous in our restriction of 25 the opportunities associated with what's going to 229 12/1/00 STADIUM BILLS HEARING be a spectacular sports complex.
Absolutely. And I think the purpose of these hearings are to let the people watching and listening know what the potential and what the impact could potentially be. If people are watching this session or listening to it have no problem with tents being put in their community, and you used the perfect example of the convention, and I didn't hear anyone objecting to that. But my point being is, let's be up front about it now and let's communicate it now, so five years from now, when all of these potential activities possibly occur, that it's not a surprise.
If I could just add really briefly, I don't think that there's anything that either of us have in mind at this time that is not right out there on the table. But, secondly, I think that part of the rationale for the investment that we're all collectively making in buying enough land to move these away from the community is just to accept there are certain activities that take place around these buildings, and it serves everybody's 230 12/1/00 STADIUM BILLS HEARING best interest to try to move them away from the community to an extent because, you know, there are activities that may happen at a time people don't want them to, et cetera. So I think we are creating a little bit of a buffer for even things we can't anticipate at this moment by making there be such a significant distance between the residences and the buildings. And as I said, there's nothing I'm aware of that everybody else isn't aware of that exits today or that we can think of that's likely to exist tomorrow that we're not being open about.
Okay, that's great. Did you want say something, Madam Chair?
But, Councilman, I just want to assure you that we are working with the community regarding safeguards, and they will be made a part of the term lease or the leases themselves, and there will be a penalty attached to that. So there are safeguards if they are not met. 231 12/1/00 STADIUM BILLS HEARING
That's -- I understood you mentioned yesterday some legislation that might require --
-- any of those activities to come back here to the Council.
My last question is about the concessions. You, both the Phillies and Eagles, will control the concessions; is that right?
Who will have the responsibility to price the various items? Will the concessionaire have the ability to price a hot dog, a beer, a soda? Because going to an activity is -- for a family of two, three, four people can get to be an expensive proposition. How will you decide on the pricing at the concessions?
Well, I'll be happy to discuss this, although as I said, we have not worked out our arrangement with the concessionaire, and the reason I'm happy to, actually, we believe one of the things that has 232 12/1/00 STADIUM BILLS HEARING worked against the baseball experience at the Veterans Stadium has been the cost of concessions and costs/quality. And as a result, we're anxious to have the opportunity to work with the concessionaire. We think that if we can upgrade the perception of the costs and quality associated with concession opportunities, that probably we can effectively increase the per capita associated with it; and at the same time, increase our fans' enjoyment of it. I mean, it's been very you awkward for us through the years to have a third-party relationship with a concessionaire, because I think, as you well know, Councilman, when people come to Veterans Stadium today and buy a hot dog at the Phillies game, they think the Phillies have the control over the distribution and the production of that hot dog; and the fact of the matter is, of course, that the relationship with the concessionaire today has always been through the City of Philadelphia. And we have only had at best an indirect leverage to, you know, establish criteria, both from quality and pricing standards.
Thank you very much. 233 12/1/00 STADIUM BILLS HEARING Thanks, Madam Chair.
Thank you. The Chair recognizes Councilman Ortiz.
Council President, you should understand that Councilman Ortiz took the opportunity to provide general manager advice to me during the break. And I appreciate that, Councilman.
Rick Reed and (unintelligible) will be good, but Rick Reed will give us seven good innings, but it's all right, okay? (Laughter.)
Joe and David, you have stated that the figures that we have gotten -- and for the record, I'd like to begin establishing what it is so that we have a full understanding of where we're at and what can be 234 12/1/00 STADIUM BILLS HEARING projected. So if you -- if you could tell me, for example, Joe, the expenses, the yearly expense of the Eagles, for example. For this year, in terms of players' salaries, you said it was something like $64 million?
66. And you said there were other expenses that were -- that were -- that were included somewhere that, you know, and what are those in terms of players' expense?
We play -- every team in the League pays the same amount of money into a player benefits pool. It's, you know, 401Ks, it's health insurances, it's life insurance, it's a significant list of those kinds of --
And this year, it's just a hair under $10 million. 235 12/1/00 STADIUM BILLS HEARING
So, in essence, for benefits and salaries, you have around $76 million --
And for administration, how much -- how much a year do you spend for administration?
A close estimate. You don't have to be -- within a million dollars, within a million dollars, you must have an idea of how much you spend on administration.
My CFO, who's in the back, is giving me finger signals that, I think, is saying between 5 and 6 million.
Come on up here. (Eagles CFO comes forward and confers with Mr. Banner off the record.)
You're talking administrative expenses, give me a sense as to what you're --
Administrative -- administration. You have a team, you're the chief executive officer -- or Jeff Lurie is the chief executive, and you're the chief administrative officer?
Chief operating officer. You have expenditures in terms of rent, office space, secretaries, your salary, other people's salaries. How much do the Eagles as a team spend on administration?
Yeah, we don't to know your $10 million salary and bonuses, and we don't want to know the bonuses.
I mean, if you're talking about all areas, everything from the cost of team 237 12/1/00 STADIUM BILLS HEARING travel of all of our employees and everything else like that, it's $52 million.
$52 million. Could you -- you don't have that -- give me a break -- tell me what that includes.
Come back (addressing CFO). I mean, it includes, you know, virtually everything in running a business. I mean, all of our employees' salaries, including our coaches and scouts. Scout travel, for example, is a huge line item. You know, you have obviously equipment. Team travel is a very big line item. You know, expenses at training camp: We take over a hundred people, we put them up, we feed them, and pay them for a month. You get -- I mean, I'll just give you the highlights on some of the bigger items. Obviously, we have a significant rent. We pay the visiting team's share; the visiting team's share gets 40 percent of our gate. So if our --
Is that administrative? I mean, is that an administrative expense? 238 12/1/00 STADIUM BILLS HEARING
That's why I said to you what do you include in administrative? You know, I don't. . . You know, it's hard to break it out like that because you'd have to make sure you're comparing apples to apples and talking administrative. I'm giving you a pretty inclusive number.
I'm trying to get an understanding of what are the aspect of finances of a team. We're trying to see what are the necessities, how we judge how a team -- how much money, profit margins, and so on down the line. And in order to begin -- at least for my part and I -- and on the record, I'd like to know how much money the Eagles are spending in a year in terms of administration, maintenance. Maintenance is part -- this year, we maintain the Vets Stadium, so that cost runs --
In the next year, in 2003, 2004, that will be your responsibility, correct?
Right. I mean, do understand, we do have certain maintenance. We are responsible for the maintenance of our office spaces and the spaces we use. You're responsible, obviously, for the stadium, but we have three sections of offices and a fourth section of locker room and training areas, and we are responsible for the maintenance and upkeep of those areas. But, look, here's -- here's -- you know, and I think actually it was Sam Katz who said it earlier today. We did not sit down and negotiate a deal for a stadium and try to figure out how much could the City afford to contribute, because the truth is, if we took every decision --
Joe, Joe, we've gone through that. I'm -- what I'm trying to see is if I can with any reasonable certainty or approximation is how much money the Eagles spend. 240 12/1/00 STADIUM BILLS HEARING What are your expenses yearly? You take the year -- from January to 4 December 31st. And I want -- you know, I'm trying 5 to get a close proximity of how much money you put 6 out to buy stuff, to buy footballs, pay salaries, 7 pay the light bill. What -- I don't want -- I 8 don't want it detailed; I just want a rounded 9 figure. 10 You gave me $66 million for the 11 players' salaries, fine, with a $10 million 12 benefit package. That's League and -- but your 13 expense of that is $10 million. 14
I'm just trying to 19 get a round figure somewhere around in which your marketing, your -- you know, your advertising, your maintenance and so on. How much is it that you spend in a year?
So you're saying to me, other than players, just give you a number for all of our -- 241 12/1/00 STADIUM BILLS HEARING
You gave me players, you gave me players. All I want is the add-ons to the players.
Okay? But give me a figure, give me a total figure. Give me -- is it $100 million, is it 120 administrative in your expenses?
If you want to know what our expenses is, here's the simplest way for me to try to answer your question. If you took the 76 millions we spend on players and benefits, everything else included, we have about another $60 million of expenses.
No, we have -- I think it's 135, somewhere between 135 and $140 million of expenses.
Well, you know, revenues are -- 242 12/1/00 STADIUM BILLS HEARING
Can we go down to revenues? For example, what is the level of monies that we get -- you get -- I'm feeling like we're owners of the team, okay? But how much is it that --
I really don't understand the economics of this, but I'm willing to keep going.
I wish we were. Revenues, this year, because I want to see what projections we can have for the year '03-'04. What is the share of the Eagles in terms of the NFL television contract, in terms of 243 12/1/00 STADIUM BILLS HEARING ABC, Fox, CBS, ESPN? What is the share of the Eagles on that?
So that we can save each of us a lot of kind of time, are you trying to end up with some sense of how profitable we are, or what we make or don't make?
I want to see where the revenue streams are, because we have -- we have a clause here on Page -, and it says: Financial terms. Team to receive 100 percent of all revenues of every kind and description arising from and relating to the ballpark site, except as set forth in Fund for Children, which is a million dollars, and City and Commonwealth use day revenue. Team rights will include, without limitation, display, concessions, pouring -- I imagine that's the beer, right? The pouring?
And we expect to 244 12/1/00 STADIUM BILLS HEARING sell a lot of liquor because we're estimating that the schools are going to really make a lot of money out of this.
Sponsorship, broadcasting and naming rights, general admission tickets, preview season tickets. And I want to get a sense of what the revenue stream is, because we're talking here about a lot of stuff. We -- Frank was talking in essence about what I'm talking about in the sense that he was asking you how you're going to set the price on a hot dog. I don't want that. I want to know how much the Eagles are getting, if anything, from the concessions right now in terms of money. And beginning in the year 2003-2004, I would like to know what your projections are for revenue from these situations.
And, you know, you don't have to be exact, obviously, but you have a stadium that is going to have how many seats? 245 12/1/00 STADIUM BILLS HEARING
66,000. They will be filled every game. You have more or less an idea, given Philadelphia fans, a lot of beer is drunk inside and outside of the ballgame and stadia, you have an idea how much liquor you sell now. I'm sure you make some projections as to ideas of how much liquor and food you're going to be selling in the year 2003-2004, I'm sure you have idea of the revenues that you're going to get from advertising from the luxury suites. What is the estimated revenue from the luxury suites? These are the things that I would like to see. You're going to have club seats and licenses. What is the estimated revenue out of all of these things? And I would like to find out -- and I would to have that information before we vote. I would like to have information as to revenue streams, how much money you're wasting or spending right now this year, and how much money. And the same for the Phillies. So if we give Jose Mesa (ph.) a contract -- bad contract by the way, David, no 246 12/1/00 STADIUM BILLS HEARING good. Sam Mesa's not going to do it for us, but if give Jose Mesa a $6 million or $8 million guarantee, right, that goes into player expenditures, and then fans suffering afterwards. And that's unmeasurable, okay? I'd like to find out what is it that we're talking about, because we're throwing a lot of money here and we're talking about a lot of numbers and we're not talking about specifics in terms of the teams. And we have -- if we're going to approve these financial terms, I'd like to find out approximately how much is it that the Eagles and the Phillies are going to be spending, and how much revenue stream and how that revenue stream is divided and they're getting. And if you can't answer it right now, I'll give it to you in writing and you can submit it.
Councilman, let me, on behalf of our club, see if this is helpful. I testified earlier today that as a result of the testimony yesterday, that our -- I think I indicated our player payroll, which is, you know, it's public information, was 247 12/1/00 STADIUM BILLS HEARING approximately 48 million last year. In our sport, our additional player expenses come out of what I would describe to be four categories. There is the player benefits, which is what Joe was referencing, that's actual cash out; there is team operations, which is the ability to get us from one city to another and pay the salaries associated with our manager, coaches, et cetera; there are the scouting and player development expenses, which are the combination of scouting the talent --
The scouting, it's not what you referred to GNA, I'm going to come to that. And the operation. And we've talked a little bit about the attractiveness of the Reading franchise. You know, and I'm not so sure everybody knows, that those players are really Phillies players there, that we're paying the salary for the Reading Phillies players, we're 248 12/1/00 STADIUM BILLS HEARING paying the salary of the manager and coaches there, etc., team trainer, whatnot. So in addition to our player payroll, which is the public element that people see, we have another $20 million in player-related expenses associated with that.
Does that include the aspect of the Dominican Republican campgrounds?
That's scouting and player development around the country. That is, you know, I mean, if I were to add these numbers up quickly -- excuse me, that is -- I'm low-balling already. That's $23 million in player expenses over and above the actual payroll, because we have at anytime, in addition to our big league club, we have another 150 to 170 or 80 players playing for our organization. We then break it down as follows, and I'm sure Joe does things differently. We have stadium operations expense, and it probably will surprise you -- now, in that category is our rent, 'cause we do pay rent. That is about $9 million, 8.5 to $9 million. 249 12/1/00 STADIUM BILLS HEARING
And then our marketing and ticket operations for us is 5.5 million. Our general administration, which includes the insurance of the player -- so to some degree, that's player-related -- is a little over $8 million. And then the -- our portion the major league baseball's expenses are another $2.5 million. And that's the Philadelphia Phillies expenses in the year 2000.
And, obviously, you -- baseball does not share the national contract that it gets, or do you get a share of the --
-- national TV contract? It's not obviously as profitable as the NFL at this point. 250 12/1/00 STADIUM BILLS HEARING
Our centrally- generated revenues are in the mid-teens; and, therefore, you would have that offset against the central expenses. So, you know, it gives you a frame of reference.
Do you have a TV contract for the region; is that true? For TV and radio?
And you get paid how much for those rights to be able to transmit?
Our local media contracts would also be in the mid-teens.
And, Joe, do you have a local contract, or is it all done through the local office?
We have a local radio rights contract, no local broadcast. Oh, we do some in-house, like Coaches Show, but we have only a radio rights locally.
You know, I cannot get 251 12/1/00 STADIUM BILLS HEARING that specific with you. I mean, I will help you with this, but you see, we have stations competing with each other to bid against each other for our rights. There are other markets. We are run by a CBS station in which they have CBS people competing for -- I can't -- I will help you --
We're trying to send a message to the citizens of Philadelphia, we're trying to send a message to the citizens of Philadelphia. I mean, Councilman Clarke said that the image out there is that what we're doing is subsidizing rich franchises, rich individuals, and all we're trying to do is to set a level of knowledge in which people and the people of Philadelphia know how much money the revenue stream is coming in to each of the teams. And if, you know, I asked you for what you get for the national media TV contract.
Well, let me give you three -- well, I think that's fairly public 252 12/1/00 STADIUM BILLS HEARING information. I believe that the amount from the national TV contract this past year, I think, was 64, either 62 or $64 million.
But, I mean, let me try to get where I think you're trying to get, you know, with -- which hopefully helps you answer the question you're asking without giving you things that I'm not comfortable giving you. And I'll give you a couple ways of doing this. There's one publicly-owned football in the NFL, so it releases publicly its revenues and expenses. That's the Green Bay Packers. It did this relatively recently. They were published, and the team showed a $1 million loss from operations. That was -- its expenses were $1 million than its revenues.
Well, if you're losing money, let us know. I mean, I'd like to find out. I think that the City of Philadelphia would like to know that the Eagles, currently in terms of its operations, is losing money.
And, you know, I'm 253 12/1/00 STADIUM BILLS HEARING sure that if you were losing money, you would let us know.
The second thing that I'm willing to share with you is that I will tell you that those of us who are in favor of this deal if it passes in this body will sweat out a very difficult sell we have in convincing a bank that we will be able to repay the loan on this deal; meaning, there are not some significant surplus of revenues that's going to enrich anybody, or we wouldn't have any problem qualifying for a loan. I promise you, if you're in favor of this happening, the day you hear that we've actually gotten our financing, you should breathe a big sigh of relief, because it will be very, very close whether we're going to succeed in doing that.
At what level of percentage are you -- is that loan getting repaid?
No, it isn't -- it isn't 254 12/1/00 STADIUM BILLS HEARING done in that form. It's a loan that's available around the League, and the rate at which it gets repaid will relate to how many of the teams are carrying loans, how many teams sell how many club seats. And it's a very complicated formula; it's not something you can answer like that.
Is it safe to assume that you will not pay the market rate in terms of the loan?
There will be an interest rate savings by virtue of the loan.
And we can assume that you -- the answer is that you will not pay the market rate, right?
Well, I mean, if the private-sector market rate -- that's true, but if the City borrows money at 6 percent and there's a possibility we could pay 6 percent, absolutely. Will we pay 8.5 or 9 percent, like if we went to a bank? No. We will pay less than that.
Okay. So what -- so you're getting -- you're saying that you're going to be sweating it out for a bank. I don't think a bank is going to -- that you're going to have 255 12/1/00 STADIUM BILLS HEARING problems getting a loan from a bank.
I believe -- I wouldn't be sitting here if I didn't believe we could sell this deal to a bank. But I will tell you that it's close enough that that will not be easy. We will have to be persuasive, we'll have to prove to them, just as Rosentraub testified yesterday, that the size of this market and the potential of this market will allow us to be more successful on the revenue end than almost any team in our league. If we succeed in persuading them that we are good enough and that this market is capable of doing it, then we'll get the loan.
And you will persuade that bank -- and you will persuade that bank to give you the loan by giving them some details and some details such as: What is the revenue stream, what is the size of the market, what is it that you're expecting to make from each of the articles that we're talking about? And all that we're asking is that you 256 12/1/00 STADIUM BILLS HEARING give us the same information that you're going to give the bank: What is the size of your contracts? what is the size of the expected revenues in terms of concessions? and so on down the line.
And I think I've shared -- I've shared with you, I think, enough for you to be able to come to the conclusions you're looking at. I also think, you know, Sam Katz said to you this morning, you know, a very big part of that answer is the rest of the teams in our league. Now, we put up a chart -- and I challenge anybody to disapprove any part of the chart -- that shows that we will have a massively higher amount of debt service and O&M expenses than any team in our league. Now, we have to compete with those teams, regardless of whatever the results of the information you're asking for. And how would we do that if we follow the process that you're asking us to?
I can't tell you because you're not giving us the details and 257 12/1/00 STADIUM BILLS HEARING otherwise --
-- to be able for us to make a reasonable and intelligent assumption, okay?
If you look at that chart right there and you see what our debt service and our operating expense number is going to be compared to the rest of our league, can you tell me -- no matter what the answer to the question you're asking is, how are we going to compete with those teams?
I don't know. When we get the answers to the questions that I'm asking you, then I'll better be able to relate to that.
No matter what the answer to your questions is, we still have to compete with those teams and we start with that big of difference, no matter what the answer is.
Like I said to you, I will not be able, until I find out or we find out what is that the revenue stream, what are the 258 12/1/00 STADIUM BILLS HEARING expenses, nobody on this Council can give you that decision.
All right. I'll respect that decision if that's the one that you make.
You're welcome. The Chair recognizes Councilwoman Tasco.
I think I just have one question I asked yesterday. Maybe you all went back and talked about it. I'm interested, as you know, as Chair of the Philadelphia Gas Commission, and recognizing that PGW is a City-owned asset, I want to know how you plan to heat both facilities.
Councilwoman, unfortunately, we are nowhere near that level in our development of our building, so I am not able to answer that for you, and I apologize. We just haven't -- we haven't even begun -- you know, all we've done is referred to as the programmatic design. We have not done any design beyond that, 259 12/1/00 STADIUM BILLS HEARING because the vast amount of time that we've spent has been involved in evaluating sites, some of which have been brought to us, as you know, by the Administration, some of which we developed ourselves. So I am not able to give you that answer.
Wouldn't you have to have some idea of costs in determining how much this project is going to cost, how much heating it will cost you?
I can -- we're a little bit further along, so let me give you -- we are to the point where I can tell you it will be both, and the exact ratios of which, we're not far along enough to tell you. In answer to the second part of your question, we, of course, do have kind of a plugged number right now and kind of a utility cost, and it reflects some kind of a blended of using both gas and electric in the building. Who knows if, three years from now, it will be right? It's kind of a best estimate based 260 12/1/00 STADIUM BILLS HEARING on experiences of other teams in our league and what it's costing them at this point on an annual basis and then increasing it by inflation.
Has there been any discussion with PGW on this issue?
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. Good afternoon, gentlemen. I would like to, if I may, briefly shift the discussion on the other side of the equation, and that is the potential -- one of the potential public benefits. And I would be remiss not to publicly thank you for hearing our requests around the Children's Fund, listening, and then acting upon that request on behalf of the City. I know that currently both teams are involved in a number of charitable efforts with regards to our city, so the questions are two. 261 12/1/00 STADIUM BILLS HEARING One, speak briefly to what they currently are; and now with this potential Children's Fund, will this $1 million per year per team supplant or supplement what you currently do?
I'll try to go first. I am -- I will not be able to provide the level of detail, but let me begin by saying that our, I guess, charitable -- and we don't -- we don't think of it as a responsibility; we think of it almost as a responsibility, Councilwoman. But one of the things that the franchises bring is great exposure probably exposure, probably exposure that far exceeds the values of our revenue streams and expenses, as Councilman Ortiz was asking about, because many people write about us, talk about us, et cetera, all the time. So we give what we estimate to be both cash contributions, and then we give a lot of what is really, we think, fund-raising opportunity options. For example, in our case, we will provide a number of tickets for organizations that say that they want to use those tickets to resell in the way of fund-raising. Also, the opportunity 262 12/1/00 STADIUM BILLS HEARING with merchandise, particularly if we have premium days and whatnot. So there is a value on that activity that I believe is a number that approaches $2 million a year, which is what I would call "in kind." In addition to that, we host a major fund-raising event with the Philadelphia Chapter 9 of the ALS Association. We've been doing this -- it's a function that we've been doing, I think, for years. I probably would be off if I tried 12 to indicate the aggregate funds raised on behalf 13 of that organization. I believe it's approaching $5 million over that period. But on an annual basis, I believe our fund raiser -- and last year on a net number -- in other words, after expenses -- contributed to that organization somewhere between 400 and $450,000 a year. In addition to that, we have a part of our organization described as Phillies Charities, and what we try to do in Phillies Charities is to support those organizations that members of our Phillies community -- for example if -- when Rico Brona (ph.) was with us, his charity of choice that he spent a lot of time on was spondylitis, 263 12/1/00 STADIUM BILLS HEARING and as a result of that, you know, we made a contribution to Rico's charity. And we try to support the work of all of our players and also members of our organization that come to us with a specific request. So our cash contributions in that area would be approximately half of what we're able to raise in that event, like a couple of hundred thousand dollars. Obviously, you've done a very good job in selling the importance of the children of this city to be saluted in this transaction. And it would be our intention that whatever we are able to contribute over the life of this tenancy, and you know what our commitment is, that that would be over and above the current level of contribution that our organization currently puts forth.
Yeah. I mean, our categories are pretty similar. We have a community relations department, which is what does all of the things that Dave referred to as kind of their in-kind donations; they're the ones that, 264 12/1/00 STADIUM BILLS HEARING you know, all our player visits to children's hospitals and all those kinds of things run through that kind of a program.
And in addition, we have a sizeable budget for just, you know, tables at dinners and small donations to local groups and so on and so forth like that. Our biggest component is the Eagles Partnership; it's a foundation within the franchise. It has received national notoriety. We've had many teams and many sports get in touch with us to try to ask us exactly what we're doing and consider replicating it. I think what's most unique about it is that we've actually created programs as opposed to just giving out donations or utilizing our name or our players' names. I will give you one example that's actually received a lot of visibility and literally has been covered on national network news shows. We have a player, Jermaine Mayberry, who's blind in one eye, and he grew up in a relatively poor environment and was never able to see an eye doctor as a child. And it was not 265 12/1/00 STADIUM BILLS HEARING until he was in college that they identified what it was that had caused him to go blind in one eye, and he realized that had gone to a doctor when he was a child, it was an easily correctable situation. So he's really blind in one eye for no 7 reason. So Jermaine, when he signed his contract in conjunction with the Eagles Youth Partnership, created the Eagles Eyemobile, and the Eagles Eyemobile is literally a bus that is wrapped with a picture of Jermaine Mayberry and the Eagles logo and so on and so forth. And it goes through the City, to different schools, in partnership with Wills Eye Hospital, who provides on a volunteer basis the doctors. And they go to schools and they give children eye tests, and children that need glasses get them for free and children that have eye diseases have even received surgery free of charge, courtesy of Wills Eye Hospital. So what we've done that's unique is not only raise money and contribute it to worthwhile causes, but actually create programs that have been unique and directly gone and made a 266 12/1/00 STADIUM BILLS HEARING difference in people's lives.
It's been stated on the record that the $1 million per team per year has to go to a nonprofit. And state again briefly for those of us who may not have heard that the reason is. . . and you can complete the sentence.
I think it's really driven by the City. I think it's a legal question in terms of the City's ability to issue tax-free bonds for this project. That means those funds can't be taken in a form that would be considered private payment; and, therefore, the need to funnel them into a 501(c.)(3) or something similar, I think, is created by the City need.
Okay, then. And what I will say in closing is though I may, and was, in some ways the engine behind this, the record should reflect that early in the spring, a resolution was introduced that was supported and embraced by a number of members of Council. And then, of course, it was held because it was thought in my thinking that there may be a different and better way to get this done, and at 267 12/1/00 STADIUM BILLS HEARING the end of the day, we got it done. So I thank you for working along with us.
Thank you. The Chair recognizes Councilwoman Miller.
Thank you, Madam Chair. This question is for both teams. Please help me understand the concession opportunities once the stadium opens. I know it's three years away, but how are you -- right now, the stadiums are run by the City and the City sends out RFPs. How will people know or what method will you use to notify people that they can have the opportunity to apply, or whatever it is that you're going to do around concession opportunities?
Councilwoman, are you talking about the opportunity to participate in the workforce? We have --
Not the 268 12/1/00 STADIUM BILLS HEARING workforce. Operator concession. I mean, how will that happen?
Well, our expectation would be that we would enter into a relationship with a --
-- with a concessionaire, and there are several of those that do operations around the country, including one that does business right here in Philadelphia, is housed here in Philadelphia. And we would -- we would then lean on their expertise to develop a program that would enable the type of participation that I think you are talking about. We have not entered into such an arrangement at this time.
Okay. So then if the Phillies or the Eagles probably won't basically be the people to operate that part of it, of the stadium; you will contract with someone else to do that.
Yeah. The experience that we've had, the only place that we've attempted to self-operate was, for example, our 269 12/1/00 STADIUM BILLS HEARING spring training home in Clearwater, Florida, which is a much smaller operation. We would look to the expertise of others in this area.
The only part of that that's different from an Eagles' perspective is that would be probably looking to -- some people under the definition of "concessionaire" include merchandise. We would probably be the operators ourselves in the merchandise area and, similar to what Dave said, would be hiring. In fact, we have a loose arrangement now, because in order to go through the design phase, we had to have a concessionaire's expertise in order to help us figure out, you know, where we needed what stands and where to put what restaurants. So we have kind of at this point a loosely formed relationship with a concessionaire. But the merchandise aspect of the concession arrangement would probably be operated by the Eagles themselves.
Merchandise, meaning like T-shirts and all those kinds of things?
Yes, T-shirts, caps, 270 12/1/00 STADIUM BILLS HEARING sweatshirts, those kind of items.
Okay. So if someone -- so then the person that you will give this responsibility to will be the person that's ultimately responsible for notifying or getting the word out that -- I don't know -- I don't know whether -- I don't know how this would operate through a private corporation. I guess I'm just more used to it being operated through City government, and I just want to make sure that people will have a fair opportunity to try and have whatever it takes -- a stand, et cetera -- at one of the two stadiums. So is that information that will be freely flowing back to Council or to the general public?
Well, I would imagine that the operation of stands -- there are -- I think there's two things that are probably important to point out. I think, first of all, when you're talking about a facility of this size and an operation whereby there is, I guess, a significant amount of exposure/liability, I would not expect in an area involving liquor that there 271 12/1/00 STADIUM BILLS HEARING would be any other than one liquor licensee holder. I mean, that's been the situation today at Veterans Stadium. So, you know, my sense is from a risk exposure standpoint, that would come under the heading of the main concessionaire. I think, as Joe testified earlier, one of the things that we have found to be successful currently, and something that we would encourage our concessionaire to continue, would be to take advantage of what I would call the flavor of Philadelphia food, and many cases, you know, there are establishments ongoing that have been very successful in developing that. You know, many times people -- I saw just the other night on a national TV show somebody asking, you know, where was the appropriate place in Philadelphia to get a cheese steak, et cetera? And, currently there's a relationship with a local cheese steak operator at Veterans Stadium. That type of, you know, authentic Philadelphia food, which we think could be enhanced by the relationship of an existing, ongoing business here is something that we would actively pursue. 272 12/1/00 STADIUM BILLS HEARING
Mm-hmm, okay, but whatever you decide to do, I'd appreciate -- I'm sure Council would appreciate knowing how that part of this whole thing is going to work out just for information for us to disseminate to our constituents. I just want to pick up and too state that I too appreciate the Phillies and their Eagles in their donations towards the Children's Fund, but I do have a couple questions regarding the Children's Fund. Whose responsibility will it be to set up the nonprofit? Will that be the City of Philadelphia's responsibility or will it be jointly that of the teams and the City?
Well, my understanding is -- and I'll ask Joe to correct me if I'm wrong -- that that would fall to the responsibility of the public sector.
Okay, all right. And in taking a look at a million dollars today versus a million dollars or the value of a million dollars three years from now, when the stadium -- when the Eagles will start, and then 2003 and then 2004, when the Phillies kicks in, certainly a 273 12/1/00 STADIUM BILLS HEARING million dollars then and a million dollars three years, four years from now or ten years from now is certainly different. Is there going to be an opportunity to amend the dollar amount to keep it there at that million-dollar level over the course of the 30-year commitment to that contribution? 'Cause in reading some of this report, every -- lots of items talk about the need to amend, you know, the need to amend. So can the Children's Fund be amended? And Councilman Nutter may have asked about the amendment of the dollar amount for the special services fund.
Well, again, part of the economics of the deal was in a discussion of what would be in an up front contribution, and I agree with your characterization that the buying power today and in the future is different. But in this element, it was the commitment of the teams to put in a minimum of $1 million each year, and that's the commitment that was made as part of the arrangement.
Okay. What about the opportunity -- I guess that's a question for 274 12/1/00 STADIUM BILLS HEARING Hankowsky or somebody at the City, to talk about the possibility of amending, since the deal isn't really closed yet, right? It's not closed, is it?
Isn't that why we're here, that's we're having the hearings?
Right, okay, all right, good. And, you know, this question is particularly for the Phillies. And I'm not trying to embarrass you or anything but I just need to know this. You talk about new stadium revenues, and when I look at that Anderson report, you know, the revenues just jump, it doubles in the year 2004. What impact does a team's record have on stadium revenues? It just seems like everything is being blamed on the fact that the Vets Stadium is 33 years old, but the reality is 30 years ago or 33 years ago, the Vets Stadium was brand new. And what was the Phillies record? I 275 12/1/00 STADIUM BILLS HEARING can't figure this out.
Well, actually, Councilwoman, you've helped me answer your own question. I think if you looked at the period from early 1970 through the mid-1980s, that was a very successful period of time for the Phillies both on the field and off the field, meaning both from a record standpoint and from an attendance standpoint. And the whole thrust of this has been to reestablish the strength of the Philadelphia sports market and not have the stadium situation diminish that. At that point in time, I think that a -- in a ticket sold in those days, we always reported attendance as actual paid admittance for purposes of -- in other words, paid attendees. And in the year 1980, when we were fortune enough to be in the World Series, we actually in tickets sold had somewhere in the neighborhood of 3.4 million. And what we have said, which is the essence of our presentation, is that we need to reestablish, through our stadium presence, the opportunity to take advantage of the strength of 276 12/1/00 STADIUM BILLS HEARING the market, which in turn, will give us the ability to generate revenues, which in turn, we can utilize to have a stronger player presence. It was the questions that Councilman Clarke was asking me about as far as our ability to increase our payroll. We believe that if we can do that that at the very least we will establish ourselves -- reestablish ourselves as we once were as the top of the second quartile within our industry; and, therefore, be a far competitive -- far more competitive club than we've been for the last few years.
So then the gentleman that stated yesterday that the Phillies had the worst records in a hundred years was incorrect?
Well, I -- I -- I can't go back to a hundred years. I know that our 30 years of occupancy, I think we've been playing since we've been at the Vet somewhere at around a 48 percent winning percentage for our 30 years of occupancy. I mean, I'm -- but we clearly have, you know, we've had a situation where in those 30 277 12/1/00 STADIUM BILLS HEARING years, we've been in the World Series times, we 3 have won it once. We have obviously been World Series losers on the two other occasions. If you take the number of teams in the National League, you would say on average, if there's teams, you 7 should make it once every 8 16 years. We've made it 3 times in 30, which is 1 9 out of 10. 10 So if you took World Series 11 participation as your measure of success, 12 obviously, we would be succeeding the exceeding 13 average. The fact of the matter is, I'm not 14 defending our one-loss record. I'm as 15 disappointed as our fans are about our inability 16 to win games this last year. Councilman Ortiz had his specific reasons as to why that happened. I think he was concerned about the performance of one of our pitchers. But, you know, what we are trying to do is to be in a situation where ongoing, we would not point to the lack of revenue associated from the stadium as a reason why we cannot win more games. And we believe that we will enhance our ability in that baseball cycle, which is greater 278 12/1/00 STADIUM BILLS HEARING attendance, generates more revenue, which generates the greater ability to pay players, which in turn should produce more wins, which in turn should produce greater attendance. And the cycle just keeps going.
Okay. I have one other question, my final question, Madam Chair.
When do you expect that the MBE and WBE plan will be ready for our review? Do you think it will be before Monday?
The teams could not independently answer that. We're actively having discussions with the Administration. And I know that we are acutely aware of the interest that Council has in seeing the specifics of that plan as soon as possible, and we share your desire, we understand your desire, and we know the Administration shares our goal to get that to you as quickly as possible.
All right. Thank 279 12/1/00 STADIUM BILLS HEARING you. But it will -- according to, I think, your testimony or someone's testimony, it will be ready before we take a vote on the 14th?
That's my understanding, absolutely. I mean, I think we're talking days here, Councilwoman. That's my understanding.
And, again, I'm only speaking on behalf of the teams rather than the teams and the Administration.
Thank you. Are there any other questions that -- the Chair recognizes Councilwoman Krajewski.
Thanks, Madam Chair. I don't know whether this question was asked or not, but who will be the controlling factor of the ticket prices at the new stadium? I believe research shows that there's an increase by an average of 35 percent in the cost of the 280 12/1/00 STADIUM BILLS HEARING tickets when they go into a new facility; is that true?
Well, let me -- I can't speak specifically to that level of research. I -- the only thing that I will say, as I said earlier, you know, baseball, because we play 81 games and because our goal is to draw -- we've talked about it extensively: Our goal is to draw in excess of 3 million fans in a year. We have to hit all price points and remain very committed to attracting families, as we do today. And I believe my testimony earlier indicated that our hope is that the opportunity to provide real additional upscale ticketing opportunities. In other words, you see in our description of our facility, we're anticipating somewhere between 75 and 80 suites, we're expecting 5,000 club seats. We hope that by pricing those in a manner which will be higher than we currently do today, we can leave the remainder of our ticket prices much more similar to the current pricing. Again, I think, as was made earlier, pricing in general by '04 when we open will be 281 12/1/00 STADIUM BILLS HEARING different from 2000, you know, last year, et cetera. In other words, there's --
Right, there's a natural progression. So when you layer on top the luxury seats, it may take the percentage up more than if you were to compare, for example, what the cost of a box seat today is and a similar box seat in a new facility. But the answer is that that's part of -- as far as the responsibility, it's the club's responsibility to set it and set it in a way that we maximize attendance. That's in our best interest every bit as much, if not more so, that it is in the interest of the public's side.
I don't have to tell you. We hear it all the time about the cost and when they take a family to a game what the costs are.
Well, again, and because Councilman Ortiz mentioned that. You know, we still have a $5 general admission price 282 12/1/00 STADIUM BILLS HEARING for children and a and $7 ticket price for adults, so the example that he stated earlier, what does it cost a family of 4 to come to a Phillies game? Now, that is our general seating admission, as we explained earlier, but that's $24, and I would suggest to you that you could not go to a movie as a family of four for anything less than -- that's --
Well, I think it begins all over with the vendors as well, the cost and the prices.
Absolutely. And as I said earlier, our goal actually on concessions would be to see if we couldn't produce greater quality for the pricing associated with concessions.
Well do you feel that maybe the sale of tickets will be capped at a certain number or what, so as to give the citizens a fair opportunity?
Oh, it would be impossible for us to commit to a cap because the cap would be tied to inflation. We're projection -- you know, have a lease term here of 30 years, 283 12/1/00 STADIUM BILLS HEARING and quite frankly, we're actually, we have the renewal options for a significantly much longer period of time past that. So our goal, again, is to price our facility in a way that we still remain attractive to the family audience. I think I indicated earlier that maybe the tickets that we currently reference general admission prices would probably be for us somewhere between 10 and $15, but when you talk about capping, you're talking about across all categories of pricing. And my answer to that is that would not be possible.
Well, do the Eagles or the Phillies plan to sell personal seat licenses or what?
Well, I think the Eagles have testified extensively on that subject. As far as we're concerned, the one situation where there's been an extensive personal seat program is the San Francisco Giants, and that's one of the reasons we did not want to take on an up front burden anymore than we were being asked to because we feel if we have to turn to extensive personal seat licenses, that what we're 284 12/1/00 STADIUM BILLS HEARING going to do is price ourselves away from the affordable seats that we want to provide our fans. In Pittsburgh, they have a limited number of seats that they've done. They're primarily these luxury seats, and it's an opportunity to make, I guess, what I would describe more specifically an up front commitment to buy those. So it's never been a part of our proforma, and whatever involvement we would have in that area would be on a very limited basis.
How many corporations currently hold some type of a season ticket package, excluding the luxury boxes? Do you know?
Oh, we have full-season packages, we have 16-game partial-plan packages, and we have Sunday game packages of 13 games. I'll try. I believe right now, our current season attendance is about 12,000 a game on a full-season equivalency, and I believe that in the -- about a little over 50 percent of those are full season -- actual full season -- more like 60 percent. The 285 12/1/00 STADIUM BILLS HEARING other are a combination of these mini plans. The composition of the first group is probably 70/30 corporate to individual. The composition of the smaller group, which is the 16- and 13-game plans, those percentages would be reversed; it's probably more or 30 percent 8 corporate and 75 percent individual. 9
Do we have 16 any other questions from members of the 17 committee? 18 The Chair recognizes Councilman Nutter. 19
Thank you, Madam 20 Chair. 21 Mr. Montgomery, you have mentioned on a 22 couple occasions, in response to a couple 23 different questions, the San Francisco Giants, and 24 I think most recently in response to a question 25 that Councilwoman Krajewski asked. 286 12/1/00 STADIUM BILLS HEARING Just for the record, can you tell us a little bit about San Francisco Giants stadium project and some of the components of it in terms of how that deal was put together, any similarities to the Philadelphia situation, and any difference.
Well, I think -- and I'm now not quite sure in whose testimony it was referenced, but I believe -- and maybe it was in Sam Katz's testimony earlier this morning. He indicated that San Francisco is a situation where there were at least three or four attempts at public referendums involving stadiums, and I think that's probably the nature of the state laws out in California, Councilman. And the -- the situation in Candlestick Park had become one that was not a good ballpark for the Giants. And at the -- as a result of that, they eventually undertook, which I've indicated on our charts, to make a very significant private contribution to the ballpark. And I think, as Sam Katz also testified this morning, that because of that, the amount of debt service that they have, or the amount of 287 12/1/00 STADIUM BILLS HEARING pre-selling of revenue opportunities such as to the extent that they heavily pre-sold personal seat licenses, that may have a dampening impact on their ability to raise prices in the out-years in order to service their debt. They have come up with what many in the industry believe is an extremely tight proforma, and some people have expressed concern, as Sam Katz did this morning, that they may not be able, as is necessary in our sport, to make incremental increases in player payroll over time, that they may be foreclosed from that opportunity because of the amount of initial contribution that they made. And so, you know, as far -- they definitely have picked a very attractive site, they've done an excellent of creating a fan-friendly ballpark. And as to the future of their economic viability as a result of what they've committed, only time will tell. Again, as I've said earlier, there are 16 examples of different ways that have been done, Councilman.
Sure. And I'm sorry, I did unfortunately miss some portions of 288 12/1/00 STADIUM BILLS HEARING Mr. Katz's testimony. The San Francisco Giants deal, though, I mean, if I understand it correctly, and you'll surely correct me. I mean, is that essentially a situation where the City of San Francisco made some acquisition of property on their own, turned over a cleared site, and the team basically built the stadium?
I'm not sure that I can give you a longer story that would be any more accurate than that, that's correct. I think that this was a site that was provided. I don't know about the specifics of the site. (Unintelligible) was a site that was -- it was land that was acquired by the City and provided. And I believe the site was prepared for then, and then the Giants undertook the entire construction costs. 289 12/1/00 STADIUM BILLS HEARING That's correct.
Okay. Not for -- not for the moment, but it has -- as we've kind of tried to deal with this situation, at times not always so well, over the past essentially two years, the differences between public ownership and private ownership in the either baseball, ballpark, or football stadium situation has been somewhat intriguing. And I would like to get from both of you, although not at this particular moment, your analysis of the advantages and disadvantages of public ownership and the advantages and disadvantages of private ownership of these various facilities. As you know, it appears, or at least is certainly the case here in Philadelphia, that the larger facilities, baseball and football, will, in this particular transaction, as Veterans Stadium is, ultimately is a publicly-owned site, although privately and even more so in this transaction, privately operated; whereas the Spectrum and the First Union Center, as best I can tell, are completely privately owned, although I think technically on public land. 290 12/1/00 STADIUM BILLS HEARING And I would be interested, as owners or representatives of owners, to get your perspective on the advantages of either and the disadvantages of either as well. What is the estimated useful life of either of these facilities?
I'll try that first and then let Joe give his perspective. Now, we have a couple of baseball parks that have really withstood the test of time very significantly. You know, clearly, Wrigley Field is an example, and although there's now talk of -- because they went through a phase of what I would call "modernization" of Fenway, and now there's talk of a new facility in Boston. They were two, I guess, "treasures" would be the right word as far as --
I believe it's 80-plus years in one case and 75 or so in the other.
One of the reasons that we asked for renewal terms of up to 50 years is that we hope and believe that if we do this 291 12/1/00 STADIUM BILLS HEARING right, we can create a ballpark that would exceed the occupancy periods that we've had at Connie Mack and will have at the Vet of 33 years each. I mean, we want the opportunity to see if we can't create a ballpark that would give us life, that would exceed the initial term of 30 years, but that's clearly -- that will remain to be seen about how successful we are in designing the facility, Councilman.
I think the examples in football are not as extreme but a little bit similar in that the couple of stadiums that were designed purely for football, say, 35 years ago, around the time of the Vet, which is primarily Dallas and Kansas City, are both stadiums that could go on for a period of time. We don't have any 70- or 80-year-old stadiums, although the Chicago Bears have been in that stadium a for a very long time. So it's hard to judge, but I think that everybody would feel confident that probably some meaningful distance, more than the 30, I think, that the Vet and Cincinnati and Pittsburgh type 292 12/1/00 STADIUM BILLS HEARING stadiums were anticipated to have lived for.
Again, for both of you, give me a sense of what happens 30 years from now. Are we in this same kind of discussion about facilities or --
Well, personally, I have been in this discussion for about eight years and I don't think I'll be around to have it then, Councilman.
But, again, I believe, that, you know, we -- we have always felt that the best place for us to play baseball is it same place that we've played baseball here for the last 117 years, which is in the City of Philadelphia. We've moved a few times within the City limit, but we've always played the game within the City limits and we would hope to be continuing that for the foreseeable future. And, again, at the end of 30 years, we believe we'll have a huge incentive to be putting 293 12/1/00 STADIUM BILLS HEARING the necessary capital dollars in and maintenance into the facility so that it will not show its age nearly in the way that the current facility shows its age. And if we can design it in a way that it has a timeless nature to it, our game hasn't changed much, it's still, you know, 90 feet between the bases, 60 feet 6 inches, and it's been that way for -- from the mound to the plate -- it's been that way for 117 years. So from a dimensions standpoint, it shouldn't change. We assume people will still want to be as close as possible to what's happening. And to the degree that the amenities of 2004 are the amenities of 2034, I'm not sure that I could go there, but we hope that we can create a ballpark that's flexible enough to enable it to still be in use at that time.
The only thing I'd add is since it takes eight years, we're probably talking years from now, right, instead? When I woke up 22 this morning --
I understand that. I think both of you, though, understand that -- and I certainly don't expect to be having this 294 12/1/00 STADIUM BILLS HEARING discussion either, but 30 years will come and go, and I guess part of the question was whether the City of Philadelphia will yet again be engaged in one of these kinds of transactions for a facility, which, under this particular circumstance, unlike the current Veterans Stadium circumstance, we will not have the responsibility over the next 30 years of taking care of that facility. And I understand the one-time capital payment at least to -- the one-time capital payment, I believe, is to the Phillies -- I'm sorry, to the Eagles not the Phillies; is that right?
So, I mean, we are contemplating a transaction that has us making a contribution to one, none to the other, but both teams having ultimate responsibility for the facilities. And, I mean, just in an anticipatory fashion, I'm trying to figure out whether this is really it for the City of Philadelphia in terms of changing the nature of our relationship to these facilities. We are clearly making a break from the Veterans Stadium model to a new model.
Well, again, and 295 12/1/00 STADIUM BILLS HEARING certainly when I -- in maybe the length of time that I've been sitting here, I certainly was in no 4 way making light of the serious nature of your question, Councilman.
But what I would say is that in the late '60s, and I understand why it was done, because the public sector was primarily financing the facilities and because both professional football had come along, it's a newer sport in comparison to baseball, had reached the point that they were looking for a facility as well as the Phillies were at that time. The compromise seemed appropriate at the time, which was to put the two in one facility.
I think that, unfortunately, what we've seen is that the wisdom of that decision has not stood the test of time, and I think -- I guess what I'm saying is that I believe by designing them appropriately for their individual sports, that you would have a much greater likelihood that the facility would last a lot longer than what we've just seen over the last 296 12/1/00 STADIUM BILLS HEARING 30 years.
Okay. In the course of your discussions leading up to this transaction, have there been any attempts or inquiries with regard to outside funding sources that apparently have been the case in a couple transactions across the country, whether private investor groups or entities, with, for instance, large sums of dollars that could be invested for whatever the return might be. One that comes to mind, and I think had some involvement in the San Francisco Giants transaction, was TIAA Kreff (ph.) Or, you know, other funding sources. Was there ever any discussion about that?
Well, I would just speak on our behalf. There were none that I'm aware of that there were inquiries that came to members of our organization; I was not aware of them. I think that one of the things that -- again, it's the contrast with the San Francisco situation because there was a lot of private money, as we've said, put into that. I'm not sure 297 12/1/00 STADIUM BILLS HEARING that they're their borrowing, when you get right down to it, will be dramatically different from the borrowing that the Philadelphia Phillies will have. And the reason for that is that they did some of this pre-selling of what I would call future revenue streams, and that's one of the reasons, again, why people are questioning the long-term viability plan that the Giants embarked on. And I fully understand why they did it; I don't think they had another choice.
We similarly had no 13 conversations with anybody; I'm not aware of any other situations in the NFL where that vehicle was utilized.
Okay. Councilwoman Miller raised the question, and I don't think I've expressed the appropriate level or any particular level of appreciation for the agreement of both of the teams with regard to the Children's Fund or the Special Services District. We haven't had much conversation about the pilot, and I'll kind of leave that to the side for a moment. The Councilwoman did raise at least an interesting question with regard to sustainability 298 12/1/00 STADIUM BILLS HEARING of actual value of that contribution, which -- I mean, a million dollars is still a million dollars and it's still a lot of money. But in all the other documents and materials that we have, there are naturally either built-in or anticipated increases, at least in most cases on the revenue side, of just about everyone's transaction. And so, in the Arthur Anderson study and I know in others, there's either an expected general inflation rate of 2.5 percent or a wage inflation rate of a little over 3. And, again, I would just ask in the more specific context, and I know what you agreed to, and obviously, I wasn't a part of those discussions, about whether there was any consideration given to some of ability to maintain the value over time of that particular contribution, and as other revenue streams and sources are growing, that there would be some adjustment as time went on.
I think from our perspective, we would have actually preferred a structure where maybe we started at $700,000 and had some kind of inflationary impact and it 299 12/1/00 STADIUM BILLS HEARING averaged out to similar kind of numbers over the course of the deal. But I think we're really backing into kind of a reasonable number kind of over the course of the deal. And you can either start low and then have some kind of impact like that or just start at that level and be flat. And the preference that was presented to us, we'd rather start higher. In the early part of the deal, it's the more strenuous time on the team economics, so we would have -- we prefer in all instances to have something that starts a little and then kind of grows. But it was presented to us that this was the preference on how to do it.
Well, the economic penchant of the deal is what it is, Councilman. I mean, you know, I think that when Joe testified earlier that we reached a point where the teams felt that they had made the maximum contribution that was available to them and the City felt that way, that's why we ended up with the need for additional funding, and I think that speaks for 300 12/1/00 STADIUM BILLS HEARING itself.
Gotcha. On of the bill, at least again for the Eagles bill -- I'm assuming that there's a comparable page in the Phillies, I think it's on -- it says: The team is to receive 100 percent of all revenues of every kind and description arising from and relating to the stadium, naturally with the exception of the Children's Fund. What are the estimates, I guess, on the magnitude of what that would be in a new stadium situation?
You'll have to help me. You mean as far as the total revenues associated with -- in a proforma associated with the ballpark; is that what you're saying? I mean, I think that's -- it's my understanding that that is what that is attempting to describe, which is the revenues associated from the ballpark?
Right. I mean, it's -- again, you do have the same. In your bill, it's on ; in the Eagles bill, it's on . It's under "Financial Terms," and the 301 12/1/00 STADIUM BILLS HEARING subheading is Team Revenues. And it says: Team to receive 100 percent of all revenues of every kind and description arising from and relating to the stadium, except as set forth below in fund for children and City and Commonwealth use day revenues. What does that mean, and can you give us some estimate of the magnitude of what's involved.
Yeah. In our case, that would be our gate receipts, the concessions associated with it, the advertising in the facility, dollars associated with premium seating; and in our case, a limited amount of parking revenue, which you see referenced elsewhere in the document. As I said earlier, the total revenue projections that were indicated by Professor Rosentraub yesterday, as your consultant, in the case of baseball, were within the range of our proformas. One of the things, remember, our proforma, unlike Arthur Anderson's proforma, has us drawing $3.3 million, unlike the sensitivity analysis which took us down to 1.9 million, which 302 12/1/00 STADIUM BILLS HEARING I believe was the first person from Commerce Bank. So every one of these revenue opportunities for us are very much attendance- related, but this would take our overall revenue to somewhere around 160 million, and probably north of 100 of that would be associated with stadium-related revenues.
I think the way Dave answered that question was all revenues, and I think the way you asked it was stadium revenues, which is easier for me to answer than some of the questions I was answering earlier. And you can kind of almost go category by category. Contrary to what was reported yesterday, I think I testified earlier -- sorry, just one sec.
Do you have water? Okay. I guess, one, let me say for at least my questions and my purpose, I'd like not to get confused by yesterday's activity. That was a long time ago for me, and I'd like to stay current and fresh with today's discussion. So I don't 303 12/1/00 STADIUM BILLS HEARING remember what the numbers were from yesterday.
Okay. The major categories for us -- see I really don't want to answer the question.
Thanks. I think I said earlier that we'd be building approximately 120 suites, and about 112 of those would be for sale as a City suite and an owner's suite, a few things like that. So the league average on suites is about $100,00, so that would produce about $11 million from suites -- that's a gross number, obviously. We would be hopefully selling about 8,000 club seats. The average premium on the club seats is about $1200, so you're in the 9 to $10 million range on club seat revenues. Naming rights plus signage and marketing and all those kinds of things in the 304 12/1/00 STADIUM BILLS HEARING stadium, I think we think is to $15 million in revenues. If you're great at it, it could be higher; if you're just okay at it, it could be a little bit lower. Our gate, which is 66,000 people for 7 games, on a gross basis, would probably be about 8 30 million, but in the NFL, about 40 percent of 9 that gets paid back out to the visiting team, so 10 maybe in the upper teens to 20s is kind of what 11 you net. I'm talking at the beginning; obviously, 12 as time goes on, prices go up. Merchandise sales are part of concessions that we think we would continue to run we think is about a million dollars a year. In addition to that --
That's really pretty much clothing. In our case, there will be some memorabilia, you know, autographed items, things like that. We think from concessions, using a per-person average, similar to what's happening now, that we would end up with about $3.5 million 305 12/1/00 STADIUM BILLS HEARING out of that revenue stream. That concession number includes whatever we would anticipate from like pre-game hospitality with corporations. And the others really are general revenues shared through the League, like our national television contract, local radio broadcasts. And those are really the only other categories.
Okay. Give me a sense of revenues generated by the stadium presently, Vets Stadium, as compared to the new Eagles stadium.
Well, our gate would be modestly less, just 'cause I'm talking three years later and some price increase, but not massively less.
Concessions we get hardly anything out of it now; I think it's like $600,000 a year, so there's a decent size increase there.
You're not anticipating your gate is going to go down with a 306 12/1/00 STADIUM BILLS HEARING new stadium, are you?
No, no. I said it would go moderately up. I mean, it's three years later, so inflation will push it up some, and we will have a price increase.
I'm sorry. I thought I heard you say it would be moderately down.
No, no. It will be -- it's actually a slightly smaller stadium if you don't include suites, so just -- I'm talking gate of the regular people purchasing the seats.
So I would assume it will be moderately up. Obviously, we don't have club seats now, so that's a completely new revenue stream. Although we do do some entertainment component of some private space in the stadium, so it's not 307 12/1/00 STADIUM BILLS HEARING quite a hundred percent, but almost. And I think we're -- depending upon the year and how many games we're winning, we're probably between 2 and $3 million in revenue on suites.
What's your sense of the total of all of those items? I wasn't -- I didn't have the calculator going at it. Your guy can --
Yeah, I'm not sure we covered every category, but let me put it in -- here's, I think, a simple way to get you where you're trying to get to, and if it's not, just ask me the follow-up question. We think that the -- by the way, the NFL has a loan prohibiting us from borrowing money for a term longer than 15 year. So the debt service -- and we've committed ourselves here on a 15-year basis -- will be about $37 million. We believe the difference in revenues from the Veterans Stadium to the new stadium will almost exactly match that number. So our ability to grow over time, make some money off other events, and hopefully by 308 12/1/00 STADIUM BILLS HEARING being good and having a chance to maybe build 130 suites instead of 110 and so on and so forth, is what we're counting on to have any return on this investment.
Are there any other questions from members of the committee? Councilman O'Neill?
Mr. Banner, the 15-year limit, is it an absolute limit? Or is it -- or does it have a rolling aspect to it? In five years, can you refinance for years? Is 14 that how -- how does it work? 15
Yeah, at any time you can't finance for more than 15 years. So if you had the ability to finance at a later date, you could. There is a formula by which you can apply for a waiver. We're actually going to try to do that. Nobody's ever gotten more than 20, and they reject most of them. But we go into this assuming that we're going to have finance our 15 years.
Okay. And you -- 309 12/1/00 STADIUM BILLS HEARING we have numbers that also assume a refinancing and what that would do in later years by stretching out your debt that way?
We really not have gone through that. It's too hard to predict kind of where interest rates would be and so on and so forth that would impact that.
But you can at least make an attempt. I mean, it seems to me that if I was in this situation, I would be looking at, Well, this is what it costs me in the 15-year scenario, but if I can borrow again -- I mean, we know that interest rates change, but we also know historically there's been some range, that, you know, maybe the $37 million a year that I've got to service this with can be spread out more because I'm not absolutely limited to a 15-year window. I just --
But the very simplistic way we look at it is, it's 2003, we've got a $37 million new item on our balance sheet, and 310 12/1/00 STADIUM BILLS HEARING debt on our stadium loan.
You know, are there $37 million or enough more than that that we're comfortable with covering it, and six years from now, if we can either finance it, either if it stretches it out or produces an opportunity for some greater profitability, I think we'll take advantage of it.
Thank you. Are there any further questions from members of the committee? (No further questions.)
Mr. Collin McNeil from Penns Rydell Council. 311 12/1/00 STADIUM BILLS HEARING UNIDENTIFIED SPEAKER: He had written testimony.
Okay, thank you. UNIDENTIFIED SPEAKER: He was with us earlier in the morning; I haven't seen him for a while.
Do you know if he left his testimony? UNIDENTIFIED SPEAKER: Yes, I believe he did, Council President. I -- he had it in his hand and said, I probably can't stay for the afternoon, would you suggest that I submit it? And I said yes, but I don't know who would have received that.
Mr. Vignola, thank you so much for your patience, and welcome back.
-- since I got that nice introduction from my former colleague. Yesterday, the Mayor was saying you're going to have another colleague come in and testify. Madam Chair, I've been a member of this body, so I know how long and ongoing these hearings are, and what I would like to do is submit my testimony for the record and not prolong the hearing any longer than it has to be this evening, knowing the lateness of the hour, and basically be prepared to answer whatever questions anyone may have.
Well, I'd like to ask you a question. We did get a copy of your testimony, and I would like to ask you: What is PICA's position on the proposed stadium legislation? Are you in support or in opposition to this legislation?
I think the answer to that is, you know, really neither. But having said that, let me just answer this way. The alternative --
First a lawyer, second a 313 12/1/00 STADIUM BILLS HEARING Councilman, Madam Chair. But, you know, I -- I guess on a personal note, what I have to say is that we all know that Veterans Stadium needs to be repaired or replaced, and we all know the effect that has on our franchises, both the Phillies and the Eagles, not to mention the other events of Vets Stadium, whether it's the Army-Navy game or, you know, Temple football. So I think that with all due with respect to MasterCard, I couldn't say whether there's going to be a $59 million surplus at the end of 30 years or a $300 million deficit at the end of the 30 years. But I think what is priceless for all of us to have is a sports district, a sports complex with four teams in there, with every facility that the major franchises use. You know, almost brand spanking new, although the First Union Center may be a little bit older than the other two proposed facilities. So, you know, I think I'm speaking personally that that's, you know, that is literally the way to go. We could argue over numbers, I guess. 314 12/1/00 STADIUM BILLS HEARING What I, as the Executive Director of PICA, say on behalf of PICA is that as long as we go into this transaction, knowing what the financial responsibilities of this City are in light of all of the other financial responsibilities that we have been incurring over the past years, especially in the last five months, and there have been witnesses that have talked about the Philadelphia Gas Works --
And the teachers' contract. We have to add, you know, the personal property refund or whatever revenues we get, you know, on that area. As long as we go in looking at those numbers and realizing that this is one part of the City of Philadelphia's financial picture over the next five years or over the next thirty years, you know, then whatever our votes are, or whatever your votes are as a member of City Council, is the appropriate vote.
Okay. Are there any questions for Mr. Vignola from members of the cheat? 315 12/1/00 STADIUM BILLS HEARING Councilman Ortiz?
Over here. Joe, these numbers that you've put down, because they differ widely from the Anderson's projections. You say -- and I haven't read it because I just got it, but the thing that jumps at me is the black letters on the bottom of in which it says that we estimate that this is projection's likely to likely to cost the City's general fund 296 million over the next 30 years. And even if we were to use the Anderson PIDC assumptions and the cost to the general fund, the transaction will cost the general fund -- the City's general fund $112 million over the next 30 years. Could you give me some details. And if your projections come true along this line, what is -- what is the general impact that it will have on the City's services, on the City's ability to deliver certain things down the line, and our ability to be able to balance our budget?
Councilman Ortiz, that's really two questions, because the first question is, what is the impact on the City's five-year 316 12/1/00 STADIUM BILLS HEARING plan?
And yesterday afternoon, towards the end of the session, because I did have an opportunity, though I wasn't here yesterday afternoon, I was watching the transaction -- excuse, me the testimony by way of cable. And Mr. Dubow set forth a five-year plan scenario and that -- I think that he talked about the financial impact on the five-year plan. And we --
They have changed it the numbers as the questioning gets more and more detailed.
And the impact on the five-year plan changes from one day to the next, so. . .
We -- based on the numbers that were submitted yesterday afternoon, we talk about the $17.3 million impact on the five-year plan, and basically that's PICA's focus, 317 12/1/00 STADIUM BILLS HEARING on the five-year plan. I think that if the hearing goes a little bit longer and Mr. Dubow has an opportunity to testify, even those numbers will change. But I think what you're driving at in the short run in the five-year plan is if revenues continue to grow at the rate that they're going -- and I say in my testimony, which you are glancing over, you know, there's no economic downturn and the $45 million PGW loan is repaid and the $18 million annual payment continues, we don't have a great impact in terms of net dollars of the personal property tax, you know, refund. The five-year plan, even with the employees' wage increases, will be balanced. Going beyond the five-year plan, we have to start looking at -- and there's where we get into the Anderson numbers -- we have to look at some of what are the assumptions of new money versus old money.
Right. You're accepting Mr. Dubow's assumptions right now with that statement.
The way he's presenting the five-year plan, we can argue over some nuances. But basically, he is going to show to you, I believe, that over the five years, the five-year plan would be balanced, and I don't think that we at PICA are saying it would be out of balance at that point. But then, again, we're also saying that there are -- you know, there are concerns. If there's a downturn in the national economy, if it turns out that we have to refund all of the $25 million for fiscal years -- for '93, '94, '95, the personal property tax and don't get the money back by reassessing the property tax for 1996. If PGW, you know, defaults on its $45 million repayment to the City, or if PGW's situation worsens, where the $18 million annual payment is suspended or not paid, you know, in a manner, then these things will obviously affect the five-year plan because you're talking about, you know, $45 million of repayment. And 18 million times 5 is another 90 million. Too, you're talking about $135 million. And that has 319 12/1/00 STADIUM BILLS HEARING nothing to do with what the stadiums are. That means you, as members of City Council, are going to have to make tough decisions how you allocate the remaining resources of the City. To get back further, once we get beyond the five years, once we get beyond the five years and we look at the flow of stadium -- the revenue flow from the new stadium, all PICA is saying is that the Arthur Anderson numbers, as the way they're used to affect the general fund, we have questions about some of the -- some of the assumptions. We do -- we have accepted and we do accept that the new stadium revenues, as stated in the report, are going to be, you know, as they stated, right. There are some -- we do question some of the revenue estimates. But not being clairvoyant, as I heard Mr. Banner and Mr. Montgomery testify, they talked about, Well, we're going to have -- in regard to the football, we're going to have 40 possible -- 49 events and we could hit all 49 and have all 27 of them. And basically what we say is, you know, we're just as, you know, certain as you are. 320 12/1/00 STADIUM BILLS HEARING So although we're questioning the $2.5 million of revenue a year, we're saying you'll probably get 1.5 million of that revenue a year.
And so what we lead up to is that assuming the Arthur Anderson numbers that were submitted to PIDC, that that is their best-case scenario, there is, over the life of the transaction, a $112 million general fund net impact, a general fund net impact --
We're saying there is a potential for a great impact than that, yes, we are. And we're saying that that could range upwards of $296 million.
You say over here that there might be an overstatement of more than $85 million?
That's what we're talking about, yes. That's what goes in, correct.
Right, okay. Go ahead, go ahead, Madam Chair. 321 12/1/00 STADIUM BILLS HEARING
Thank you. Are there any other questions? The Chair recognizes Councilwoman Brown.
On this topic of stadiums -- and I haven't had a chance to read this word for word, but what I'm gathering from your comments is that this document primarily speaks to an assessment of if we were to do stadiums. Would that be a fair -- if we were to do stadiums, what the reality, the pros and cons would be.
Yeah. I mean, I'm sitting here, I guess, assuming that the only viable option is to do two new stadiums. We do not do the analysis of what if we didn't do anything and we have the status quo, what that may cost us.
Okay, that's 322 12/1/00 STADIUM BILLS HEARING exactly where I was headed.
And I think you heard some testimony yesterday from Mr. Hankowsky about if we don't do anything, what it will cost us.
Have you had a chance to provide us the balanced view?
We didn't -- we didn't go that way but I -- I felt, on behalf of PICA, that what we should state here is, you know, looking at the economic model that was submitted, the Arthur Anderson report, we had questions about some of the assumptions. And if -- and if the transaction was based on the Arthur Anderson report, all I want Council and the Administration to look at is that there is a potential impact on the general fund, even given the Arthur Anderson numbers, all right.
And that we're looking at this transaction during the 30-year life of the 323 12/1/00 STADIUM BILLS HEARING bonds.
We're not, you know looking you know beyond -- and Mr. Montgomery testified that he has every intention, you know, of keeping the stadium modernized and extending the term and not look for a new facility. In which case, if you extend the term and you have revenues coming and you don't have the expenses, you're going to have a better transaction. But we're not going that far. We're stopping at the year 2031, when the last bond has matured.
Okay, then. In the Arthur Anderson report, and now I'm speaking purely from memory --
-- which can be a mistake. It speaks to after Year 2010, if you look at the various columns, in terms of benefits and yield to the City --
-- those numbers of zero. 324 12/1/00 STADIUM BILLS HEARING
Okay. And here's where my staff's analysis differs and, you know, we've had discussions about this, you know, during the course of the hearing is that what I'm alluding to -- I'm not saying that we're not going to get the revenues that have been reported but what the argument -- the position has always been is that after the year 2011, all the revenues are new revenues. And what I am saying is that after 2011, we're still going to get the revenues, but in the meantime, we've lost those Vets Stadium revenues that went to the general fund and that these new revenues have to be netted against the revenues that could be available had the status quo continued.
And, again, reasonable people differ about that analysis. You know, you'll hear -- you could hear testimony, after I 325 12/1/00 STADIUM BILLS HEARING leave or from other people, saying that it's not fair because if we don't do anything, the teams will be gone in 2011. And I'm saying you're right. But if the teams are gone, the revenue going to the general fund is gone. And then to say if you have two new stadiums that's making up for that revenue, that that revenue is exclusively new revenue. I'm saying it's not new revenue because you should take out the revenue that you've missed from not having Vets Stadium there before you know before you know.
At all so. Let me go back to Madam President's original question: Are you for or not for the building of new stadiums?
I personally think that's the -- we have to build new stadiums, that's what I said. You know, having that scenario, two new stadiums in a sports stadium district with all the other stuff is truly priceless.
And that, you know, we could argue over the numbers, whether I'm right, 326 12/1/00 STADIUM BILLS HEARING whether Arthur Anderson's right, whether the City Budget Office is right. All I'm suggesting to you, the members of City Council, Madam Chair, is that we don't believe that the numbers are revenue-neutral, that there will be -- that there will be a cost to the general fund, but we're also saying that the money will be there to pay the costs, but that's viewing this transaction without looking at the other obligations that the City may have over the years --
But I'm keeping the School District out, you know, only because all the indications are, they're saying except for the 15 million which is in the five-year plan, the 45 million this year is a one shot, and we'll be able to deal with that issue off of the City budget next year. 327 12/1/00 STADIUM BILLS HEARING
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam President. Mr. Vignola, have you been able to review some of the numbers associated with recent wage settlements with both the municipal workers unions and the recent school teachers' settlement and what those settlement numbers do to the five-year plan? I know you've mentioned PGW. I don't know if you've mentioned the loss of the PURTA, the public utility real estate tax.
And there's also in the five-year plan listed $60 million in unspecified cuts, which are obviously unspecified. What is your opinion as to what the wage settlements have done to the five-year plan?
The five-year plan that this Council passed in March and that PICA 328 12/1/00 STADIUM BILLS HEARING approved the wage settlements, for want of a better word, blew it out of the water. But I think we all knew that would happen. But since that time --
Because they had zero in the plan for wages and we all knew that the public employees weren't going to get zero, nor did they deserve to get zero, but that's what the plan had and that's what we passed because everybody felt that you had a bargain from an even playing field so you don't give anything away before you're going to the bargaining table. Having said that, Councilman, what we have gotten from the City Finance Department, from the Budget Department are revised numbers for a five-year plan that show revised revenues that also show that where the five-year plan that Council passed, the Mayor signed, and PICA reviewed and approved had a cumulative deficit at the end of June 30, 2000, last fiscal year, of a $175 million surplus.
Of 150 million. It turned out to be $144 million more, or 295. So that changes all of those numbers.
What would be the number, without taking any of the wage settlements, PGW, School District one-time payment, everything on the debit side of the ledger what's the surplus? What is the surplus that we started with at the beginning of the year 2000? What surplus was left to us by the Rendell Administration?
It's halfway through. Their last full year, which was halfway through the term was, $205 million.
What were the additional undervalued revenues that became evident we were going to get that we didn't anticipate?
It's not so much expenditures but basically last year, we had a great holiday season.
Employment went up, so we ended up with a number of $95 million more than the Rendell cumulative surplus.
Now, if you factor in the cost of teachers, municipal workers, PGW, the PURTA loss, and the $60 million in unspecified, and then factor in what you believe to be the hit to the general fund on the stadium issue and then the projection on the blight initiative, have we met or surpassed the $300 million number?
Given the new -- but given the new revenue projections, you know --
The fifth year of 331 12/1/00 STADIUM BILLS HEARING the five-year plan revised gives us a fund balance to the positive of how much? I mean, I know this is not an exact science. It should be, but it's not, and I know it does change, but there's got to be a ballpark as to where we are.
I'm going to try to do that, Councilman, if you'd bear we with me for one second 'cause, unfortunately --
Rob -- Mr. Dubow is inching his way towards the table. (Mr. Dubow comes forward.)
Is it 44 million, Rob, 44.3? (Mr. Vignola confers with Mr. Dubow off the record.)
The ending fund balance -- you know, I think Mr. Dubow has more recent numbers than yesterday.
Yeah, well, it's the same as in your testimony -- in Mr. Vignola's testimony, he mentions 65 million.
That includes the 332 12/1/00 STADIUM BILLS HEARING unspecified target budget reductions. So if you take those out --
-- which is the sheet that you have, it leaves you about 6 million.
That's 6 million, including the items that I've mentioned.
Now, in the hypothetical event, and I guess this is partly what you do, Rob, and partly what Joe's responsible for doing, is kind of that forecasting issue. I know the Administration at this point won't admit it, but I think everybody's kind of come to the conclusion that the $45 million to PGW most likely -- or there's a strong chance that we might not see that money again, or all of it or a portion of it.
I mean, we're still assuming that we're going to get paid that $45 333 12/1/00 STADIUM BILLS HEARING million.
I read it in the chart, I see it in there. Look, I have a gut feeling we're not getting it back. In the event that Harrisburg doesn't do what the Mayor had hoped the governor would do as a result of the contract settlement by fixing the formula for the funding of the public schools, we're still stuck with a considerable hole that somebody's got to fill. And who would that who might that be?
Obviously, that's something, if that comes up, we'll have to deal with it.
It falls -- but it falls ultimately in the last case scenario to us, 'cause it's our school system our kids.
In the worst-case scenario, that's a possibility, yes. I understand where you're going, and let me --
This is what I'm saying to the owners of the teams in trying to explain why this is such a did have decision. 334 12/1/00 STADIUM BILLS HEARING
All of these things -- and some of them we don't even know what they are yet. I don't know what the hit to the general fund's going to be on the debt service for the blight initiative. I don't know if you do, if you know or don't.
We have actually in the five-year plan that was approved, there's million a year for debt service on the blight 12 bonds. 13
And, Councilman, because 14 it's -- it's worked its way through a couple, you 15 know, a couple months of the fiscal year, by the 16 time it's ultimately borrowed for the first year, 17 it won't even be that, so that is correct. That's 18 why you see in some of notes that I make, they 19 don't talk about the blight issue as being out 20 there if it's at $250 million.
Before you make 335 12/1/00 STADIUM BILLS HEARING that comment, I have one last comment. The stadium issue as we've discussed it here today is not one of my major concerns. I mean, if Mr. Vignola says it's 17, the City Controller says it's and then revised it down 7 to 12, you guys say it's 5, they are minimal 8 numbers -- 9
In the five-year 15 plan, I'm more worried about everything we've 16 discussed, plus the possibility -- plus the 17 possibility that we may have a downturn in the 18 economy. 19
Let me say at the time we approved the plan, including this target budgeted reductions, we ended '01 at $5 million.
Now if you include the target budget reductions, we're at 65. All of these risks were there back in January. I mean, we've built up a little more of an ability to deal with them, but I agree with you that if you all of these things go wrong, we have major problems.
The School District settlement wasn't there, the PGW --
The risk was there. Oh sure, that risk was there; it was identified in the five-year plan.
The decisions, which were in some ways unilateral decisions, to give -- and, again, Council approved it and I voted against it I voted against, to give PGW the 45 million, the end results of the settlement on the teachers' contract was not something that everyone was involved in. I mean, these are decisions that are being made on the fiscal future of the City in a short window of five years. I'm not as concerned on the out-years of this deal on the stadium 'cause I start to see some money; I'm more concerned in the next three to five years as to where we're going to be at the 337 12/1/00 STADIUM BILLS HEARING end of that period.
Oh, I agree that there are a number of threats that pose really, really serious concerns about the plan period.
And in this budget cycle, I would suspect that we're going to be looking at imposing some budgetary discipline --
-- in order to segregate some of these dollars so that we have the ability to fall back on a cushion --
That's exactly what we're doing. As you know, we're starting our plan process and that's exactly what we intend to do.
Thank you. Are there any other questions from members of the committee?
You say some worrying things over here -- and I think Jim was alluding to some of them -- in which you say, and I believe you were answering that counter to the (unintelligible), the City continues to increase its fixed long-term debt, and then you add -- and one of the things I think Jimmy added was the aspect of we don't know yet the debt in terms of the blight bonds issue that will come down.
Okay. And he said -- Mr. Dubow just said $20 million, right?
So can you project, you know, how we're reaching our debt limit, the impact that it will have? And then you say that if we continue this way, we will have to -- at what point do we cut services or raise taxes? Could you abound on that?
Yeah. Councilman, I'm not talking about the GO debt limit. What we are talking about is during the -- during the last 339 12/1/00 STADIUM BILLS HEARING three to four years, we saw the amount of borrowing, the debt dollar amount of the City decreasing. This past year, we have seen it increase. And what I'm concerned about is that this amount of borrowing will continue to increase, notwithstanding any GO debt limit, because we have revenue debt from various sources, whether it's the revenue stream of the Water Works, PGW, airports, transactions such as this through, you know, through PAID, through the borrowing arm of PIDC. That long-term debt will increase. As long term debt increases, that's a contract, that's a contract with the bondholders, and you must pay that. So that number becomes a larger percentage of the general fund operating budget each year, thereby putting pressure on what monies you have, given that over half the general fund budget deals with wages and fringe benefits, over what portion do you have discretion over, and if that -- if that number gets smaller and smaller, then you have to -- then you have to make a decision, Well, we can't provide the level of 340 12/1/00 STADIUM BILLS HEARING services that we want so we have to start cutting down because we're under, unlike the federal government is, State governments and local governments are under a balanced budget, and we have to balance our budget every year.
And then the next statement that you make in your presentation is that -- and there's a tendency, and there has been a tendency during these hearings, in essence to sort of isolate the stadium question as to -- as to make it seem as if this really has nothing to do with the overall aspects that are happening in the City, and we -- we are -- our failure to look at the whole aspect. Like you say, PGW, blight, Board of Education, all of the other problems that are increasingly coming about. And if NASDAQ and the stock market keep on that dive, there will be a presumptive slowing down of the economy that will have unknown impact on our revenues.
You know, that is a concern. I think in every report that PICA has issued, at least since I've been there, is always talking about the effect that the national economy has on the City of Philadelphia, and I always say 341 12/1/00 STADIUM BILLS HEARING that cities like Philadelphia across the nation, large cities, are impacted by a slowing of the national economy first and are the last to respond when the national economy starts to grow. And so it is a concern.
And you haven't taken into consideration the very big possibility that the general urban policies of George Bush may be a part of the problem that will not be benefitting us in the foreseeable future, if he gets to be president.
Well, I'm very myopic. I'm not looking beyond December 2nd now.
I'm looking towards January 21st and I'm getting very concerned because that has to be read into the equation, 'cause the last eight years were very different from the previous eight years in terms of federal assistance to the City of Philadelphia.
I don't disagree with 342 12/1/00 STADIUM BILLS HEARING that, sir.
Thank you, Madam Chair. Can I have Rob Dubow again, please. (Mr. Dubow comes forward.)
Because of a prearrangement between yourself and I, you had asked that late in the day, you wanted to have another opportunity to be up at the witness table because of your intense enjoyment of it. Could you -- (Laughter.)
Things are more like they are today than ever have been before.
That's prophetic. 343 12/1/00 STADIUM BILLS HEARING You handed out a sheet yesterday, which, if you can believe it, amongst all of this paper, I can't seem to find. But can you relatively quickly explain this fund balance issue with regard to the --
There are two sheets of papers that were passed out over the last couple of days.
One that looked at the impact of the stadium deal and one that looked at items creating major changes in the fund balance.
Right now, I have items creating major changes in the fund balance. I do remember seeing that piece yesterday, which was stadium-related. Can you -- what happens during these first five years to cause that problem? This is the -- if I could also ask more officially, unless you've already distributed it, I read about the 344 12/1/00 STADIUM BILLS HEARING Finance Department report about this $22 million. I have not seen that report. Has that been distributed?
This 5.8 million is an update to that, and I can tell you what changed from the earlier version. The debt service numbers were reduced because when we actually -- we gave that out in some briefings a few weeks and we said the debt service numbers were preliminary and we were going to be working on them. And one of the things we realized that is in the first set of numbers, we didn't assume any interest earnings on the proceeds. We went back --
And so we went back and said, yeah, of course, we're going to earn interest 'cause we have a relatively long draw schedule. And with those interest earnings, the debt service costs came down. And that's the difference between the 22 and the 5.8. 345 12/1/00 STADIUM BILLS HEARING
Okay. As you're talking about interest earnings, with regard to the $10 million payment out of the bond proceeds for the capital fund for the Eagles stadium, when is that payment made, who holds the dollars, and where do the interest earnings from that go?
Councilman, just to make sure -- I was coming up -- that I got the question right. Your question dealt with the $10 million capital reserve, and when does it go in and who gets the interest earnings and who holds it?
The projection in the financing plan for the transaction is that we would borrow that amount next calendar year '01.
That's correct, that's correct. 346 12/1/00 STADIUM BILLS HEARING
What we've been looking at, Councilman, is we will probably not borrow 304 at one time. It's more efficient. And this part actually deals with Mr. Dubow's why are the final numbers 5 million impact on the five-year plan or 6 million. It's because what we've been doing, as we've been trying to do a few other things, is perfecting the actual when we're going to issue debt, how much interest earnings we can make on the that debt on arbitrage before we have to use the funds.
And those numbers have been perfected enough now that we have a better sense of, you know, what's the exact cash flow of the transaction. So we would do a borrowing in '01. And as part of that borrowing, it would include a borrowing, the $10 million capital reserve. It would earn interest. The interest would accrue to the reserve. So it benefits --
I'm sorry. The 10 million will be a part of next year's -- 347 12/1/00 STADIUM BILLS HEARING
I think we've been looking at late second, early third quarter. (Confers with Ms. Orfanelli off the record.)
And July. The borrowing that has the 10 million in it. I see Mr. McPherson kind of scratching. It's not -- we'll have do a piece of borrowing earlier for like the T-Warehouse acquisition.
So this is the 10 borrowing roughly in June. That's a borrowing 348 12/1/00 STADIUM BILLS HEARING that would include the wrap-up of acquisition and site work related to the Eagles project and I think the beginning the site work related to the Phillies project.
That's basically what 9 we've agreed to. I mean, that was a part of the 10 discussion about when we would have various dollars coming into the transaction. We would then put it -- it would ago in an interest-bearing account. I believe it is yield-restricted 'cause it's done on a tax exemption basis, you know, with the arbitrage. And so there's this capital reserve account. The interest earnings stay in the account so they do --
I think -- I'm actually not sure what the mechanical legal answer is. I think it actually is our account. It's held by the trustee who's controlling the funds for the construction. I think the nominal owner is PAID, 349 12/1/00 STADIUM BILLS HEARING as we are the owner of the facility.
And it's available to the Eagles for, you know, for capital needs in the building when it opens.
So it could be called upon within a year or two of the facility being opened?
I think I mentioned earlier that the interest stays in the account.
Well, it -- in other words, the interest makes the account worth $10,500,000 and then there's -- 350 12/1/00 STADIUM BILLS HEARING
Is available, that's right, that's right. So if they don't need money for three years 'cause everything's brand new and nothing breaks and there's not an issue, then it's worth something more by the third year and they can use it.
Well, I mean, not to seem unreasonable but, I mean. Why do they get the interest?
To be candid, it's simply one of the business terms of the transaction. Again, we could have, as you're aware --
What's the interest worth the first two or three years?
I can't it off the top of my head. I'd have to figure out what we're borrowing it at to figure out what the arbitrage 351 12/1/00 STADIUM BILLS HEARING restriction is.
You know, before you had your new job lined up, you used to be able to do that kind of stuff. (Laughter.)
But now you feel no 9 compulsion whatsoever to do these kinds of things 'cause you know that you're leaving and will never have this opportunity again.
No, it's not that. I'm told I can actually have people doing it for me.
I understand, you're working on it. Can you give me an --
We're probably borrowing at a 5 to 6 percent range, and so it would be 5 to 6 percent. So about a half a million dollars a year would be the rough value of the interest. What I was going to say, Councilman, is 352 12/1/00 STADIUM BILLS HEARING that, as we know, in the alternative, if you look at the Phillies transaction, we could have made investments in an Eagles stadium on the basis of paying for a portion of their capital costs so they will be building through this period. And if we had done it that way, you know, it would have been a grant, equity into the building.
In lieu of that, we're providing the operating and maintenance dollars, and we're providing this one-time capital reserve. So, basically, we are providing them with the effective value of $10 million. And because they have a right to the interest in it, it in effect keeps it effective value, you know, as an opportunity cost.
Your language kind of almost goes back to an earlier discussion about keeping values --
-- in 353 12/1/00 STADIUM BILLS HEARING contributions.
Well, it is -- you're right in that sense, that it's a part of the, quote, rent that the City owes PAID in the lease leaseback.
So it will come from the revenues generated by the rental car taxes -- you know, taxes that we get from the project as we've projected it. But that's right, it will come as a rent payment out of the general fund to PAID annually.
Although conceptionally, the deal generates enough -- it 354 12/1/00 STADIUM BILLS HEARING generates an incremental tax amount --
-- that covers it, but that would be a line item straight out of the general fund for 4 million, 5 million, 6 million, whatever that schedule is at the back of the document.
All right, thank you. Mr. Dubow, the $22 million, which sheet is that on or has that number changed?
The million you're 16 talking about is the 5.8 million. It's the same 17 number. We were talking about how the number 18 changed 'cause of our recalculation of debt 19 service. 20
5.8, okay. And I guess my quick question was, why does did that happen? 355 12/1/00 STADIUM BILLS HEARING
It went down because we looked at the way we were issuing debt and realized two things: One, that we were going to earn interest on the proceeds, because we would have some kind of draw period, so those interest earnings allowed us to have a smaller issue and lower debt service.
Right, okay. Walk me through the numbers real quickly on the impact of stadium deal comparison to plan. In 2001, where we obviously have no 16 stadium, what's the meaning of this net benefit number?
What happens is in fiscal 2001, we begin to see construction benefits, so there's a bump-up in tax revenues.
Tax revenues, right. In 2002, it gets even better. In 2003 --
Right. And then after that, the benefit is the benefit of, you know, the increased attendance and the new stadiums. 356 12/1/00 STADIUM BILLS HEARING
Right, but then it takes a dramatic turn obviously between '03 and '04 because our debt service kicks in. And so what's the meaning of the net benefit number in 2004 and 2005?
Well, compared to the plan, it turns negative there. And I should say --
The overall comparative plan? It's built into that 5.8. So those last two years, the 5.8 is the cumulative five-year value.
All right. And what's the overall impact on our fund balance at that point? 357 12/1/00 STADIUM BILLS HEARING
Now, if you add in various things that have happened to the fund balance since the plan was adopted, there are two sides to this. Items increasing the fund balance, which for the most part are the increase in our beginning balance from what we projected. In other words, when we submitted the plan, we had an FY 2000 ending balance of 150 as the projection.
The biggest reason for that increase was the increase in tax revenues.
Which means we have a higher base. 358 12/1/00 STADIUM BILLS HEARING
That's the second line. The third line is the PGW loan repayment. We show the loan on the bottom, we show the repayment on the top. That's what Councilman Kenney said too. And then we have the three years of positive impact to the stadiums on top.
And then there some things like there were some things like EMS collections that were higher than we projected, that's the 900,000. And we have the payment to the School District in '01, the 45 million. And we assume that after that, it's just 15 million a year. 359 12/1/00 STADIUM BILLS HEARING
We have the loan to PGW, the 45 million. Then we have the two transfer ordinances. One was that additional demolition money; we had a hearing on that, I guess, a few weeks ago.
And then we also, in that transfer ordinance, had additional funding for City Planning and the Mayor's Office.
There's the stadium deals and then the loss of PURTA. When you calculate all of that out -- and the other thing we did for this analysis is, we backed out those future target budget reductions that were in the plan, that's 60 million. 360 12/1/00 STADIUM BILLS HEARING
When you make all of those adjustments, you wind up at 6.2 million at the ends of '05.
4.96, but that included the 60 million. So this is really about 60 million better than that number 'cause it's essentially unchanged with backing out the 60 million in future target reductions.
If you look at the top box and when you look at kind of the available balance.
We take that, the third line there, the cumulative future target reductions.
We took that number out and assume we had to make that number up on the bottom half the table. 361 12/1/00 STADIUM BILLS HEARING
So instead of showing the 4.whatever, it showed a negative 55.
It's really aimed at you. Just talking about money that we don't know where it's coming from -- where some of this money agency going to be coming from, during the Republican National Convention, we spent, from what I understand, between 5 and $10 million in police overtime that wasn't budgeted. Where's that money coming from?
When we did our quarterly report -- you get a copy of our quarterly reports -- that's one of the variances. We show -- we 362 12/1/00 STADIUM BILLS HEARING actually have other items that were positive. We don't show everything in this sheet. We show the big changes 'cause you actually look at this number, the fund balance number that we show at the end of '01. Other than the stadium impact, it matches what's in the quarterly report, and that included the police overtime.
From what I understand, there was money budgeted for police overtime.
And we exceeded that. We're projecting that we're going to exceed that number. And it's not just the Convention. There are things like, you know, court appearances and increase in arrests. There are a number of reasons why the Police Department thinks its overtime is going to be higher than --
Well, does -- does that appear -- does that appear to be a tough question to answer? 'Cause I've been asking that question now for over a month on where the money's coming from to pay the 9.5, whatever the number is. How much is it exactly in overtime. 363 12/1/00 STADIUM BILLS HEARING
The projection for the Police Department's Class 100 variance is about $13 million.
And because of anticipated problems, there was again another 5 -- from what I understand, there was unbudgeted overtime of maybe another 5 to million. 9
That's included in that million that I just mentioned to you. 11
Yeah. If you look at what we're projecting the fund balance to be at the end of the year, that's one of the reasons it is where it is, in the '01 fund balance.
Very good. Thank you. Thank you, Madam Chair. 364 12/1/00 STADIUM BILLS HEARING
You're welcome. Are there other questions? I know Councilman O'Neill has a question but --
Thank you. Are there other questions from Councilmembers for these witnesses? (No further questions.)
All right. We will recess until tomorrow at 10. We'll see you all then. (Adjourned at 6:00 p.m.) - - - 365 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Friday, December 1, 2000, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE OF THE WHOLE STADIUM BILLS __________________________________, DEBRA A. WHITEHEAD, Registered Professional Reporter __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter