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Long-term effects of COVID-19: Ballpark debt

Polar Park June 8 2020

Professional baseball may be in a short-term crisis because of the COVID-19 pandemic shutting down play, but a longer-term problem is looming for ballpark projects dependent on public bonding or related development.

Most folks don’t follow the bond markets closely, but last week came some unsettling news: the bonds backing construction of Citi Field, home of the New York Mets, were downgraded from BBB to BB-plus from S&P Global Ratings—basically, to junk-bond status. The reason for the downgraded Queens Ballpark Co. LLC bonds: financial disruption caused by COVID-19 shutdowns. In March S&P Global Ratings warned that a wide variety of sports facilities could be affected by decreased cash flows, leading to bond downgrades, including Yankee Stadium, and we’re seeing that prediction come true for Citi Field. Now, the S&P downgrade also included a note that it’s highly unlikely there would be a default on the payments, but there is a certain level of uncertainty here, with the Mets being on the market and the Wilpons carrying a high level of debt both on the Mets and on the SNY Network—a situation leading to the team potentially tapping into a credit line set up by MLB. From S&P:

“The CreditWatch negative placement reflects our concerns over the continued impact COVID-19 is having on the QBC (Citi Field) given that MLB is likely to cancel a significant portion of the 2020 season, that the 2021 season could entail limited attendance due to social distancing, and that destabilization could extend into 2022, a potential strike year. Using debt service reserves may be necessary as early as December as we do not assume or rely on any team support. Additional draws could occur in 2021, depending on how the revenue profile unfolds. Beginning with the anticipated MLB announcement, we are expecting to gradually clarify the extent of cancellations in the season, including potential cancellation of all fan-attended games, as well as any social distancing requirements once games begin, and refine and publish our financial forecast as a function of our assessment of QBC. We could lower the rating if we conclude there is likely to be a substantial draw on reserves to pay debt service in 2020 and 2021.”

In this case, the Yankees and Mets pledged to repay the ballpark-construction bonds, which is why the finances for both teams are under scrutiny considering MLB’s extended shutdown and uncertainty both this year and next. A longer-term issue applies to ballpark construction backed by tax-increment financing (TIF) funding, where increases in tax receipts in a specific district are fronted for construction projects. TIF financing has been used in a variety of situations ranging from the new Wichita Wind Surge (Class AAA; Pacific Coast League) ballpark to an independent park in Franklin (WI) for the Milwaukee Milkmen (independent; American Association) to environmental cleanup at Allianz Field, home of MLS’s Minnesota United. Generally, this is not specifically a ballpark or sports facility issue: the TIF districts are set up to back larger construction projects, and the ballpark is just one piece of a much larger puzzle. But the fact that a sports facility is a prime generator of sales-tax revenue raises concerns for municipalities who are counting on that sales-tax revenue to service debt, as is the case in Bowling Green, where a downtown TIF generated $325 million in investment, including a new Bowling Green Hot Rods (Low A; Midwest League) ballpark. From Bowling Green Daily News:

One of the hard-hit businesses in the TIF district is the Bowling Green Hot Rods. The Minor League Baseball team plays in Bowling Green Ballpark, owned by the authority.

Eric Leach, Hot Rods general manager and COO, provided an update on the team at an authority meeting Thursday.

Leach said the prospects for minor league baseball returning this season are dim. He noted that many minor league teams have already dismissed most of their staff.

All indications “don’t bode well for a season this year,” he said.

The same situations are true for sports facilities backed by tourism taxes, a frequently used tool. Here’s an overview of that situation from the Wall Street Journal.

Backing existing debt is the goal of a proposed $1 billion loan program administered through the Federal Reserve targeting small event-driven businesses, including MiLB teams unable to make payments like rent and utilities on publicly owned sports facilities.

The aim is to assist the survival of small businesses that rely on large gatherings and community-based events, preventing them from going out of business. Even as states continue the slow process of reopening, most of these businesses will be unable to fully resume operations for the foreseeable future.

The proposal from a bipartisan group of U.S. representatives Lori Trahan (D-Mass.), David McKinley (R-W.V.), Max Rose (D-N.Y.) and Mike Simpson (R-Idaho) would extend additional federal coronavirus relief to small businesses who face exacerbated financial stress because of the public health precautions necessary to slow the spread of COVID-19.

We’re seeing a similar situation in Massachusetts, where investment and increased revenue for projects surrounding the $130-million Polar Park was pledged to build the new home of the Worcester Red Sox (Class AAA; International League). Some of that new development is on hold and will certainly be reevaluated: given changes in behaviors due to COVID-19, for instance, can two hotels economically thrive? The city has already taken action to protect ballpark financing in the form of an expanded Canal District Ballpark DIF Development District. (Massachusetts District Improvement Financing is basically the same as what called a TIF in many other states.) After a delay, ballpark construction has resumed. (Above is a screen cap of the construction cam at the Polar Park site.) Dennis Dowdle of Madison WG Holdings LLC, development partner on the ballpark district, says he’s still committed to Polar Park-area development, but warns it may take a little longer, per the Worcester Telegram:

“The question is really just about timing,” Dowdle said in an interview last week about the planned private development. “It’s not a question of if it’s going to happen, but when.”

The other two major players in the redevelopment project — City Manager Edward M. Augustus Jr. and Larry Lucchino, chairman and principal owner of the Pawtucket Red Sox — share the same outlook.

They said their commitment to making the project happen has not wavered despite the construction delay and the impact COVID-19 has had on the national economy.

“Over the next weeks and months, we’re going to have to communicate some changes and adaptations to reflect that reality,” Augustus said of the post-COVID world. “But one thing that hasn’t changed because of COVID is our commitment to this project, and to the shared vision that we all have that these 16 acres can be transformed into something really special for Worcester and Central Massachusetts.”

Those changes may include a refinancing of ballpark debt, he added.

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