October is the only month where all four of America’s biggest professional sports leagues are in action. It’s a glorious time, baseball playoffs, basketball and hockey just getting going, and meaningful football on the weekends. But for as much as our communities can rally around our respective teams it’s important to remember that these teams are privately owned business ventures and not community property (well except for the Green Bay Packers). As privately-run ventures, it is the goal of these teams to make money and they often do so at the expense of the very cities that play host to them. The most common way this can happen is through the use of taxpayer funding to subsidize new billion-dollar arenas. In this entry into In Theory we talk about Taxpayer-Funded Sports Complexes and how no matter how many commonsense arguments you might hear in favor of them, they are not, in fact, a good idea.
How It’s Supposed to Work: We love our sports. They are part of the fabric of our communities. Nobody understands this better than me. I live in New Orleans. This city lives and dies with the Saints. Following Hurricane Katrina, football gave this city hope, a way for the community to come together and believe there are better days ahead. The same way the Yankees and Mets did in New York after 9/11. Or the Red Sox after the Boston Marathon bombing. On top of this profound emotional connection, cities have with their teams there is an economic reliance on them. These arenas generate billions of dollars of revenue for local businesses. Economic activity around the stadium booms on gameday and the increased national visibility from having a professional sports team generates extra tourism. Sports teams are expensive to run and given the net benefit for the cities that host them it only makes sense that tax-payers should share some of the financial burdens that come along with running these franchises.
How it Actually Works: It’s all a scam. Teams and owners often point to various economic impact studies that show stadiums generate economic benefits but those are “benefits only” reports that ignore the totality of costs incurred by cities. In addition, these reports ignore the very basic economic concept of opportunity cost. Sure, if the team is in town you might go downtown and enjoy the game. But if there is no game, odds are you’ll head downtown anyway to hit up a movie or some other event instead. Point is you’re headed downtown no matter what, and none of the other industries are demanding hundreds of millions in public subsidies to be there. This isn’t guesswork. While teams paint rosy pictures of future economic benefits, the economic experts who study the real-world impact of stadiums that have already been built see very minimal economic benefits and certainly not enough to justify the costs to the public. In fact, no stadium built in the last thirty years has proven to be revenue-neutral. That’s right, every single new stadium built in the last thirty years has cost its host city more money than its brought in. And we’re not talking millions or tens of millions, at the end of the day all these stadiums combined amount to tens of billions that could have been spent on schools and hospitals.
How to Fix It: Stop funding stadiums. And stop giving politicians a hard time when they refuse to hand over free money to billionaires. I’ll admit that while I feel the fix for this situation is relatively simple, it is unlikely to be implemented due to a lack of will amongst the general populace. People love their sports. So instead of depending on the collective willpower of the mob a more practical solution may be passing laws that prevent cities from using municipal funds on stadium subsidies. Such laws show rare bipartisan support in public polling and multiple pieces of legislation have been proposed at the federal level yet to make it out of committee. And at the state level, such laws are hard to pass because they create an uneven playing field between cities and states. (If California passes a law limiting these subsidies, they might suddenly find all of their sports teams in Reno and Vegas.) It would take a coordinated push from enough states with multiple large media markets to really make it count. Perhaps the solution with the best chance of succeeding that has been suggested is having the IRS changing its rules to make these subsidies count as income then taxing that income at one hundred percent rate thus making any subsides given pointless.