Beating the Sports Subsidy Trap
Presented to the United Organizations of Taxpayers Woodland Hills, California, March 21, 1998
As you no doubt know, the Los Angeles Dodgers were sold to the Fox Group this week for $311 million. The Dodgers story is important for the sports fan and for the concerned taxpayer in a number of respects:
The Dodgers are one of the last financially successful major sports franchises that has remained under family ownership for a long period. The O'Malleys have owned the Dodgers for a half-century. Most other teams with national followings that are financial successes even if they haven't always performed well on the fieldthe Atlanta Braves, the Chicago Cubs, the Baltimore Orioles, the New York Yankees, the Cleveland Indiansare owned by large conglomerates like Fox or by ownership groups. In recent years, you associate the Orioles with principal owner Peter Angelos or the Yankees with George Steinbrenner.
And while a few family owned franchises remain successfulthe Lakers, the Washington Redskins, and the San Francisco 49ers come to mindmany others are struggling, like the Minnesota Twins and the Milwaukee Brewers.
The Dodgers story is important in another, less-reported respect: The team built Dodger Stadium in the early 1960s and has owned it from the day it opened. Indiana University economist Mark Rosentraub, whose book Major League Losers is the most accessible story of sports welfare I've seen, believes that Dodger Stadium may well be the only major sports arena that operates profitably, and it may be the only one that has turned a profit consistently since World War II.
Think of that: there are dozens of major sports arenas across the country, yet only one may operate profitably. And with few exceptions–indeed, you can probably count the exceptions on the fingers of both hands–all the major sports arenas are publicly owned. The losses these facilities incur are picked up by taxpayers.
At this time nearly three dozen cities, counties, and states have tax-financed stadium proposals of at least $100 million possible, pending, or already under construction. And the list keeps growing every day.
Cincinnati's 30-year-old Riverfront Stadium (now called Cinergy Park) is unpopular with both the Reds and the Bengals. After threatening to move the Bengals to Cleveland, the city's hated rival, Cincinnati has agreed to build the $280-million Paul Brown Stadium; area taxpayers will pick up at least $240 million of that cost.
The Minnesota legislature voted 84 to 47 against funding a new $410 million, retractable roof arena for baseball's Twins last November. So the franchise may move to North Carolina to play in a yet-to-be constructed facility in a yet-to-be determined location. In early April, taxpayers in Winston-Salem will vote on a sales tax increase that would finance a new stadium, but if that doesn't pass, would-be owner Don Beaver says he'll try to get a taxpayer-financed stadium in Charlotte.
The Twins have been a financially viable franchise only when the team has played well on the field; even after the team won the World Series in 1991, management had to clean house because the local market wasn't large enough to support a championship payroll. You may have recently read that when the World Champion Florida Marlins visited the White House last month, only 13 of the 25 players from that team were still on the roster; the team had dumped the salaries of almost all their stars.
Andreturning to Minnesotasince the Twins aren't getting a new ballpark, the football Vikings are threatening to leave if they don't get a new domed stadium. We could see the Vikings move to L.A. and play in a refurbished Coliseum (retrofitted, no doubt, at taxpayer expense).
George Steinbrenner is threatening to move the New York Yankees to Jersey unless he gets a new ballpark for free. Mayor Rudy Giuliani wants the team to move to Manhattan. But guess how much it will cost to build a new Yankee Stadium in the high-rent district? Upwards of $700 million.
I'm a big fan of the free enterprise and hate welfare, especially corporate welfare. I suppose anyone who has worked eight years for a publication with the subtitle "Free Minds and Free Markets" ought to. But if there's a socialist sector in the U.S. economy, big-time sports is itfrom outright subsidies to sweetheart deals for the politically connected to monopoly profits. In the public eye, stadium battles tend to swirl around civic pride, fan support, and regional development, but they're really all about one thing and one thing onlymoney.
The Dallas Cowboys get something like $75 million in revenues a year from luxury seating alone at Texas Stadium. The Cleveland Cavaliers get around $20 million a season from luxury revenues in Gund Arena. And, once you figure in parking, luxury seating, and all concessions, the Atlanta Braves took in more than $100 million last season, its first at the brand-new Turner Field.
The opening of Camden Yards in Baltimore in 1992 kicked off a rash of new arena contruction, featuring buildings with state of the art facilities, terrific sight lines, lots of restaurants and rest rooms, and luxury boxes. As you may have picked up from my earlier comments, the price of stadiums has skyrocketed: The then-state-of-the art Florida Suncoast Dome in St. Petersburg was completed in 1990 for about $110 million; the proposed ballpark for the Minnesota Twins would cost almost four times that much. The typical outdoor arena runs $200 million or more. And despite a small flurry of arenas that got most of their money from private sources, in Washington, D.C., Charlotte, Chicago, and the downtown arena that will go up soon in L.A., the typical arena under construction or on the books will get almost every dollar from taxpayers.
The arrangements can get pretty perverse. My favorite horror stories used to be in Seattle, where Microsoft co-owner Paul Allen got taxpayers to give hime $300 million for a new stadium for the Seahawks, even though he's worth billions and hadn't yet bought the team. Or San Francisco, where earlier this year taxpayers narrowly approved a $110 tax subsidy for a new football-only stadium for the 49ers. The tax itself was pretty outrageous. But if the tax had failed, the 49ers would have received $125 million from taxpayers to renovate Candlestick/3Com Park, and then could have walked out on their lease. The locals were being blackmailed however the vote turned out.
But those are now paled by Cleveland, which lost the Browns in 1994, passed a sales tax to build a new football stadium after they had no team to play in the new park, and then got a promise from the NFL that a new team would be in place by the fall of 1999. Unfortunately, no local owner has stepped up to buy the team, so the league may actually buy an existing team and move it to Cleveland or create a brand new franchise. The NFL may own the Browns, leaving the city to deal with the costs of operating its new ballpark.
Along with the outrageous capital and construction costs taxpayers are expected to pick up, teams often get free or reduced rent, what amounts to operating subsidies at taxpayer expense. In Baltimore, for instance, the Orioles pay no rent on Camden Yards, which was built with tax dollars. And when the new, tax-financed football stadium for the Ravens opens near Camden Yards, the Ravens will play there rent free as well. The Cleveland Indians are required to pay rent on Jacobs Field only after the team sells 3 million tickets in a given seasona feat they've accomplished every year since the stadium opened in 1994. But when the Indians were 40-year doormats, the team averaged less than 1 million fans a season. Some estimate, in fact, that the Gateway sports complex which houses the Jake, the Gund basketball arena, and the forthcoming football stadium, will eventually cost local taxpayers $1 billion, or about three times the intially estimated construction costs. Paul Brown Stadium in Cincinnati will cost taxpayers $240 million in construction costs, but it's been little reported that the locals will also pay building and operating costs for a $10 million practice site for the Bengals that will not be open to the public nor available for use by anyone other than the team.
And of course, I've only skimmed the surface with stories about major league teams. As you probably know, minor league owners are now in the subsidy game; they don't expect luxury seating, but they do want a place for their teams to play and they would prefer not to pay for it.
You've probably heard enough horror stories, so what can you do? The good news is, for any Star Trek fans in the audience, Resistance Is Not Futile. These success stories show that it's possible to beat a sports owner when he comes begging for money from the taxpayers:
By a margin of nearly two to one, last November voters in Western Pennsylvania rejected a sales tax increase that would have paid for new stadiums for the Pittsburgh Pirates and the Steelers.
A coalition of taxpayer advocates and civic leaders from organizations like the League of Women Voters pressured the Charlotte City Council to reject a tax-funded replacement for the 10-year-old Coliseum, home of the NBA Hornets. Owner George Shinn makes a convincing case that the Coliseum, which contains only about one-fourth as much luxury seating as newer arenas, can't generate enough revenue to let him pay competitive salaries. But local activists made the issue of tax funding radioactive, which has made Shinn reconsider his position and instead offer to buy the Coliseum from the city for the amount of debt still owed. And it gets better. Once the council heard Shinn's initial offer, other area business leaders started a bidding war, offering to pay more for the Coliseum than the city owes and then leasing it back to the Hornets.
Then there's the new downtown Sports Arena in Los Angeles. While all the details aren't complete, taxpayers are on the hook for a lot less now than they were 9 months ago. Last June, when the LA Times published an op-ed by me on the topic, the City Council was prepared to give the project's developers at least $70 million in outright subsidies to build the arena. Thanks to the efforts of Councilman Joel Wachs and Times columnist Bill Boyarsky, the developers and the council were forced to back down; the developers must repay any money the city borrows to purchase property, make capital improvements, and so on. It's not a perfect resolution, but given what was likely to happen nine months ago (especially considering how strongly the political establishment backed the subsidies), it's a big improvement.
What can a group of citizens who oppose sports subsidies learn from these examples?
1) When a sports owner comes begging for money, form alliances with folks you might not usually approach. In Charlotte, the alliance against the Hornets argued that any money spent on a new Coliseum would be money that couldn't be spent on schools, roads, law enforcement, or tax relief. This way you can get PTA members, taxpayer advocates, and the local police associations all on the same pagesomething that doesn't often happen. When Mayor Pat McCrory took on the Hornets in public, he asked the city's taxpayers if they were satisfied enough with the city's public services to hand over money to George Shinn. It had a big impact on the debate. Use a similar message in your town, and find civic leaders to help you out.
2) Use every legal weapon in your arsenal. Thanks to the Gann Amendment and other local tax, spending, and borrowing limitations, it's no longer easy for California elected officials to get these things done without facing public scrutiny. You may be aware of what's going on in San Diego with the proposed convention center, and you'll probably hear more later. But be prepared to force the proponents of new tax-funded arenas to make their case to voters. Time and sunshine are your best friends.
3) Be prepared. And be ready to challenge the so-called economic impact reports that the arena proponents will commission. Anytime an economic report comes out predicting job creation and increased economic activity, take it with a barrel of salt. These projects never pay their own way, and common sense suggests why.
Sports is merely another form of entertainment, so money people spend on tickets, parking, and food at the ballpark is the same money they would spend on movies, trips to the park, or video rentals. Many of these studies assume that the typical sports fan travels long distances, stays in a hotel, eats at fancy restaurants, and spends a bundle on souvenirs. No doubt, some people do that. But most sports fans who attend games live in or near the team's home city, so their money is just being moved around from one segment of the economy to another.
Finally, don't be afraid to speak frankly. Owners of sports franchises are business people, after all. And we're supposed to live in a free-market system, in which entrepreneurs succeed or fail without the help of government. If Republicans and Democrats can agree to scrap open-ended welfare entitlements for the needy, why can't concerned taxpayers get rid of corporate welfare for sports teams?