Publicly Funded Stadiums – A Terrible Idea

Publicly funded stadiums are a subsidy that I put in the category of “questionable at best”. They have high fixed-costs that requires very high occupancy over several years to be profitable (like cruise ships). I am sure this will offend some sports fans who believe that their fancy new stadium is the best thing their tax dollars have ever purchased. Nevertheless, it is tough to make a logical argument that taxpayers should be subsidizing highly profitable private businesses. In fact, business is booming for professional sports franchises, thanks to skyrocketing TV deals and celebrity endorsements. The average NFL franchise is now worth over $2 billion.

Economic engines of the community?

The proponents of these subsidies claim that publicly funded stadiums are economic engines for their communities and wise investments for taxpayers. Yet it is difficult to find a single economist who concurs with this view. Taxpayers have given 22 NFL teams an average of $250 million each for new stadiums over the past 20 years.

Each scenario usually plays out like this: A franchise owner threatens to move his team out of town if he or she does not get public money for a new stadium. The San Diego Chargers, St. Louis Rams, Oakland Raiders, and Minnesota Vikings all threatened to move to Los Angeles. The Rams did eventually move to L.A. despite the fact that the city of St. Louis still owed $100 million from financing their previous stadium.

Politicians promote bad economics in favor of popularity and job security:

Governors and mayors generally would like to keep their jobs and, therefore, do not wish to incur the wrath of angry sports fans. They are also concerned about their legacy, which will be irreparably tarnished by losing a beloved sports team.

So, many politicians promote bad economics in favor of popularity and job security. The stadium initiative gets on the ballot, and the proponents of the bill convince voters that the city will be repaid through new taxes on hotel rooms (yeah, let the tourists pay for our stadium). They also make a case that the economic impact of a new stadium will bring in new restaurants, hotels, and more.

This argument falls apart when you realize that economic impact is not the same as tax revenue. Spending an extra $1,000 may have an economic impact of a $1,000, but it may only generate $50 in state and local tax revenue. The second issue is that money spent on sporting events would likely have been spent anyway in the local economy and, therefore, is not necessarily a net increase in local economic activity.

The reseach shows…

Last year when The Wall Street Journal reported on this topic, it stated: “Research on the issue has piled up over the past two decades. The general conclusion is that a city’s economy doesn’t get a bump from bringing in a new sports team or building a stadium—and scarce economic-development dollars could be put to better use with other investments.”

As a result, the 2016 federal budget called for barring the use of tax-exempt bonds to finance publicly funded stadiums. Municipalities typically repay tax-exempt bonds over several decades. Investors who buy these bonds don’t pay taxes on the interest income, enabling municipalities to borrow at lower interest rates. This gives the appearance of reducing the cost of projects, but it really just shifts more of the cost and risk from private owners to everyone else.

INFOGRAPHIC: Economists Agree: Publicly-Financed Sports Stadiums Are a Bust

On the bright side…these subsidies have built some pretty phenomenal buildings, and I like that I can just push a button and a waiter comes right to my seat.