No. 85 Sports Stadium Madness: Why It Started, How to Stop It (summary)
Quick Links Policy Study (pdf) Taxpayer subsidies to professional sports teams amount to some $500 million a year.
- Policy Study (pdf)
Taxpayer subsidies to professional sports teams amount to some $500 million a year. The decision to subsidize a team is driven by competition among cities for a limited number of teams, league policies that reward relocation, and lobbying by special interest groups. The solution is for fans and taxpayers to campaign for nonprofit ownership of teams, a model pioneered by the NFL Green Bay Packers in 1923.
1. The U.S. is in the grip of a massive taxpayer-financed spending spree on sports stadiums.
Nationally, subsidies to professional sports facilities cost taxpayers some $500 million a year. More than $7 billion will be spent on new facilities by the year 2006, with most of it coming from public sources. Communities that are hard-pressed to keep their schools open or police on the beat are nevertheless entering into agreements to spend hundreds of millions of dollars to bid away a professional sports team from another city.
Sports stadiums are subsidized in many ways: construction and ownership by a government agency, construction and operating grants paid to private owners or developers, state and local tax abatements, and by the use of federal tax-exempt bonds to finance construction. A typical sports facility costs local taxpayers more than $10 million a year. Competition among cities for professional sport franchises has dramatically lowered rent payments from teams, often to zero, and teams routinely claim all revenues from parking and concessions.
2. The net economic benefit of professional sports for a host city is usually negligible, and may even be negative.
According to The Brookings Institution, "a new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. ... [T]he economic benefits of sports facilities are de minimus."
Sports economist Robert Baade at Lake Forest College studied 48 metropolitan statistical areas (MSAs) over a 30-year period, and found "of the 32 MSAs where there was a change in the number of sports teams, 30 MSAs showed no significant relationship between the presence of the teams and real, trend-adjusted, per-capita personal income growth. In the remaining two cases, the presence of sports teams was significantly positive once (in Indianapolis) and significantly negative once (in Baltimore)."
3. Three reasons why professional sports fails to produce net economic benefits for host communities.
- Opportunity cost: The true cost of using a resource is the value of the next-highest-valued alternative use of that resource, or its "opportunity cost." The alternatives to investing in a stadium or sports franchise include a new park, an industrial park or community college, or money to hire more police, firefighters, or teachers. In many cases, those alternative uses would produce more value than a new stadium.
- Shifting current spending: Most of the money spent at a sports stadium or arena would have been spent anyway at some other entertainment venue, such as a local theater, bowling alley, night club, or health club. Because they play so frequently, baseball and basketball teams rarely attract a significant portion of their audience from outside the metropolitan area. Football games attract fans from greater distances, but football teams host just eight regular season home games a year.
- Subsidies leave the community: Much of a stadium's subsidy goes directly into the pockets of team owners by raising the re-sale value of their teams. This money is unlikely to be reinvested in the community. Players seldom live for extended periods of time in the communities in which they work, and when they leave, their savings and spending go with them.
4. The "intangible" or non-economic benefits of professional sports do not justify public subsidies.
Having a professional sports franchise in town gives fans something to talk about at work and home, a place to go for wholesome family entertainment, and a certain amount of pride in one's hometown. However, those "intangible" benefits must be weighed against similar benefits that would have been created if the money were spent on something else. New schools, better police protection, or a thriving downtown business district all would have a positive effect on the community's image and its residents' self-esteem.
The sense of pride and identity that may come from hosting a professional sports franchise may only be temporary. Today's proud community may experience a deep sense of failure and abandonment when its team repeatedly loses or threatens to move. Football fans in Cleveland experienced this first-hand when the NFL Browns moved to Baltimore. Fan reactions included bomb threats against the owner and angry taunting of players during their final games in Cleveland.
5. Taxpayers don't want to subsidize stadiums.
Polls show that up to 80 percent of Americans oppose public subsidies to sports. Responding to a national survey of one thousand adults, 64 percent said tax dollars should never be used to build a professional sports facility, while 13 percent were not sure. Some 56 percent thought government agencies should sell existing arenas to the highest bidder.
6. The real reasons we subsidize sports.
- The number of professional teams is kept below the number of cities that could support a team, thereby forcing cities to bid against one another for the privilege of hosting a team. In plain language, there are too many cities chasing too few teams.
- Most sports leagues require that most revenue sources be shared, to some degree, with the other franchises, but every league allows its teams to keep all the non-ticket revenue generated by the stadium or arena. A new stadium with more skyboxes, luxury suites, on-site restaurants, and other revenue-generating features enables a team owner to raise $30 million a year or more. Owners can reap huge financial gains by relocating.
- With millions of dollars in contracts and control over thousands of jobs at stake, pro-subsidy forces can justify the time and money required to stay organized year after year, long after their grassroots opponents have worn themselves out. Besides the team owners and players, "rent seekers" in the subsidy game include bond houses, politically connected construction contractors, labor unions, newspaper reporters, editors, and publishers, and politicians.
7. Five reasons why subsidies to professional sports should be discouraged.
- Diversion of funds: Stadium subsidies divert funding from more important public services, such as crime prevention, road building, and schools.
- Subsidies are unfair to taxpayers: As former Houston Mayor Bob Lanier puts it, "the average working person is asked to put a tax on their home, or pay sales or some other consumer tax, to build luxury boxes in which they cannot afford to sit." This is playing Robin Hood in reverse: Using government's taxing authority to take from the poor and give to the rich.
- Subsidies are unfair to other businesses: No other industry is given access to public funds as readily as are professional sports teams, yet other businesses must compete with professional sports for labor, materials, and customers. The result is higher prices for needed inputs, and the need to spend more on advertising to attract the attention of customers.
- Income inequality: By fueling a bidding war among team owners for the elite athletes, taxpayer subsidies to professional sports have made the salaries of professional athletes much higher than they would be in a competitive and unsubsidized environment. Such enormous salaries lead to envy by adults and unrealistic career goals and expectations for young people.
- Dead-weight loss to society: No social value is produced when facilities that are still functional are torn down because they are "economically obsolete." Expensive investments in infrastructure are similarly being abandoned, only to be built anew across town or in some other city. This is make-work: no different in principle from digging and re-filling ditches.
8. Fans should unite with taxpayers, elected officials, and journalists to campaign for fan ownership of professional sports teams.
Until fans and taxpayers become the owners of professional sports teams, their interests will take a back seat to those of companies and individuals who profit each time a team relocates. Sports stadium madness can't be stopped by passing a law or passing the blame. Fans and taxpayers--the people who benefit and the people who pay--need to work together to protect their shared interests.
The NFL Green Bay Packers, owned by a nonprofit corporation since 1928, offer a model of fan ownership at work. The franchise is the least-subsidized professional sports team in the country because its ownership by fans makes it unable to credibly threaten to relocate. The results have been good for the host city, the fans, and the team.
A key to the success of a campaign for fan ownership of professional sports teams will be the involvement of taxpayers, fan clubs, the media, and local elected officials. Fan ownership could serve their interests better than subsidies by ensuring that once a team is in the community, it is likely to stay. The opportunity to sell stock--even "souvenir stock" ala the Green Bay Packers-- could give subsidy opponents the financial stake required to keep them organized year after year.
Making fan ownership a reality in cities across the country will require leadership and hard work by political leaders, journalists, business leaders, and fans. The effort involved in convincing the leagues to make the necessary policy changes, and then raising the funds necessary to purchase franchises from their current owners, may seem huge. But as one advocate of fan ownership has said, "There are more of us than there are of those rich owners who want to get richer by getting into our pockets again."
Based on Heartland Policy Study #85, "Sports Stadium Madness: Why It Started - How To Stop It," by Joseph L. Bast. Printed copies are available from The Heartland Institute for $10 each. You can also download the full text, free of charge, in Adobe's PDF format; click here.
Copyright 1998 The Heartland Institute. Nothing in this Executive Summary should be construed as reflecting the views of The Heartland Institute, nor as an attempt to aid or hinder the passage of any legislation. Permission is hereby given to reprint or quote from this Executive Summary; please send tearsheets to The Heartland Institute, 19 South LaSalle Street #903, Chicago, Illinois 60603.