Question for Financial Gurus

[IthacaBarrel]

Wow, exciting stuff here guys... :bat:

 

[Millhouse]

No, you said the 20% was PROFIT.

Of course there are operational expenses, but they are $200+M a year. If you have a ridiculous outcome, isn't that an indication your math is wrong?

the reason the outcome is ridiculous is because it's ridiculous to spend 500 million

when you spend 500 million on a project and never have a penny of cash left over from operations, that must mean that all the benefits are social. These (discounted) benefits still need to add up to 53 million a year (at a 10% discount). I think that's a big number. Cuomo, you, genghis khan don't.

Let's try this way

The project still costs 500M

I'll give you a discount rate of 3% even though that's wrong.

That means there must be 25 million of value a year for this thing to be worth it.

That value could be in cash or it could be some intangible fuzzy happy feeling.

Lets also assume that every dollar of revenue that comes in has some magic multiplier that makes everyone better off. Call it 0.5 Even though there's substitution in effect for the locals, so many people travel in that every 2 dollar spent at the dome results in another extra dollar of wealth or happiness or value or whatever outside the dome.

The private investor needs some return. We'll give them the same 3% discount. It costs money to run the dome, we need to pick a margin.

Private investor paying 100M, 3% discount, 20% margins = 5 million cash to break even and 25 million in revenue.

In comes the multiplier of .5. I think this is fair because of substitution. Football and basketball are going to be significant and those people are going to be from the area largely. If we're going to rely on conventions, the risk goes up and the discount rate should.

So even with what I think is a ludicrous assumption of a 3% discount (I think it's higher than that) and a multiplier of .5, that only gets you to a total value of 17.5 Million (5 million profit for the investor plus 12.5 intangible benefits for the community. 17.5 is less than 25. Bad investment. You're going to have to back into a bigger multiplier to break even. 0.8 to be exact

This is using a discount rate that is too low, a significantly positive multiplier, and a generous margin on just the private component.

 

[Millhouse]

Wow, exciting stuff here guys... :bat:

bah who cares it's february

 

[CusefanATL]

A question for the financial gurus on the board.

New York State invested $15 million to help build the Carrier Dome in 1979.

Forget about all the soft benefits of having a facility like the Carrier Dome in Syracuse.

Was this a good investment for the state? Did it end up making money by supporting this project?

It conservatively brought in $500,000+ just from the Duke fans that were at the game on 2/1/14.

Instead of the 1500 that were there, if game at Manley there may have been 100.

Lets say (conservatively again) that 200 came from out of NYS (flights, cars, etc...) Bare minimum that is 100 people that we took money from another state strictly because of the dome.

 

[Millhouse]

And I know for a fact that it doesn't take $265M per year in Gross Revenue to get the debt holders and equity investors their money out with standard returns to both. It would take about $80M, and that is without a dime of capital contribution from the state.

If you can't get that, why should anyone pay any attention to what you say. This project is to build a large, capital intensive, PUBLIC building. The same thing as building a park, a library, a museum, a new bridge, a tunnel, or a courthouse. When the government "invests" in those things they don't expect 20% margins. To set that as the benchmark shows a complete lack of understanding of the subject. Debt issuers aren't expecting 20% returns.

It's a building, not a business in an off itself. A special purpose corporation is set up. It doesn't have any profit or loss responsibility, it's purpose is to obtain funding, manage the construction, and manage the enterprise in a manner that the debt holders and equity get their money out with reasonable returns. The purpose is to cover operations and debt service, that's it, not make a dime in profit after that.

The private investors require a reasonable return on the investment, but they make the bulk of their money on the construction or the concession, not on the building itself.

Now the business case might be that there isn't $80M in business, and that's where the hard decisions have to be made, that's where the need of capital contributions or revenue support agreements come in. Can direct investments from the public be justified on the basis of trades, additional tax revenues, ancillary development, good will, tourism, come in. That's a legitimate question.

But to make it a question of hundreds of millions vs tens is absurd and shows you just don't get it.

if the construction company makes all their money from construction, then whoever is paying them all that money for that construction expects some kind of return for that investment. 500 million is getting spent and for it to be worthwhile to the people spending it, they must get 500 million back in discounted benefits/value/whatever

someone is paying for the building and expects some kind of return on it one way or another

 

[cuseinchina]

He really has no idea what he is talking about.

that is becoming clear. He's trying to look fancy with finance 101 discounting math you can pick up at the local community college night school class but has no idea how investments are evaluated or the concept of duty to your constituents to get while the getting is good once you've fought the conservative good fight for lower spending.

 

[Millhouse]

that is becoming clear. He's trying to look fancy with finance 101 discounting math you can pick up at the local community college night school class but has no idea how investments are evaluated or the concept of duty to your constituents to get while the getting is good once you've fought the conservative good fight for lower spending.

i'm not trying to look fancy. i never said this stuff is hard.

most people expect investments to have some value. most people discount future benefits. why won't you lay out your community college assumption for why you think this works? give us a discount rate and a multiplier if it's so easy.

 

[cuseinchina]

i'm not trying to look fancy. i never said this stuff is hard.

most people expect investments to have some value. most people discount future benefits. why won't you lay out your community college assumption for why you think this works? give us a discount rate and a multiplier if it's so easy.

YOU ARE IGNORING THE INTANGIBLE ASSET VALUE WHICH WOULD TAKE A WHOLE LOT OF DATA AND A WHOLE LOT OF TIME TO VALUE. Again read the warren buffett stuff I linked - the economic value of an investment must account for creation of an intangible asset. the dome is one giant branding asset - and it has tremendous value. why do you think they have consultants working on identifying the sources of value and risk for a new stadium...because it's way more complex than your silly sales tax dcf. In other words to answer the question properly would take access to data we don't have and probably 100 hours of work. not to mention the fact that your math as has been highlighted is totally wrong. and the fact that you think PPPs are inherently some handoff from poor to rich. Just give it up man...there are people who do this stuff for a living on here. I'm fine with your thoughts that stadium investing is a bad use of funds. just don't make up to sound smart to prove your point. because it's nonsense

 

[Millhouse]

YOU ARE IGNORING THE INTANGIBLE ASSET VALUE WHICH WOULD TAKE A WHOLE LOT OF DATA AND A WHOLE LOT OF TIME TO VALUE. Again read the warren buffett stuff I linked - the economic value of an investment must account for creation of an intangible asset. the dome is one giant branding asset - and it has tremendous value. why do you think they have consultants working on identifying the sources of value and risk for a new stadium...because it's way more complex than your silly sales tax dcf. not to mention the fact that your math as has been highlighted is totally wrong. and the fact that you think PPPs are inherently some handoff from poor to rich. Just give it up man...there are people who do this stuff for a living on here. I'm fine with your thoughts that stadium investing is a bad use of funds. just don't make up to sound smart to prove your point. because it's nonsense

no i'm not. I'm backing into what the intangible asset would have to be. in this case the value would be intangible benefits. I'm just backing into those numbers. then we'd talk about whether there actually are that much intangible benefits.

we might have trouble identifiying what those intangibles are but we can back into the number for a set of assumptions

10% discount, 20% margins. private investor would need 53 million revenue. since the government puts up 80% of the money, there needs to be a .8 multiplier to make the whole thing worth it.

if the multiplier is zero, that's where the 265 million comes in.

what do you think the multiplier is and what do you think the appropriate discount is?

 

[cuseinchina]

no i'm not. I'm backing into what the intangible asset would have to be. in this case the value would be intangible benefits. I'm just backing into those numbers. then we'd talk about whether there actually are that much intangible benefits.

we might have trouble identifiying what those intangibles are but we can back into the number for a set of assumptions

you have no clue. good luck to you functioning in the world with your unwillingness to learn or accept when you are wrong. I'm not even saying your conclusion is wrong, just saying that I am 100% certain your process is wrong. Your a smart guy, do the work and figure it out - then you'll have something to back up (or maybe refute) all of your save the taxpayer jargon. good luck on that I'm out on this one. would much rather think about how amazing then end of that game was last night and the reaction of my 6 year old who tackled the dog and knocked down a couple of plants before passing out from exhaustion on the couch.

 

[IthacaBarrel]

bah who cares it's february

I am usually along for the ride with this stuff but somewhere you lost me on this one. Makes me remember why I quit on the MBA after 5-6 classes. I walked out of Whitman one day never went back. Too much concept, my A.D.D kicks in and I just hear Charlie Brown teacher voice but hey to each his own. More power to you guys

 

[Millhouse]

Hold revenue constant at 50 M per year, 30 years. We'll assume that's good enough for the private investor (taking margin out of it)

10% discount -> .85 multiplier. (20 bucks spent at dome makes the rest of syracuse $17 better off.)
3% discount -> .52 multiplier

I think those are high.

Bump revenue up to 80M per year, 30 years

10% discount rate -> .53 multiplier
3% discount rate -> .33 multiplier.

you get to 250 million with no multiplier at 10%

I think these multipliers are high too. But can we at least settle on what they would have to be for whatever the revenue and discount assumptions we pick?

 

[MadNY3]

I'd also like to point out what was in the original freaking post by tomcat

Saying you would not make a good economist is not quite an insult. Sorry you took it as much. If it helps, you seem smart, passionate and I am sure you are loved by many.

Your issue is macro on the public financing element. I get that. Respect that. If nothing else, I'd be curious on what you think should or shouldn't be done. Part of the role of the State and County is to provide capital where the return is looked at beyond the direct investment of the building, but in terms of job growth (to build the facility, to likely take down the Dome, to build new buildings and assist a critical local employer), having a facility that can be used much more than the Dome is now for paying events to drive long-term sales taxes and help invest in the evolution of a city/county that has been challenged and needs stimulus.

You present a focused apples to apples investment scenario. That same scenario might be the reason why it is difficult to get private financing for these deals. And so if nothing happens...nothing happens. And the lack of economic innovation could be far worse than the difference on the shortfall of achieving that $53 million over a few years.

Love you,

MadNY3

 

[MadNY3]

Hold revenue constant at 50 M per year, 30 years. We'll assume that's good enough for the private investor (taking margin out of it)

10% discount -> .85 multiplier. (20 bucks spent at dome makes the rest of syracuse $17 better off.)
3% discount -> .52 multiplier

I think those are high.

Bump revenue up to 80M per year, 30 years

10% discount rate -> .53 multiplier
3% discount rate -> .33 multiplier.

you get to 250 million with no multiplier at 10%

I think these multipliers are high too. But can we at least settle on what they would have to be for whatever the revenue and discount assumptions we pick?

Great. Go find the private investor. Let me know how that goes.

 

[Millhouse]

Saying you would not make a good economist is not quite an insult. Sorry you took it as much. If it helps, you seem smart, passionate and I am sure you are loved by many.

Your issue is macro on the public financing element. I get that. Respect that. If nothing else, I'd be curious on what you think should or shouldn't be done. Part of the role of the State and County is to provide capital where the return is looked at beyond the direct investment of the building, but in terms of job growth (to build the facility, to likely take down the Dome, to build new buildings and assist a critical local employer), having a facility that can be used much more than the Dome is now for paying events to drive long-term sales taxes and help invest in the evolution of a city/county that has been challenged and needs stimulus.

You present a focused apples to apples investment scenario. That same scenario might be the reason why it is difficult to get private financing for these deals. And so if nothing happens...nothing happens. And the lack of economic innovation could be far worse than the difference on the shortfall of achieving that $53 million over a few years.

Love you,

MadNY3

At least we agree on the 53 million number, which is the point of the exercise.

i'm all ears for arguments why the stadium is worth at least 53 million per year. i think it's helpful to back into the numbers before you start getting into the judgment area. if you don't back into the numbers as a starting point, all the rest of it is hot air. it's especially infuriating that this discussion is either behind closed doors or between internet people with marronechio avatars.

 

[Millhouse]

Great. Go find the private investor. Let me know how that goes.

that's the easy part. here's 100% of the profits for 20% of the cost. where do i sign! PPPs are great for the second P

also, these multipliers must apply to whatever level the money is coming from. it's not like onondaga county is paying for this by themselves. is there a positive multiplier for anyone outside Syracuse. unlikely. the investment really stinks for them.

if these multipliers are real, then the county and city should put up the money without sticking everyone else with the bill

 

[xc84]

 

[mscanlo]

that's the easy part. here's 100% of the profits for 20% of the cost. where do i sign! PPPs are great for the second P

also, these multipliers must apply to whatever level the money is coming from. it's not like onondaga county is paying for this by themselves. is there a positive multiplier for anyone outside Syracuse. unlikely. the investment really stinks for them.

if these multipliers are real, then the county and city should put up the money without sticking everyone else with the bill

this is not meant to be a condescending question, but what is your background with finance? it appears to skew more towards academia

 

[Millhouse]

this is not meant to be a condescending question, but what is your background with finance? it appears to skew more towards academia

SU undergrad, UR mba, random finance jobs with a heavy bent to the database side. not pretending to be some expert on projects of this size. quick and dirty excel model with investment, years, discount rate, and multiplier assumption.

figure out what the yearly value must be and divvy it up between private operator revenue and some multiplier that plugs in whatever the social benefit would have to be. settle on those numbers, see if they make sense.

just blithely assuming this is a great idea without backing into some numbers seems lazy

 

[Orangepace]

the reason the outcome is ridiculous is because it's ridiculous to spend 500 million

when you spend 500 million on a project and never have a penny of cash left over from operations, that must mean that all the benefits are social. These (discounted) benefits still need to add up to 53 million a year (at a 10% discount). I think that's a big number. Cuomo, you, genghis khan don't.

Let's try this way

The project still costs 500M

I'll give you a discount rate of 3% even though that's wrong.

That means there must be 25 million of value a year for this thing to be worth it.

That value could be in cash or it could be some intangible fuzzy happy feeling.

Lets also assume that every dollar of revenue that comes in has some magic multiplier that makes everyone better off. Call it 0.5 Even though there's substitution in effect for the locals, so many people travel in that every 2 dollar spent at the dome results in another extra dollar of wealth or happiness or value or whatever outside the dome.

The private investor needs some return. We'll give them the same 3% discount. It costs money to run the dome, we need to pick a margin.

Private investor paying 100M, 3% discount, 20% margins = 5 million cash to break even and 25 million in revenue.

In comes the multiplier of .5. I think this is fair because of substitution. Football and basketball are going to be significant and those people are going to be from the area largely. If we're going to rely on conventions, the risk goes up and the discount rate should.

So even with what I think is a ludicrous assumption of a 3% discount (I think it's higher than that) and a multiplier of .5, that only gets you to a total value of 17.5 Million (5 million profit for the investor plus 12.5 intangible benefits for the community. 17.5 is less than 25. Bad investment. You're going to have to back into a bigger multiplier to break even. 0.8 to be exact

This is using a discount rate that is too low, a significantly positive multiplier, and a generous margin on just the private component.

State bonding money is much cheaper than 20%, but nowhere near 3%... their discount rate would likely be 6% - 12% without me doing much research.

Private developer would have a much higher discount rate because their cost of capital would be significantly higher. Offsetting this though would be the benefits provided to developing the commercial/retail/residential for the complex. I would actually not allocate any return required for the private investor on the stadium itself. A large scale development like this requires investment in the state/county initiatives to realize the value on the rest of the complex. Without underwriting the rest of the previous proposed idea, better off assuming the private investor would have a much higher discount rate, but much more appetite for less than 20% margins for this to make sense.

 

[cuseinchina]

State bonding money is much cheaper than 20%, but nowhere near 3%... their discount rate would likely be 6% - 12% without me doing much research.

Private developer would have a much higher discount rate because their cost of capital would be significantly higher. Offsetting this though would be the benefits provided to developing the commercial/retail/residential for the complex. I would actually not allocate any return required for the private investor on the stadium itself. A large scale development like this requires investment in the state/county initiatives to realize the value on the rest of the complex. Without underwriting the rest of the previous proposed idea, better off assuming the private investor would have a much higher discount rate, but much more appetite for close to break even margins for this to make sense.

Minni just got their stadium muni bonds at 4.27%.

 

[Orangepace]

Minni just got their stadium muni bonds at 4.27%.

I'm not sure the financial condition of the state of Minnesota, but I would bet that NYS's credit situation the last few years, on top of the increase investor confidence in the market the last 12-18 months (although January 14 seemed to waver) would likely require higher rates. Just my $.02

 

[Crusty]

I think what you are saying is it's easy to manipulate the outcome with slight changes to the discount rate you choose to use in an analysis like this. Goes to show you how useless it is to discuss various discount rates and which is the correct one to use in a discussion like this on a bulletin board.

You run the numbers and run an IRR and the discount rate is what it is.

Without Syracuse University, Syracuse becomes Utica. It would take a while but without Syracuse U sports, SU becomes Colgate. If New York ever wants Central New York to make a comeback they will do whatever they can to bolster the only major draw they have.
There was something about coming into the ACC that changed the perception (for the better) of the University both academically and with regards to athletics. We need to step up our game.
BTW Before anybody gets their panties in a bunch, I think Colgate is a great school.

Let's leave Utica out of this please!!

 

[GoSU96]

Minni just got their stadium muni bonds at 4.27%.

That's why projects like this are so heavily leveraged. The amount of equity is in the 10 to 20 percent range.

The private investors in a concession project aren't doing it to get rich on the investment, they are buying into the concession or the construction of the building.

 

[Millhouse]

State bonding money is much cheaper than 20%, but nowhere near 3%... their discount rate would likely be 6% - 12% without me doing much research. Private developer would have a much higher discount rate because their cost of capital would be significantly higher. Offsetting this though would be the benefits provided to developing the commercial/retail/residential for the complex. I would actually not allocate any return required for the private investor on the stadium itself. A large scale development like this requires investment in the state/county initiatives to realize the value on the rest of the complex. Without underwriting the rest of the previous proposed idea, better off assuming the private investor would have a much higher discount rate, but much more appetite for less than 20% margins for this to make sense.

I was treating it all as one thing. Stadium hotel swingers conventions. whatever kit and kaboodle. Who even knows what this thing would actually be? This is all admittedly crude without details