Numbers Don't Lie

By Jack Todd

Even as Premier Lucien Bouchard and Finance Minister Bernard Landry were tripping over one another in their efforts to find new and creative ways to say "no" to the Expos yesterday, Parti Quebecois-approved economist Pierre Fortin was on CKAC saying the value of the baseball team to the governments of Canada was on the order of $15 to $25 million a year.

Fortin, one of the most respected economists in the province, has co-authored a short article with UQAM urban planner Sylvain Lefebvre. In the article, Fortin and Lefebvre conclude that the Expos need something on the order of $15 million a year in public support to get their stadium built - and they ask whether such a level of support would be justified in purely financial terms.

"We have no hesitation," Lefebvre and Fortin conclude, "in responding affirmatively to that question."

Lefebvre and Fortin go on to detail the reasons why they believe the expenditure is worthwhile, reasons including the image of the city and the province, the socio-cultural value of the team and the urban revitalization of Montreal.

The article is the latest embarrassment to a government that is rapidly running out of reasons and reason in its stubborn anti-baseball stance. But you don't have to stretch as far as the socio-cultural need for the team to see how valuable the Expos can be in purely financial terms, even if our finance minister appears unable to comprehend the numbers.

Landry's stubborness is astonishing. In the first place, Landry was presented a package by the Expos that would have asked for $75 million for the stadium, with the money to be repaid through a cigarette tax, a lottery, a restaurant tax and taxes on player salaries.

The Expos thought Landry supported the proposal, but Landry said no. Then a financial analyst laid out a crystal-clear scheme to finance the stadium the same way such projects are usually done in the U.S. - through a bond issue, although, in deference to Canadian ways, the bonds would be taxable, offering still more revenue to the government, with the bonds paid off entirely through the taxes on player salaries, and the government pocketing $85 million over the next 20 years in player taxes alone.

Again, Landry said no. The numbers don't work, he claimed, without specifying how or why they don't work. Too much risk. Landry has no objection to pouring $50 million in tax money into an aquarium in Quebec City, no objection to using a cigarette tax to fund a new roof on the Olympic Motocross and Tractor-Pull Stadium.

But guarantee $75 million worth of the bond issue that would keep the Expos in the province? Uh-uh. Too risky, can't take the money from hospitals, blah-blah-blah.

Then Fortin weighed in on the same day that the same financial analyst who drew up the bond proposal offered a detailed chart showing how the Expos franchise itself can guarantee the bond debt, reducing the government's risk nearly to zero.

With the government about to go on the hustings to beg for votes, Landry and Bouchard aren't about to let go of a simplistic issue, even if they know very well that they have it exactly backward. Why let the truth get in the way of a nice demagogic appeal to voters who don't know a bond issue from a bedpan? Landry and Bouchard are betting that when push comes to vote, the citizenry of this province will prove themselves dumber than a bag of hammers. They have backed themselves into a corner, however, and it's time someone called them on it. It's time Jean Charest stepped up and said: "You're wrong. The Expos will make millions of dollars for this province." It's time Jean Chretien stepped up and said: "You want a guarantee, nos Expos? The federal government will give you a guarantee, and Mr. Lucien Bouchard can try to explain to the voters why he doesn't want to make tax dollars to pay off his debts."

Yesterday, Laurier Carpentier, the financial wizard trying to put the Labatt Park project together for the Expos, confirmed that the numbers provided to this columnist by an independent financial expert were basically accurate: that it is possible to issue bonds to cover the $150 million the Expos need to raise in addition to the $100 million they would earn from the sale of seat licenses. That the franchise itself would be collateral for the debt, most probably through the structure of a 20-year lease the Expos would hold through a stadium authority responsible for the debt; that in the event of a bond issue and a lease, the bonds would be paid off through the sale of the team if the Expos don't remain in Montreal. Bottom line? The cranky trolls in Quebec City would get to have their cake and eat it, too. The government would collect $60 million in taxes off the construction of the stadium alone and could then start getting fat on all the other revenue streams generated by a Major League Baseball franchise - without risking Landry's pocket change.

The study prepared by an independent analyst and made available to this writer yesterday shows that making the franchise responsible for the bond debt in the event the team is sold, either through a lease penalty or a direct agreement, would cushion the government against virtually all risk. Professional-sports franchises are a valuable commodity today and they are growing more valuable virtually by the hour as huge media conglomerates fold teams into their structures. Assuming a very modest 3-per-cent annual growth in the value of the Expos on the North American market, the author estimates the value of the team at $253 million Canadian in 1999 and $445 million in 2018, the year when the bond debt would be paid off. He includes a table that shows how revenue would be distributed if the team is sold in any year between now and 2018; the least the owners would be left with is $91 million in 2001 - hardly the year the team would be sold if Labatt Park is opening in 2001. In 2001, $141 million would go to pay off the balance of the bond debt if the team was sold; in 2017, only $12 million of the debt would remain.

Carpentier, in confirming the accuracy of most of the analyst's figures yesterday, said there were a couple of differences: if the Expos conduct a bond sale, they would put the bonds up at 6.5-per- cent interest rather than 6 per cent. The players pay tax based on spending 41 per cent of their year in Canada rather than 60 per cent - but Carpentier's projections are based on a higher payroll.

Where the analyst estimated $85 million in revenue left over for the government from player income taxes alone when the bond debt is paid in 2018, Carpentier's estimate is $50 million assuming zero inflation, $100 million when inflation is factored in. With an additional $50 million in tax revenue from the interest on the bonds, the government's share would be between $100 million and $150 million on the financing of the ball park alone. Obviously, that doesn't take into account all the other taxes - like the $60 million in tax the government would take in over the next three years on the construction of the stadium - 40 per cent of the over-all amount they are being asked to guarantee.

Given the obvious advantages, Carpentier was asked, would the Expos object if the federal government simply stepped in to guarantee the entire $150-million bond issue, rather than splitting it with the province?

"I'd be delighted," Carpentier said. "Come on down."



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