Bond-backed stadiums in limbo amid threat to baseball's minor leagues

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Major League Baseball's plan to eliminate dozens of minor-league affiliates may leave governments that subsidized their ballparks holding the bag.

Relations between Major and Minor League Baseball turned acrimonious at the end of 2019 as the two sides tried to iron out a new 10-year affiliate agreement. The current deal expires after the 2020 season. MLB presented a plan that targets 42 minor league teams for contraction either by stripping them of their affiliations with major league clubs or eliminating them altogether.

Several minor league clubs that would be axed by MLB’s restructuring proposal compete in stadiums for which bond debt was used either for construction or renovations.

There is a 42-franchise hit list, according to a New York Times report.

One of the teams, the Staten Island Yankees of the Class A New York-Penn League, play at the 7,171-seat Richmond County Bank Ballpark at St. George, which opened in 2001 after New York City bonded $29 million for the project.

The South Atlantic League’s West Virginia Power, a Class A affiliate of the Seattle Mariners, may also lose its major league affiliation just four years after the Charleston City Council voted to refinance city bonds used to build Appalachian Power Park. At the time of the refinancing, the city was about halfway through its 20-year lease on the stadium debt.

In Montana, the Billings Mustangs, a Cincinnati Reds affiliate from the Pioneer League, a short-season rookie league circuit, on the chopping block to be contracted. Billings voters approved a bond initiative in 2006 to provide $12.5 million of public funding for the Mustangs’ stadium, Delher Park, with private donors chipping in for the rest of the costs.

A bipartisan group of 103 members of the. House of Representatives members sent a letter to MLB Commissioner Rob Manfred expressing opposition to the Minor League Baseball proposal.

“The abandonment of Minor League clubs by Major League Baseball would devastate our communities, their bond purchasers, and other stakeholders affected by the potential loss of these clubs,” the letter states. “We want you to fully understand the impact this could have not only on the communities we represent, but also on the long-term support that Congress has always afforded our national pastime on a wide variety of legislative initiatives.”

Randy Gerardes, a senior municipal bond analyst at Wells Fargo Securities, said he expects future publicly funded minor league stadiums to try to avoid pitfalls that may result from changes in affiliations. He said that it varies market to market whether losing an MLB affiliation would have a very negative impact on attendance, but stressed that in general having a localized MLB connection such as the Staten Island Yankees is an important component of drawing fans to games.

“There are certainly people just looking to enjoy a ball game, but there is a large part of the population that wants to be able to say they saw the future of Major League Baseball,” Gerardes said. “Having an affiliation with a Major League Baseball team has value.”

Gerardes noted that many minor league stadiums rely on public financing in one form or other because there are fewer revenue options in terms of naming rights, club seats and marketing partnerships. He said many of minor league stadium bond deals don't have attendance or concession revenues tied to the bonds, but noted that a decline in business could create credit challenges for the entities counting on these revenues to balance budgets.

“If these revenues don’t materialize it becomes a lot harder politically for the public entity who issued the stadium bonds,” Gerardes said. “That could potentially have an impact on the entity’s credit worthiness.”

Moody’s Investors Service analyst Nick Lehman said the direct financial impact of a minor league team folding varies by city depending on how closely tied the stadium is to economic development around the ballpark. He stressed though that uncertain future of minor league baseball would likely give pause to local governments considering bonding for new stadiums.

“Debt issuance is very sensitive to the tax base,” Lehman said. “Any kind of large project is going to be scrutinized.”

John Medina, a senior analyst with the Moody’s Global Project and Infrastructure Finance team, said using lower-level minor league ballparks for other purposes such a concerts to help protect against possible restructuring changes is more challenging given the small stadium sizes with this avenue generally more viable for basketball arenas. He added that community benefits agreements forged by major league sports teams that can help galvanize political support for public funding are also far less common at the minor league level where resources aren’t nearly as large.

Medina said that while non-relocation agreements are a critical part of bonding agreements for sports stadiums, it isn’t entirely clear how potential MiLB restructuring changes that lead to contraction would affect outstanding stadium bonds. He said issuers will likely try and craft language in future deals that protect against possible radical changes to the minor league landscape.

“Any time there is a risk to the market generally they try to come up with ways to combat the risk,” Medina said.

Bob Boland, sports law professor at Penn State University and former player agent, said that with many minor league baseball teams have struggled with attendance in recent years which may be why MLB is seeking to shorten its MiLB supply. He noted that maintaining MLB affiliations is an important draw card for many minor league clubs who draw fans of those teams from the region such as the Staten Island Yankees.

“It’s really, really helpful, even though you have plenty of successful independent clubs,” Boland said. “Using Staten Island, for instance, if you switch the Yankees affiliation to the [Houston] Astros, that would affect the relationship.”

Boland recalls that when he previously worked in New York state government throughout the 1990s that lawmakers found funding minor league baseball to be an important priority. He noted that the Staten Island Yankees’ stadium eventually spawned other economic development projects in the neighborhood such as Empire Outlets.

Lee Igel, clinical associate professor in New York University’s Tisch Institute for Global Sport, said elected officials are much more conscientious these days about the role of sports teams in their communities making publicly funded stadiums that much more of an uphill climb. He said the emergence of e-sports has also changed how municipal leaders view supporting traditional professional sports facilities.

“In the past five years we’ve seen a much better focus on community sports and youth involvement,” Igel said. “People are asking questions as opposed to relying in certain sports just because they’ve been around.”

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