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Dumb and dumber: The folly of taxpayer handouts for professional sports

Gov. Mark Dayton wants funding for a new Vikings stadium and bonding for a new St. Paul Saints Stadium. Mayor R.T. Rybak wants money for the Target Center. All told, the taxpayer or public support for these projects is well in excess of $1 billion.

Should we do it? Are these subsidies good economic development tools? The simple answer is no.

American public policy is cloaked in many myths. There are many ideas recycled from government to government over time with little thought given to the evidence supporting their empirical assumptions or their prospects for success. Like bad meals that repeat on a diner, or a vampire who never dies, these ideas too are recycled and never seem to go away. This is the case with public subsidies for professional sports teams. While it makes no sense to provide bailouts to sports billionaires in general, doing so when Minnesota is $6.2 billion in the hole and it has other pressing needs is even dumber.

Does it make sense for a city or community to fund the construction of a new sports stadium in order to stimulate economic development? Listening to sports reporters, team owners, and many elected officials, the answer is “yes.” Yet, while it may be fun to root, root, root for the old ball team, does it make economic sense for the public to provide tax dollars to pay, pay, pay for new stadiums? What are the facts and what do we know about the impact of sports stadiums on economic development and urban revitalization? The overwhelming evidence is that the public use of tax dollars for a sports stadium is economically inefficient and a bad investment that produces no real net economic benefit to a community. In short, giving money to building stadiums is simply sportsfare — welfare for sports.

Three basic arguments are used
In general, as one surveys local debates about stadium construction in the United States, three basic arguments are employed to support using public money to build sports stadiums. First, proponents claim that building a new stadium will have a big impact on the economy, generating many new jobs and bringing new businesses to the area. However study after study has demonstrated that advocates of public spending on stadiums consistently exaggerate the benefits of sports to a local economy.

A 1996 Congressional Research Service (CRS) report, “Tax-Exempt Bonds and the Economics of Professional Sports Stadiums” (Zimmerman 1996) concluded that sports stadiums represent a small percentage (generally less than 1 percent) of a local economy. It also stated that there is little real impact or multiplier effect associated with building sports stadiums. By that, if one looks at the economic impact of the dollars invested in sports stadiums, the return is significantly smaller than compared to other dollars invested in something else.

Moreover, the building of stadiums merely transfers consumption from one area or one type of leisure activity to another, and overall, sports and stadiums contribute little to the local economy and instead represent an investment that costs the public a lot while failing to return the initial investment. Dollar for dollar, the opportunity costs of investing in sports stadiums is a terrible option if the goal is economic development, job development, or producing new economic development in a community. In short, the nearly $3 billion in sports subsidies it documented produced little, at the cost of over $120,000 per job.

Same conclusion: a bad investment
Literally hundreds of other studies and books — by individuals such as long-time sports economists Arthur T. Johnson in “Minor League Baseball and Economic Development” (1995), Mark Rosentraub in “Major League Losers” (1997), Kenneth Shropshire in “The Sports Franchise Game” (1995), Roger Noll and Andrew Zimbalist in “Sports, Jobs, and Taxes” (1997), and Michael N. Danielson in “Home Team” (1997) — reach the same conclusion: Public support of professional and minor league sports is a bad investment.

In practically none of the cities these studies examined did new sports stadiums lead to any significant new private investment or provide for any significant economic benefits to the local economy besides the jobs generated by the initial capital construction of the stadiums. More important, the new stadiums generally were not even profitable or self-financing. Nor could cities point to rising land prices or economic development in the surrounding community. Even as tourist attractions, the stadiums either simply transferred sales from somewhere else or failed to demonstrate that the local hotels were filled as a result of the sports events.

Finally, in terms of the much-ballyhooed job production, outside of initial construction and the salaries for the players themselves, part-time, seasonal, and no-benefit beer and peanut sales jobs were the fare for what the billions of public dollars produced.

The first-class-city argument
A second claim to support public investment in a stadium is that keeping a sports team is necessary to ensure that one remains a first-class city. Would the Twin Cities of Minneapolis and St. Paul (which the State Legislature voted in 2006 to authorize a sales tax worth upwards of $300 million for a new stadium) or any city be any worse off by losing a sports team? Without a sports team, most cities would still have parks, museums, zoos, arts facilities, good neighborhoods, schools and the general quality of life that separates first- and second-class cities from one another and suburbs.

Moreover, if one accepts this logic of sports being necessary to make a city first class, can we say that New York City became second class when the Giants and Dodgers fled for California in the 1950s, or that Los Angeles became second class when it lost the Angels to Anaheim or the Rams to Saint Louis? The answer is obviously no.

Professional sports are only one small piece of what makes a city first class. Moreover, professional sports are also only a small part of the local entertainment puzzle, with consumers often transferring their consumption to other forms of entertainment, including amateur sports, if pro sports are not available. Similarly, sports are even a smaller piece of the local urban economic pie, such that its presence or absence is not significant in the face of other features in a thriving and diverse urban area. In addition, with the cost of attending sports events so high, often approaching or exceeding $200 per game for a family of four, many sporting events are no longer an affordable family entertainment option. Instead, sports owners look to other corporate interests to buy tickets, thereby making sports an aspect of a city’s first-class status that is beyond the reach of most of its residents.

Finally, advocates for publicly funded stadiums say that such funding is necessary to maintain owners’ profits. The issue here is not profitability, but the level or amount of profits the owners want. They want to make more money — and who is to blame them for that desire? However, there are a couple of different issues here. First, many owners say that larger stadiums with more seats are necessary if they are to make more money. To support that, owners often trot out attendance figures to show declining profits.

A never-ending push
Attendance figures tell only part of the story since they are only a small part of the revenue stream for owners. Revenue from luxury sports boxes, corporate sponsorship and ads, television and radio contracts, and promotions make up a far bigger and more profitable part of what owners receive from their sports adventures. Yet even this money is not enough because owners often claim they are not making as much money as other owners and thus, building a new stadium is a key to upping their profits. Clearly the end result of this “keeping up with the Jones” logic is to constantly push up the average profitability of all sports teams such that there will always be some teams below the average demanding financial assistance.

Moreover, professional sports is free enterprise. It is about competition and winning and losing. It is about private initiative and not public handouts. If teams cannot make it on their own, then they should move or close down — much as any other business would.

Overall, while communities may choose to invest in sports facilities because of the cultural amenities they offer, doing so for economic development reasons is another stupid public policy and political myth that deserves to die.

It makes no sense to spend Minnesota tax dollars on professional sports handouts. This is just dumb and dumber.

David Schultz is a professor at Hamline University School of Business, where he teaches classes on privatization and public, private, and non-profit partnerships. He is the editor of the Journal of Public Affairs Education (JPAE). Schultz blogs at Schultz’s Take, where this article first appeared.

Comments (8)

  1. Submitted by John Olson on 02/10/2011 - 07:43 am.

    We could quibble on some points, but I tend to agree with the premise that the “Big Three” of professional sports (NFL, MLB and NBA) should be able to finance a significant share of their own palaces. What constitutes “significant” is obviously the crux of the debate here and elsewhere.

    If the studies cited above are the most current available, it would seem to be time to revisit and reevaluate. Owners who used to be millionaires are now billionaires; many players are now millionaires, compared to most of their predecessors.

    With that said, the landscape of professional sports economics have changed dramatically–especially in the NFL–since the mid to late 1990’s.

  2. Submitted by myles spicer on 02/10/2011 - 09:23 am.

    Couple of addendums to the Schultz article. I live in California in thw winter, and read the LA Times daily. The front page story for weeks now is often the construction of their proposed new stadium. Here are some salient points.

    1. It is a Billion dollar venture, and our old friend Tim Lieweki (who is running the show) absolutely claims “no taxpayer money will be used to BUILD the stadium (a lesson here for Zigi who wants lots of taxpayer dollars)
    2. While this may be true to BUILD, but the city is leasing a huge hunk of valuable downtown land to the stadium owners for $1 a year! Now, as an entreprenuer, I would love that kind of deal. Guess you have to be a Billionaire sports team owner to get it. That’s lost tax revenue from some other kind of “nnormal” commercial development
    3. While building the stadium might not take taxpayer dollars, the stadium is being built to connect to the city’s convention facilities. As such, the city will be required to float a $350 Million bond issue to renovate and assimilate their end of the stadium/convention hall part of the development. Remember, the city of LA is broke, and the state $27 Billion under water.
    4. That’ not all, there will be large costs associated with roads, egress, utilities,etc in and around the new stadium — something we should investigate.

    The point is, these projects are not only wellfare for the already wealthy, they are kind of Trojan Horses, with hidden costs once they are sold and accepted by the tax paying public. Using the Trojan Horse analogy further, they often say “do not look a gift horse in the mouth”. This is one time we should!

  3. Submitted by Karen Sandness on 02/10/2011 - 11:45 am.

    If Karl Marx were alive today, he’d say, “Pro sports are the opiate of the people.”

    People who can’t be bothered to vote on issues that impact their lives will devote hours upon hours and large amounts of money to watch teams of millionaires playing games. The Super Bowl is treated as an event of cosmic significance, when really, it’s just another football game.

    That’s why it’s easy to con the public into funding athletic venues. Yes, a lot of people watch sports for entertainment, but even more people watch TV for entertainment, and if one of the local station owners came to state and local governments asking for subsidies to build new studios and transmitters, he’s be laughed out of town–and rightly so.

  4. Submitted by Lance Olson on 02/10/2011 - 01:00 pm.

    It must be nice to live in an ivory tower, in this case a college, as a professor. But in the real world things are difficult and people have to make real choices. We will lose the Vikings. And when that day comes I want the Professor and all the legislators who vote the Vikings out of town to have to stand up in public on the front lawn of the Capitol and and take the punishment and not go into hiding for their stupid, selfish, anti-sports biases. This state has always put a very low priority on sports facilities. This is what big cities, real cities do. The Gopherss were forced to play in a football studio built for cheap to help the Vikings pay for it, and the Twins were forced to play in it too because of the Vikes’ dominance in the market at the time — summer’s game played indoors. Tragedy. So all we have done is finally make things right by building a real baseball stadium for the first time in Minnesota history and it has become the most popular stadium in the history of mankind and put the Gophers back on campus. Please, professor, stick to something you know about, go ahead and hate sports but don’t make me suffer like I did when the Twins and Gophers played indoors.

  5. Submitted by dan buechler on 02/10/2011 - 03:58 pm.

    It must be more fun watching the gophers lose outdoors. Seems like “its for the students” was another big lie.

  6. Submitted by myles spicer on 02/10/2011 - 09:24 pm.

    Mr. Olson’s comments are not entirely accurate, In fact, Minnesota HAS built a new stadium for the Twins, a new stadium for the Gophers (with top notch practice facilites, and a rotten team to boot), a reasonably new but very modern arena for the Wild; and the lowly Timberwolves play in an arena that is far from outdated. So, his complaint now relates ONLY to the Vikings. We are very far from being a “legacy” community.

    To me, this is less a stadium issue than one of lack of local ownership — we will never be secure as a community with a team owned by outsiders who have profit as a motive more than community pride (to that we must give credit to the ownership of the T-Wolves who has persevered with seasons of bad teams). Wilf is an extension of Red McCombs — a real estate mogul, who likes the limelight of being an NFL owner, but a businessman as well, and not indigenous or much interested in remaining a loyal Minnesotan.

    This threat to move is old and tiresome — and Wilf may not find it too easy to find another city as prideful of their football team ready to plunk down HUNDREDS OF MILLIONS OF DOLLARS in time of fiscal stress to lure a team.

    My comments above about LA, which I follow closely, indicate that should they get a stadium, they have 6 teams targeted for moving. Yes the Vikes are one of them — but of the 6, San Diego is far and away #1, and the Vikes are at #6. And I remeind you, they claim they are paying the full amount needed for the stadium — a lesson Wilf should learn. The Dallas stadium and now several others are being financed similarily, so our position on demanding Wilf to carry the greatest share of the load is not unreasonable, especially in these times when no one seems to want to pay more taxes.

    I beleive eventually, if Wilf is prepared to really come up with a major portiion of the financing (in which he would be the big winner with a new valuation for the team)…and show some patience in these stressful times…and does not threaten to move (which is bad PR for the team), some solution will be found.

    I do not see the professor in an Ivory Tower at all. In fact, he shows good sense, good logic, and is clearly a realist in his analysis.

  7. Submitted by Rick Prescott on 02/10/2011 - 10:37 pm.

    I think that there is an unexamined aspect to stadium financing which bears on the conclusions in this article:

    People love professional sports.

    And many of the people who do not “love” professional sports still include them in their daily routines, even if it is only to check the previous day’s results, watch “the big game”, or follow playoff runs.

    In many ways, it’s an irrational aspect to the issue. Why should anyone care about the outcome of a contest in which neither they nor anyone they know is participating? Do people somehow benefit when a team that they follow — which represents their home town in name only — wins a game?

    I suspect that a study of how brain chemicals react to such wins would reveal that they do, in fact, benefit in a very measurable way. I’m even willing to guess that there is a reaction resembling those found in addictions.

    And addictions have been known to lead to decisions which could never stand the tests of logic, common sense, or even meticulous economic impact studies.

    Survey after survey shows that those very same sports-addicted folks don’t want to pay for these projects. But that’s like asking an addict if they want to pay for their drugs. Nobody wants to pay for anything if they don’t have to, so such polling is essentially meaningless. You may as well ask, “Do you want higher or lower taxes?” The results are known in advance.

    Maybe the most important point is that not building new stadiums is insufficient for breaking this addition. It is too deeply woven into human nature. If we don’t build now, the drums will keep beating until we do — even if that is 10 years after the former home team left town.

    Idealism, meet pragmatism.

    The best possible approach might actually be to develop a universal financing solution which funds completely new facilities for the pro teams about once every 25-35 years, with significant upgrades every five to 10 years.

    Remember, if the first serious Twins stadium proposal had passed in 1997, they would now be about to start their tenth season in a retractable-roof stadium on the current Guthrie Theater site. And that facility would have cost ABOUT HALF of what it cost to build Target Field.

  8. Submitted by Paul Udstrand on 10/27/2011 - 07:30 pm.

    Rick #7,

    People may love sports, but the vast majority of people never want to subsidize pro-sports with tax dollars, that why referendums kill the deal. People love cable TV even more, but we don’t subsidize it with tax dollars.

    Two additional points, regarding jobs, the Vikings currently play at the dome. The employs 19 people full time- that’s right 19. And the dome is open year round, if the new stadium doesn’t have a roof it won’t be, so like the Twins stadium it will sit there empty for months out of the year- we’d actually lose jobs for a billion dollars.

    Second, owners aren’t growing revenue with additional seat, these new stadium aren’t much larger than the ones they replace. The additional revenue comes from luxury boxes, parking revenue, naming rights deals etc. The Twins are making $50 – $70 million more a year with their new stadium.

    A third point if I may. I think this will be the largest public subsidy in MN history for any private company. It’s important to remember how small the franchise really is. Usually when we talk about big subsidies for private companies, those companies deliver a big economic impact. NWA for instance employed thousands of people when they got their $300 million for a new maintenance base, and they promised to create 300 more jobs. The MOA added millions of square feet to the Twins cities and employs hundreds of retail workers. The Vikings? In addition to the 19 jobs at the dome, (which aren’t even Vikings dependent jobs, remember, they only play 8 games a year) they have what 120 or so employees including the 56 athletes. And by the way, the payroll for 56 athletes is $140 million a year.

    These stadium deliver zero economic expansion, we just move 19 jobs (or less) from MPLS to Arden hills, or from one side MPLS to the other. These are really small companies to be receiving such huge and disproportionate subsidies. Typically a payroll of $140 million dollars will employ several hundred people, in a football franchise it’s 56. And sports franchises are unique business entities in that they are actually prohibited from expanding in any meaningful way. They can’t hire on more athletes, and they don’t need more coaches, executives, or even equipment, it’s not like they’re gonna buy more footballs with the extra money. These are particularly bad private entities to dump public dollars into.

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