Selected Skirmishes: Squeeze Play

Tax handouts for sports zillionaires--great idea!


Ah, the national pastime. Baseball is enjoying a fine season, spurred on by the expansion of both leagues, a fortuitous act that welcomes the civilized sport to new venues and, incidentally, calls up a pride of eager young minor league pitchers to the Big Show. Small wonder that an all-star team of power hitters, led by Ken Griffey Jr. in the American League and Mark McGwire in the National, is on pace to break Roger Maris's single-season home-run record.

But the big baseball news has increasingly little to do with earned-run averages or pennant races, but with public financing of new stadiums. The idea of the ballpark as municipal development project has become as American as Cal Ripken Jr., who as a Baltimore Oriole plays in Camden Yards, the Taj Mahal of government-subsidized sports palaces.

The theory is that building a gleaming new stadium is a great high for fans. Let me confirm the allegation: I know I heartily enjoy a trip to Camden Yards, even though I have no interest in American League teams or players. But I also heartily enjoy, as does ex-Rep. Dan Rostenkowski, a trip to Morton's steak house. The question really is: Why is one a legitimate claimant for taxpayer funds?

The main argument is that ballparks generate massive economic development, revitalizing cities almost as fast as the Florida Marlins can liquidate a championship team. New York Mayor Rudolph Guiliani points to a study by his administration that shows consumer spending in Manhattan would rise $1 billion per year if a new Yankee Stadium were built on the West Side–plus "thousands and thousands and thousands of jobs," in the mayor's precise calculation.

The reality is that the studies trotted out to justify the public subsidy are as phony as the zeros they arbitrarily tack onto their empirical estimates. Not only don't city planners know what new benefits will materialize, they have little idea–or incentive to discover–what existing spending will be quashed by the diversion. Folks who blow $100 on a Yankees-Indians game, two hot dogs, four beers, and a nonfat double latte are not going to spend that same sum that same night dining out at Elaine's. In New York, the opportunity cost of moving the Yankees' home to 33rd Street and 11th Avenue is painfully apparent to those in the Bronx, "a borough whose identity is inextricably linked to the ball club," as The New York Times put it.

Yet sports stadiums are perfect vehicles for city hall insiders to wheel and deal; the mayor gets a ribbon-cutting to die for, and all the local hacks can wangle a piece of the consulting or contracting business. City officials typically obtain box seats at the new park as freebies, without all the fuss and muss of an indictment for bribery. Add a media blitz: the daily newspaper and the AM sports-talk outlet will flack shamelessly for their financial self-interest in promoting local sporting events (and the accompanying ad revenues). How curious that William Wrigley and so many baseball owners in a far less lucrative sports era were able to build great ballparks with private funds–think of the billions and billions in public benefits that may have been lost!

The comic aspect of taxpayer-funded sports stadiums is that it would be difficult to devise a source of revenue generation which would more perversely skew incomes. The subsidies are borne by working stiffs who consider themselves lucky to sneak the family into the bleacher seats once a season at the Pleasure Dome they labor to provide through taxes, fees, and the like. The pretty new facility, however, will enable their bosses to sip sauvignon blanc while lounging in luxury boxes, while the team rakes in the bonus revenue. These funds are divvied up among millionaire owners and millionaire players, and then tucked away in diversified portfolios comprising shares in Chilean ostrich farms, Czech Howitzer factories, and Wyoming ski resorts. The ballpark subsidy seems almost a perfect way to actually suck disposable income out of a regional economy.

Which is exactly what the real science on the matter has found. According to Andrew Zimbalist, the Smith College economics professor who edited a book on the topic of Sports, Jobs, and Taxes (Brookings, 1997), "There has not been an independent study by an economist for any stadium built over the last 30 years that suggests you can anticipate a positive economic impact….The overwhelming majority of any new revenue generated by a [New York] stadium would go to Steinbrenner and the Yankees' players."

The Camden Yards situation is illustrative, because it's a success by any measure–except economic rationality. Attendance increased by two-thirds, and great benefits were generated: $41 million in local spending by out-of-town fans. But the Camden Yards "investment" has created a paltry 460 permanent jobs in downtown Baltimore (offset by job losses elsewhere). While the Orioles sell an extra $16 million in tickets a year, the public loses $9 million on the stadium annually. On net, private Maryland incomes would be $11 million higher each year without Camden Yards, estimate Johns Hopkins economists Bruce Hamilton and Peter Kahn.

So here's the play of the day: Public money is used to buy fluffier seat cushions for corporate fat cats attending their favorite sports show in architectural splendor, fattening the bulging offshore accounts of team owners and players. And the cities tell us that they are starving for tax dollars. Imagine that.

Contributing Editor Thomas W. Hazlett (hazlett@primal.ucdavis.edu) teaches economics and public policy at the University of California at Davis.