Thursday, June 22, 2006

Debate FedExForum Reality, Not Mythology

The current controversy about the FedExForum garage is quickly becoming about more than why plans were changed and how $6.3 million in federal funds were lost.

There are resurrected questions about the contract between Memphis and Shelby County Governments and the Grizzlies. There are shots taken at owner Michael Heisley by fans made mad by some of the team’s mistakes in the care and feeding of its customers. There is the expected political distancing by elected officials who were there and voted for the contract for the new arena.

All of this smoke runs the risk of obscuring any light that can be shed on the spark that ignited the fire in the first place – $6.3 million that was not spent in compliance with the guidelines for the federal program where the money originated before being channeled through Tennessee Department of Transportation.

That said, we’ll wade in any way. When our friends at the Memphis Flyer editorialize that the contract with the NBA team was “one-sided” and a “Faustian bargain,” it just feels like mythology is replacing reality when it comes to the history of the project.

Looking Back

So let’s rewind the tape.

Back in 2001, some of Memphis’ most directly engaged, civic-minded business leaders learned that there was a chance to land a professional basketball team in Memphis, a fulfillment of this city’s long-held dream and the antidote to the beating that our civic ego had taken in pursuit of the National Football League.

They heard that the Vancouver Grizzlies was looking to move. They contacted Michael Heisley, not the other way around, to ask if Memphis could be considered. Like it is in the world of professional sports franchises, there’s no warm, fuzzy feelings that lead a team to move to a new city. It’s nothing but clear-eyed financial benefit, frequently expressed in the public commitment to provide an NBA-quality arena that can be a revenue center to help make the absurd business model of the NBA work.

There is nothing unique about this, because Memphis’ experience is consistent with what happens in almost every city. (It’s worth noting that the team and the so-called local NBA pursuit team weren’t even demanding a new arena, because they were prepared to have The Pyramid upgraded to NBA standards. That’s when it was suggested by the county mayor, not Mr. Heisley, that for slightly more, a new arena could be built.)

It’s worth remembering another often forgotten fact these days: Memphis was competing with another city for the Grizzlies, and so Memphis and Shelby County weren’t just negotiating against the Grizzlies, but negotiating against a rival city.


From the beginning, negotiations between city, county and the Grizzlies were testy and emotional. At their first meeting, the Grizzlies laid out their requirements to move to Memphis. Local government didn’t respond to their list and instead presented their own list of demands. The team’s negotiators left the room to talk, and quickly walked out of the building and flew out of Memphis.

No one in the halls of government panicked and got on the phone to put things back together. City and county negotiators, of which I was one, had made a list of “deal breakers” that were nonnegotiable. Failure to agree on any of them would collapse the talks from the public side. So, when the Grizzlies walked out of the room, Memphis and Shelby County Governments concluded that it saved them a lot of time, because it didn’t look like the team would agree to the public conditions any way.

Through the mediation of a third party, the teams were reassembled to see if there was a way to restart the negotiations. Again, city and county negotiators listed their deal breakers, and over the next month, one by one, they were accepted, but not without the charges and countercharges that are part of any negotiation. Eventually, the big issues that had been deferred while the others were addressed were essentially all that was left: the Grizzlies paying the operating losses for the new arena and the team making a long-term commitment to stay in the arena and in Memphis.

Local government had been told by pro sports consultants and colleagues in other governments that a city our size would not win these two key concessions, and frequently, it looked as if they would kill any chances for a contract.


It was in the context of the Grizzlies’ accepting operating losses – estimated now at upwards of $5 million a year – that the non-compete clause was put on the table. No one with any business sense – much less an NBA team owner - would take on the obligation of paying the operating costs and not look to protect their downside in the form of competition from other buildings that could easily undercut rental rates for the newer, more expensive arena.

It was a lesson that city and county had learned painfully when The Pyramid opened without closing the Coliseum. That old arena – already paid for and with no official concessionaire or parking company – was adept at underbidding the newer building, accomplishing nothing so much as driving up the operating subsidy of The Pyramid year after year and putting more money in the pockets of promoters.

It was thought in 2001 and it’s still the case today that it’s in the long-term best interest of taxpayers for FedExForum to succeed, and in that vein, the non-compete clause was agreed to in return for the Grizzlies taking on the operating losses. In other words, the option was for taxpayers to pay more than $5 million a year for the operating deficit of the building, and it would probably have been higher. After all, sponsorships and advertising agreements are skills that government doesn’t possess and or ill-equipped to perform or oversee.

So, the cost of eliminating the non-compete clause would have been more than $5 million for the Forum, about $2 million for the operating deficit at The Pyramid and the $1 million deficit at the Coliseum. In other words, local government could have taken on a total of $8 million in operating deficits and all so promoters could make more money from their events.

That said, negotiators on all sides understood that the noncompete clause was not intended to block events from coming to Memphis, only to give the Forum first option to make them work there. That the Grizzlies took the position most advantageous to them in interpreting the contract should surprise no one, but over time, the application of the non-compete provisions are settling into the philosphy of the negotiations.

Debating The Merits

While it’s never out of bounds for people to question the public benefits of the arena project, or whether this is the best use of $250 million or whether research proves that professional sports underdeliver as an economic engine, the malignant notion that city and county governments simply agreed to whatever the Grizzlies demanded is just wrong.

As for the financing of the arena – which the Grizzlies had no part in developing (like the garage funding, they didn’t care where it came from, as long as they got the facilities built), in retrospect, it seems clear that the financing would have been better if it had not included PILOT payments from MLGW.

That said, lost in the fog of opinions is this fact: the preponderance of the financing on the arena come from user-related fees like the sales tax rebate from NBA events and the arena's seat use fee and from sources like the Tourism Development Zone that only could have been spent on an arena or convention center.

In other words, it’s a fair discussion to debate whether the political and civic leadership should have spent their energies pursuing the team and building a new arena, but keep in mind that the vast majority of the revenues paying for FedExForum could not be spent on anything else.

Looking back, a number of letter writers seem to believe this project was rammed through the public process with little public support for it. It’s worth remembering that the publicly-funded poll demanded by arena opponent Commissioner Walter Bailey, to his dismay, showed that a majority of people in this county supported the arena financing plan.

The Power Of Rhetoric

As we say, there is room to debate the facts, and there is the obligation to get the answers about how the Forum garage plans were changed without federal approval and in violation of the federal regulations.

But hopefully, we can keep in mind that if the Mud Island experience taught us anything, it is that we have the power to make FedExForum a failure. It happened to Mud Island on the day long ago when the Memphis City Council, putting distance from the project they had approved, called it a failure. From that day on, it was.

Let’s investigate the garage controversy until full accountability is reached. Let’s debate the public value of professional sports. Let’s discuss whether local government has its priorities wrong.

Let’s just try to remember that we won. We got the professional sports team that we had sought for more than 20 years, we got a long-term commitment from it to this city, we got it to pay the considerable operating losses of the new arena and we did it with no larger percentage of property taxes in the Forum project than city and county governments put into AutoZone Park.


LeftWingCracker said...

OK. I am a Grizz fan, I attend 10-12 regular season games a year and I have NEVER missed a home playoff game.

That having been said, this statement is dubious at best:

"keep in mind that the vast majority of the revenues paying for FedExForum could not be spent on anything but an arena."

Let's not forget that the Hornets were leaving Charlotte at the same time (the NBA had already promised Charlotte an expansion team, so the Griz couldn't go there) and Louisville had said no to the NBA because of the objections of Rick Pitino and the University of Louisville.

So, it was because of those facts that the city had the leverage to get what they did. Yet, if this had not happened, the sales tax revenues in the downtown area that were/are being spent to pay off the Forum could have gone to pay for other city needs.

Now hold on a minute, you say, those revenues would not be there if it weren't for the Griz and the Forum. That, then, is where your argument does not hold water.

As your post mentions, study after study indicates that the economic impact to an area from a new ballpark is usually overstated, as the dollars would be spent elsewhere.

Have Memphians forgotten that, prior to the Forum project, the city was NOT having financial problems? Why? Could it be that the same sales-tax revenue that is going to pay off the Forum was keeping the city afloat then?

How can you show that the revenue generated from The Forum would not have existed without it? the problem is, there's no way to document it.

I no more want the Grizzlies to leave town than I want the BIG ONE to hit and wipe all of us out. However, we have to understand that, no matter how well we negotiated, it simply should not have been built with the percentage of public tax money that was used.

We're paying for it in more ways than one.

sherman said...

As a Grizzly fan and season ticket holder, I think it's fair to say that the worst part of the "deal" Memphis gave the Vancouver Grizzlies--even beyond the ridiculous non-compete clause--was giving the Grizzlies' billionaire owner revenue from the naming rights to a building he paid not a cent for (One lump sum, please; I might be leaving in a hurry!) How this ever came about is beyond me! I am certain this type of negotiating is how Heisley became a billionaire, and Memphis became broke.

Honestly, Memphis cannot (and could not) afford this deal. I am glad the Grizz are here (but please change the name to a Memphis appropriate nomenclature!), but for real, can anyone afford $120 per game season tix here--besides Jim Rout, who has great seats! (Coincidence?)?

I think we're finding that out. Prices need to be cut and quality of play/food needs to raised if the Grizz are to be successful in the dirty south.

Bring on the new owners. Memphis has just been an incredibly good investment for Heisley. (Better to get paid in U.S. dollars than Canadian, eh?) Time to flip!

Anonymous said...

Controversy aside, would the MIA 6.3 million be the issue it is now had the Griz advanced in the playoffs? Would this debate have been so publicized had the Forum ranked among the NBA's top 10 in attendance for the 05-06 season? Top 20? Seems like the underlying issue is getting Memphians to the games. Would we be pointing fingers otherwise?

electlarry said...

To Anon.,

The answer is yes! The missing money has nothing to do with attendance or playoffs. It has to do with the integrity of those involved.

From the peanut gallery, it looks like the old bait and switch game. I'm just amazed that it took so long for this to become an issue. Anyone who followed the issue in the first place knew there was supposed to be some kind of intermodal bus station there ... yet anyone who has been down there knows it isn't there.

IMHO, the Herenton regime is the most corrupt administration since Boss Crump ran the city.

Herenton and the City Council have become poster children for Term Limits.

Anonymous said...

Let's look back at 2001, when the possibility of the Grizzlies coming to town started. A survey of the metro area conducted in April of 2001 by Yacoubian Research found that only 29% of the voters supported an NBA team moving to Memphis if it involved using tax dollars. If no taxes dollars were involved support for an NBA team moving to the city went up to 64%. It was also made known to the public by the NBA pursuit team that a referendum on the funding scheme for the proposed arena was frowned upon by the NBA. In addition, the NBA gave the competing cities only 120 days to submit their final proposals.
It didn't seem like elected officials and supporters of an NBA team coming to the city did a very good job of listening to the public. In addition, the FedEx Forum was completed in September 2004. Heisley put the Grizzlies, which he bought for around $120 million a few years before, up for sale in November 2004. He was asking for about $330 million for the team. Well, he wasn't able to sell it.
The FedEx Forum is an expensive affectation this city simply can not afford. There's a big difference between the Autozone Park and the Forum. It doesn't seem like people have any problem with the Autozone park(it wasn't $250 million dollars!) but the Forum is like a financial millstone tied around our neck, wrapped in a big bow of corruption and mismanagement.
My favorite part of the story is the Kansas City Federal Reserve published a report in the first quarter of 2001 about the benefits of hosting a major league sports franchise.
"Proponents of using public funds to finance stadium construction
argue that the benefits from increased economic activity and increased tax
revenue collection exceed the public outlays. But independent economic
studies universally find such benefits to be much smaller than claimed.
So does it makes sense for metro areas to use public funds to attract
and retain major league sports franchises? The answer is definitely not if
benefits are limited to increases in economic activity and tax revenue
collection. A strong case can be made, however, that the quality-of-life
benefits from hosting a major league team can sometimes justify the
large public outlays associated with doing so.
Quality-of-life benefits are rarely explicitly included in the debate
on using public funds to attract and retain a major league sports franchise.
Acknowledging that the main benefit from hosting a team comes
from improved metro-area quality of life should help to value this contribution.
Doing so does not require impact studies. Residents and
elected officials who understand that the benefits of a sports team are
the same sort that flow from parks, zoos, museums, and theater can
decide on their own how much hosting a major league team is worth."
The question is now, have we gotten/will we get $250 million worth of quality of life benefits from the Forum? No.

mike said...

First, I held off on your previous Forum post, but since you've come back to this in more detail I think it is important now: Isn't the author of this blog a former top-ranked member of the Rout administration during the time all this was going on? I think some forthrightness here is incumbent on you as it will certainly alter readers' perceptions of your comments and analyses.

Next. It was $26 million, not $6 million. Just because the State of Tennessee is willing to play shell games with Air Quality money doesn't mean the money went away. We'll still pay for that later this summer or next year when we have "bad air days" that exceed our already stringent minimums but don't have the money to do anything about it.

Won't our City and County bond ratings suffer if it's shown that malfeasance or misrepresentation was involved, even indirectly, with the bond issuance that funded the Forum. Isn't the City just a step or two away from a "B" bond rating, which would have catastrophic results on our finances?

Bond refinancing is one way that governments have of lightening the load during good economic times. We are already suffering with sub-optimal bond ratings. Can we really afford worse? We'll be stuck with high-cost bonds for many unnecessary years.

The whole thing was rushed from the start. The "pursuit team" (tiger team, NBA Now, whatever) and City and County officials all made it very clear we had to move fast if we wanted in. City Councillors and County Commissioners were asking for more time; at least one I can recall (was it Bailey?) admitted he hadn't read the contract and didn't know what was in it. How many others really did read and understand what they approved?

Or did they rely on Herenton and Rout officials to make sure it was all right? We now know that those officials at the least misrepresented things (or may have had no clue what was really happening). It's possible, as a Federal investigation might show, that deliberate malfeasance and fraud may have occurred.

We also know, because WPTY/24 has been reporting it, that a lot of changes and compromises were made in the design and construction, and in the materials used, to keep the project under $250 million. That includes using a lesser roofing material than was called for. Will this be safe? Will we have another Hurricane Elvis-type event? I hope we never find out.

The same people who said, "Hurry, hurry!" are now saying "Well, it's too late anyway. We already built it." How convenient for them! Saves them a lot of embarrassment and having to answer diffcult questions, doesn't it?

If, as SMC is trying to argue, this was all above board and business as usual, then opening it to the public serves no harmful purpose. So let's go ahead.

Thirdly, didn't MATA itself kick in $1.3 million or more )I've also heard as much as $2 million.) to the FedEx Forum's costs, supposedly to "pay" for the never-opened MATA bus office there? This apart from the whole "intermodal transfer facility" thing. It's worth looking into.

And last, isn't it odd how quick and accomodating TDOT was with Memphis about taking on the $20 million Federal payback? It's almost like they were more than happy to do it. Like they didn't want a fuss kicked up and some curious eyes turned their way. And then we find the money used was going to pay for an Interstate project (under "clean air" programs) that was already funded anyway by other monies! There's a story that demands looking into as well.

Smart City Consulting said...

Leftwingcracker: There's no relationships between anything to do with the arena and the city's financial problems, and the statement about the "vast majority of revenues paying for FedExForum could not be spent on anything but an arena" it not only not dubious, it's accurate. Just look at the sources and the state law governing the sources. The sales tax for the project could not by state law be spent for any other purpose. It couldn't have been spent on schools, it couldn't been spent on streets, nothing but an arena. If the sales tax is being captured for all services and products sold in the arena, how would those sales taxes be present without the arena? As for Charlotte, it was never seriously looking at Memphis at all. Everyone in the NBA circles knew that the team was only trying to drive up its leverage to get a new arena. That's the reason why Memphis and Shelby County never bothered to pursue them with any seriousness. As for Louisville, Rick Pitino wasn't the reason that the city really withdrew, as shown by its continued proposals to the NBA to get a team, most lately with a proposal for a new arena costing $350 million. If you want the Grizzlies to be here, there was no way to get them here and pay for the arena without public tax sources. That's why state law sets up special tax uses that can only be used for arenas and pro sports. Not to have used the revenues given to this community by law seems to be cutting off our nose to spite our face.

Smart City Consulting said...

Sherman: Just keep in mind that no one but the Grizzlies could have negotiated or gotten the naming rights with FedEx. City/county could have kept operations of the building, paid the operating deficit and it would probably have ended up like The Pyramid, which 10 years after it was built still didn't have any naming rights and revenues. That's the difference between government and business.

Smart City Consulting said...

Anonymous: To blame this on Willie Herenton is misplaced. The State of Tennessee decided not to give Memphis a direct grant for the arena (although it had done it for Nashville of course), the state said it was going to pull the money from one of its special federal honey pots (city/county didn't care where the $20 million came from as long as it came), the state couldn't send the money directly to the Public Building Authority because of federal regulations, and so the city agreed to accept the money and send it on to the PBA. That's the only reason that Herenton's is even in the loop and why the letter about the $6.3 million wasn't sent to city and county. This one isn't about Herenton, although as usual, he does himself or the city no favors by taking a petulant, demeaning tone about it. More to the point, it's about TDOT and the PBA.

Smart City Consulting said...

Mike: TDOT chose where the $20 million came from, they approved plans, and they directed city and county on what to do to comply with the regulations and funding stipulations, so TDOT has the most to lose in all of the inner workings on the garage design coming out. Perhaps that's why they have been so conciliatory about all of this.

As for the bonds, the bonds at FedExForum, because they are revenue bonds, don't have any impact on city/county bond ratings and are not counted in the total indebtedness. The bond market absolutely loves to buy bonds for projects that have their own revenue streams (Airport Authority projects come to mind also) and are not dependent on county property taxes. We haven't checked, but it's likely that the Forum bonds have higher ratings than city or county.

MATA made no direct funding to the arena. We wrote about the impact of less money for air quality about a week ago so we won't address that.

As for being rushed, the memorandum of agreement with the Grizzlies was signed in May, 2001, and some details of the agreement were still being voted on a year later. That said, no one would have liked more time than city and county negotiators. The NBA set the schedule, and we could have chosen to demand more time, and the Grizzlies would be in Louisville.

As for commissioners, they were sent documents over and over, the documents were explained in public meetings, commissioners' questions were answered in private meetings, summaries of the contracts were distributed widely, especially to the news media, etc. I believe that the reason that Commissioner Bailey didn't read the contract was because he was adamantly opposed to the deal and nothing would change his opinion. Finally, based on the calls here from individuals and media since this blog began, there seems no mystery about who writes some of the posts to this blog (and we refer to that fact particularly when we post Tom Jones' columns in Memphis magazine). However, most folks who worked for Mayor Rout have little interest in making him look good, so that's little motivation to these writings. We love a lot of blogs, like yours, for example, and we assume that your experience, your job, your residence, etc., influence your opinions and might influence our opinions about what you write. That said, we're not cyphers and each of us needs to apply our own experiences, etc., to what we read on blogs, ask questions, probe, etc., and know that there may be factors driving opinions that we don't know about, but nonetheless, we find the opinions interesting and thought-provoking. Clearly, based on the responses today, we are proud to say that there are no drones reading our blog, and that's the way we like it.

Smart City Consulting said...

Anonymous: The polling done for Walter Bailey was not by Yacoubian. It was by Princeton Research, and it was taken before the final votes on financing on the arena. As we said, much to Walter's dismay, it seemed that the majority of the public supported the project with the understanding that property taxes would not be relied on heavily and that a broad mix of taxes that made people going to arena, car renters at the airport, people buying merchandise at the arena, etc., paid for it. If the Yacoubian poll was taken in April 2001, it was before any details of the negotiations were announced and before the public knew anything about the terms of the deal. Again, based on the Princeton Research survey, once the public had this information, they were supportive of the project.

As for AutoZone Park, it uses one of the same revenue sources used by FedExForum - sales tax rebates.

Smart City Consulting said...

Mike: We looked into your comment to the last FedExForum post about city/county subsidies triggered by low attendance averages. That was in the earliest memorandum of agreement, but was negotiated out by the city and county in later contracts.

mike said...

Thanks for clearing up the bond and minimum attendance issues. Great post and discussion.

LeftWingCracker said...

My understanding was the sales-tax revenue used to pay back the bonds was not just from the arena, but the downtown district as a whole.

When did that change?

Smart City Consulting said...

Leftwingcracker: Nothing is ever that clear when it comes to state taxing authority...unfortunately. The sales tax you're talking about comes from the tourism development zone which allows for some sales tax to be captured and used for arenas and convention centers. The theory behind the law was that the amount that the sales tax increases in the general area of the facility, or facilities, are spurred by the presence of the new facility, and therefore, these revenues should be able to pay the cost of the buildings themselves. I hope I'm being clear. It's not the total sales tax is being directed to the arena bonds, but the incremental increase that has occurred since the Forum opened. Also, the sales tax increment for the arena does not include the half that by law goes to schools. By the way, the amount of the debt covered by this sales tax increment covers something like 15 percent of the total bonds (but we'll check on that to be precise) while the sales taxes captured from the sales within the arena and NBA merchandise covers twice that amount.

Smart City Consulting said...

Mike, we've enjoyed it, too. Thanks for joining in.

LeftWingCracker said...

Thanks for the followup, SC. After I finish my move (no, not out of town, I intend to look you up for that drink!

Smart City Consulting said...

LWC, I look forward to it, and don't even think about moving out of this city. SC

sherman said...

While I don't quite understand your reply why the city could not negotiate a naming rights sponsorship, I'll take your word for it, but I still think it's a raw deal for a billionaire to get a $250 million corporate hq, pay for none of it, and then get the naming rights money to the hq too. Had Heisley not been so friggin'(yes, I'll say it) cheap, he could have put 10% into the building and bought a whole lot more than $25 million in good will with Memphians.

That said, the other issue I have often been skeptical of re: the financing is the idea that the incremental sales tax financing creates much "new" money in Memphis. Because of Memphis' low per capita household income, I just don't believe that increase happens here in Memphis with a major project like this--at least for Grizz games(definitely it does for boxing matches or big concerts). Ask any restaurant, movie theater, nightclub, or other entertainment owner/operator what happens on a Grizz game night. Sales are down during & after the game (with the exception of downtown restaurants, obviously). What happens is the finite Memphis entertainment dollars are merely transferred from an East Memphis, Midtown, or Bartlett restaurant, video store, or nightclub and spent on the Grizz' extremely expensive tix (or people stay at home, spend no money, and watch on tv). The only incremental spending one sees from the Grizz playing in town is when out of towners come to Memphis for a game, which unfortunately, has not been a big part of the crowd, from my point of view. Memphis' touristic economy has not elasticized to the point where the Grizz have increased dollars to the city.

The counter argument is, of course, "Look at the development around the arena as well as the prestige and/or marketing gains from being a "Major League" or "NBA" city" (although, in the last couple of years it is quite debatable how "prestigious" it is be party to otherwise unemployable millionaires who trash a once great league--not speaking of the Grizz players so much as they have been stellar, but the league overall is not so hot right now). This argument has never done much for me as, the day Memphis understands its own strengths and potentials is the day it will quit building things Memphis does not need and cannot afford and will then spend the money on things like fixing the Overton Park Shell, which has now been closed for almost 2 years (Yes, I know help is on the way on that issue, but where's the priorities in this great music town????).

Good coverage, Smarties!

branston said...

Great discussion, smart city. Does this not show, among other things, how the grizz should have gone in the tank, discreetly or otherwise, to make sure they didn't meet the Mavs? Three or more additional home playoff games would have helped financially, morale, next year's ticket sales, etc. One of the big blunders in local sports history, I'd say.

Smart City Consulting said...

Sherman: Good to hear from you again. If you're right and there is no incremental increase in the sales taxes in the areas of the arena (and the convention center, for that matter), then no money is available to pay for the bonds at the arena. However, tax collections haven't shown that problem.

We understand your special interest in investing in local musicians and music venues and assets, and we share that interest. However, why should Mr. Heisley invest in an arena in Memphis when another city has already offered him an arena with no private investment of his own, he also knows that this is the smallest, softest market in the NBA so he was unwilling to make such an investment, and the deal that he got here is consistent with those in most other cities (except for the long-term lease that we got to keep the team here). It's to our advantage for the team and the arena to be successful, and since he was hired to operate and manage the arena, he was given the rights to sponsorships, just like every other NBA team that we know about.

Again, in more than a decade, government was never able to sell naming rights for The Pyramid - not to FedEx or anyone else. The naming rights only have value because the NBA team is there.

Thanks for the comment.

Smart City Consulting said...

John, great point. As you know, there is a clear correlation between what happens on the court and the revenues to pay the bonds, because everything is interlocking. Playoff games generate big bucks and revenues not figured in any projections.

sherman said...

Thanks for the explanation! Not to belabour (sp?) the point that I didn't make very well about incremental taxing districts, but... Of course, there is more sales tax generated in the downtown district now because of the Forum & Convention Center (as well as all of the synergy involved with new restaurants, clubs, etc.) My poorly -made point was that one of the major talking points for those pushing the building of the Forum was that it would come from money (taxes) that otherwise would not exist or could not to be used for anything else i.e. like a higher airport car rental tax in Memphis.

1) I would argue that those newly-created taxes could be used for better prioritized Memphis needs, and, considering Memphis' per capita, perhaps subsidizing flailing, over-priced pro sports leagues isn't the best use of a broke city's finances

2) (This is the point I did not make very well). When fans come from Jackson, Mississippi, to see a Rolling Stones concert at the Forum, then there is incremental tax spending received in Memphis. When Germantown residents buy Grizzlies' tickets but don't go out to dinner in Memphis because they spent the dinner money on the tickets, then there is no tax increase, just a transfer of the tax from one part of town (sales tax in a restaurant) to the Forum bond payments. The taxes then do not go into general sales tax coffers as they would have previously, and, therefore, expensive Grizz tix actually do hurt the local sales tax base, debunking that talking point.

As far as...why would Heisley take lesser handouts from Memphis when he has Louisville offering the same (or better? In negotiations, you gotta know when to hold 'em and when to fold 'em. He knows how to squeeze a city, for sure, and he did. Bully for him, but why should Memphis go broke over a billionaire just to keep up with poorly thought-out neighbors' ideas of what is Big Time? Obviously, the folks who hold the cards in Memphis made this generous deal happen in a small city that cannot afford to subsidize exhorbitant tickets at 40 home games a year. I enjoy the Grizz being here, but I know very few people who can afford to go regularly. I know many people who cannot even (or don't care to) afford the Fox Sports package to watch the Grizz on tv. That's a poor city we're talking about!

Don't get me wrong; Fedex Forum is 1st class and I'm proud of it, but Grizz ticket prices, player salaries, and NBA team sale prices are all going to have to come down to 2006 reality for the league to thrive again. All the above are getting paid at late '90s, Michael Jordan/Barkley-era NBA bubble prices, and the product is neither as good as it was nor worth the axing price. Just 'cause Heisley thinks the Grizz are worth $300 million doesn't mean they are. We'll soon find out!

Just for argument's sake (as you previously acknowledged, I am a music nut, please indulge me)...Imagine for a minute that Memphis took the same initiative and investment in music culture that it has done with the Grizz. Let's throw out the number $250 million dollars, since this total came out of "newly created taxes" that previously didn't exist (so there won't be any property tax increase!). Memphis' return on capital on an investment of this kind into our music culture would be tremendous and far greater than the return that the Grizz will ever provide for the city. Not only could we have built the best music university in the world as well as the greatest performing arts center in the world (and/or enhanced every single one we currently have to the optimum level), we could also have the greatest line-up of live music the world has ever seen every month for as far out as the eyes could see. We could have created a real Austin City Limits-type tv show with the festival to go with it. We could have a satellite radio station beaming Memphis music and events all over the world 24/7 as well as the best web site technology. In short,we could build the ultimate music destination in the world, adding on to the incredible music history that Memphis has created for the last 100 years. That is the opportunity cost of the generous handout to Mr. Heisley, if I may be so bold as to think out loud. (Just to give you an idea, the total cost for the Stax Museum, a true gem for Memphis, would be less than $10 million). Imagine another $240 million invested in Memphis music culture!

The money would return back to Memphis hundreds of times over for that kind of investment. With the Grizz, the best the city can hope for is continued nice placement on national tv sports programs (standard shot of B.B. King's on Beale St., maybe the Beale St. flippers once a game, and a shot of the gates at Graceland opening/closing)as well as the feel-good-all-over unity/pride if the Grizz ever win a playoff game. Rah Rah!

Instead we have a nice concert hall/gym that any and all profits go to an out of town businessman and very little investment in our own culture from that $250 million of stealth taxes.

You want to create your own unique culture, or do you want to try keeping up with Atlanta, Nashville, or Louisville? That is the tradeoff Memphis has made with this sports donation. Time will tell if it was a lucrative, wise one for the city, but I can guarantee you that the music one would have made a far greater difference in this city 50 years from now.

sick of this stuff said...

"Let’s investigate the garage controversy until full accountability is reached. Let’s debate the public value of professional sports. Let’s discuss whether local government has its priorities wrong.

Let’s just try to remember that we won. We got the professional sports team that we had sought for more than 20 years, we got a long-term commitment from it to this city, we got it to pay the considerable operating losses of the new arena and we did it with no larger percentage of property taxes in the Forum project than city and county governments put into AutoZone Park."

Ok, let's debate the Grizzlies and the FedEx Forum after the elected oficials have already signed the deal and roped the taxpayers into long term debt. Talk about timely!

It is merely your opinion that "we won". If we won, it was a phyric victory at best. We got burned! I believe once a full accounting has been had, we may need a new floor on the CJC. We already had the Coliseum, then we got Shlenked into the Pyramid, which was supposed to be "state of the art" when it was built, then this miniature monstrosity, the FedEx forum is foisted upon our backs. Why? how about so some fat cats could get fatter.

Michael Heisley needs to be refunding the money he got for the parking that "someone" allowed him to siphon off as well as the advertising money. I think state law supersedes a corporate contract, so how is it no one is demanding Heisley give up the money. I just wish John Q. Citizen would get upset enough to march on the FedEx Forum and create a little civil disobedience. It would be nice if the taxpayers got so mad they would show up and not allow anyone to park in the building and noone to put on anything in the building until Heisley got the heck out of town!

Smart City Consulting said...

Sickofthisstuff: Try to separate your distaste for Mr. Heisley from the FedExForum long enough to look at the deal. As we said, it sounds like the mythology is blurring the reality. You say you, as a taxpayer, are paying long-term debt. You must be renting cars at the airport, buying merchandise inside the arena, buying tickets to games so you pay the seat use fee, and spending money in the zone where the incremental sales tax is being captured for the bonds? Speaking of mythology, Shlenker wasn't around when The Pyramid was proposed. He was brought in by Memphian John Tigrett after the fact. And as we've said frequently, the Coliseum should have been torn down a decade ago.

Finally, why should you expect Mr. Heisley to give back advertising revenues when it's the presence of the team that gives the advertising value in the first place?

We understand that you are mad about this project, but it's in no one's best interest for us to turn it into a failure.

Smart City Consulting said...

Sherman, Thanks for the elaboration. You're always thoughtful and invested personally in this city.

First and foremost, we share your conviction about what we could get done in Memphis (music, for example) if we could display this same level of determination and commitment to other critical issues. Unfortunately, we, like many cities, have a project mentality, so we tend to look at buildings for excitement and momentum. In fact, that's even showing up some in music strategies where projects are being touted, instead of investments in the raw materials needed in the first place -- talent.

Your point about the Forum only shifting money from one place to another is a good one. As you recall, the Chamber hired a firm which concluded that an NBA team would generate $1.5 billion in economic impact, a conclusion that was so over-the-top that every one laughed it off. However, the Center for Regional Economic Growth (or something like that) at the University of Memphis was hired to determine if an NBA team would simply moving money around or creating new economic activity. It was much more conservative and reality based than the Chamber study, and it did indeed conclude that the team created new spending. That's not to say that some of the spending is a shift in entertainment dollars, but that's the case with concerts, too.

I would suggest that Mr. Heisley took the Memphis deal, because negotiators here were able to undercut Louisville with local ownership and Memphis was successful in stretching out negotiations in hopes of the Louisville proposal collapsing.

As we may have forgotten to say, these are revenue bonds, so we don't see Memphis going broke. But in the end, it's a different point of view for us. This wasn't about helping Heisley; it was about helping Memphis, and the team is a valuable civic asset for a variety of reasons.

Some of what you talk about is the crazy business model of the NBA, and unfortunately, there doesn't seem to be any relief in sight. There are still cities bidding for teams with new arenas and tax subsidies. At least here, we have a 17-year commitment for the team to stay here and penalties if it leaves after that time and an obligation for the team to pay operating deficits at the arena. As we have said, we think we've got the best deal of any city we've heard of.

Back to music, what can we do to make this city understand what could be done to elevate its music business? And we're not talking about building infrastructure first. We're talking about giving incentives and venture capital to music talent. The creative spark that has flared up here over the decades is still here. What can we do to make it blaze?

Finally, we're not arguing that there are countless priorities that are more important than building a new arena. What we are arguing is that considering the NBA demands and the realities of the marketplace, we not only did better than anyone seems willing to admit, but we negotiated a contract that other cities covet.

mike said...

SMC, you ask what can be done for Memphis music? I don't think it's the creativity, which we clearly have in abundance; it's not bands, which we are overflowing with. I don't think it's recording space, either, but if I'm wrong I hope Sherman will correct me.

It's exposure. How many of the many festivals and public events do we have in Memphis where the music is the same tired old former hitmakers? Or the long-time artists who have reached their plateau locally and aren't going any higher?

How many concerts do we have that involve bands from other parts of the world? Not club shows but big concerts? Far fewer today than just a decade ago, and getting fewer. One of the fundamental ways to get the word out about Memphis is to have other, more successful, bands see *our* bands play!

And, of course, promotion and PR. Why don't we have the City or County getting involved in showcases? Or the Memphis Music Commission? Flying in PR people from record labels and artist agencies is something we could do right now.

And, of course, radio. I'm not sure what we can do here, since nearly all local radio is corporate-owned. We need Memphis music programmed into "normal" airplay all day long, in whatever format is appropriate. Again, I'm not sure how you do this, but it seems fundamental.

The FedEx Forum deal is what's making the DeSoto CCC successful. It's driving promoters away from the headaches and uncertainties of dealing with Hoops.

You know, as Sherman noted, just imagine if this City and County had pumped $50 million into its music scene, instead of $250 million into a building. We could have completely rehabbed the Coliseum, making it a lynchpin of the local concert scene. We could have upgraded every single club in town! We could have built or rehabbed a few public music spaces (like the Shell), and made them available to anyone who wants to book them and pay the tab.

We could have hired some top-level professionals to design an online music portal that leads to regularly updated subsections for various genres.

And, and, and. For 20% of the investment of the Forum we could have remade the face of Memphis music for at least two generations to come. It would have drawn stunned and wondering media attention from every corner of the world. We would be THE topic of conversation anywhere musicians gather, and many would be winging their way here to take part.

But no, we built a building instead.

Smart City Consulting said...

Mike: Great post. We've made that point previously about a venture capital fund and investment fund for local musicians and music entrepreneurs, but you absolutely nailed the imperative for that. Thanks.

sherman said...

I emailed Smart City ( since it was a long piece) my thoughts on the Memphis music industry July 13th. I haven't heard back from you via email or phone messages left. If you want to post them, go ahead. If not, others I have spoken to want to read them & I will post them elsewhere. Thanks, Sherman

Smart City Consulting said...

Sherman: Ohmygod, I never got your email, and we've really been anxious about your views. We've had it on a post-it note to check back with you. It sounds like all systems failed, because we weren't told of a voice mail either. At any rate, we apologize, and if you don't mind, would you send your email to, so we can give it proper attention. Again, sorry for the problem.