Dear Residents of the City of Minneapolis –
The Minnesota Timberwolves and out-going Minneapolis Mayor RT Rybak are looking to rehab the 23 year old Target Center Arena. The arena has been a thorn in the side of the municipality’s finances for over a decade despite being one of the nation’s busiest arenas. Here’s a quick look at your current liabilities:
| Existing Target Center Liabilities | |
| $72,000,000 | Purchase Price Debt (1995) {Source} |
| $55,000,000 | Remaining Debt (2012) {Source} |
| $5,000,000 | Existing Annual Cost of Arena {Source} |
| $1,600,000 | Annual Operating Subsidy {Source} |
| 2025 | Timberwolves Lease Ends {Source} |
In other words,
- Minneapolis has paid of 23 percent of the original debt 17 years since purchasing the Target Center.
- At the the current rate, it will take Minneapolis approximately 72 years to pay off the Target Center Debt.
- Annual payments, including debt service, averages approximately $5 million.
- Minneapolis agreed to annually subsidize the arena’s operating losses up to $1.6 million.
- Total annual Target Center cost to Minneapolis approximately $6.2 million per year.
- City has agreed to $50 million in on-going renovations in addition to the new renovations (it’s unclear if the new renovation deal will trump this promise)
It is important to note that this Target Center renovation deal should not to be confused with the last renovation in 2004.
“Minneapolis and Timberwolves officials announced a long-awaited deal Monday to split the cost of a $100 million renovation of downtown’s city-owned Target Center. The agreement, which must be approved by the City Council, would commit $48.5 million in city sales taxes to the renovation.” – Star Tribune
Minneapolis is promising $48.5 million of the total $100 million total cost. The deal would keep professional basketball in the arena until 2032. Here are the numbers:
| New Target Center Liabilities | |
| $48,500,000 | Renovation Cost |
| 0.005% | Minneapolis Sales Tax Rate |
| $9,600,000,000 | Addt’l Money Needed to be Spent Locally |
The Target Center will need to induce $9.6 billion worth of additional expenditure in Minneapolis to cover the cost of debt, excluding interest and debt service payments. If Minneapolis does not induce additional growth from a newly renovated arena and instead opts to take the same payment path as currently exists, the renovations will be paid off in approximately 49 years. This comes in exchange for the team promising to stay in Minneapolis for 7 additional years.
Consider the City’s existing entertainment debt liabilities; the original Target Center (debt, $55m), Convention Center (debt, $158m), and new Vikings Stadium (debt, $150m). It’s hard to imagine an economic scenario where Target Center justifies any additional money.
Your entertainment-related debt is as follows:
| Post-Renovation Target Center Liabilities | |
| $103,000,000 | Target Center Total Debt |
| $150,000,000 | Vikings Stadium Debt |
| $158,000,000 | Convention Center Debt |
This would brings Minneapolis to a total of $411 million. The number may go up if the City decides to invest in a new $125 million convention center hotel (Star Tribune).
Here is where I get confused: the Target Center bills itself as one of America’s premier entertainment venues and provides the following information:
| Target Center Attendance Facts {Source} | |
| 22nd | Busiest building in the U.S. |
| 51st | Busiest building in the World |
| 200 | Annual “large crowd” events |
| 1,000,000 | Visitors per year |
These are great numbers. I had no idea the arena was so popular. However, it raises two important questions:
1) Why, if so successful, does it need $48.5 million for renovations?, and
2) Why, if so successful, does it run a budget deficit of over $1.6 million a year and must be subsidized by city taxpayers?
No matter what way you look at it, the numbers don’t look good. The City estimates that the Target Center currently has an annual economic impact of $100 million (and all the while struggles to meet its current debt obligations). In order to pay off the new renovations within 25 years, the Target Center post-renovations must quadruple it’s economic impact to $400 million (and all the economic impact must be in the form of direct sales tax receipts). In order to make that happen, the Target Center would need to host 800 “large crowd” events and have approximately 4 million annual visitors.
Imagine if instead of entertainment, the City would have spent $411 million on education, transit, water and sewer updates, or simply not at all? Good luck.
Sincerely – A Thankful St. Paul Resident.
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Note: Please alert me of any discrepancies in my numbers or miscalculations. I would like these numbers to be as accurate as possible and acknowledge that I may have incomplete information. For example; I was unable to figure out specifics on tax boundaries for downtown.