After declaring bankruptcy last week, Detroit officials announced that the city’s financial problems will not affect their plan to construct a $650-million hockey stadium for the Red Wings, with taxpayers bearing nearly half of the cost. Detroit is, however, only one egregious example among many American cities where sports team owners get public money to finance new stadiums.
During the last month, the Atlanta Falcons, the St. Paul Saints, and D.C. United have also reached public funding agreements for new arenas.
City officials and team owners have typically argued that taxpayer-funded stadiums create jobs and generate additional income, thus spurring economic growth in their area. For instance, on July 25, D.C. Mayor Vincent Gray declared that a new $300-million soccer stadium will favor economic development by creating America’s most vibrant sports-and-retail district.
However, most economic studies contradict such allegations.
New sports stadiums do not increase overall consumer spending, but merely redirect it from other entertainment venues, while also placing heavier burdens on taxpayer shoulders. Research conducted by economist Dennis Coates shows that each citizen loses an average of $10 when a new arena is built, because tax increases destroy more economic activity than stadiums can create.
Another problem with taxpayer-funded stadiums is that their cost has soared over time as compared to privately-built stadiums. A previous NTUF study found that when public contributions represent over 50 percent of total construction costs, stadiums will be $65 million more expensive on average.
Price tags have become increasingly problematic because team owners want modern, fancier stadiums, without concerns over cost containment. They get to have their cake and eat it too when taxpayers pay for significant chunks of development.
It’s not like there are not cheaper options. The St. Louis Rams, for example, rejected a $200-million stadium upgrade plan and requested a more elaborate, publicly-funded $700-million upgrade. Wrangling for a new football stadium in San Diego, the Chargers have said they can put up $100 million for the project but of course are seeking a nearly $1 billion complex.
Other teams, such as the Detroit Red Wings, are asking for increasingly complex, taxpayer-funded entertainment districts.
What is more, stadiums are sometimes demolished or abandoned before they have been completely paid for, leading taxpayers to finance arenas that no longer exist. This is the case with the Atlanta Falcons, who want to have a new stadium completed by 2017, even though their current arena will not be paid off until 2018.
Public financing of stadiums can also lead to further tax increases, because officials often fail to estimate future costs and revenues. For example, the Red Wings stadium will be financed through Detroit’s property tax, which is notoriously volatile.
In another case, St. Paul officials have added almost $9 million to the initial cost estimate of the Saints stadium, after tests showed that the soil on the construction site was contaminated.
Despite the common view that big sports projects are supported by the voters, a recent survey has shown that taxpayers would agree to pay only one fifth of the typical stadium subsidy.
Sports are wonderful, but for fiscally reckless governments in the midst of a difficult economy, it is hard to find justification for the extravagant trends in stadiums.