Breaking Through the Providence Park Expansion Confusion

On Tuesday evening Jessica Floum at The Oregonian and OregonLive.com published a report under the headline “Portland Timbers stadium expansion could net team owners $3 million more in tax breaks.” The opening sentence of Floum’s report makes an eye-opening claim:

“The Portland Timbers are asking for an even larger break for their planned stadium expansion than the one the Portland City Council approved in May: an estimated $5 million in foregone ticket taxes, up from $2 million in the May deal.”

The way The Oregonian framed the story, therefore, was a classic reverse Robin Hood: Wealthy sports-franchise owner seeks additional City handout.

This claim, however, does not withstand the scrutiny of Floum’s own reporting together with previously reported details of the Timbers’ various agreements with the City of Portland.

[EDITOR’S NOTE: Late Tuesday night The Oregonian article appears to have undergone major, substantive editing that changed the presentation of the fiscal impact to the City in several respects. This article — largely written before the edit — addresses the original Oregonian report.]

In order to understand what’s truly new in The Oregonian report and what isn’t, it’s important to start with a basic outline of the 2010 deal the Timbers struck with the City of Portland that hammered out the lease of then-Jeld-Wen Field and the partial public financing of the expansion and renovation of the stadium that accompanied the Timbers’ promotion to MLS.

As Willamette Week helpfully illustrated in this 2016 piece, the Timbers paid for their lease of the stadium and repaid the City’s partial financing of the 2010 renovation and expansion through three categories of payments: 1) annual rent payments; 2) revenue from a 7% ticket tax; and 3) an overage bonus triggered by the club selling more than an agreed threshold of tickets.

As was most recently reported on May 9, 2017, by Floum and The Oregonian, however, under the terms of the 2010 agreement between the City and the club, those terms change in 2018 with the rent payments ending (at least temporarily) and the Timbers being permitted to keep up to $1.1 million in ticket taxes that would otherwise be paid to the City. So starting in 2018, the Timbers at least for a period of time don’t have to pay category 1 and up to $1.1 million in category 2, above.

The reason for this is relatively straightforward: By 2018 the City will have recouped an amount greater than its $11.9 million financing of the 2010 renovation, but the Timbers still have a considerable capital investment ($24.1 million) from the 2010 renovation of the City-owned facility. The decreased payments starting in 2018 are designed to permit the Timbers to recoup that investment. Although under the 2010 agreement the City is still in line to receive payments from the Timbers (they’re using a City-owned facility, after all), those payments are diminished after the City recovers an amount that will have exceeded its capital investment.

It’s worth noting that it’s not entirely clear from the reporting for how long the rent payments are suspended and the ticket-tax payments are diminished. That could impact the amount the City would take in from the expanded portions of Providence Park after the tax exemption in the new agreement lapses, but, of course, it would do so according to the terms of the 2010 agreement.

That is the 2010 agreement in a nutshell.

Under the terms of the new expansion deal reported in the same May 9, 2017, article, the Timbers would have obtained a ten-year ticket-tax exemption specifically for tickets sold in the new, expanded portion of Providence Park. This exemption would have run through 2028 or 2029, depending upon when construction was completed. The purpose of this exemption would be for the Timbers to partially recoup the $50-million investment they’re making in the expansion.

As reported in May, however, this exemption would not apply to tickets sold in the presently-existing portions of the stadium. Those revenues were to remain governed by the 2010 agreement.

It appears that arrangement has changed somewhat under the terms of the agreement reported on Tuesday, but The Oregonian report appears contradictory in how the expansion agreement has changed. Floum explains it as follows:

But the council on Wednesday will consider a proposed agreement that would exempt the soccer team from paying taxes on ticket sales until 2025, which could cost the city $5.1 million in foregone ticket revenue plus $3.2 million more for architectural fees, insurance and related costs.

Under the new terms, the Timbers would be exempt from paying taxes on existing seats at Providence Park from 2018 to 2021 or 2022, depending on when construction is finalized. They would be exempt from paying taxes on newly constructed seats until 2025.

The Oregonian report, however, then conflates two separate issues:

By foregoing the 7 percent tax on Timbers and Thorns ticket sales, "conservative estimates" show the city could lose out on $3.7 million to $5.1 million in the next seven years.

Recall, however, that under the 2010 agreement starting in 2018 the Timbers were only required to pay the overage bonus (category 3, above) on existing seats and not the full seven-percent ticket tax (category 2) of which starting in 2018 the Timbers are permitted to keep the first $1.1 million. Thus, by conflating the ticket-tax exemption from the 2010 agreement and the overage-bonus exemption in the new deal, it appears Floum overstates the decrease in City revenue as a result of the newly-negotiated terms of the new Providence Park expansion agreement vis-a-vis the agreement reported in May.

Moreover, as The Oregonian eventually explains in the 11th paragraph of its report, the City benefits from this new arrangement, as well. And, based on the timeframe in Floum’s calculations, the later-accrued benefit is not accounted for in the above assessment of the impact on the City fisc.

In exchange for the newly-negotiated concession from the City regarding existing overage bonuses, the club’s ticket-tax exemption on the new seats would end in 2025, three years earlier than under the deal reported in May. In other words, the City traded three or four years of overage bonuses on existing seats from 2018 through 2021 or 2022 (depending on when construction on the Providence Park expansion is complete) in exchange for an additional three years of tax revenue on the expansion from 2026 through 2028. Floum’s calculations of the fiscal impact on the City, however, end after seven years (in 2025), thus excluding the additional revenues from 2026-2028.

When one considers only the costs and not the benefits involved in a deal, that arrangement will, indeed, appear to be very unfavorable.

In fact, based on Floum’s own reporting, it appears the City itself prefers the new terms. The report notes: “City finance officials rejected a similar 10-year exemption requested by the Timbers over concerns about meeting future debt payments on the stadium.” The ten-year exemption that this sentence refers to is the same one The Oregonian reported on May 9th. Floum continues, though, to note that City finance officials “are recommending the [City Council] agree to the shorter tax exemption that slows by 2021 and ends in 2025 instead.”

The bottom line, which The Oregonian report gets around to mentioning in the 13th paragraph of the article, is that “[d]espite the upfront costs, the city's budget office predicts ‘the net impact of the proposed Providence Park expansion will be positive over the life of the agreement,’ through 2038.”

The opening sentence of The Oregonian’s report, therefore, is at best misleading. Contrary to the sweeping thesis of the article, it appears the newly-negotiated terms of the Providence Park expansion deal are more preferable to the City and are not at all a matter of the Timbers going back to squeeze the City of additional tax breaks.

And the City is agreeing to this deal (whether requested by the Timbers or by the City — a fact that remains curiously unreported in spite of the broad opening claim of the article) because it prefers this new arrangement in order to meet anticipated future debt payments.

But that makes for a pretty boring headline.