Worst San Antonio Financial Idea of 2015: Bringing Raiders to Town

A version of this post appeared in the San Antonio Express News


Are you ready for my first nomination for San Antonio’s Worst Financial Idea of 2015 Award?

“What? So soon,” you say? “We just started the year!”

Yes, but I’ve resolved against procrastinating in the New Year, and this idea clearly needs highlighting.

Are you ready? Drum roll please:

Moving the Oakland Raiders to San Antonio!

We’ve got a winner!

My goodness, what a terrible idea. [1]

Former San Antonio Mayor Henry Cisneros told the Express News he believes moving the Raiders to San Antonio is a “very clear 50-50 proposition,” which it most certainly is not.

But more importantly, in financial terms, it’s a horrible idea. Like a $500 million horrible idea for taxpayers.

Here’s the logic

Picture yourself for a moment as Mark Davis, the owner of the Oakland Raiders.

The city of Oakland will not build you a shiny new stadium.

But that doesn’t seem fair, because you really, really want a city government to give you a subsidized place for your team to play. And anyway, that’s the reason why your dad Al Davis moved the Raiders from Los Angeles to Oakland in 1995.


As some of you other billionaires out there may know, rent for your privately owned business can be darned expensive!

Anyway, the way you get a public entity to provide hundreds of millions of dollars for your private business is to pretend that you are willing to move your team, especially if a different city is willing to pay you those hundreds of million dollars, in the form of free or reduced rent.

You don’t really want to leave, but on the other hand, there’s always a price, right?

But, the big question is, what’s the price?

Well, these things can be estimated, within a reasonable range.

The price depends on the cost of building a new stadium, the amount of public money offered (that’s your tax dollars at work!) and the relative attractiveness of a city’s media market.

The taxpayer price

According to a study done by the Minnesota Vikings, in the last ten years five NFL stadiums have been built at an average price of $871.5 million, with an average public subsidy of $327 million. Of course, that’s just an average.

For reasons I’ll explain below, I think the public subsidy in San Antonio will need to be larger than the recent average.

Public funds supported Jerry Jones’ privately-owned business through $444 million of Cowboy-stadium subsidy, while Indianapolis supported Jim Irsay and his Colts to the tune of $619 million in stadium subsidy. Averaging those, we’re talking around $500 million. That seems about right for San Antonio.[2]

The difference in media markets

The difference in media markets accounts for why San Antonio taxpayers would have to pay the high end of the range of subsidies to bring the Raiders to town. That’s because ‘national revenue’ through media deals, sponsorships and broadcast rights typically make up a significantly bigger proportion of an NFL team’s earnings than ‘local revenue’ like ticket, concession and merchandise sales.

Please forget the oft-repeated and misleading claim that “San Antonio is the seventh largest city in the United States.”[3]

For the purposes of an NFL owner, San Antonio is the 36th largest media market in the United States.

No owner of an NFL football team would ever willingly downgrade the value of his franchise by moving from the fourth largest media market (San Francisco/Oakland) – or forgo the opportunity to play in the second largest media market (Los Angeles, which still doesn’t have a team) – to play in the 36th largest media market in the US (San Antonio), unless he was buried in public money to induce him to make that choice.

Burying Mark Davis in stadium money might work

Would Davis give up Oakland – or the chance at LA – for that?

Is that clear? If former Mayor Henry Cisneros and his backers get his way, San Antonio taxpayers should be prepared to pay, and pay bigger than any city has ever paid before.

Economic impact

I understand this column will immediately be rebutted with folks carrying consultants’ economic impact analysis[4] showing that building the Raiders a shiny new stadium will bring many millions of dollars into the San Antonio economy – providing “good jobs” and “revitalizing neighborhoods” along the way.

I have two responses to those critics.

First, we’ve all heard the theory of stadium-driven neighborhood revitalization. Have you visited the Alamodome and AT&T Center lately? I live right near one, and I have visited the other frequently. The expected stadium-driven economic development and neighborhood revitalization is still – let’s politely say – in the “potential” stage.

Second – and this is a personal rule of mine – I don’t support public subsidies for individual businesses, as worthy as Mark Davis’ Oakland Raiders may appear to some. Public subsidies and public funds should go toward broad benefits in this city of extraordinary needs – public safety, schools, roads, libraries, parks, housing, and poverty alleviation all come to mind as high priorities.

Subsidizing the private business of a billionaire owner with up to $500 million in tax breaks tends to be a low priority for me.

But hey, that’s just me.


Please also see and listen to the followup discussion including Heywood Sanders of UTSA, Gregg Easterbrook of ESPN, author Neil DeMause, and me, on KSTX’s The Source – The NFL Coming to Town Might Be A Bad Idea


[1] And I don’t mean horrible for the following reasons: I don’t mean horrible because the Raiders are the worst team in the NFL, by a good margin. I don’t mean horrible because of the terrible lives led by brain-damaged and injured survivors of an NFL career. I don’t mean horrible because of the pattern of domestic abuse by players and the false ‘We’re so shocked!’ pretend-reactions of the NFL leadership from Commissioner Roger Goodell on down. I live with all that hypocrisy already, as I enjoy watching my team on Sundays. (Brady, Belichick, Arizona-bound baby! Woohoo!)

[2] Needless to say, nobody deserves half a billion dollars worth of private business subsidies more than upstanding gentlemen like Messrs. Jones and Irsay. Please don’t mention the sexual harassment and DUI charges personally leveled against those two gentlemen-owners, as that would be both impolite and not financially relevant to the discussion. Let’s focus instead on the half a billion dollars that Mark Davis will expect in public subsidy to move his Raiders to San Antonio.

[3] For the vast majority of you readers who do not live in San Antonio, that particular “7th Largest City” chestnut is something San Antonians tell themselves (and actually say outloud, and in print) on a regular basis. It has to do with the measurement of population within a metropolitan area, while the boundaries of that metropolitan area can be redrawn outward every few years in a seemingly limitless sprawling suburban way. I know, it’s embarrassing. But you can Google it and see where San Antonians get the idea.

[4] That’s a post for another time, but lets just say, the public sector could build a giant hole in downtown San Antonio, then immediately cover it up with dirt, and get a consultant to write a report claiming massive follow-on economic impact effects of the “Downtown Giant Hole and Fill” project. Think of all the ‘shovel ready’ jobs!


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If You’d Like To Understand Financial Instruments But Need A Sports Hook

arian foster stockIf you’d like to understand financial instruments used on Wall Street better, but you need a sports or entertainment hook as a spoonful of sugar to make the medicine go down, I recommend this article by Katie Baker on Grantland about the proposed Arian Foster “IPO” deal.

[Katie Baker – who I do not know personally – is a hero to me, as she quit her analyst job at Goldman, Sachs a few years ago to become a sports writer (on the hockey beat) for the Bill Simmons/ESPN-sponsored online startup Grantland.  The site combines Simmons’ patented sports-plus-hollywood formula with other great writers such as Chuck Closterman, Charles Prince, and Malcolm Gladwell.  Grantland makes traditional newspaper sports sections groan-worthy yawn-fests by comparison.]

The Houston Texans’ Pro-Bowl running back Foster announced that a company named Fantex seeks to raise $10 million for him this year, in exchange for a 20% cut of his future football earnings.  The “IPO” seems to offer investors a chance to move their fandom relationship with individual players beyond fantasy football, and into an actual investment in the long-term financial success of those individual players.  The “IPO” offers the kind of risk profile – as well as upside – of investing in a startup company.

In the article and accompanying sidebar Baker explains some of the myriad details of this new opportunity (e.g. it’s targeted to unsophisticated investors, it’s an entrepreneurial idea that Fantex hopes to reproduce with other athletes, Foster recently tweaked his hamstring, Foster’s future earnings from his children’s book are not included!).

She also makes clear this Foster IPO has plenty of risks, but that it does resemble an innovative risky investment in the upside potential of a star athlete.

arian foster runningTest case of the JOBS Act

Interestingly, to me, the Fantex offering relies on the new “Jumpstart Our Business Startups (JOBS Act),” meant to lower barriers to unsophisticated (less wealthy) investors to participate in risky start-up financing.  Passed by Congress in early 2013, as of October 2013 the SEC still is in the process of clarifying provisions of the bill.

What we know so far about the JOBS Act, however, is the following:

1. Smaller companies can limit their obligations to report financial and other information to the SEC.

2. Investors with a net worth far below $1 million (the traditional threshold for sophisticated investors) can buy risky IPOs.

3. Speculative investors such as hedge funds can now advertise their funds.

4. Smaller companies can skip provisions of the Sarbanes-Oxley accounting rules introduced after the Enron debacle.

On the one hand democratizing investment participation allows non-sophisticated folks an equal chance to get-rich-quick by participating in risky investment schemes.  In addition, I’m all in favor of entrepreneurs accessing capital more cheaply and with fewer barriers.

On the other hand, I probably don’t need to spell out the obvious opportunities for fraud, trickery, moronic investing choices, and inappropriate speculation all opened up by the JOBS Act.

All in all, we’ve reintroduced more Wild West into the system.  The Arian Foster represents the highest profile example of this new Wild West.  This will be interesting to watch.

Arian Foster

Historical celebrity-backed investments

Baker goes back in time to explain the most famous example of combining a celebrity entertainers future earning with Wall Street magic – The famous David Bowie bonds.  Bowie needed money for his divorce as well as separation with his manager, but did not want to sell outright the rights to his song.  Instead, a financier created bonds backed by the future royalties from Bowie’s existing hits.

As an investment, Bowie bonds represented a safe, limited-downside opportunity from a well-defined revenue stream.   An insurance company – a typically risk-averse investor – bought all $55 million Bowie Bonds in the late 1990s.  Following payment of the bonds, Bowie retained future royalties and any excess beyond what the bonds required.  Presumably he still owns those songs, while Prudential got paid a modest return on its bond investment.

The Foster deal, by contrast, only works as an extremely risky start-up type investment.  We really don’t know what kind of future earnings Foster will have.  Fantex retains discretion to make payments, or to convert Arian Foster stock into general stock in Fantex.  Foster ‘stock’ will trade on a Fantex exchange, with Fantex earning 1% per transaction.  Practically anything can happen to a football player’s earning potential, many of them bad.

I’m sure there has to be some situation in which investors make money, but I’m equally sure Fantex depends on the ‘fantasy-football’ fun aspect of this to attract investors, rather than the correct pricing of investment risk.

“You own Tom Brady in your fantasy team?  Bro, that’s nothing!  I own a piece of Arian Foster’s future earnings, Bro!  I’m CRUSHING IT Bro!”

That kind of thing.

Concluding thoughts

If Fantex finds enthusiastic investors, Foster gets upfront money, and fans have a good time with the opportunity to gamble with real dollars and at least some probability of upside.  All this sounds cool to me.

To be clear, as an investment I find this an absurd idea, and even the ambiguous morality of it also deserves attention.

I appreciate, however, the opportunity to talk about securitization – of David Bowie royalties or any other cashflow – in reasonably complex yet digestible ways.

Most importantly, I’m interested to see how the JOBS Act turns out.

Unleashing capitalist potential – Pandora’s Box!

pandora's box


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