Professional Sports

Case Study of Professional Sports

Americans have a love affair with professional sports, and as with other types of romance, we like to spend money on the relationship. Total outlays on big-league sports—tickets, advertising, broadcast rights, etc.—are well in excess of $100 billion a year. Yet not only private funds are involved. In cities across the country, taxpayer dollars have been used to help finance the construction of expensive new stadiums.

Compilations prepared by the National Sports Law Institute of Marquette University Law School show that public funding has, in fact, become the norm. The Institute's profiles of the stadiums or arenas used by the 92 teams in the three major sports (football, baseball and basketball) indicate that 83 of them—or more than 90 percent—were built to some degree with public money. Among those, the public paid a majority of the cost in 63 cases, including 32 instances in which taxpayers footed the entire bill. The grand total of public money used in building the 83 subsidized stadiums has been more than $10 billion.

 Politicians of all stripes are taken in by the assumption that the presence of a professional sports team is a leading contributor to the vitality of cities. So strong is this notion that public officials are willing to give team owners subsidies that go far beyond what other private-sector businesses can hope for. Companies are generally satisfied with tax breaks, low-cost financing or some infrastructure improvements around their property. Team owners expect taxpayers to pay all or most of the cost of new stadiums that these days cost several hundred million dollars apiece.

The Brooklyn Threat

How is it that scarce public resources come to be used to finance construction of new facilities for what are typically quite profitable local monopolies? The origins of the practice can be found in the 1950s. Until then, team owners paid for their own stadiums, with the exception of a few—such as the Los Angeles Coliseum and Chicago's Soldier Field—that were built with public funds as part of efforts to lure the Olympic Games. In 1953, in the first team relocation in Major League Baseball in half a century, the Boston Braves moved to Milwaukee, where a new stadium had been built for the team with public money.

The Braves move paved the way to an era of footloose franchises, but a more significant event came a few years later, when Walter O'Malley, owner of the Brooklyn Dodgers, announced plans to move the baseball team to the West Coast. After having failed to strike a deal with public officials in New York for a new stadium to replace the cramped Ebbets Field, O'Malley decamped to Los Angeles, where he was greeted with open arms (and free land and infrastructure improvements).

It's been said that Brooklyn never recovered—psychologically or economically—from the departure of the Dodgers. This image of a community crippled by the departure of a sports franchise has been put to good use by team owners around the country, who bully public officials with threats to move out of town. Whereas O'Malley himself was vilified for absconding with the Dodgers, these days local politicians worry that they will be held responsible for losing a popular team by failing to meet the owner's financial demands. In Field of Schemes, a compelling critique of stadium subsidies, Joanna Cagan and Neil deMause write: “It's difficult to find a major U.S. city that hasn't been cajoled, threatened or blackmailed into building a new sports palace.”

 Not Much Bang for the Bucks

 Fear on the part of public officials that they will be held responsible for losing a team is not the only motivation for stadium deals. Subsidies to sports franchises are also justified in terms of economic development. As with other forms of government-assisted investment, proponents of publicly funded stadiums have tried to make the case that these sports palaces are job generators.

This is a difficult case to make. A professional sports team does not operate on a continuous, year-round basis. Each sport is limited to its season, and half the games are played out of town. The most egregious example is pro football, with each team playing 16 games over a 17-week schedule, plus preseason and, for some, playoffs. But since each team plays half its games elsewhere, a stadium devoted exclusively to professional football will be in use only about 10 times a year.

Then there’s the question of the quality of the jobs created. Aside from the small number of athletes with astronomical salaries, the jobs directly associated with stadiums tend to be part-time, intermittent positions with low wages and few benefits. Hawking hot dogs and beer or cleaning up after the fans go home is not a sure-fire route to prosperity. The construction of stadiums does generate better-paid work for masons, carpenters, electricians and the like, but this is of limited duration. The construction jobs evaporate once the stadium is built.

For these reasons, subsidy supporters tend to focus on the indirect job-creation impact of stadiums. Team owners pay consulting companies to write reports—or get government agencies to do it for free—estimating how much new economic activity will be generated at bars, restaurants and other establishments catering to the stadium crowds as well as the impact of their expanded payroll and purchasing on other businesses.

These reports usually involve some dubious assumptions. For example, in a 1999 report on the expected economic impact of a new stadium in Boston to replace Fenway Park, C.H. Johnson Consulting Inc. assumed that visitors coming to the new facility would spend 20 percent more outside the ballpark than those who visited Fenway. The report's rosy scenario, which included an increase of more than 3,000 jobs, may have had something to do with the fact that the analysis was commissioned by the Greater Boston Convention and Visitors Bureau and the Greater Boston Chamber of Commerce.

Economic projections also tend to overlook jobs that might be eliminated as the result of a new stadium. For example, construction of the much celebrated Camden Yards baseball stadium in Baltimore required the dislocation of a group of manufacturing businesses that together employed about 1,000 people. In sum, the projections made by team owners and their paid consultants in support of stadium subsidies are little more than vague or arbitrary promises about job creation and economic stimulus.

If we go beyond anecdotal information to more formal academic analyses, the results are no different. The conclusion of the overwhelming majority of studies is that stadium subsidies do not pay off in terms of economic growth or job creation. The limited number of jobs that might be created come at a high cost to taxpayers—often well above $100,000 each.

This theme of subsidies as a bad investment for cities permeated the most extensive scholarly volume on the subject: Sports, Jobs and Taxes, a 500-plus page anthology published by the Brookings Institution. In their opening chapter, Roger Noll and Andrew Zimbalist conclude that new sports facilities “rarely, if ever, are worthwhile. Sometimes they can be financially catastrophic.”

In another chapter of the volume, Robert Baade and Allen Sanderson analyze economic trends in ten metropolitan areas where new stadiums had been built. Overall, they find that professional sports teams tended to “realign economic activity within a city's leisure industry rather than adding to it.” In other words, all that public subsidies accomplished was to help shift spending from other forms of entertainment to the stadium, with little in the way of net employment gain. “Professional sports,” they write, “are not a major catalyst for economic development.”

The Stadiums Keep On Coming

It’s not as if the public were unaware of the shortfalls of public stadium financing. Reports, news stories, analyses and strenuous citizen campaigns have kept the issue alive. But the lure of sports, plus the sheer money involved, has meant that new stadiums keep receiving public financing. For example:

  • In March 2009, Florida Marlins owner Jeffrey Loria won approval by Miami and Miami-Dade County for a $634 million stadium, to be financed with $297 million from tourist taxes, $50 million from a separate bond referendum and $12 million in road and utility funds. In 2010 documents came to light contradicting Loria’s long-time contention that the team was operating at a loss. The stadium, complete with two aquariums behind home plate, is scheduled to open in 2012.
  • In 2005, Indiana approved legislation to fund a new stadium for the Indianapolis Colts, called Lucas Oil Stadium after the naming rights were sold. It was to be funded through an increase in food, beverage and hotel taxes in the Indianapolis area, and the city of Indianapolis agreed to pay a $48 million fee required to break the Colts’ lease on their existing stadium. The new stadium – originally estimated at about $500 million – rose to more than $700 million by 2007 because of rising steel prices,  flooding and high environmental clean-up expenses.
  • In three rounds of subsidies in 2006, 2007 and 2009 New York City officials authorized about $1.8 billion in subsidies for new ballparks for the Yankees and the Mets, each located adjacent to the team’s existing stadium. The Yankees – One of the most valuable sports franchises in the world – persuaded city and state officials to covertly seize, for free and with no public hearing, more than 24 acres of public parkland as the site for the new ballpark. In addition to free land and no rent payments, the Yankees received nearly $1 billion in tax-exempt financing and $500 million in city and state tax breaks.
  • In the late 1990s billionaire Carl Pohlad threatened to move his Minnesota Twins to North Carolina unless he got substantial public funding for a new baseball stadium. Widespread public sentiment foiled several public subsidy plans, but in 2006 the state legislature approved a $522 million, open-air ballpark, of which taxpayers would contribute some $392 million from sales tax revenue.
  • Major league soccer also began to play the subsidy game. In 2007, the Kansas City Wizards moved from KC Missouri to the the Kansas side. In October 2009 Kansas officials offered the Wizards and their property partners a $229 million subsidy package consisting of $144 million in STAR bonds and $85 million in tax credits and cash grants. The new stadium is under construction and is expected to be completed in 2011. In late 2010, the team renamed itself Sporting Kansas City.


If taxpayers are footing the bill and the local workforce is not enjoying a boon, who is benefiting from stadium subsidies? The obvious winners are the owners of the teams that inhabit the stadiums erected at public expense. These owners are hardly in need of public assistance. About two dozen of them appear on the Forbes list of the 400 wealthiest Americans.

New stadiums built at taxpayer expense do a lot to boost franchise values. The Baltimore Orioles, for instance, changed hands for $70 million in 1989, before Camden Yards was completed. In 1993, after the well-received stadium was in operation, the team was resold for $173 million, an increase of 147 percent in only four years. Cases such as these are consistent with a statement made more than a half-century ago by Cleveland Indians owners Bill Veeck: “You don't make money operating a baseball club. You make money selling it.” Today, owners may also make money on operations, but selling remains a sure thing.

 

Sources

Greg LeRoy, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation.. San Francisco: Berrett-Koehler Publishers, 2005, chapter 7.

Joanna Cagan and Neil deMause, Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, Monroe, Maine: Common Courage Press, rev. ed. 1998. See also http://www.fieldofschemes.com/

Roger G. Noll and Andrew Zimbalist, editors, Sports, Jobs and Taxes: The Economic Impact of Sports Teams and Stadiums, Washington, DC: Brookings Institution Press, 1997.

Sports Facility Reports: http://law.marquette.edu/cgi-bin/site.pl?2130&pageID=472