Demolishing Sports Welfare

Two court cases could mean the end of publicly funded stadiums.

When Dallas Cowboys owner Jerry Jones asked Arlington, Texas, voters to pay for a fancy new stadium last November, he did not call the classic plays from the sports welfare handbook. He could not say that America's Team needed a state-of-the-art facility to compete, since Texas Stadium (in the Dallas-adjacent suburb of Irving) has more luxury suites than any other in the National Football League, and the Cowboys won three Super Bowls in the 1990s. He could not say he was financially strapped, since his franchise ranks sixth in the NFL in profits and second in revenue, according to Forbes magazine. Most important, he did not use the team owners' favorite and most effective threat--to move to a new city--because the Cowboys have always had very strong local fan support; the Dallas�Fort Worth media market is the fifth-largest in the country, and Dallas Cowboys is a powerhouse global brand name.

But Jones had three key deadlines to beat. His lease in Irving was scheduled to run out in 2009, so a new stadium deal needed to be done quickly. Electorally speaking, there was no better time to pass a tax increase than during the high-profile presidential vote of 2004; special elections usually draw low turnouts, and the anti-tax older folks show up in droves. But perhaps the most important deadline of all loomed in 2005, when the window for public financing of sports stadiums in the United States may be slammed shut by two court decisions expected to be handed down during the year.

Kelo v. New London, which the Supreme Court is scheduled to rule on by summer, could decide once and for all when or even whether governments have the right to use eminent domain to acquire private property for the benefit of private businesses. Meanwhile, Hamilton County v. Cincinnati Bengals Inc., which is being heard in federal court in Cincinnati, is challenging football's federal anti-trust exemption, forcing all NFL teams to open their closely guarded books, and arguing that the Bengals' demand of build-it-or-we-can't-compete is tantamount to fraud.

Jones' P.R. people swear the lawsuits were not on his radar screen. But sports business specialists around the country say these two cases could bring the taxpayer-financed stadium-building boom of the last 15 years to a merciful halt. For whatever reason, the Cowboys' flamboyant owner convinced the Arlington City Council in August 2004 to rush hikes in sales, rental car, and hotel taxes onto the November 2004 ballot. He then unleashed a mass media blitz starring old Cowboys heroes such as Roger Staubach and Troy Aikman, spending more than $5 million in all--an extremely high amount for a local election, even in the high-stakes stadium game.

The tax hikes passed 55 percent to 45 percent, and the Cowboys will move into a new retractable-roof stadium in 2009. But it could be the last deal of its kind. On the same day Jones received his gift, voters in Kansas City and St. Louis rejected similar measures to fund sports facilities. Since then, Washington, D.C., has agreed to build a new stadium for the relocated Expos baseball team (now the Nationals), but its city council insisted that it be financed with a significant amount of private money. Public sentiment may finally be turning.

From 1990 to 2003 there were 66 major construction and renovation projects for professional sports stadiums and arenas in the U.S., costing $17.3 billion, according to the League of Fans, a sports welfare watchdog group founded by Ralph Nader. Sixty percent of the funding, or an estimated $10.3 billion, came from the public purse. With the economy and stock market no longer booming, and with the public becoming more skeptical about the rosy economic claims of billionaire team owners, the era of easy money already was drawing to a close. Now the two court cases are poised to determine whether the fund-raising tactics of professional sports teams and their local boosters are even legal.

The Right to Take

Technically, the eminent domain case before the Supreme Court has nothing to do with sports. The high court is hearing a lawsuit involving a New London, Connecticut, real estate project, in which the city agreed to tear down a neighborhood so developers could build a condominium complex and office park. No claim of blight was involved. The city said the development was a "public use," as required by the U.S. and Connecticut constitutions, because it would generate new tax revenue. Several property owners refused to sell. The Supreme Court will decide if they have to.

The Court has rarely visited the eminent domain issue. In 1954 the justices ruled that a neighborhood deemed "blighted" could be torn down and redeveloped if the local government had a better use for it. There have been several more decisions since then, but most have been very narrow in scope.

Meanwhile, the use of eminent domain has mushroomed. The Institute for Justice, the nonprofit law firm that is arguing the New London case before the Supreme Court, has documented more than 10,000 cases between 1998 and 2002 in which local governments have transferred or threatened to transfer property from one private party to another. Blight is no longer the issue; the question now is simply whether the deal helps the local economy in some way.

Sports owners have long used eminent domain as a way to acquire property cheaply. Sports economists estimate that half of the post-1990 stadium and arena construction has involved eminent domain--and even when it wasn't invoked, it was understood that condemnation could be a last resort if the teams encountered stubborn landowners.

One of the most famous eminent domain cases involved the Cowboys' future home of Arlington, where baseball's Texas Rangers, at the time owned by George W. Bush, convinced local voters to approve a 1991 tax increase that helped build a new $191 million stadium. The city of Arlington used eminent domain to acquire the property from hundreds of private owners, claiming that the stadium was a "public use," just like highways, schools, or government buildings. Several property owners were lowballed, and court decisions increased their take. (The city, not the team, was responsible for the larger payments. The compensation for one 13-acre plot was increased from $877,000 to $5 million, for example.)

The stadium clearly benefited the Rangers' owners more than anyone else: Bush turned his initial $600,000 investment into $15 million when the team was sold in 1999. But it has produced little of the promised economic benefit to Arlington, and there has never been a real "public use" factor aside from baseball fans' paying their money to see games.

Opponents of stadium deals argue that teams and local governments are getting around the public use issue by placing the stadium or arena in the ownership of a "public sports authority." The property is then tax exempt, and the teams pay nominal rent that is often less than they would have owed in property taxes. The lease arrangements are often lopsided in favor of the teams; many, for instance, allow the franchises to move after a certain time if revenues do not hit projections. This threat to pull stakes and run gives teams strong leverage to renegotiate. If the sports facility were privately owned, there would be no lease to haggle over, and the team would be less willing (and able) to leave.

Without eminent domain, acquiring enough property for a stadium could become expensive. A handful of property owners could hold up an entire complicated deal. "If the court makes the ruling that this is not a valid use of eminent domain, there will be some problems," says Scott Powe, a law professor at the University of Texas. "Huge problems. No doubt, there will be lots of litigating."

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