Ball Games May Not Bring Big Bucks to Cities

 

In the past 20 years over 100 new or renovated sports facilities have been developed in cities across the United States for use by professional sports teams.  In Major League Baseball (MLB)l alone, 9 new stadiums were built between 1990 and 2000.  When the Miami Marlins open their brand new facility in April it will be the 14th new stadium opened between 2000 and 2012.

Over 80% of the cost of the stadiums built in the 1990s for MLB teams was financed in some fashion by the taxpayers.  Even given the economic downturn that has existed since 2007 almost 55% of the new stadium costs for those built since 2000 are being borne by the public.

Proponents of new stadiums say that they create direct and indirect economic benefits for a community.  Jobs are created at the stadiums.  Surrounding urban areas are revitalized and new businesses bring tax revenues to central cities and help overhaul blighted areas.  An increase in out-of-town visitors spurs hotel and motel development.  This in turn helps drive increased meeting and convention business.  There is a positive economic benefit linked to the positive aura given off by new urban development.

Critics of public financing argue that increased attendance and spending in new venues simply transfers entertainment dollars from one location to another without creating significant new revenues.  The real beneficiaries of such spending are pro sports leagues, team owners and the players—a small, elite group.  Opponents point out that with new stadiums come increased ticket costs that price out the ordinary resident, who can increasingly no longer afford to attend games.

Pundits like Evan Weiner point repeatedly to cities such as Sacramento, California as examples of misplaced government priorities.  The local government there is considering the sale of publicly owned parking spaces in the downtown area to a private company to generate revenue to pour into a new arena for the Sacramento Kings of the National Basketball Association (NBA).  The mayor of Sacramento is a former NBA player.  He is trying to put together a public/private spending package at a time when the city is laying off workers and cutting back on some city services because of the government funding crisis affecting all of California.

In recent years proponents of public spending on new sports facilities have moved away from talk of indirect economic benefits that encompass words like “multiplier effect”, “spillover spending” and “job creation”.  The new focus is on “district redevelopment”—the idea that building a new stadium directly leads to the redevelopment of a portion of an urban area’s central city core.

An old concept has come back into vogue.  Tax Increment Financing Districts (TIF) were first used in California in 1952 and have been used in 49 states and the District of Columbia (see a 2002 National Association of Realtors study).  The theory is that TIFs help a city attract new private development and businesses that don’t require tax increases to fund.  These new ventures do, however, generate new tax revenues for a city.  A city uses future expansion of the tax base to finance current expenditures that would not otherwise occur.  A city can borrow funds (loans, bond sales) and pay for this with the future additions to its tax revenues.

This requires the agreement of other taxing jurisdictions such as school districts to forego the increased property tax revenues so that all increases can be targeted to pay for the development costs.  Opponents reply that such thinking rests on assumptions of expansion that have no factual basis and are simply the projections of civic boosters with their own agendas to push.

Governments may try to insulate themselves against future downturns by using developer financing.  Instead of taking on a general obligation debt governments involved borrow money from a development group and pay back that group.  The group sees the project as an investment and is willing to in effect underwrite the risk.  Of course if the private entities involved encounter financial problems the government is left having to deal with the financial fallout.

The history over the past 20 years or so of new stadium development at public expense has been mixed at best.  The new baseball stadium in Cleveland that opened in 1994 spurred a downtown redevelopment that eventually saw the construction of a new basketball arena and a new football stadium.  The Cleveland Indians MLB team sold out the new stadium for five years.  Over the past five years, however, there has been a step decline in attendance and the club has lost money.  When LeBron James left the Cleveland Cavaliers NBA team for the Miami Heat after the 2010 season attendance at Cavalier games last season dropped over 30%.

The loss of customers for 81 MLB dates and 41 NBA dates has led to the shuttering of a number of downtown businesses.  The lost tax revenues have caused cutbacks in other city projects.  This has helped contribute to the economic downturn in the Cleveland area.

Baltimore, Cincinnati and Pittsburgh are among other central cities in metro areas that have been impacted.  New stadiums in those cities brought about 1 or 2 year increases in attendance (and spending) followed by a decline and end to any supposed economic boom.

The San Francisco 49rs of the National Football League (NFL) are close to finalizing an agreement with the city of Santa Clara to build a new stadium in that city 50 miles south of the Bay Area because San Francisco’s government leaders won’t commit to public financing for a new stadium.  The Minnesota Vikings are threatening to leave the Twin Cities area if they don’t get a replacement stadium for the Metrodome.  The Atlanta Falcons are making noises along the same lines if they don’t get a new home.  The Georgia Dome in downtown Atlanta is less than 25 years old.

The city of Indianapolis is basking in the glow of publicity and money flowing in with the upcoming Super Bowl being played at the downtown Lucas Oil Stadium.  It should be noted that Super Bowl tickets sell for a face value of between $800 and $1200 per ticket.  The average fan has little or no chance of actually going to the game.  The city will see lots of tax dollars and private spending the week of the game.  The city also incurs tremendous expenses providing infrastructure services to the NFL to gain the right to host the game.  No one can identify concrete, long-term economic benefits for the city.

It is interesting to note that not one of the 23 cities with MLB franchises that have subsidized new stadiums since 1990 have unemployment rates significantly below the national average, currently at some 8.5%.  The unemployment rate in the Cleveland area is significantly above the national average.  Critics of Wall Street point out that the tremendous profits made over the past 30 years by investors have not come from investing in PRODUCTION; but rather in the rapid turning over of investments that create paper profits without generating actual economic production.

Public stadium financing may fall into this category.  Governments spend money on new stadiums while factories close and jobs move elsewhere.  Roads, bridges, water and sewer services decline for lack of available money while pro team owners reap profits from the subsidies provided them by otherwise cash strapped local and state governments.  School buildings fall into disrepair while sports stadiums are immaculately maintained.

The period of greatest sustained economic growth in the U.S. came in the post-World War II period from 1945 to 1965.  During that period cities spent money on infrastructure development and sports stadiums were pretty much privately financed (there were a few exceptions; but not many).  Perhaps there is a correlation between the priorities governments set for spending and the overall economic well-being of citizens.

At the very least citizens should demand detailed explanations from government leaders when they come forward with plans to use public monies to build what essentially are private sports facilities.  The free market should work in sports as well as in other areas of our lives.  If private monies are not available for building lavish sports facilities perhaps that is a statement of popular will.  Pro sports should join the rest of us and learn to pay as you go.

An excellent article that explores this topic in great detail is Greenburg, M. & Hughes, Jr., D. (Fall, 2011).  Sports.Comm:  It takes a village to build a sports facility.  Marquette Sports Law Review.   22(1).  91-186.

Facilities management is one of the sports finance issues that students at the United States Sports Academy study.  For details on Academy programs go to http://ussa.edu.

 

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