Public Funding of Stadiums: Governments Must Simply Say No
Pennsylvania Governor Tom Ridge's Sports and Exposition Task Force has recommended selling the state liquor stores and "permitting" some of the profits from the sale be used to help finance the construction of sports stadiums and arenas. Selling the state stores is a long overdue act . . . but using public moneys to help fund the construction of new, or the renovation of existing, stadiums is bad public policy.
Teams owners often want new stadiums in part (at least) to realize greater profits and increase the values of their teams. New stadiums can create from $10 million to $40 million in additional annual income for an owner. Even if the extra revenue is used solely for players' salaries, the owner still benefits, because the value of the team increases: Baseball teams that had the highest venue revenue in 1996 tended to be the teams with the greatest franchise value. Hence, public money invested in stadiums ends up eventually benefitting team owners and players.
Owners of pro teams have monopoly power and use it to extort public money to build new stadiums. Leagues--that is, owners--possess monopoly power over the supply of sports franchises per sport. There are more cities that want teams than there are teams per sport. This leads cities to compete for teams and allows owners to press their demands on cities and states. "Mr. Mayor, give me a new stadium or I am going to leave you, and your voters, high and dry. I will take my team to city X, which has promised me that it will build a lavish new stadium at its expense."
Cities are willing to lure teams with lavish stadiums and economics deals. From the point of view of many a city-elected official, building a stadium seems to make sense. Having a major- league team in town puts the city on the national map. One commentator noted, "Mayors, under pressure not to lose a city's historical franchise and cajoled by local contractors, unions, lawyers, hotel, restaurant, and real estate interests, among other political powers, tend to look favorably upon new stadium construction. They invoke images of city grandeur and new corporate headquarters moving to town."
Regardless of whether higher player salaries drive increased operating costs and the need for increased revenues, or whether increased revenues drive higher salaries, it is not clear why the public should be put on the hook for stadium funding. Some argue that higher salaries push operating costs upward, while others argue that salaries are rising because of increased revenue. If the former is true, is it really fair to require the public to continue to subsidize these salaries--in baseball more than $1.1 million in 1995 on average--by using taxpayer money to build new stadiums? If the latter is true, it is unclear why taxpayer money is needed to all. Indeed, one economist remarked that "well-managed franchises generally yield handsome returns to their owners."
Research has clearly shown that public-sector stadium investment generally does not lead to economic growth. Stadium spending leads to the creation of low-income jobs; sports are a very small industry in a region; stadiums themselves will not serve as enticements for fans indefinitely; lease terms tend to benefit team owners and cost the public money; additional taxes are often needed to offset the operating costs of the stadiums; and state-level funding for the stadiums can be politically dependent on funding other pork projects elsewhere in the state. In addition, there is an opportunity cost to stadium development, in terms of foregone investments that would produce higher returns. Congressman Louis Stokes (D-Ohio) noted that "local government struggle to provide such public services as schools, libraries, police and fire protection, and other essential community services while millions of dollars are diverted to retain or attract sports teams."
It is financially irresponsible and ethically improper for public officials to invest in a losing proposition. To the extent that public officials acquiesce or contribute to the demand for stadiums, they push up the price of sports team for all communities. The more cities spend now, the more they have to spend in the future, and the less money available for other worthy projects.
Public officials, mayors and governors, must simply say no to requests for public money for new or upgraded stadiums. In the end, it is the responsibility of leagues, team owners, and players-- not government officials or taxpayers--to ensure that teams are financially viable.
Steven B. Lou, Esq. is the author of Public Funding of Stadiums: Governments Must Simply Say No, a report released by the Commonwealth Foundation.