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Research & Commentary: Bad Stadium Deals Hurt Cities Large and Small

September 25, 2018

In this Research & Commentary, Matthew Glans discusses stadium subsidies, their negligible effect on local economies, and a how even a small city arena can have dire effects on a cities' budget.

When Americans hear about taxpayer-funded stadiums, most immediately think of the lavish and expensive stadiums built for the professional sports teams in the National Football League, National Basketball Association, and Major League Baseball. Although hundreds of millions of taxpayer dollars are being used to fund these private sports palaces in big cities nationwide, hundreds of other sports and entertainment facilities are also being built in small cities and towns across the country. These smaller venues place multi-million-dollar burdens on taxpayers and local budgets, which are far less capable of absorbing the huge costs.

One sad example of a small city experiencing budgetary problems after building a new arena is Ralston, a city in eastern Nebraska, near Omaha. In the wake of its construction of a city-owned arena, Ralston is now considering budget cuts to cover the debt it used to finance the posh sports complex. Since its opening in 2012, the Ralston Sports and Event Center has operated at a deficit, according to the Associated Press. Further, the initial estimate for construction was $25 million, but the actual construction cost was $41 million.

According to the Associated Press, Ralston taxpayers are on the hook for about $4 million in debt service on the arena for the 2018–19 fiscal year. Unfortunately, this will engulf nearly all of Ralston’s projected $4.8 million in general fund revenues. This harsh economic reality has led Ralston officials to consider budget cuts and tax and fee hikes to cover the arena’s costs. A recent budget proposal included not only an increase in property taxes, by 10 cents per $100 in valuation, but also two job position cuts in the Police and Parks Departments and a reduction in library materials and computer maintenance. The city also transferred $500,000 in non-budgeted lottery proceeds to cover arena costs in 2017. Ralston’s arena debt is a long-term problem; the city will be paying off its arena debt until 2033.

The Ralston case is just one example of the plethora of bad deals local governments have undertaken to build unnecessary sports and entertainment complexes. Fortunately, there are steps that states can take to push back against this trend. In Arizona, state legislators recently considered a bill that would have the state join an interstate compact that explicitly prohibits the “use of taxpayer dollars for private professional sports stadiums and facilities.”

Under the proposed bill, if similar legislation is passed and ratified by 24 other states, the appropriation of government money for “the construction, maintenance, promotion or operation of a professional sports stadium” would be prohibited. The bill specifically includes bans on “direct funding, tax credit, tax exemption, government bond, loan, loan guarantee or any other funding mechanism that comes from state or local government.” States can also slow these subsidies by limiting or ending the use of tax-exempt municipal bonds to fund the projects. According to a 2015 Bloomberg article, from 1986 to 2015, $17 billion in tax-exempt debt was used to help finance stadium projects, at a cost of $4 billion to taxpayers.  

The majority of research on the economic effects of stadium construction has found no link between the new facilities and job or income growth, Samuel Staley and Leonard Gilroy note in a Reason Public Policy Institute report. Stanford University economist Roger Noll is even more direct, telling The Economist he has never in modern history found an example of when construction of a football stadium has had a significant positive impact on a local economy.

Stadium subsidies are a poor use of taxpayer money. They rarely realize the benefits their supporters claim, and they often shift tax revenue away from more-pressing needs. Cities and states seeking to improve their economic competitiveness shouldn’t rely on professional sports teams. Instead, they should reduce taxes and invest in more cost-effective improvements, such as new and improved infrastructure.

The following documents provide further information on the economic impact of publicly funded stadiums.
 

The Economic Impact and Civic Pride of Sports Teams and Mega-Events: Do the Public and Professionals Agree?
https://www.heartland.org/publications-resources/publications/the-economic-impact-and-civic-pride-of-sports-teams-and-mega-events-do-the-public-and-professionals-agree
Peter A. Groothuis and Kurt W. Rotthoff survey residents and economists about the alleged benefits—both to a city’s economy and to civic pride—of mega-events and sports teams. The authors’ results find like “economists, the public is skeptical that public funding of mega events is a good idea.”

Sports Stadium Madness: Is Fan Ownership the Answer?
https://www.heartland.org/publications-resources/publications/sports-stadium-madness-is-fan-ownership-the-answer
This Policy Brief from The Heartland Institute questions government subsidies to sports stadiums since the mid-1980s. The author proposes fan ownership of teams as a solution to “sports stadium madness.”

Sports Stadium Madness: Why It Started, How to Stop It
https://www.heartland.org/publications-resources/publications/no-85-sports-stadium-madness-why-it-started-how-to-stop-it-summary
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’s Green Bay Packers in 1923.

Is There an Economic Rationale for Subsidizing Sports Stadiums?
https://www.heartland.org/publications-resources/publications/is-there-an-economic-rationale-for-subsidizing-sports-stadiums
Robert A. Baade discusses whether subsidizing sports facilities makes economic sense for municipalities.

Government-Funded Stadiums Not Worth Price of Admission
http://www.cato.org/publications/commentary/governmentfunded-stadiums-not-worth-price-admission
Cato Institute Senior Fellow Doug Bandow examines stadium subsidies and their supposed benefits and concludes city officials across the nation should welcome major league sports teams only if they are willing to pay their own way.

Why Stadium Subsidies Always Win
http://reason.com/archives/2013/12/21/why-stadium-subsidies-always-w
Nick Gillespie of Reason interviews J.C. Bradbury, the author of several books on baseball and economics, about the economics of publicly subsidized sports stadiums. A video of this interview is available here.

Take Me Out of the Ball Game: the Efficacy of Public Subsidies in the Success of Professional Sports Stadiums
https://www.heartland.org/publications-resources/publications/take-me-out-of-the-ball-game-the-efficacy-of-public-subsidies-in-the-success-of-professional-sports-stadiums
This paper weighs the relative advantages of multiple factors that lead to the success of professional sports stadiums in major markets, discussing the arguments for and against public subsidies. The analysis demonstrates public subsidies for stadiums don’t generate sufficient economic returns, and that successful stadiums can be built without using taxpayer funds.

Sports and the City: How to Curb Professional Sports Teams' Demands for Free Public Stadiums
https://www.heartland.org/publications-resources/publications/sports-and-the-city-how-to-curb-professional-sports-teams-demands-for-free-public-stadiums-1
Writing in the Rutgers Journal of Law and Public Policy, Marc Edelman argues for a national law that would protect local communities from sports leagues' demands for publicly funded stadiums, by requiring pro-rata revenue sharing according to the share of construction costs paid.

The Stadium Gambit and Local Economic Development
https://www.heartland.org/publications-resources/publications/the-stadium-gambit-and-local-economic-development   
Sports franchises frequently use their monopoly power to extract rents from state and local governments. Local officials and their hired consultants tout economic benefits of publicly subsidized stadia, but the consensus of academic economists is that such policies do not raise local incomes. This article describes even more pessimistic results, indicating sports facility subsidies may actually reduce the incomes of the alleged beneficiaries.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR