Doti & Adibi: Angel Stadium numbers game

From The OC Register:

Anaheim is considering whether it should revise its lease with the Los Angeles Angels of Anaheim. Chapman University played a role in the 1996 negotiations that ultimately led to the Disney Co. buying the Angels from Gene and Jackie Autry, paving the way for the Angels to remain in Anaheim. So, we have a more-than-passing interest in whether the current negotiations will lead to a new lease that passes muster with both the Angels and Anaheim.

For Anaheim, we believe that the most critical issue is to rigorously and accurately measure the net financial impact to the city of whatever lease terms are negotiated. While we are not privy to the negotiations, we can, as a useful starting point, analyze the initial set of revised lease terms that the Angels presented to the city – terms that have since been a matter of spirited public debate.

Several of the terms in this initial proposal are the same as in the current lease and will have no change in costs to the city. For example, under the current lease, the Angels keep all revenue from concessions, advertising, stadium naming rights, nonbaseball events and virtually all receipts from onsite parking. The city covers principal and interest payments on stadium construction loans as well as all city administrative costs relating to the Angels. Since all these terms are the same as in the current lease, there will be no financial impact to the city regarding these costs and revenues.

Another proposed change is to drop “Anaheim” from the team's name. When the team was called the Anaheim Angels, the “Anaheim” name obviously had some marketing value to the city. But under the current lease, the team is the Los Angeles Angels of Anaheim. Whether the prepositional phrase at the end of the team name – “of Anaheim” – has any measurable value to the city is dubious. So we don't count any.

But there are changes in the proposed lease that will financially impact the city. Under the existing lease, for example, the city receives $2 for each ticket sold after the first 2.6 million in annual attendance. The proposed lease increases this cutoff from 2.6 million to 3 million. Assuming that ticket sales continue to be at or above the 2013 level – 3 million – Anaheim will lose $2 per ticket beyond 2.6 million. This represents a loss of $800,000 to the city.

Anaheim, however, will benefit by new lease terms that call for the Angels to pick up the $600,000 annual cost of stadium maintenance, now paid by the city.

At this point in our analysis, the only measurable financial impacts to the city in the proposed lease terms are the annual loss of $800,000 in ticket sales (assuming attendance of at least 3 million) and the savings to the city of $600,000. These two items result in net additional costs to the city of $200,000 per year.

As Peggy Lee sang, “Is that all there is?” Not quite. The proposed lease terms give the Angels development rights to about 125 undeveloped acres surrounding the stadium, and the lease on other structures on the site, for a total of $1 a year for 66 years. In addition, the city would rebate to the Angels sales and property taxes it would otherwise receive from the property and any future development.

Now we're talking real money. But how much?

The most accurate way to answer this question is to determine the value by publicly auctioning off the land and property rights. No auction, however, is planned.

An alternative way of determining the cost to Anaheim of giving away the rights to develop the land can be estimated by evaluating what the city can do if it retains those rights. Before estimating this cost, however, we need to understand the amount of land available for development.

In the current lease, which runs through 2029, Anaheim gave the Angels the rights to roughly 12,000 surface parking spaces, which occupy about 75 acres of land. Another 25 acres sit under the stadium itself and other buildings. Since the entire site is about 150 acres, that leaves 50 acres available for development.

It should be noted, though, that if Anaheim retains the development rights, the city can wait until 2029, when the parking provision in the current lease expires. The city then could sell the 75 acres currently used for surface parking to a buyer who could build a parking structure and develop the remaining acreage.

The cost to the city of transferring all 125 acres of parking lots and undeveloped land and development rights to the Angels, as called for in the proposed lease, can be estimated by calculating the earnings the city could generate by selling the land instead. At a conservatively estimated land value of $2 million per acre for a mixed-use development of medium density, the present value to the city of giving the Angels the development rights to the undeveloped 50 acres (calculated from 2015-80) and 75 acres of parking lots (calculated from 2029-80) is $209.7 million. This present value calculation is based on an annual return of 3 percent, assuming the land is sold and the money invested in 10-year U.S. Treasury bonds.

Since the proposed lease terms also call for city property tax revenue emanating from the land to be forfeited by Anaheim and rebated to the Angels, it is also necessary to measure the impact of that lost revenue to the city. We estimate the present value of that loss to Anaheim from property taxes for the raw land alone to be $18.5 million.