At Last, A True Public-Private Partnership
I can clearly remember the Minnesota Vikings game at which I carefully considered the cheap, uncomfortable plastic seats of the Hubert H. Humphrey Metrodome, its awful acoustics and harsh lighting, the tour-of-the-loading-dock feeling walking the narrow cinderblock concourses, and concluded, “This just ain’t major league.” Because that particular game featured a record-setting 99-yard run by Dallas Cowboys star Tony Dorsett, it was easy to look up the date when I became a supporter of imploding our Metrodome. It was January 3, 1983. The Dome had opened eight months earlier.
I can only imagine the thoughts of the real estate entrepreneurs Mark and Zygi Wilf, their cousin Leonard Wilf, and their nephew, Jeffrey Wilf, after they and other investors bought the Vikings in 2005. They certainly would know a candidate for a teardown when they saw it. The Wilf family business got its start in the mid-1950s, and by all indications it has been solidly successful, today ranking in the top 20 nationally of real estate owners and managers.
Before us now is another Wilf real estate deal—the proposed Minneapolis Downtown East stadium—that would be a beautiful 65,000-seat enclosed stadium more or less on the site of the existing Dome. And while I may want a better Vikings stadium, I will not advocate subsidies and giveaways.
That’s why I could not imagine a better Vikings stadium deal coming along, as the Wilf Group has proposed a genuine public-private partnership.
The Wilf Group will have private sources, including the team and the league contributing 44 percent of the $975 million in capital, and enough operating funds, to cover 50.6 percent of the costs to build and operate what will be a 100 percent publicly owned facility, according to the term sheet negotiated with the state and City of Minneapolis.
In the Vikings deal there is also a provision that the public would capture 18 percent of an increase in value that should occur if, after opening the new venue, the Wilf group sells the team. Now, that percentage declines over time, but it’s another aspect of a venture that feels like shared risk/shared reward. It mimics a provision baked into Hennepin County’s agreement to help finance Target Field for the Minnesota Twins.
Want a contrast? The Cincinnati Bengals put virtually nothing into the construction of the $455 million Paul Brown Stadium, which opened in 2000. The Bengals had to pay rent only through 2009 on its 26-year lease, and had to cover the cost of running the stadium only for game days. Hamilton County, Ohio, agreed to reimburse the team for these costs, too, beginning in 2017. The Bengals got to keep revenue from naming rights, advertising, tickets, suites, and most parking. If the county wanted to recoup money by taxing tickets, concessions, or parking, it needed the team’s written approval. Some partnership.
Vikings Vice President Lester Bagley confirms that before the Wilf Group agreed to the $600 million purchase in 2005, they were fully informed about the issues of the Metrodome. The stadium here had long been a concern of league officials and other team owners, given that NFL members share revenue, including a program for financially successful teams to provide “supplemental revenue sharing” to the least prosperous. Bagley says that the Vikings in the recent past have been the league’s single biggest recipient of such revenue sharing.
The Wilf Group took control of the Vikings at near-peak average franchise valuations in terms of revenue multiples for NFL teams, according to data collected by investment banker Michael Black of WR Hambrecht + Company’s Sports Finance Group. The NFL franchise average value appreciated at a compound annual rate of 11 percent for the five years ending in 2005, the year of the acquisition—and at a rate of about 1.8 percent annually since that time.
Forbes notes that in the case of the Vikings, “the controlling ownership group continues to make annual capital calls to cover losses because of interest payments on the debt.” A capital call, for the uninitiated, means being asked to write checks to fund negative cash flow in an investment. And as the supplemental revenue-sharing program was scaled back in the 2011 labor agreement with NFL players (including skipping a payment altogether in 2011) the financial pressure has only increased on the Wilf Group.
Any effort to sell the team in the absence of a new stadium would reflect just how much the Dome really is a drag on the value of the team. Forbes ranks the Vikings 28th out of 32 teams in its most recent ranking. The Vikings have a stadium arrangement worth, in Forbes’ methodology, $50 million in team value. Teams in metro markets closest in size to the Twin Cities have far more value, which Forbes attributes to stadium deals. The San Diego Chargers, playing in a 45-year-old stadium they desperately want to leave, have value of $102 million attributed by Forbes to their stadium; for the Denver Broncos, the stadium is worth $137 million, as it is for the Seattle Seahawks. The Vikings’ only real competition for lowest stadium value is the Oakland Raiders.
Bad stadium economics aren’t a matter of small media markets, either. Consider “revenue per fan” between the Vikings and the Packers of small-market Green Bay. Yes, it’s a bit misleading due to the small size of greater Green Bay. But while the Pack clearly has a statewide fan base, it’s still remarkable that Forbes calculates total team revenue of $312 per fan for the Packers, versus $17 for the Vikings. For businessmen as successful as the Wilf Group investors, reading this kind of published information about their team has to be galling.
So perhaps it is not that surprising that the Wilf Group proposed $427 million in capital and $13 million in annual contributions to operating costs. The team anticipates borrowing up to $200 million of its $427 million from the NFL G-4 fund, a pot of money created to finance stadium construction and renovation. The Vikings will provide a loan guaranty.
Bagley agrees that stadium critics seem to regard a dollar borrowed by the owners for stadium financing as worth far less than a dollar pulled from an owner’s personal wallet. In my book, if you are on the hook with a recourse loan, then you have as much at risk as if you had paid cash. In any event, it is $427 million not coming from taxpayers.
Lee Schafer (firstname.lastname@example.org) is managing director of Minneapolis-based Sargent Advisors, which guides clients on growth strategy, mergers and acquisitions, and licensing and joint venture opportunities.