Bankruptcy Hasn’t Stopped Detroit’s Plan for Public Funding of New Sports Stadium

 

Detroit is declaring bankruptcy while its city council considers contributing public money to build a new Hockey Stadium for the billionaire owner of the Red Wings.

While Judge Steven Rhodes was trying to figure out if the city of Detroit could declare Chapter 9 bankruptcy, the Detroit City Council was also doing some thinking. Should the council kick in about $45 million of city funding towards the $650 million entertainment complex that would include a residential section and a new arena for the Detroit Red Wings National Hockey League franchise?

Joe Louis Arena in Detroit.

The city council decided not to rule it out and has a vote scheduled for December 17 on whether to authorize Detroit public funding for the project. Judge Steve Rhodes has decided that Detroit does qualify to declare Chapter 9 bankruptcy.

Municipalities have invested in sports venue building since 1950 when Milwaukee opted to build a baseball stadium in order to attract a Major League Baseball team. In the last quarter of a century, cities and states have spent billions on venues but in nearly all instances have not received a dollar-for-dollar return on their investments. In 2011, Hamilton County, Ohio sold a municipal hospital at 50 cents on the dollar to make a debt payment on a baseball park and a football stadium in Cincinnati.

Under the preliminary agreement with state and Detroit officials, Mike Ilitch, the Red Wings owner who is valued at $2.7 billion, is getting about $284 million in state aid.

In 2010, New York State Comptroller Thomas DiNapoli said that there had never been a survey done in New York to figure out if spending somewhere on the order of a billion dollars for sports venues in the state was worth the effort. DiNapoli also said at the time that to his knowledge no city or state had done an official study of whether sports venue spending had real value. Those answers will have to wait for 2014 when the United States Conference of Mayors plans to do a study on the impact of sports spending and whether it is beneficial to a municipality. In the meanwhile, expect public spending to continue while we wait for the answer to whether it’s worth it.

Under the preliminary agreement with state and Detroit officials, Mike Ilitch, the Red Wings owner who is valued at $2.7 billion, is getting about $284 million in state aid. You can’t blame Ilitch for asking for city and state money in a place like Michigan where Governor Rick Snyder put six cities, Allen Park, Benton Harbor, Detroit, Ecorse, Flint and Pontiac under the aegis of a state Emergency Financial Manager. Ilitch is just doing what sports owners do, which is asking municipalities to subsidize his business so he can maximize his profits.

Detroit is a city. Michigan is a state, and one that should not be funding a private enterprise’s new facility.

But supporters will say – as believers in the sports stadium model always do – that the construction of the new facility will create jobs for unemployed construction workers, enhance property values and show Detroit is open for business.

People will flock to Detroit to see the Red Wings and other arena events. The arena will be an economic generator. The bonds that will go to finance the construction will be paid off from downtown taxes and money from parking and concessions.

Everything will work out fine.

But the economic generator theory has been debunked over the past two decades. Public spending on a baseball stadium, football stadium and an arena is a proven financial failure and bad public policy.

What hasn’t been said is that Ilitch wants a new arena because new and shiny arenas are like performance enhancing drugs. New facilities bring more cash into the owners’ bottom line. The luxury boxes and club seats prices go sky-high, the opportunities to make additional concession monies stand to put more money into the owners’ pocket.

Detroit may be bankrupt but Ilitch’s territory extends far beyond the city limits. A new arena, cut off from the rest of the city, could draw the well-heeled people who normally avoid Detroit; once there they would spend their money in the special entertainment area then go home.

Detroit and Michigan have sunk hundreds of millions of millions of dollars into new facilities for Ilitch’s Major League Baseball team, the Detroit Tigers. 38 percent of the funding for the Tiger’s new stadium, pegged in 2000 at $300 million, came from public coffers and hikes in hotel and car rental sales tax along with some revenues from Indian casinos (Ilitch’s family is in the casino business). William Clay Ford’s National Football League Lions also received a windfall of public dollars. Of the $430 million spent on Clay’s new stadium, 36% came from the city of Detroit, a Wayne County tourist tax, the state of Michigan, and from a quasi-government agency, the Detroit Development Authority.

The Teams in Detroit have done well lately, but their winning records haven’t added up to an economic benefit for the city. The new football facility netted Detroit a Super Bowl and a NCAA Final Four Men’s Basketball Tournament. Ilitch’s new baseball stadium earned him congrats from his fellow owners and a Major League Baseball All-Star Game as a thank you to the people of Detroit for spending tax money on Ilitch’s product.

Ilitch has had a great run with his Tigers and his Red Wings, as the teams have been either winning championships or getting to championship finals. There has also been a major PGA tournament in suburban Detroit. The economical benefits of the super events brought some money into Detroit but overall did little to help the city growing economically.

Once the economic benefits issue is exposed to be not valid, Plan B is to talk about the “intangibles” a sports team brings to an area that cannot be quantified by mere economic figures. Teams bring enjoyment (or angst) to a certain segment of the population and a certain amount of civic pride which might culminate in a parade should a team win a championship. But the cost of these intangibles is clear -tens of millions of dollars for the privilege of new stadiums and sports franchises that make the owners and players rich while draining public money.

More than likely Ilitch will get his new arena and the city of Detroit will kick in funding. After all, and in spite of all the evidence to the contrary, city leaders say the arena will promote economic growth. The ironic part of the whole bankruptcy/arena process is that the average fans who most want a new building for the Red Wings will probably never see a game – ticket prices are way out of their price range.

 

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