Friday, March 07, 2014

The Soccer Stadium Deal Ersal Ozdemir And Peter Wilt Don't Want To Talk About

When Indy Eleven team owner Ersal Ozdemir and the team's general manager, Peter Wilt, hit the State House hallways this session with a team of high-paid lobbyists to convince state lawmakers that a state financing deal for their proposed $87 million soccer stadium was a win-win bet, it's pretty safe to assume they weren't talking too much about Wilt's last soccer stadium deal. That's the Toyota Park Stadium deal in Bridgeview, Illinois that Wilt brokered on behalf of the Chicago Fire, the MLS team he formerly ran before the team's owner, AEG, fired him. It's a stadium deal that never lived up to expectations or promises and one that has left the suburban Cook County village reeling in debt that has caused property tax bills to triple in size over the past decade.

Bridgeview's mayor, Steven Landek, now a state senator, convinced his community that building a state-of-the-art soccer stadium for the Chicago Fire, which had been playing in the Bear's Soldier Field, would bring lots of economic development and jobs around the site of an abandoned industrial plant and help put the city on the map. Landek first had to convince his village's voters that adopting home rule was needed to fuel growth in the struggling, blue-collar village fifteen miles southwest of downtown Chicago. That gave his city freedom to tax and borrow free of state law restrictions. Shortly after voters approved home rule in 2002, Landek convinced the city council to approve a sales tax increase, allegedly for the purpose of easing property taxes.

Around the same time, Chicago Fire's billionaire team owner, Phillip Anschutz, had started shopping for a suburban community that would finance construction of a new stadium to host his struggling major league soccer team after the team was displaced from Soldier Field while a major renovation of the stadium was underway. Peter Wilt, a McHenry, Illinois native who has bounced from one professional soccer team to another over the past decade, led those efforts on behalf of Anschutz' AEG as Chicago Fire's president and general manager and is now working in a similar role for Ozdemir's Indy Eleven.

In 2004, Mayor Landek began pitching construction of a $70 million stadium to host the Chicago Fire. Landek assured village residents that the team's revenues, not current city operating revenues, would pay to service debt on the proposed new stadium. With the adoption of home rule, Bridgeview could legally borrow as much as it desired for a new stadium or any other purpose approved by the village's council. Landek's original proposal called for a public investment of up to $55 million with the investors shouldering the balance of the risk if the stadium's revenues proved inadequate to pay bond debt. Instead, stadium construction costs skyrocketed, and the village wound up borrowing more than $100 million and agreeing to assume all risks for repayment of the debt. The village issued $134.6 million in bonds in 2005 with a maturity date in 2025.

From there, the situation turned from bad to worse. The promised economic development that was to include hotels, restaurants and a water park in the area of the stadium never materialized. The promised revenues from the new stadium fell far short of predictions. Village officials conceded that revenues fell short by more than $11 million during the first five years after the new stadium opened in 2006. A Chicago Tribune report in 2012 detailed how the village then began borrowing more money through a series of loans and cash transfers as a short-term fix for the stadium's escalating costs and losses. By the time the original debt was refinanced to help make the debt service payments more manageable, debt on the stadium had grown to $200 million. Residential property taxes payable to the village tripled, making the community one of the highest taxed and most indebted municipalities in Cook County. As The Tribune found, however, there were winners amidst the debacle--the political insiders who backed the original stadium deal reaped financial rewards:
The hulking, red-brick Toyota Park rises impressively from the side of gritty Harlem Avenue, its canopies jutting into the sky. The village-owned stadium is not only home to the Chicago Fire, but also hosts major music shows.
And since opening in 2006, it has come up millions of dollars short of making its huge debt payments. The yearly shortfalls are sometimes as big as the town's annual police budget, and they've helped sink the southwest suburb's credit rating to among the Chicago area's worst.
Still, not everyone in town is losing.
The big borrowing created a torrent of cash that, in part, went to companies tied to high-level village employees, the town leaders' political supporters and even companies linked to the mayor's family.
Plus, campaign contributions from those profiting at the stadium have helped bankroll a rarely challenged local political machine that recently elevated its leader, Mayor Steven Landek, to the Illinois Senate. The machine also has put thousands of dollars in rent payments into the mayor's pocket each year.
Landek would not agree to an interview, but in emails, spokesman Ray Hanania blamed the economy for the stadium shortfalls and said nothing was done illegally or unethically. He chided the Tribune for questioning the project.
"Toyota Park has been the best thing to ever happen to Bridgeview. It's brought a new spirit and pride and regional attention," he said. "The Fire is a remarkable team, far better than the Tribune's properties. ..."
Good-government advocates, however, question years of deals involving the soccer stadium that appear rife with conflicts of interest, and financial experts blame the resulting losses on more than a bad economy. Among the critics is H. Woods Bowman, a former state lawmaker and county financial officer who now teaches government finance at DePaul University.
"It's hard to see how it could have turned out much worse than it did," Bowman said.
Bridgeview's story is a sobering reminder for taxpayers across the Chicago region, most of whom live in towns that have almost unlimited power to borrow and tax without voter approval. When ambitious ventures fall flat, generations of taxpayers may pay the price.
A Bloomberg report in December 2013 report similarly took aim at Bridgeview's soccer stadium boondoggle and the devastating downgrading it caused to the village's credit rating.
The village expected the venue to have $3.45 million in operating expenses and a surplus of $4.8 million in 2006, its first year, according to a spreadsheet provided in response to an open-records request. Instead, the facility racked up $4.59 million in operating expenses and a $3.94 million net loss, a municipal audit shows. That’s more than the $2.4 million in police expenditures in the same period.
Audits from 2006 through 2011 show that operating expenses exceeded revenue every year except 2007. The village’s financial report for 2012 didn’t list the stadium’s operating revenue and expenses as before. Landek said the village made the change for ease of management and that he didn’t have those figures.
Although it paid for the facility, Bridgeview doesn’t get the bulk of the revenue. The Fire receives 92 percent of gross ticket revenue, half of net parking and concessions income, a third of licenses, suites and sponsorship and 22.5 percent of gross merchandise, according to the permit and operating agreement.
Village officials have continued to plow money into the venue. They agreed to divert $2.6 million of the village’s share of stadium revenue to repay the club for suite upgrades, according to a document detailing the arrangement.
Officials kept borrowing to pay for the stadium, including as recently as March, when they sold about $24 million in general-obligation bonds to refinance 2011 debt for the stadium.
Now taxpayers are saddled with more than $200 million in securities related to the project, according to a March report from Standard & Poor's, which ranks the bonds BBB+, three steps above junk. Each resident’s share of the debt burden is $17,666, about three times the figure a decade ago when adjusted for inflation, releases from the ratings company show.
The village may sell more bonds for Toyota Park and raise taxes to help fund it, S&P said. Last year, Bridgeview asked residents to pay $9.59 million in property taxes, up from the 2006 amount of $3.82 million, according to Cook County tax records.
Landek, by telephone, said the village plans to raise property taxes by 1.8 percent in 2014. He declined to discuss the stadium while answering other questions.
The Legislative Services Agency and every expert who has examined Ozdemir's rosy revenue projections for his Indy Eleven minor professional soccer team attest to the fact that revenues won't come close to covering debt service on his $87 million stadium project. To believe his revenue projections, you would have to assume his Indy Eleven will fare better than the Chicago Fire, a major league soccer team, has fared in a much bigger market. That's not going to happen. Of course, he expects the Capital Improvement Board to take full ownership of the stadium and obtain a pledge of state tax revenues to service debt on the bonds. If there is a shortfall in revenues, the CIB will make up the difference. That's not taking into account the fact that there really is no net revenue increase since money spent on games and other events hosted at the stadium entail largely discretionary spending by area residents which would have been spent elsewhere if not spent there.

The indisputable empirical evidence leaves one to wonder just how Ozdemir and Wilt managed to convince the Indiana House of Representatives to easily pass a plan that would have pledged up to $2 million in state revenues annually for the new stadium, albeit less than the $5 million a year requested by Ozdemir, introduced only late in the session. Senate President Pro Tempore David Long is the only person standing in the way of approval of a stadium deal this year, and he's not ruled out passage of it during next year's budget session. A lot can happen between now and then. With so much at stake and Indiana's long history of outlandish public financing of anything sports-related, it's hard to bet against Ozdemir's likelihood of future success in his push for a new soccer stadium no matter how ridiculous that notion might be.


Unigov said...

Matt Tully is also to blame.

By the way, Illinois government is seeking to remove language in the state's constitution that forbids a graduated income tax. See

Anonymous said...

Don't forget this mess w/the Red Bulls in New Jersey. Another cluster...

Indy Rob said...

Maybe instead of having the state and local governments finance this stadium, we should just invest their pensions in the stadium, maybe have senator long (and others) take a mortgage out on his house here to "invest" in this cluster-F.

I'd love for the press members, state senators and lobbyists who are pushing for this to treat this as a private personal investment with no government bailouts via tax revenues. tax exemptions, or privatized government funding like the CIB.

This won't happen, but I would like the state senators to feel the actual pain when this thing fails. Maybe prison, maybe just the loss of their retirement savings.

Indy Rob said...

Could the stadium be funded as a kick-starter project? Or treated with the same scrutiny given to an IPO?

There are controls on kick starter projects and IPOs being put in place to protect the public investments. Why should there not be personal liability on the part of the lawmakers (including going to jail) who fund this sort of boondoggle on such sketchy promises of return?

Downtown Indy said...

Monorail, monorail, MONORAIL!!!

Pete Boggs said...

Unfortunately, Republican majorities aren't working out well for taxpayers, seeing government grow at all levels under their "leadership."

Republicans have their election cycled "principles" down pat. "Yes government's too big," they nod in agreement & then govern its incomprehensible & unjustified expansion; generating occasional distractions therefrom with insignificant but headlined margin tinkering.

Government's too big; due in no small part to unconstitutional misadventures beyond its voice, design & legitimate charter, threatening & disrupting the very private sector its sworn to protect.

In a state that touts "conservative leadership," where are meaningful & measurable, net results- principle statements beyond cross-eyed margin tinkering?

Where is that visionary leader, in this state, whose action embodies those principles of smaller, constitutionally right sized or limited government?

Are things here in the Capitol City of Indianapolis merely delayed, or distinctly different than operations in DC?

Who, are our "leaders" emulating? Is the Constitution their guide or an impediment to other interests? Has it somehow become "too much," to insist they pay attention to the ruling document, our Constitution?

Unigov said...

Pete - they're all whores IMO. If the Democrats were in charge we'd all be paying an extra percent in income tax to fund unionized state-funded daycare. I truly don't know which party is worse, but they both sure like the $$$.

Flogger said...

Politics and money are nothing new. Boss Tweed would have no trouble recognizing our current system, of spoils, crony-capitalism and patronage.

It breath taking to see the total arrogance and profound lack of respect for the people who labor so hard to pay their bills, by our politicians who so cavalierly provide the elite with all sorts of Corporate Welfare.

At least during Boss Tweed's day there were the "muckrakers" in Journalism. Today with very, very rare exceptions the Mega-Media is nothing but a cheer leader for the Crony-Capitalism of the Republicrat Party.