Papers

Beginning in the early 1990s, an unprecedented stadium construction boom has swept the world of professional sports. Since the opening of New Comiskey Park in Chicago in April of 1991 a total of 28 new stadiums have been built or are under construction to house professional football and baseball franchises in the United States. Three more stadium projects, two in Philadelphia and one in Chicago, received approval in recent months but have not begun construction yet. Twelve additional older stadiums have undergone extensive renovations funded by taxpayer dollars in the last 5 years.

Although both Canadian baseball teams have also had recent stadium deals and hundreds of arenas have been built around the country, this paper concentrates on stadiums built specifically for Major League Baseball or National Football League teams. This not only limits the analysis to a manageable scope, but it also focuses attention on the single-purpose outdoor stadiums that represent the most blatant and expensive examples of taxpayer subsidy. A careful review of lease information from both Major League Baseball and the National Football League found that taxpayers around the country have spent more than $7.5 billion on stadium construction since 1990.

The spending spree is not over yet. In fact, the St. Louis Cardinals and Oakland Raiders play in stadiums that had major renovations completed at taxpayer expense less than five years ago. As of spring 2001, both of them are among the 15 franchises seeking taxpayer funding for new stadiums.

The boom in stadium construction is generally not the result of inadequate seating capacity or stadium disrepair. Professional sports franchises look at new stadiums to increase their own cash flow and enable them to keep paying the inflated player salaries that have become commonplace in recent years. According to the sports research firm Paul Kagan Associates, new stadiums routinely boost a team’s revenue by $25 million to $45 million per year.[1] While the construction of a new stadium generally provides a temporary attendance boost and may revive interest in a flagging franchise, the primary feature that nearly all new stadiums built since 1990 have in common is plentiful luxury boxes. Since teams must split revenue from gate receipts with the league and other franchises, teams within Major League Baseball and the National Football League look to luxury box revenues, which remains 100% in the home team’s pocket.

Do Taxpayers Support Stadium Building?

Although a casual observer might believe that the flood of tax dollars poured into new stadiums sprang from some public mandate, appearances are deceiving. When asked, taxpayers generally oppose spending tax dollars to build stadiums. The following graph shows the results of a 1997 Rasmussen Poll in which 64 percent of respondents answered “no” to the question of whether tax dollars should ever be used to build a professional sports facility.

This margin of disapproval would probably be even higher were it not for extreme pressure from public figures, and the media-fueled belief that bad publicity associated with losing a sports franchise will harm their city’s image. Even strong initial skepticism can frequently be overcome because well-funded stadium backers are allowed to put stadium-financing legislation before voters multiple times until it passes. In many eastern states that lack initiative and referendum laws, the issue of whether or not to subsidize stadiums with tax dollars needs no approval from voters at all.

Those who favor stadium subsidies cite a variety of economic and emotional arguments to influence taxpayers. Many of these are disingenuous or are based on inadequate data and the misinterpretation of economic principles. It is safe to say that regardless of what stadium backers claim, taxpayers are not getting the most for their money. A stadium, like any other investment, is economically beneficial only if it produces more value than other investment opportunities that could be undertaken with the same money. Economists call this principle “opportunity cost.” In other words, the same money used to finance a stadium might otherwise have gone to finance a new park or build a new civic center or library. Also, this money might instead have gone to hire more police, firefighters, or teachers or been kept by taxpayers who are saving for retirement or for their child’s college education.

Government’s role in funding new stadium construction belies claims of economic benefit because sports teams, like other enterprises, require subsidies only if they are highly inefficient. Inefficiency is built into the system through financial imbalance among the teams and the ability of more profitable franchises to “bid up” the salaries of their employees (professional athletes). Between 1990 and 2000 the average Major League Baseball salary rose 243 percent, and the average NFL salary (even with a so-called “salary cap” and greater “revenue-sharing”) increased 143 percent. While franchises with older, less profitable stadiums frequently argue that their “outdated” facilities don’t bring in enough revenue and that it is impossible to compete unless a new stadium is built with taxpayer dollars, middle-class taxpayers are the ones directly subsidizing the skyrocketing salaries paid to professional athletes.

Of course, not all businesses can get away with what sports franchises do. If Wal-Mart and Home Depot depended on taxpayer subsidies to meet payroll, they would not be in existence for long. Taxpayers would rebel at this type of corporate welfare and Wall Street would devalue the company’s stock. Professional sports franchises are different. Because they are closely identified with the cities where they play and are frequently mentioned in the media, sports teams hold a special place in the fabric of many American cities. The presence of a professional sports franchise also directly benefits a narrow but powerful coalition of business and civic leaders, local media outlets, and “extreme” fans. Powerful business interests, including bond houses that arrange stadium financing, politically connected construction contractors who build or renovate facilities, and labor unions that represent construction workers, all benefit from stadium construction.[2]

How Much Taxpayer Money?

Because of the variety of financing sources and the likelihood of cost overruns, it is often difficult to get a handle on the exact amount of money that will eventually be spent on a given stadium construction project. Estimates by the National Taxpayer Union Foundation found that the public tab for building an additional 15 football and baseball stadiums could nearly double the dubious $7.5 billion “investment” already made since 1990. Even after completion, the variety of subsidies coming from federal, state, and local governments can make it difficult to determine how much a stadium really cost. For example, in Cincinnati where the Bengals recently opened a new stadium heavily funded with public money, the final cost is advertised to be $450 million, with $400.5 million paid by taxpayers.[3] However, according to more inclusive numbers that take interest on construction loans into account and maintenance costs covered by taxpayers, the price tag for the new Paul Brown Stadium in Cincinnati balloons to more than $1 billion as indicated by the following chart.[4]

Stadium subsidies begin at the federal level and though it is often overlooked, the federal role in stadium construction is an important one. By issuing tax-exempt bonds to cities and counties for the funding of capital projects, the federal government subsidizes investments in public infrastructure. When this subsidy is used to build stadiums, other projects either do not receive the same tax-exempt status or are put off entirely. In this way the cost of building a stadium is disproportionately lowered relative to bonds issued for truly commercial capital construction. Tax-exempt bonds are generally used even in the construction of so-called “privately” built stadiums that are otherwise free of taxpayer subsidies. Although some may say that not paying taxes on a loan is really not a subsidy, it is a subsidy if the tax break is only given for a specific purpose such as stadium building. Assuming that a stadium costs $225 million to build, a tax-exempt loan amounts to a lifetime federal tax subsidy as high as $75 million, or 34 percent of construction costs.[5]

Generally, more than one form of local subsidy is given to each project. Selective abatements and “tax increment financing districts” are frequently used for stadium building. Exact dollar figures associated with these forms of subsidy are often unclear. Most other subsidies used for stadium building are more straightforward, mostly coming in the form of cash, land, and/or infrastructure improvements. Funding mechanisms include an old-fashioned hike in the sales tax, hotel tax or car rental tax, or a boost in the sin taxes. The economic impact of sales, hotel, and car rental taxes is, of course, downplayed by stadium backers as being paid only by tourists and other visitors to the area. Chicago mayor Richard M. Daley went so far upon signing the $387 million deal to refurbish Soldier Field as to claim that the deal “won’t cost the people of Chicago a penny” because it relies on the city’s existing 2 percent hotel bill tax.[6]

The very idea that there is such a thing as a “free lunch” as Mayor Daley and so many stadium backers have indicated is absurd. Travelers are sensitive to product prices and will select less expensive products when presented with the opportunity to choose. Since taxes raise the price paid by travelers, the imposition of new taxes will dampen the quantity demanded.[7] These taxpayers generally do not even benefit from the stadiums their taxes help finance. In fact, according to the Travel Industry Association, only about 5 percent of travelers include attendance at a sporting event in their activities.[8]

Specific Stadium Deals

In spite of chronic overruns around the country and major problems with recent stadium deals in San Diego and Hartford, it does not appear that city and state officials have lost their taste for stadium building. Two years ago, New England Patriots owner Robert Kraft pulled the plug on a $374 million stadium deal in Hartford because of construction delays, and in San Diego construction has halted on a new baseball stadium for the Padres that originally was slated to cost $445 million. Already, one San Diego official has pleaded guilty to conflict of interest charges for receiving gifts from the ball club and not abstaining from council votes on the ballpark project.[9] Construction is still stalled and will remain so until the city comes up with a way to pay its share of the construction costs.

One major stadium deal currently under discussion is in New York City. Local officials and taxpayers must decide whether or not to build new homes for both the Yankees and Mets within the next few years. Even before the fall of a joint expansion at Yankee Stadium during the 1998 season, the Yankees had expressed a desire for a new stadium after their lease expired in 2002. Meanwhile, the New York Mets are planning to build (with significant help from state and local taxpayers) a new ballpark in the parking lot adjacent to their current home, 35 year old Shea Stadium. According to estimates from the Independent Budget Office of New York, the Mets’ new stadium will cost $500 million while a new Yankees stadium would cost $800 million.[10] Neither team has progressed far enough in discussions with state and local politicians to determine exact financing schemes, however the average public investment in baseball stadiums built since 1990 has been 71 percent of total stadium costs.[11]

Assuming that the Yankees and Mets obtain a public contribution of 71 percent of total stadium costs, the taxpayers of New York City and State will be on the hook for nearly $1 billion. While economists constantly throw around figures in the billions and trillions, it is easier to think of that amount of money in specifics. One easy solution is to simply divide that $1 billion in taxpayer funding among all 18 million citizens of the state, which amounts to $55 for every man, woman, and child. Another way to look at the situation is that the public money for these stadiums could fund the New York City Sanitation Department for an entire year.[12]

Subsidies comprise fungible money that is given to franchise owners by the taxpayers. If Yankees owner George Steinbrenner already has 71 percent of his stadium costs taken care of by taxpayers, that provides him with another $568 million to further inflate player salaries around the League. According to the most recent data available, Yankee players made a total of $92,538,260 in 1999.[13] If salary increases were somehow constrained to the 4 percent per year average that the typical American’s salary increased within the last 10 years, then taxpayers will be providing a full 6.5 years of player salaries in a direct subsidy. Considering that few stadiums last as long as Yankee Stadium and that the more likely average is the 35 years of use at Shea Stadium, that 6.5 years of direct subsidy is a considerable amount.

The Mets’ situation is similar to that of the Yankees, in that they are planning on building a new stadium within the next five years. Although their plans are slightly more restrained, the team is still requesting a ballpark with a price tag of $500 million. If the average public contribution of 71 percent were applied again, state and local taxpayers would be on the hook for another $355 million for the Mets. This taxpayer contribution would be equivalent to $3.2 million per player for the next 3 years, assuming that player salaries grow at the same 4 percent rate of other Americans over the last 10 years.

Of course, readers who follow the exploding salaries of professional athletes are aware that these increases have far outpaced the economic gain of the average fan. In many ways, player salaries are similar to the stock prices of many dot-coms on Wall Street that until a short time ago tended to rise regardless of economic realities. But the basic laws of the marketplace have caught up with the dot-coms and brought them back to earth. Sports owners are still shielded from economic reality, in part by their ability to extract such substantial amounts of money from taxpayers, who, unlike investors, cannot easily “vote with their dollars.” By taking money from the middle and working classes and giving it to super-wealthy sports team owners and athletes, the process is best defined as “Robin Hood” in reverse.

Without a doubt, professional sports teams are a nice luxury, but there is no sound economic data to indicate that they contribute to economic growth or create a higher profile for a given city. Roughing up taxpayers to keep these franchises afloat while they pay outrageous salaries to their employees (athletes) is not only un-businesslike, it’s un-sportsmanlike.

Appendix I

The following section will analyze the stadium deal currently being discussed in Boston to build a new home for the Red Sox, thereby replacing historic Fenway Park. A variety of plans are on the table, but the one being advocated by the Red Sox franchise also happens to be the most expensive―building a completely new ballpark next to Fenway. While the total cost of the project is slated to be $664 million, the taxpayers of Massachusetts and Boston would be on the hook for $312 million, still a hefty sum of money.[14]

It is useful to think of subsidies as fungible money for franchise owners. In fact, if the Red Sox have $312 million in stadium costs paid for by the taxpayers, that provides owners with another $312 million with which to drive up player salaries around the League. Based on the most recent available salary figures (1999 baseball season) of $77,940,333, taxpayers will be providing nearly four years’ worth of the team’s player salaries in direct subsidy.[15] These numbers assume an increase at the same rate as the salaries of regular Americans increased within the last 10 years or 4 percent annually. Unfortunately, given the ability of sports franchises to dig into taxpayer pockets, player salaries are likely to increase more than 10 percent per year instead. Much of this increase has been directly subsidized by taxpayers.

Appendix II

The following section is an analysis of the deals that have been discussed to keep both the Twins and Vikings in Minneapolis. The Twins proposal is more definitive with the team having requested a new $300 million open-air stadium with costs split evenly between the team and taxpayers.[16] Although the Vikings appear to be in Minneapolis through 2011 when their lease expires, the team has made noise about moving to San Antonio and has also made it abundantly clear that team revenues provided under the current Metrodome lease are inadequate. The team has been competitive though, unlike the Twins recently, making it to the NFC Championship game during the 2000 season.

It is still unclear exactly what the future holds with regard to the Vikings. Various renovation efforts have been proposed costing between $159 and $226 million, but the team rejected these options as inadequate and too expensive relative to the benefits gained.[17] A new stadium, if built, would cost between $350 and $425 million, with no financing options on the table yet.[18]

If the Vikings followed the Twins’ lead by agreeing to foot the bill for half of the costs of a new stadium, that would be better than the average contribution of 29 percent that most franchises have made since 1990. However it is still an extremely generous subsidy on the part of state and local taxpayers. With a $200 million taxpayer contribution for the Vikings stadium and $150 million for the Twins, the total cost of $350 million is far greater than the city of Minneapolis’ 2001 general fund expenditures of $239.6 million.[19]

It is also useful to think of taxpayer subsidies as fungible money for franchise owners. Based on the most recent salary figures available (1999 seasons) of $16,519,500 per year for the Twins and $51,540,900 for the Vikings, taxpayers will be providing nearly five years’ worth for the combined salaries of each team in direct subsidy.[20] These numbers assume the same rate of increase for players’ in the next five years as regular Americans have experienced over the last 10, or a 4 percent annual increase. Unfortunately, given the ability of sports franchises to dig into taxpayer pockets, player salaries are likely to increase more than 10 percent per year instead.

Appendix III

The following section is an analysis of the stadium deal currently under discussion for the St. Louis Cardinals. The Cardinals’ request for a new stadium is somewhat unusual because their current home, Busch Stadium, was completely renovated prior to the 1996 season, just under five years ago. Attendance has not been an issue at the stadium, particularly since the team acquired slugger Mark McGuire. Current cost estimates for the new stadium are $370 million with $100 million being paid for by the team and the rest covered by state and local taxpayers if the project is built.[21]

It is best to think of these subsidies as fungible money that is given to franchise owners. In fact, if the Cardinals get $270 million worth of stadium expenses paid for by taxpayers, that provides them with another $270 million with which to pay for expenses like player salaries. Based on the most recent available salary figures (1999 baseball season) of $61,453,863, taxpayers will be providing more than four years’ worth of player salaries as a direct subsidy.[22] These numbers assume an increase in the rate of player salaries equal to that of the typical American over the past 10 years of 4 percent per year. This should not be seen as unreasonably low because owners would be unable to pay the outrageous player salaries without taxpayer subsidy. Unfortunately, given the uncanny ability of sports franchises to dig into taxpayer pockets, player subsidies are likely to increase more than 10 percent a year.

About the Author

Paul Gessing is a Policy Associate with the National Taxpayers Union Foundation.