Wednesday, October 28, 2009

World Series musings... 

If you enjoy the looks of the New Yankee Stadium as you watch the games, know that you as a US taxpayer are helping to pay for it, no matter where you are and what your home team is, thanks to some clever game playing by New York City, the Yankees and the IRS. The Tax Foundation explains...

The stadium's construction costs have been publicly subsidized in the form of $942 million in tax-exempt bonds issued by New York City.

Seeking tax-free status for the bonds to ensure a lower interest rate, New York structured the deal to ensure it didn't run afoul of a federal tax code provision which requires that such bonds not be "private activity bonds" [issued to benefit a private business, such as say the New York Yankees Partnership, rather than the city government].

This serves as a huge benefit because the bonds are exempt from city, state, and federal taxes, and have an interest rate about 25 percent below that of taxable bonds.

There are two parts to this financing scheme which seem "foul." First, the new Yankee Stadium will be city-owned and thus exempt from property taxes. Meanwhile its primary tenant, the Yankees, will pay no rent. This clearly brings up the issue of whether such tax-exempt bonds should have been issued at all, and especially when the city is so far in the red.

Secondly, to pay off the bonds over time, New York City will receive payments theoretically equivalent to the property taxes that Yankee Stadium would otherwise pay. The city claims that these payments in lieu of taxes (PILOTs) equal taxes that would otherwise be owed. In reality, these payments are inflated by overvaluing the stadium property by three times that of comparable property.

By inflating the payments in lieu of taxes, the City can say to taxpayers that the Yankees are paying a significant part of the stadium's cost -- while telling the IRS that the City is paying for almost all of it.

The IRS got mad but let the deal go forward anyway, a rare instance of when the IRS shouldn't have given in so easily.

As a footnote:

But the IRS later issued a proposal that would tighten the rules governing such bonds so it would be nearly impossible for this kind of financing to be used again by a profitable sports franchise.
So your team won't be able to do the same thing to build itself a nice stadium. (But then, your team probably doesn't need the taxpayers' money as much as the poor cash-strapped Yankees do.)

Who's going to win? Baseball is the most probabilistic of sports. While fans love to think each big game is determined by top players proving their character -- raising their play (or choking) in the clutch -- reality is that when a round bat hits a round ball the outcome is weighted probability. The data show post-season game outcomes closely match the odds revealed by season W-L records. If a team with a .600 win percentage plays against one with a .550 win percentage, the former will have a 5% greater chance of winning a game between them, as a sound first estimate.

The Yankees won at a .636 rate this year while the Phillies did at a .574 rate. That's .062 difference in favor of the Yankees -- which means they'd be expected to win one more game than the Phillies per 16 games played ... while the Series is seven games maximum.

In a full seven-game series, the Yankees would be expected to do better by 7/16ths of one game, less than half. That's how much chance there is in baseball outcomes -- though rabid fans will never believe it. (And it's not a whole lot for an extra $88 million of player payroll!)

Of course, at various sabremetric web sites you can find the probabilities parsed in far more detail than that, by home stadium advantage, starting pitcher and a whole lot more -- but that's the big picture.

How the game has changed. The last time the Yankees played the Phillies in the World Series was in 1950.

In that Series the Phillies' ace, Robin Roberts, missed the opening game -- because he'd started three of the last five games of the season! In those days, that's how you used your best pitcher in a tight pennant race. Then he pitched game two of the Series.

In that game Yankees starter Allie Reynolds pitched 10 innings to beat Roberts 2-1. Reynolds then came back as a reliever in game four to get the save. That nailed down a four-game sweep for the Yankees, who used five pitchers total in the four games.

It's a safe-money bet that during this Series you'll see these teams use five pitchers in a single game more than once.