Issue Briefs

With baseball officials pleading poverty to Capitol Hill during the off-season, and franchises in Tampa, Minneapolis, and Montreal struggling to keep financially afloat, one might think that team owners would see the inherent benefit in moving a team to the eighth largest media market in the country. Indeed, Washington area officials are lining up to ensure that the 2002 Major League Baseball season is the last one for which baseball fans in our nation’s capital have no home team to cheer. Unfortunately, many of these same officials plan to spend millions of dollars in stadium subsidies to persuade a ball club to re-locate to the area.

In this day and age, sports teams have grown accustomed to receiving a healthy dose of public money for nearly any stadium project. In fact, the Virginia Stadium Baseball Authority expects to shake down state and local taxpayers for $360 million for stadium construction, $12 million each year for the next 30 years.[1] Washington, DC is also competing to lure a team to a ballpark built in one of its downtown neighborhoods and Mayor Anthony Williams has already pledged $200 million in land and financing for stadium construction. [2] This number could rise dramatically if a team actually decides to move to the District and leverages the more generous Virginia plan against the Mayor’s offer. Ironically, merely moving the $100 million Montreal Expos franchise to Washington, where the team would be worth more than $400 million, would nearly pay for an owner-financed stadium in the District or Virginia without a taxpayer subsidy.[3]

In the midst of this heated competition between Virginia and the District over who will provide a sweeter stadium deal, both jurisdictions have postponed significant tax cuts. The District put on hold an income tax cut designed to make it more competitive with Maryland and Virginia. Additional revenues resulting from reversing the tax reduction will amount to a mere $35 million in 2002, or roughly 1/6 as much as the Mayor has committed to a baseball franchise.[4] The same is true in Virginia, where the state faces a revenue shortfall of $3.5 billion in the next 2-½ years and phase-out of the car tax has been stalled at 70 percent complete. The total revenue increase from maintaining the car tax for 2-½ more years is $119 million, about 1/3 the amount that Virginia officials have proposed for stadium spending.[5]

Because it is difficult to justify millions of dollars in taxpayer subsidies for wealthy owners and players, supporters of public funding instead emphasize the economic benefits of these tax-subsidized projects. Local supporters are no different. While glossing over costs associated with spending $360 million in public money on a Northern Virginia sports facility, one analysis estimates an $8.62 billion accumulated economic impact over the 30-year life of the stadium.[6] In this same period, the total fiscal impact on state and local governments is estimated at $693 million in new revenues.[7] No mention is made of the “opportunity cost” (i.e., lost business in the private sector or deferred public projects) inherent in state and local governments making such a large, long-term spending commitment.

It is important to recognize that money used to finance a stadium would be used more efficiently in other areas of the economy. Nonetheless, it is difficult to directly disprove the economic claims made by stadium backers because their study cites no other empirical research. By only citing net benefits of stadium construction and not discussing opportunity costs, stadium backers bank on self-interest and the willingness of government officials and the media to fall for their deceptive argument. Therefore, it is unlikely that spurious economic claims will be challenged from conventional quarters. Taxpayers, on the other hand, should be very suspicious when groups who want to feed at the public trough claim that even the citizens left to pay for the feast will benefit. Virginia and the District have already postponed major tax cuts in an effort to shore up their respective budgets. Instead of continuing to set aside money for a stadium, these funds could be returned directly to taxpayers. In this way, the governments could both fulfill their original promises to reduce tax burdens and circulate money through the economy more efficiently than any stadium project could.

Economists Roger Noll and Andrew Zimbalist have conducted the most thorough nationwide economic study of stadium construction. They found that a new sports facility has an extremely small effect on overall economic activity and employment. According to the authors, “no recent facility appears to have earned anything approaching a reasonable return on investment and no recent facility has been self-financing in terms of its impact on net tax revenues.”[8] The numbers cited by stadium supporters skew the economic data by only exploring areas of the economy that would benefit from the stadium’s presence. Groups such as taxpayers, or movie theaters, restaurants, and bars that lose business due to the presence of a stadium and the expenditure of taxpayer dollars, are simply ignored.

Stadium backers may make a number of unsubstantiated claims about the benefits of their subsidies, but a few parties obviously benefit a great deal. Unfortunately, the economics of baseball are rather elusive because franchises do not report basic financial information like most other businesses. Even in testimony before the House Judiciary Committee, Baseball Commissioner Bud Selig shared minimal amounts of data. One group that has profited handsomely from the rise of taxpayer subsidies for baseball stadiums in recent years consists of the players themselves. In fact, between 1990 and 2000 the average Major League Baseball salary rose a robust 243 percent.[9] Clearly, some of the recent taxpayer subsidies that fueled the recent boom in baseball stadium construction have helped to pad the already-inflated salaries of big-league ball players.

Franchise owners reap the largest windfalls whenever they convince politicians to ram through a new stadium package. In the case of the Washington area, the $300 million profit of moving the franchise out of Montreal would nearly pay for stadium construction on its own. The profits for potential Washington area owners would not stop upon moving to the area. For example, the Boston Red Sox, their stadium Fenway Park, and an 80% stake in their cable network was just sold for $700 million. The share in the cable network is priced at $192 million, so the franchise itself is worth $508 million.[10] This adds up to a rather impressive 251% increase in value since 1995 alone. Much like the stock market tends to increase on the anticipation of financial gain, a new ballpark for a given franchise is expected to be built in the next few years. Undoubtedly this has spurred tremendous increases in some franchises’ prices.

With a slowing regional economy affecting governments throughout the region, this is an even worse time to invest in a frivolous stadium project. Stadiums are not job creation engines for the economy. Allowing taxpayers to keep more money in their pockets during this difficult recession is the right thing to do. Lining the pockets of wealthy ball players and franchise owners with taxpayer money is not.

About the Author

Gessing is a Policy Associate with the National Taxpayers Union Foundation and the author of National Taxpayers Union Foundation Policy Paper 133, “Public Funding of Sports Stadiums: Ballpark Boondoggle” which can be accessed at www.ntu.org.

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