FC Cincinnati, Stadia, and the Sunk Cost Fallacy

fcc stadium.jpg

The interwebs are full of hot takes, but I wanted to add one more concerning yesterday’s Hamilton County commissioners meeting. The commissioners, in deciding whether or not to contribute to infrastructure dollars to a potential FC Cincinnati stadium (likely to be built in Oakley), responded by a) suggesting Paul Brown Stadium as a preferred venue and b) offering to pay for one parking garage in Oakley, provided that it is guaranteed to pay for itself.

This led to a couple of polarizing reactions from the general public.

1. The perspective of most FCC fans
They’re flummoxed that the a certain commissioner is hellbent on suggesting our aging NFL stadium when the MLS has stated this won't work. The main reason the Detroit bid will fail (despite being one of the largest media markets in the U.S.) is that they recently tweaked their proposal to use Ford Field as their home. Even though the stadium of the NFL’s Detroit Lions is far superior to Paul Brown, the MLS will likely pass as they’ve continually reiterated that they want a soccer-specific stadium (primarily due to revenue control but also ambiance). All things considered, FCC could continue to thrive at Nippert if this was permitted but, according to the MLS expansion guidelines, this would doom the bid. Cincinnati isn’t competing against the MLS here, but against cities like Sacramento, Nashville, and Tampa willing to do what the league asks. 

An additional (and in my opinion, legitimate) source of consternation is that the Lindner ownership group is bringing so much money to the table. No other MLS expansion candidate has ownership willing to contribute so much to the stadium cost. Why would the county balk at a group offering so much private money? Well, it’s because . . . 

2. The perspective of most Hamilton County taxpayers
They were fooled once on this already before. The Bengals deal was one of the worst in U.S. history (yay us?) and rivals our failed subway system and as one of the greatest mistakes in Cincinnati history. While this perspective might have changed had the Bengals won a Super Bowl, the general public is so sickened by the misstep, it’s poisoned any future considerations. Add the fact that many taxpayers just don’t get/like soccer (despite its massive popularity among millennials) that there’s no way they’d forgive elected politicians for repeating past mistakes. 

As with any issue, there are some nuances here that force broader perspectives. But what I really want to hone in on in this debate is why the county commissioners would double down on the Paul Brown Stadium issue here. In fact, invoking PBS at all makes it nearly impossible for the public to have an unemotional conversation about public money. And an aside: the most perplexing thing about yesterday’s press conference was that the Bengals, who by contract control nearly all revenue from the stadium, were never even consulted about the commissioners suggesting that FCC play there.

So why this irrational insistence on offering Paul Brown Stadium an option if it's untenable both from a revenue and MLS perspective?

The county commissioners, particularly Commissioner Portune, are struggling with the popular sunk cost fallacy. 

Working in finance, I continually observe people and institutions that are not rational with their money. In fact, none of us really are. Nearly all of our spending habits are emotionally driven, and this is often influenced by past mistakes. Nobel prize winning economist Daniel Kahneman outlines this well in his book Thinking Fast and Slow. If an individual or organization has already invested time/resources into a failing endeavor, they’ll most likely continue to invest additional time/resources in an attempt to rectify previous mistakes. Research has proven that this is rarely successful and often leads to further losses. Quite simply, once the mistake is made, you can’t spend your way out of it.

When listening to yesterday’s news conference, I couldn’t listen to Mr. Portune without hearing sunk costs. He referenced the fear (a legitimate one even) that the Bengals will leave Cincinnati in 2026 when their lease expires. His thinking, then, is why build another stadium now when we have a perfectly good one that could be empty in less than a decade? Portune and the other commissioners' thoughts on this current opportunity are being formed by a previous financial mistake that shares little similarity to the current opportunity. The inability to discern this opportunity apart from the boondoggle is driven by emotion. 

Don't misinterpret me: this isn’t to say that the county SHOULD allocate funds on stadium infrastructure. What I am saying, however, is that continually suggesting a non-solution like Paul Brown Stadium does not make a compelling case of sound fiscal strategy. A simple “no way” with no explanation would have made more rational sense.

While it’s anyone’s guess what will happen in the following weeks, I still predict they'll cut a deal. And, ironically, the concerns over Paul Brown Stadium might be what actually gets it done. FCC’s ownership group have massive investments along Cincinnati’s riverfront. If the Bengals do leave, we’d never get another NFL team again, so there’d be a limited pool of potential tenants. If America’s passion for soccer continues along its current trajectory, maybe FCC takes possession of Paul Brown Stadium in a decade or so. I’m not sure that alienating one of the few local entities that could afford such an expenditure is the best tact in salvaging that great mistake.

And while the [futbol] club has continually mentioned that they’re ready to go in Newport, the desire to keep the franchise in city limits—both by ownership and local politicians—will likely see them cut a deal. How taxpayers feel about it might come down to spin, and maybe yesterday’s press conference was step one in that process.

I’m just irked when an emotional position is framed as rational thought.