Shortly before I was born, Milwaukee’s socialist government built a government-financed baseball stadium and enticed the Boston Braves to abandon the East Coast. Eventually, Atlanta would give Milwaukee a taste of its own medicine, and lure the Braves south. All my life, professional sport franchises have been pressuring local governments to share the costs and risks of building their enormously expensive facilities on prime urban real estate.
If you don’t live in a major metropolitan area, you might be breathing a sigh of relief now. But not so fast – due to the municipalities’ ability to issue tax-free bonds, your federal government effectively assumes a large fraction of the cities’ largesse to the sport cartels. Do you live in rural downstate Indiana? We thank you for your support. You helped subsidize Lucas Oil Stadium in Indianapolis by $163 million in federal tax benefits.
Hate the Chicago Bears? Sorry about that, but you’ve subsidized Soldier Field by $205 million. I hope you’re a Yankees fan, because you’re on the hook for $431 million in the Bronx. Oh, and Barack Obama’s favorite rapper Jay Z thanks you too, even though he no longer owns the Barclays Center or its tenant Brooklyn Nets. Just think how much more valuable his stake was, and how much more he could sell it for, when enhanced by a whopping $122 million tax benefit.
Since 2000, 36 new professional sports stadiums have been financed in part by tax-free municipal bonds. According to the Brookings Institution, a Washington think tank, federal taxpayers have absorbed $3.2 billion of the cost of building private sport stadiums during that time. It’s even more ($3.7 billion) if you include the tax benefits to high-income investors who buy the tax-free municipal bonds that build the stadiums.
If you’re bundling up for work in Fairbanks today, you may be wondering why you should guarantee the profitability of a New York City team already valued at $3.4 billion, 4,000 miles away. I can’t help you with that. I don’t even understand why locals should subsidize a privately-owned professional team.
The overall subsidy since 2000, including state and municipal contributions, is a much bigger number, somewhere between $10 billion and $12 billion. You could build a lot of bridges and hospital wings with that kind of money. Maybe cities wouldn’t need to send pink slips to kindergarten teachers and rookie cops if they didn’t give the store away to sport tycoons.
I’ve heard the claims that professional sport franchises are an important driver of economic development. I’ve heard that from Chamber of Commerce go-getters, I’ve heard that from real estate developers. Of course, I’ve heard that from sport tycoons. But guess who I’ve never heard that from? Economists.
“NFL stadiums do not generate significant local economic growth,” Stanford economist Roger Noll said in 2015, “and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city.”
“One should not anticipate,” sports economist Andrew Zimbalist told the Freakonomics blog in 2009, “that a team or facility will by itself either increase employment or raise per capita income in a metropolitan area.”
Economics is a notoriously contentious discipline. Economists disagree a lot. But Wake Forest economist Robert Whaples listed the economic impact of sport stadium subsidies as an area of broad consensus among North American economists in a 2006 article entitled “Do Economists Agree on Anything? Yes!”
His survey indicated that 87 percent of economists agree that “local and state governments in the U.S. should eliminate subsidies to professional sports franchises.”
Of course huge new stadiums generate economic development in their immediate vicinity, in restaurants, bars, condos and office space. Especially if built in a blighted area, a stadium may revitalize its entire neighborhood. The effect of the stadiums’ inspirational architecture has been compared to Old World cathedrals.
Why, then, do most economists throw cold water on the idea of sport stadiums as an engine of a city’s economic development? Because of the concept of opportunity cost. They emphasize net economic development, not gross. Because the revenue that flows to the sport franchise – and to its neighborhood – comes from somewhere.
Most families have finite money available for entertainment. It’s not unlimited. Once they spend it on a professional football game, they can’t spend it on camping, bowling, theater or fishing rods. So while the immediate vicinity of the stadium may look very prosperous, that doesn’t translate into overall economic development for the city or region. It’s mostly a redistribution and a concentration of wealth from elsewhere in the city. How many new drive-in movies have opened since the Colts came to Indianapolis? How many bait shops are left there?
Professor Michael Leeds, chairman of the Temple University economics department, estimates that a major-league baseball team, with 81 home games, has “about the same impact on a community as a midsize department store.” He has also calculated the economic impact if every major professional sports franchise, including the Bears, the Bulls, the Cubs, the White Sox and the Blackhawks were to leave Chicago: less than one percent.
As a Federal Reserve publication observed in May 2017, government money used to subsidize a stadium also has opportunity costs. That’s referring to bridges, schools, hospitals, roads, airports, police, teachers, parks and infrastructure that a community can’t afford anymore because it was too generous with wealthy sport cartels.
These bonds aren’t paid off quickly. St. Louis is still paying off its stadium after the fickle Rams went back to California. Future generations have to pay off our generation’s reckless spending, but they don’t have to build schools or hospitals for their own families. That’s optional. They may or may not be able to do that, because of our adolescent infatuation with mass spectacles and athletic celebrity. Let’s grow up, already.