IBO: Nets Arena a Net Financial Loss for City

The planned new Nets arena in Brooklyn is anticipated to result in a net loss of money for the city,

The planned new Nets arena in Brooklyn is anticipated to result in a net loss of money for the city, a new report  from the city's Independent Budget Office has found, a change from the agency’s last report in 2005 that found a small financial gain. The report, released Thursday, comes a day after the Nets released renderings of a new arena design, and announced their intention to seek financing for the arena within a month.

The report found that over a 30-year period the new arena planned by developer Bruce Ratner would come at a financial loss of approximately $39.5 million to city coffers. The study estimates that the $130 million in projected new tax revenue to the city will be drowned out by the city’s $169 million in discretionary subsidies for the project, part of a larger $4.9 billion development known as Atlantic Yards. (The report found the state and M.T.A. would show a net gain of $25.4 million and $5.8 million in financial gain, respectively.)

The city’s Economic Development Corporation rejected the findings, taking issue with the methodology, particularly the IBO’s decision to count the subsidies as particular to the arena (the city says if they are counted as subsidizing the larger project, the result is hundreds of millions in additional revenue to the city).  

“It’s sloppy and filled with inaccuracies,” said David Lombino, an EDC spokesman.

But measured in isolation as incentives for an arena, the finding serves to illustrate how the Nets arena, estimated to cost around $800 million, follows the model of most every other professional sporting venue in this country, built with the prop of subsidies that elected officials are often ever-so-willing to offer.

The Nets arena, of course, was supposed to be different. Not only would the new arena be an especially attractive venue for concerts and other events—Brooklyn, with its 2.5 million people, has no event space anywhere near as large—but it was also bringing in a new team from the outside, if only moving it a few miles east. Typically, losses to cities on sports venues come as a team stays within city limits and thus there is no net gain. Many a team has threatened (or blackmailed, depending on one’s point of view) their host cities into subsidizing new facilities by stating their intention to move to another unless taxpayers pick up a substantial portion of the costs for new stadia. This decision-making process for policymakers in cities nationwide inevitably becomes highly politicized: losing a professional sports team would be a major black eye for any elected official, thus the pressure to give into teams’ subsidy requests is enormous.

But here the Nets were being stolen from New Jersey, bringing a whole new set of salaries, ticket sales, merchandizing and associated activity into the borders of New York City: the subsidy is meant to attract new money—not retain existing spending. Still, at least according to IBO’s analysis, the new tax revenue from that activity is not enough to cover the $169 million or so the city is adding in infrastructure investments and direct subsidy, a testament to just how substantial these incentives are for this project.

With that said, the report has the state government still registering a net gain, and it’s debatable whether or not it’s fair to isolate the arena without factoring in the benefits of the rest of the project (the IBO did this because the subsidies were generally specific to the arena, and housing would likely have been planned for the site regardless).

The Bloomberg administration’s EDC took particular issue with the way the benefits and subsidies were measured. The subsidies were not specific to the arena, EDC contends, as the subsidy funding agreements with the developer call for Mr. Ratner’s firm to pay damages to the city if other components such as housing are not built.

Further, there are other benefits that are not included—new open space, for one—that come as a result of the larger project, though not particularly because of the arena.

On another level, the IBO report was also not able to analyze something that cannot easily be quantified, but is a critical question to any city grappling with the question of subsidies and sports teams: What is the social, psychological, and cultural value of a new professional basketball team in Brooklyn?

Sports teams are rarely, if ever, about generating revenue for the public sector. Rather, they are far more about satiating a public hunger.

Update: 3 p.m.

Developer Forest City Ratner responded by calling the report inaccurate. Here's part of the statement from the firm's spokesman, Joe DePlasco: 

"The Independent Budget Office’s analysis is wrong.  Their assumptions are widely off mark, including for sales and other tax revenues.   Also they are conveniently applying the State and City subsidies to the arena while ignoring the benefits of the larger project.  A large portion of the public benefits are also realized through the development of the housing, office and other uses, creating jobs and tax revenues to both the City and the State."

IBO: Nets Arena a Net Financial Loss for City