In the end, the deal wasn’t as bad as western New York taxpayers might have expected. Rather than be on the hook for $1.1 billion to build the Buffalo Bills a new stadium, they’ll only owe $850 million.
That means the public is slated to fund roughly 60 percent of a stadium whose primary benefit will be to an owner whose net worth is estimated at $5.8 billion. Terry Pegula’s overall contribution to the project will be an estimated $550 million — $150 million of which comes via forgivable loans from the NFL itself. His team won’t be responsible for nearly $13 million annually in upkeep costs, either; that falls on the state of New York.
The proposal was unanimously approved by NFL owners because, yeah, why wouldn’t it be, it’s a sweet deal. It anchors the Bills in Buffalo — or, more accurately, Orchard Park since building a stadium downtown would have cost an estimated $350 million more in land acquisition — into the 2050s. It also creates the backdrop for Pegula to increase his already massive wealth without the specter of becoming a local villain by credibly threatening to move the team.
Governor Kathy Hochuli is lauding the deal as a success, because she kinda has to. In her exclusive interview with the Buffalo News, she noted the cost “is far less than anyone had anticipated,” and that it will keep the New York’s only NFL team in the Empire State into the foreseeable future rather than fulfill the extremely hollow threat of a possible move to Austin, Texas. Hochuli praised the deal’s condition that any cost overruns fall on the Pegulas — in fairness, a fairly big deal — and noted that expected tax revenues of $27 million per year, rising in step with NFL salaries, will pay back that $850 million investment ($600 million from the state, $250 million from Erie County) over time.
This is only a good deal for the state if the Bills begin losing money. And in the NFL, no one is losing money.
Let’s look at the state’s side of things first. We’ll assume the salary cap will rise by 6.5 percent each year — the average annual increase from 2000-22. The state’s current income tax revenue from its NFL franchise is $19.5 million (the other $7+ million is from county-level taxes). Starting with that base and adding 6.5 percent growth every year would mean more than $1.793 billion in accumulated state income tax revenue across 30 years.
But that original $600 million would be worth about $1.259 billion in 30 years simply accounting for an inflation rate of 2.5 percent — the US average since 2000 — over that same 30 year period. The difference between expected income tax revenue over 30 years vs. capital adjusted for inflation over the same stretch is $535 million ($1.793b – $1.259b). This investment is $17.8 million per year more valuable than just letting that money accrue interest according to inflation without investing it elsewhere — and that’s before you factor in the nearly $13 million in annual maintenance the state agreed to carry out.
That’s not bad, but it’s a worse deal for Erie County, who gets the benefit of adding construction jobs and keeping its existing stadium jobs but is slated to kick $250 million in taxpayer money into the deal. The state’s annual revenue projection assumes the local impact of 10-14 games per year (sales taxes, hotel taxes, airport taxes, liquor taxes on a case of Fireball, etc), plus other events, of about $7.5 million. That’s a tricky number to pin down and even by the state’s own numbers it’s a projection based on the best season of Bills football in more than two decades.
Let’s take that at face value, assume the tourism value of the franchise remains stable, and project it over 30 years growing alongside expected inflation. That comes out to roughly $337 million in additional local tax revenue. $250 million compounded with an annual 2.5 percent growth due to inflation over 30 years? $524.4 million.
That’s a facile way of looking at it and there’s several moving parts involved, but in terms of 2022 dollars, New York isn’t seeing much of a return on the $850 million it’s pouring in. By virtue of this back-of-the-envelope math based on numbers provided by the Buffalo News, there’s $2.131 billion in expected added tax revenue vs. what would be $1.783 billion in inflation-adjusted funding over that 30 year period. That leaves the state and county a little over $348 million ahead … before factoring in the $12.67 million in annual maintenance costs — or $380 million across three decades.
Let’s compare that to the return Pegula will receive just by being the primary owner of an NFL franchise. Between 2013 and 2018, the league’s overall revenue increased by more than 33 percent after accounting for inflation, per the Green Bay Packers’ public fiscal report.
From 2014 to 2018, each team’s cut of that national annual revenue amounted to at least $220 million. In 2018 it was nearly $275 million. This was before the expanded 17-game schedule as well.
Obviously not all of that goes to the owner, but a solid chunk, even for a smaller-market team like Buffalo, sticks at the top. Creative accounting aside, it’s not a stretch to suggest it will be significantly more than the $17 million in projected revenue the state will glean annually.
That’s not the only way the Bills’ owner will benefit. Pegula has already figured out a way to juice fans to recoup some of the capital invested in his project; 50,000 personal seat licenses — not season tickets, but merely the right to buy season tickets if someone decides they want in — starting at a one-time fee of $1,000 apiece. That’s more than $50 million back in the team’s coffers before the Bills play their first game at the new stadium. The franchise is squeezing its local fans when it comes to their taxes, then again before they can even purchase actual tickets.
And we’ve only addressed football! This yet-unnamed venue will also be the backdrop for several other events beyond the 10-13 NFL games — preseason, regular season, and postseason — it hosts annually. The state and county will see tax revenue from that but, once again, the lion’s share will fall to ownership.
Western New York isn’t getting nothing out of this. It will have a steady revenue stream for three decades and a job creator both during construction and for years to come. But as the Berkeley Economic Review points out, the economic impact of a local sports team rarely matches the local investment in tax-funded stadiums and arenas like these. The vast majority of economists approach these subsidies as a raw deal. Per the University of Chicago’s Initiatives on Global Markets Forum:
“In a 2017 poll, 83 percent of the economists surveyed agreed that “Providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated.”
But politicians and voters aren’t economists. The threat of being the next Seattle and losing a team that doubles as a region’s identity has an unquantifiable impact. That’s the compelling force that keeps deals like these possible.
New York taxpayers will bear 60 percent of the costs of the Buffalo Bills’ new stadium. They will not see 60 percent of the benefits. The profit goes to Pegula and the NFL, leaving the fans who keep the franchise alive holding the short end of the stick once more. It’s a bad deal — but it’s a familiar one in a landscape where the stadium grift is so common the Governor of New York sold an $850 million commitment as a bargain to her constituents.
