Daily Tax Report: State

Cleveland Browns Owners Aim to Buy Pro Soccer Club After Tax Suit (1)

Dec. 6, 2018, 6:55 PMUpdated: Dec. 7, 2018, 12:53 AM

Owners of the NFL’s Cleveland Browns are moving to purchase a Major League Soccer team that was blocked from relocating to Texas by landmark tax litigation.

Browns owners Dee and Jimmy Haslam and Pete Edwards Jr., an Ohio physician and real estate mogul, announced Dec. 6 their development group plans to build a new $230 million, 20,000-seat downtown arena in order to keep the Columbus Crew from leaving Ohio’s capital for Austin, Texas. Major League Soccer would need to approve the sale.

After the Crew’s new stadium is built, the team’s current 20,000-seat stadium would be renovated into a team training facility and public sports park with six community athletic fields and an indoor complex with eight basketball courts and a full-sized turf soccer field. The construction is expected to take about two years.

“Some people would say we’re in the Christmas season and this is a Christmas miracle,” Edwards said Dec. 6 at a Columbus news conference. “But it’s not, it’s a Columbus miracle.”

However, the clock is ticking, as Major League Soccer gave the investors only until the end of the year to lock down a stadium location and buy the team. So developers are putting their plans before city leaders and asking for approval within a matter of weeks.

“Candidly, I’ve never in my professional career seen something rally and unite a city like this has,” Alex Fischer, president and CEO of the Columbus Partnership, a business group, said at a City Council meeting Dec. 6. “It’s about a year’s amount of work in about six or seven weeks.”

Tax Incentives

The overall deal would cost developers $645 million for the purchase of the team, the construction of the new stadium, and a remodel of the old stadium. The city of Columbus and the Franklin County Commission would each kick in $50 million for infrastructure improvements.

The payoff: an estimated $1.1 billion in direct private spending and 983 permanent jobs created over the next 30 years.

The stadium would be centered in a 33-acre redevelopment called “Confluence Village” that would include 885 residential units and five acres of a public riverfront park. The goal would be to finish construction by March 2021.

City of Columbus spokesperson Robin Davis told Bloomberg Tax in a Dec. 6 email that the stadium would be eligible for a “15-year, 100 percent tax abatement.”

The city is also considering a new “community authority” for the overall Confluence Village, which would allow developers to “assess themselves taxes otherwise paid and additional charges that will be reinvested in the development,” Davis said.

That unique community authority would be controlled by the city, county, and developers that are investing in the project.

Columbus City Auditor Megan Kilgore said the city and county would achieve a “great” return on investment for the $50 million from income and sales tax. To limit its risk, the city also is just sticking to infrastructure commitments and won’t be investing in the stadium itself.

“There’s no exposure from a credit standpoint, not being asked to credit backstop, or support something like a stadium that is not in the city’s best interest,” she said.

‘Save the Crew’

The team sale and massive sports complex development was triggered by a first-of-its-kind lawsuit brought by Ohio Attorney General Mike DeWine and Columbus City Attorney Zach Klein.

When Crew owner Precourt Sports announced in 2017 a likely move to Austin, the attorneys used an untested and obscure law enacted after the original Cleveland Browns franchise moved to Baltimore.

DeWine and Klein argued that $6.6 million in “taxpayer assistance” for parking renovations and a below-market lease required the team to give local buyers a right of first refusal on the team. The team argued its stadium was privately funded and that the statute violated the U.S. Constitution.

Meanwhile, the local soccer fan base mustered immense support in America’s 14th-largest city around a “Save the Crew” campaign. That effort eventually culminated in negotiations spearheaded by local development group the Columbus Partnership, the Haslams, and Edwards.

Though the team and the league tried to dismiss the suit, a state trial court issued a groundbreaking order requiring the team to enter local negotiations before it could move.

Although the court never reached the merits of the league’s arguments, the lawsuit marks the first time a U.S. state was able to legally force a pro sports team to stay. Until this case teams were undefeated, with courts unanimously holding the U.S. Constitution barred states from preventing the exodus of sports teams.

(Updates with reporting from City Council meeting.)

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Megan Pannone at mpannone@bloombergtax.com

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