Paul Brown Stadium - Essay Example

Summary of the facts Hamilton County is the home of the baseball and football teams the Cincinnati Reds and Cincinnati Bengals. In 1996 the had negotiations with both teams for two new stadiums. The Bengals stated that if they were not given a new stadium they would relocate. The city negotiated a very bad deal with the Bengals in which they assumed practically all the costs to build a new stadium. They also gave the Bengals a preferable lease agreement. The initial estimated cost of both projects was $540 million. The Bengals project was wrongly estimated. The cost rose from $280 to an all inclusive costs of nearly $555 million (Albergotti & McWhirter). The county took out $1 billion in bonds to finance these projects. The county and its taxpayers are paying a hefty price for the bad decision that was made. In 2009 Hamilton County had to pay $34.9 million in costs related to the stadium deals which represent 16.4% of the county’s general fund. The normal cost to budget ratio in other counties that help finance stadiums is less than 2%. The county when the proposal was on the table exaggerated the economic benefits the new stadium would bring. Their absurd estimate was $300 million in benefits. These multi-million benefits never manifested. The stadium deal Hamilton County signed with the Bengals is considered the most lopsided deal in favor of a team in NFL history. It was a bad decision that will ruin the fiscal health of the county until the maturity date of the bonds. Currently 1 of 7 residents in Hamilton County is living below the federal poverty line. 2) Who had ultimate responsibility for the problems? The person that is ultimately responsible for this debacle is the mayor of Hamilton County. He selected a team of three negotiators that acted as puppets of the Bengals. There was corruption and collusion in this deal evidenced by the fact that one of the negotiators, Bob Bedinghaus, joined the Bengals organization in 2001 as the team’s director of business development. The mayor should have never approved the project and he should have been the person negotiating the deal. He delegated a function that he is supposed to perform. Now the damage is done and the taxpayers of Hamilton County are paying a hefty price. That money that is being wasted paying for the expenses of billionaires could have been used to help a community that has 14.28% of its population living in poverty. Other political leaders in Hamilton County should have stepped in and spoke out against this move. Only a few political leaders spoke out against the deal. If the majority of the political leaders would have formed an alliance against issuing the bonds this whole fiscal mess would have never occurred. 3) Discuss the ethical implications of what occurred. This case study is an example of an ethical dilemma regarding governmental spending. The taxpayers are crying wolf now, but when the deal was signed thousands of fans were happy both teams stayed in Cincinnati. The Bengals deal was horrific. It does not make any sense why the county and its mayor approved such a lopsided deal. Hamilton County paid for the entire cost of building the new stadium, they have the Bengals a preferential lease agreement, they let the team keep all the parking revenues and the city is paying for all the securities costs. Hamilton County under any circumstance could not afford to pay for these stadiums themselves. They needed the help of other nearby counties, the city, and the state. They did not receive their support. It would have been better to let the Bengals go and keep the Reds in town. The Bengals deal was the deal breaker that destroyed the finances of Hamilton country for decades. 4) Are there any internal control issues to be addressed? A preliminary audit performed by PricewaterhouseCoopers found that there were insufficient financial controls by the project managers. The location move was a bad idea that increased the cost of the project by $70 billion. The contract could have had stipulation that mandated the stadium be build at the original site. 5) What should have happened to avoid the problems? To avoid all the problems Hamilton County should have never approved the projects to build both stadiums. The County should have let the Bengals walk away to then negotiate a good deal to pay a portion of the Cincinnati Reds new stadium. The maximum amount of money Hamilton County should have offer the Reds should have been $100 million. Hamilton County would not be in the trouble it is now they had not taken that outrageous amount of money in bonds to pay for new stadium for sporting teams. In 2009 the bond payment on the debt represented 16.7% of the county’s budget. If the mayor would have been savvy and imposed a $100 million limit the payment of debt would only be 1.67% of the county’s budget. 6) What are your proposals to fix the problems that exist now? The county faces major economical problems due to the debt associated with building the two new stadiums. The expenditure occurred and the contracts are signed. The mayor has to negotiate directly with the owner of the Bengals in order for the team to make good on their promise to negotiate a new rental deal so that the Bengals can absorb some of the costs of financing their stadium. The first premise of the negotiation is that the county will not make any concessions that will cost them out of pocket expenses. The only matter that will be negotiated is the monthly rental payment. The accountants have to set up a budget and show the Bengals internal information that proofs that the city is in deficit due to the bond payments. A fair deal would be for the Bengals to pick up 50% of the payments until maturity. If the Bengals ownership team does not want to pay that much then the county could make a counterproposal and ask the Bengals to pay for at least 25% of the debt. Work Cited Page Albergotti, R. and Cameron McWhirter. 12 July 2011. “A Stadium’ Costly Legacy Throws Taxpayers for a Loss.” Wall Street Journal. Read More