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Cover Story: Prevent Defense

Uncovered stadium document reopens old arguments and bad feelings about the Bengals' lease deal with Hamilton County

By Kevin Osborne · March 14th, 2007 · Cover Story
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  Here is a copy of the recently uncovered letter sent to the Bengals by Maryland officials in 1995. (Click for PDF)
Here is a copy of the recently uncovered letter sent to the Bengals by Maryland officials in 1995. (Click for PDF)



Click here for PDF of this story. What if everything you were told about an important public issue -- one that will affect Hamilton County taxpayers for decades -- was wrong?

When the Cincinnati Bengals threatened to leave the city in the mid-1990s and relocate to Baltimore unless taxpayers here built the team a new stadium, Bengals owner Mike Brown said Maryland officials were offering him a lucrative deal that was too good to ignore, despite the team's having a lease that committed it to using Riverfront Stadium through 2010.

After all, the previous decade saw several professional sports teams bolt their home cities for greener pastures. In the National Football League (NFL), the Los Angeles Raiders were moving back to Oakland while the Rams were leaving Los Angeles for St. Louis.

Other cities desperate for franchises were offering new stadiums as an enticement, so Cincinnati football fans and city leaders were rightfully worried.

As a result, after much hand wringing and cries of impending economic doom by elected officials, Hamilton County voters eventually approved a half-cent sales tax increase in 1996 to build new Reds and Bengals stadiums on Cincinnati's riverfront.

Opening in August 2000 after an accelerated construction schedule, the Bengals' Paul Brown Stadium and its related costs totaled $458 million, which included $51 million in cost overruns but excluded interest on debt financing. The price tag far exceeded the $170 million that the public was told during the sales tax campaign and resulted in subsequent cost-cutting in the design for the Reds stadium.

Once details emerged over the next few years about the county's lopsided stadium lease deal that favored the Bengals, many residents grew angry at soaring costs and lavish perks given the team that began straining the county's finances. The situation became so dire that newly elected county officials in 2004 joined a citizen's anti-trust lawsuit against the team and the NFL.

This is a story about the never-before revealed deal with Maryland officials that the Bengals used as leverage here. It includes information that Hamilton County officials could have known in the late 1990s but chose not to -- or knew and deliberately kept from taxpayers.

Revelations about the deal's provisions could improve Hamilton County's odds for success in its lawsuit against the team, county officials say, and might impact ongoing negotiations for a long-stalled plan to build housing and shops along Cincinnati's riverfront.

Deal breaker
A confidential document recently obtained by CityBeat shows the stadium deal offered by Maryland was dramatically different from what Bengals officials and lawyers had indicated and involved far less money and perks than the Bengals ended up receiving from Hamilton County.

Among the Maryland deal's major components, all costs for a new stadium in Baltimore were capped at $200 million and, as protection against a future broken lease, officials were requiring that Mike Brown give up his majority ownership stake in the team to a consortium of local owners. That provision alone, professional sports experts say, would have cost Brown tens of millions of dollars in potential profits.

Also, the Maryland deal refused to grant the Bengals any guarantees on ticket sales and required that the Maryland Stadium Authority (MSA) share in any revenue generated by the sale of personal seat licenses to fans.

"The letter very clearly speaks for itself. On its face, it's substantially different than the kinds of things that the Bengals got here," says Hamilton County Commission President Todd Portune, who took office after the stadium was built and led the push to file the anti-trust lawsuit.

"I know if the elected officials here knew about it at the time, it would have affected the entire atmosphere of the negotiations," says Portune, who was on Cincinnati City Council in 1995.

When CityBeat asked Portune about the letter, he said he first became aware of its existence about a year ago, during the discovery process in the county's lawsuit against the team and the NFL.

Tim Mara, a local lawyer who led the unsuccessful grassroots campaign against the stadium sales tax, goes further. When informed of the letter's contents, he blamed the two county commissioners who voted for the plan-- Bob Bedinghaus and Guy Guckenberger -- for not doing their jobs to protect the public's interests.

After Baltimore's deal expired, simple due diligence by local officials months later during Hamilton County's lease negotiations should have brought the information to light, Mara says.

"It was difficult for us to get any verifiable information about what the Bengals were claiming at the time, primarily because the county didn't insist on seeing it," he says. "The county was in a position to do so. They absolutely should have insisted on seeing these things before moving forward.

"If the Bengals had been forced to show proof of their claims and this had come out, the county would have been in a far better position to negotiate a more reasonable deal."

Bedinghaus, who lost re-election in 2000, has since been hired by the Bengals. After he took the job, Bedinghaus adopted a policy of not talking to the media.

Stuart Dornette, the lawyer who handled the stadium deal for the Bengals and remains the team's primary counsel to this day, doesn't remember the specific Maryland letter.

Regardless, Maryland officials gave the same basic deal later to Art Modell in exchange for moving the Cleveland Browns there, Dornette says. That deal was available and known by both sides when negotiating Hamilton County's lease.

"In terms of what the county had access to was the Browns deal, which was a matter of public record," Dornette says. "It was what they had and what we had."

Beat the clock
The Baltimore deal is outlined in a three-page letter dated June 1, 1995, sent by the Maryland Stadium Authority (MSA) to Dornette and Troy Blackburn, another Bengals lawyer. The agency gave the Bengals a June 30 deadline to accept the deal or it would "end all discussions."

In turn, Brown publicly gave Cincinnati and Hamilton County officials the same deadline to offer a competing proposal, and they scrambled frantically that month to craft one.

Bedinghaus designed a plan that relied on a one-cent sales tax increase that he announced June 22. A harried Cincinnati City Council debated the plan's merits well into the late-night hours of June 29. At one point, as midnight approached, then-Councilman Portune turned back the clock in council chambers to symbolically give the group more time.

In a 5-4 vote, council endorsed a $540 million deal that would build new stadiums for the Bengals and Reds and let the county assume management of the city-owned Riverfront Stadium.

(Before the plan reached the ballot, county commissioners reacted to voter skepticism by scaling back the proposed sales tax increase to a half-cent and dropping plans to build a new county jail to handle prisoner overcrowding. Eleven years later, county officials still are seeking ways to pay for a new jail.)

When CityBeat learned of the Baltimore letter's existence several months ago, it made a written request to MSA seeking all correspondence between the agency and the Bengals from 1995.

At first, the newspaper simply was told none existed.

"Unfortunately, the Maryland Stadium Authority has not been able to locate any documents in its possession that would be responsive to your request," wrote John Samoryk, the agency's procurement officer.

During a follow-up exchange, when CityBeat listed the specific letter it was seeking, the agency elaborated on the original response. Such a letter once existed, the agency admitted, but under Maryland's public record laws enough time had lapsed that any such documents had been shredded and thrown away.

"I was advised by Ms. Asti that her file on that matter was destroyed several years ago," Samoryk said.

The reply refers to Alison L. Asti, the authority's executive director, who served as the lawyer who handled negotiations with the Bengals a decade earlier. Asti wrote the 1995 offer to the Bengals' lawyers.

A former county staffer who tipped CityBeat to the letter's existence later helped the newspaper get a copy.

The schools wait
The June 1995 letter indicates that a Bengals pact with Baltimore was far from a done deal.

"There appear to be some major differences between us, which we need to resolve as soon as possible, before proceeding on more minor issues," Asti wrote.

That's a far cry from the dramatic gestures publicly made by Brown at the time. When city council approved the sales tax plan in the midnight vote, Brown showed reporters a note he had penned in case the deal was rejected: "Thanks for your support. Goodbye."

Mara says the Bengals took advantage of taxpayers.

"Clearly, the Bengals weren't truthful about what they were asserting," Mara says. "Some might say they perpetrated a fraud."

Given the stringent conditions offered by Baltimore, however, it's unclear whether Brown ever would have accepted that deal. The $200 million in public funding was a firm number that wouldn't be enlarged, the letter stated.

"Neither Gov. (Parris) Glendening nor (MSA Chairman) Mr. (John) Moag will support any proposal which contemplates seeking legislative approval for additional government funding in order to complete the transaction with the Bengals," Asti wrote.

The letter outlined how most of the money was to be spent: $180 million to build a new stadium, $10 million for condemning needed property, $5 million for a training facility and $2 million for improvements to Memorial Stadium, Baltimore's existing football stadium. The offer left $3 million in available funds unallocated and open for negotiation.

By comparison, the principal cost to build Paul Brown Stadium was $377.6 million -- or about 75 percent more than Baltimore's deal -- with another $487.4 million in interest charges on debt financing, for a total of $865 million, according to Hamilton County Deputy Administrator Eric Stuckey.

To put that amount into perspective, a proposed county tax levy now being debated by commissioners to pay for construction and operation of a new jail and other criminal justice programs for a 30-year period would cost about half the stadium figure.

The majority of Hamilton County's debt for the Bengals stadium will be paid off in 2026, although some minor portions will linger until 2032.

As of December 2006, the county had repaid $9 million in principal and $158 million in interest, Stuckey says.

Because sales tax revenues have been lower than estimated over the past decade, county officials are facing deficits in the stadium fund that could force them to take about $10 million annually from the county's general fund to offset the difference in coming years. The general fund pays for services such as the sheriff's office, maintenance of county roads, the storm sewer system and the clerk of courts.

To ward off such difficult choices for a few years, Hamilton County officials recently renegotiated its agreement with Cincinnati Public Schools (CPS), which is entitled to receive payments from the stadium fund in lieu of property taxes not paid by the teams.

Although the county has been making payments to CPS on the Bengals stadium since 2001, it was supposed to begin making payments on the Reds' Great American Ball Park in 2006. To avoid shortfalls, those payments were delayed until 2013 but the overall amount will be the same at deal's end, according to Christian Sigman, the county's budget director.

Further, Hamilton County refinanced a large portion of the debt for the two stadiums last fall while interest rates were low.

"We're doing everything in our power to push off or avoid a deficit in the stadium fund right now," Sigman says.

By the time more CPS payments are due in six years, officials are gambling that sales tax revenues will have grown.

"During that period, hopefully the sales tax figures will turn around and consumers will spend our way out of this problem," he adds.

Was it a threat or 'a fraud'?
Other provisions mentioned in the MSA's 1995 letter to the Bengals also likely made the deal less attractive to the team.

The letter states that the Bengals would be required to pay for the full operating and maintenance costs for a new stadium and that the MSA wouldn't seek to guarantee or indemnify any of the Bengals' expenses due to litigation, relocation fees, breach of contract with the city of Cincinnati, construction delays or other costs.

In the team's lease here, Hamilton County agreed to pay all such annual expenses. The provision currently costs about $9 million each year and is expected to rise to more than $18 million annually by the lease's end. That means Hamilton County taxpayers will foot the bill for about $450 million in expenses that the team would have had to pay in Baltimore.

Additionally, the MSA stated it was "generally opposed" to the sale of personal seat licenses -- a term that basically refers to reserved seating -- to fans but added that, if the Bengals insisted on such a program, the MSA wanted to share in the revenues.

Perhaps more tellingly, the letter mentions that ownership of the Bengals was an issue. The letter says, "MSA will assist the Bengals in securing new local stockholders in the team."

Sources close to the negotiations tell CityBeat that Maryland officials, stung by Baltimore Colts owner Robert Irsay breaking a lease in 1984 to move his team to Indianapolis, were adamant the situation not happen again. As a safeguard, the MSA was requiring Brown to sell up to a 51 percent stake in the Bengals to a local Baltimore consortium. Such a change would mean Brown no longer would hold controlling interest in the team.

About a year after the Bengals rebuffed Baltimore, Art Modell moved the Cleveland Browns to that city. Modell essentially got the same deal offered to the Bengals: a rent-free, $220-million stadium and all revenues from concession sales, parking and advertising signage. The team -- now known as the Ravens -- would share some seat licensing fees with the MSA.

Shortly after the team's arrival, Modell sold a 49 percent ownership interest in the team to Baltimore businessman Steve Bisciotti. Bisciotti had an option to buy the remaining 51 percent, and he did so in 2004 for $325 million.

Dornette says Baltimore is a larger market than Cincinnati and would have provided greater revenue in areas like the sale of luxury suites, club seats and radio rights.

"You can just go down the list of revenue streams and they're all greater in Baltimore," he says. "On an economic basis, it's pretty clear the Baltimore deal was a lot better than Cincinnati's deal."

The MSA already had money set aside from seat license sales and was offering a rent-free stadium, while Hamilton County's deal depended on the outcome of a sales tax vote.

"We were hoping Hamilton County and Cincinnati could come up with something, but we weren't sure of that," Dornette says. "There were a whole bunch of unknowns here, and there were some very clear numbers in Baltimore."

Earlier this year Blackburn, who also is Brown's son-in-law, told The Cincinnati Enquirer that Baltimore is a better market and the Bengals would have increased their annual revenues had the team moved. The Baltimore Ravens' annual revenue is estimated at about $200 million, compared to $175 million for the Bengals.

"If you look at the economic situation in Baltimore, it's dramatically (better)," Blackburn told The Enquirer.

Mitchell Ziets -- a Philadelphia-based financial consultant who handled stadium negotiations for Hamilton County -- said in his deposition for the anti-trust lawsuit that stadium deals are based on revenue projections.

But some county officials and sports franchise experts say focusing only on revenues significantly misstates the full value received by the Bengals by staying in Cincinnati. Although the Bengals' revenues generally are low compared to other teams, its profit margin likely is higher -- especially with the county agreeing to pick up so many other expenses.

The value of the Bengals in 1997 was $188 million, according to an analysis of sports franchises conducted by Financial World magazine. Under the Baltimore ownership scenario, Brown would have given up about $95 million in value, using conservative estimates. Based on the Bengals' current value, which Forbes magazine estimates at $825 million, the cumulative loss to Brown would have been far greater.

Although the Ravens' franchise value and annual revenues are higher than the Bengals', Brown would have received only a fraction of it, critics say.

"There's no way that Mike Brown would've agreed to that, making the whole Baltimore threat a fraud," Portune says.

Dornette counters the assertion, stating that Baltimore's provision wasn't iron-clad.

"It was preliminary and subject to negotiation," Dornette says, although the MSA's letter and subsequent deal with Modell suggest otherwise.

The stadium deal negotiated by Hamilton County officials in the '90s starkly contrasts the deal floated by Baltimore. Among the perks given to the Bengals, the county must pay for costly equipment upgrades virtually any time another NFL stadium makes improvements. The county also agreed to exempt the team from rent payments in the deal's later years. Further, the Bengals and the county must share revenues from any special events held at the stadium, such as concerts and high school football tournaments.

In an especially unusual provision, the lease requires the county to pay the Bengals about $30 million to play in the taxpayer-funded stadium for the last nine years of the lease. The payments begin with $2.67 million in 2017 and increase 5 percent each year.

In 2004, after Portune complained about that provision, then-Hamilton County Chief Assistant Prosecutor Carl Stitch said he believed that section of the lease was illegal but added that the issue didn't need to be addressed for years, giving prosecutors and the team more time to possibly negotiate a settlement. Since then, the Bengals have been unwilling to make any lease changes.

Lawsuit moves
Such perks are why Portune and ex-Commissioner Phil Heimlich voted three years ago to sue the Bengals and the NFL over the circumstances surrounding the stadium negotiations. The lawsuit alleged the NFL violated state and federal anti-trust laws by using trade restraints to force Hamilton County to pay far more to build the stadium than a free marketplace would have demanded. The county sought $200 million in damages and wanted to triple that amount in punitive damages if the anti-trust allegations are upheld.

A federal judge dismissed the lawsuit in February 2006, ruling the statute of limitations had expired before commissioners filed the suit. An appeal is still pending, with a hearing set for April 24.

The stadium lease places such an enormous burden on taxpayers that Heimlich once said it "shocks the conscience." Heimlich lost his re-election bid last November; Mike Brown, Dornette, Blackburn and other Brown family members were among contributors to the campaign of Heimlich's opponent, David Pepper.

County commissioners are worried that yet another provision in the stadium lease with the Bengals will delay construction of The Banks. Proposed in 1999, The Banks is envisioned as a mix of condominiums, offices and shops on 15 acres between the Reds and Bengals stadiums. The project has stalled over funding and jurisdictional issues, particularly who will pay for up to $81 million in parking garages and other improvements needed to lift the development area above the flood plain.

After several false starts, county officials selected Atlanta-based AIG Global Real Estate Investment Corp. in September to be the project's master developer. But the county missed a February deadline to finalize a contract with AIG due to several issues, one of which involves the Bengals.

In the stadium lease, the Bengals are given some oversight about facilities built next to the stadium. They include control over building heights and some design elements of The Banks.

Earlier this year commissioners said they wouldn't file a separate lawsuit against the Bengals in state court, publicizing the move as a compromise to help jumpstart Banks development. Now county officials hope the team reciprocates by relinquishing the control.

The Bengals, however, have told commissioners they won't discuss the issue unless they agree to drop the appeal in federal court, Portune says.

"That is an outrageous position for them to take," he says. "What more do they want? Do you mean to tell me that building condos next to Paul Brown Stadium is going to negatively affect them? It's ludicrous to be holding out for more compensation in exchange for development. What the team is saying to taxpayers, in essence, is in order for the Banks to work we have to give them a blank check."

Any control given to the Bengals is minimal, Dornette says.

"To say we control that wildly, dramatically overstates the case," he says.

The Bengals want to see progress on The Banks, he adds.

"It's absolutely in the best interest of the Bengals to do whatever it can to pump this city up and help it out," Dornette says.

Emotional rescue
Among those who pushed the hardest for the public to accept the 1996 stadium deal were the Republican-controlled Hamilton County Commission, then led by Bedinghaus, who is now on staff in the Bengals front office; the Cincinnati Business Committee, a group consisting of the area's top CEOs; and then-Cincinnati Mayor Roxanne Qualls, who broke ranks with her fellow Democrats on Cincinnati City Council to support the stadium plan in a 5-4 vote.

In fact, it was Qualls' later appearance in a television commercial that was credited with finally pushing the sales tax campaign over the 50 percent mark in polls by attracting more female voters. In the TV spot, Qualls proclaimed, "It's not about sports, it's about Cincinnati."

As a city official, Qualls wasn't involved in the county's 1997 lease negotiations with the Bengals. Still, she doesn't recall details of the Baltimore deal ever becoming known.

"I don't think anyone heard of those provisions before," Qualls says. Referring to the MSA, she adds, "Obviously, they were very tough negotiators."

The CBC and elected officials touted the benefits of constructing new stadiums, stating it would have a nearly $300 million annual economic impact on Greater Cincinnati. Subsequent academic studies, however, indicate the benefits of public investment in sports stadiums is overstated. A 2001 study by University of Maryland economists Dennis Coates and Brad Humphreys concluded that professional sports aren't a viable economic development tool.

Assessing whether the stadium's expense was worth it is complicated, Qualls says.

"There's not a simple answer to that question," she says. "Clearly, with regard to the stadium's expense, there is a general agreement that the county could have done better."

Cincinnati officials, though, agreed to the plan for different reasons.

"The investment in the infrastructure for future riverfront development was very good," Qualls says. "There was a larger agenda here for us. From the city's perspective, the only way the central riverfront would ever be developed is if the massive investment in infrastructure occurred down there."

But, she adds, "Could things have been managed better in terms of construction and management of the sports facilities? Probably, but that is a bit of Monday morning quarterbacking."

Stadium negotiations between the Bengals and Hamilton County, Mara says, were marked by collusion and dominated by special interests that misled residents.

"There weren't two adversaries negotiating an agreement, like it's supposed to be, but one entity," he says. "Whatever the Bengals asked for, they got. No one was representing the taxpayers." ©

 
 
 
 

 

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