Target Center Renovations, by the numbers

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.

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.

17 thoughts on “Target Center Renovations, by the numbers

  1. Walker AngellWalker Angell

    Great post. I’ll play devil’s advocate here:

    – Increased economic impact isn’t about the tax revenue’s, but about bringing people in to the city to spend money at local businesses and thus provide employment to local residents, namely bars and restaurants. On the other devil’s advocate’s hand, does this simply take that spending from elsewhere nearby so no real net benefit for Twin Cities or Minnesota?

    – Having T’wolves (and Vike’s, and Twins, and Thunder) helps employer’s to attract employees from out of state. Uff-da, do we really want those people moving here?

    OK, so I’m not very convinced of my arguments. 🙂

    1. Charles Marohn

      Yeah, we casually throw around “economic impact” as if it is something more than a fabricated, theoretical statistic used by project boosters to justify public investments.

      It’s not.

      The real question, which Nate adeptly points out here, is what percentage of this theoretical “economic impact” will find its way to the coffers of the city? Not nearly enough to cover the expenditure, and so the taxpayers of Minneapolis need to ask themselves if they are willing to be taxed to subsidize the ongoing operations at Target Center.

      They may very well be and I don’t begrudge them that, but that is not the question they are being asked today. This, as with all of these huge subsidy projects, is being sold as justified by all the economic activity, like it won’t cost anyone a thing.

      Not true.

      As always, great job, Nate.

      1. Adam MillerAdam

        It’s not so much subsidizing the ongoing operations at the Target Center as subsidizing the downtown hospitality industry.

    2. Ed Kohler

      There was a time, not that long ago, when downtown Minneapolis businesses actually chipped their own money in to subsidize a pro sports team’s venue. It actually happened in 1982.

      Now, downtown businesses claim to see value from stadiums, but not enough to actually put their own money into, so they don’t really see value from stadiums.

      In 1982, Dayton’s put money into attracting the Vikings downtown from Bloomington. Now, Target Corp’s lobbies for pro sports stadium subsidies, then pays the billionaire owners for tax-free naming rights.

      Pro sports teams and downtown businesses are going to ask for the sweetest deals they can get. And, our elected officials have certainly been handing out some sweet ones.

      To me, one of the best examples of failed leadership in Minnesota on the stadium subsidy scene happened under Tim Pawlenty. When he failed to get the U of MN and Vikings to work together, he teed up a billion dollar future liability.

    3. Nathaniel M Hood Post author

      Walker –

      – I think there is a lot of ‘substitution effect’ going on with new stadiums. Economic development, in my world view, should be a holistic approach that includes making people’s lives better. That means, I would lump something like the Midtown Greenway in as economic development. Good point though. But, I feel there are better ways to encourage people to spend money than on food, drink and sport.

      – Do pro teams entice people to move to locations? I don’t know. It certainly wouldn’t tilt the scale for me, but I’m likely not ‘average’ in that regard. I think that argument is a long-shot. However, for some people, yes, having a pro baseball team (or whatever) would entice them (but, there would ALSO need to be jobs). Re: Detroit & Cleveland have plenty of pro teams.

  2. David KingDavid King

    Those “busiest building” figures are shenanigans. 1,000,000 people make for the 22nd busiest in the nation? Here is just one list of 30 buildings that attracted far more people, and lots of building have more than 200 events:
    This list includes another Target branded building across the street that is costing the city a fortune.
    The lack of economic development associated with arena investment is pretty close to as settled an issue as we have in urban policy.

    1. Nathaniel M Hood Post author

      “The lack of economic development associated with arena investment is pretty close to as settled an issue as we have in urban policy.” – Yes. It’s the area that all economists (not hired by professional sports teams) appear to agree. Also, thank you for the link! I have no idea where they got their numbers.

  3. MplsJaromir

    As a citizen and homeowner in Minneapolis and Hennepin County I would much rather be here than St. Paul and Ramsey County.

    Its too bad Minneapolis can’t swing a deal like St. Paul where the state picks up the tab for the city’s arena. We all have a cross to bear I guess.

    1. cl

      Well, there is the Vikings stadium, all those new gophers buildings, billions more for transportation infrastructure, etc I think Mpls and Hen. county are pretty good at “swinging deals with the state”.

      1. MplsJaromir

        Minneapolis is just as bad. My point was that Nate makes it seem like St. Paul doesn’t do profligate spending on projects that have a questionable ROI. St. Paul is the king of questionable municipal projects. The fact that city took the position to be the developer of a condo project speaks volumes.

        The other point I was making is that Minneapolis has more property in terms of dollar value entering the tax rolls than does all of Ramsey county in the next two years. If I’m not mistaken Edina is adding more taxable property than St. Paul. Minneapolis has much more wiggle room in terms of projects than does St. Paul. Minneapolis dwarfs St. Paul when it comes to attracting private investment. I suppose it has been that way ever since the Boston and New York finance types took interest in developing the St. Anthony falls 150+ years ago. Trying to one up Minneapolis is going to be losing proposition for St. Paul. I agree with the idea that St. Paul should focus on small projects that make it a great city to live.

        The fact that Hennepin county has more than twice as many people of Ramsey and the majority of Minnesota’s extremely wealthy suburbs it only makes sense that lots of state money goes there. In reality that is where much of it comes from.

    2. Nathaniel M Hood Post author

      Agreed. The Xcel was such a great deal that St. Paul needed to be bailed out. Now, they want to double-down and still build the practice arena across the street. That’ll generate enough revenue to keep the lights on, right?

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