Yankee Welfare

How all of us, even non-baseball fans, line the pockets of history's richest team.

One of the biggest things people consistently get wrong about libertarians is confusing their aversion to government interference with a desire to make rich people richer by any means necessary. In fact, something closer to the opposite is true. For a textbook case, look no further than a team scheduled to start the League Championship Series tonight: the New York Yankees.

You don't have to know a damn thing about baseball to know that the Yankees have been baseball's unchallenged royalty for several decades now. Babe Ruth, Joe DiMaggio, Mickey Mantle, Reggie Jackson, Derek Jeter, and company have won a staggering 26 world championships; the second-highest total is the St. Louis Cardinals' 10. The influence is felt far away from the diamond: Broadway brought us Damn Yankees, Hollywood contributed The Pride of the Yankees, Hanna-Barbera created a fictional cartoon bear out of a factual cartoonish (though marvelous) Yankee catcher, Nestlé still sells a candy bar called Baby Ruth, and amyotrophic lateral sclerosis is still called Lou Gehrig's Disease.

As famously within the game, since the dawn of baseball's free agent era in the mid-1970s, the Yankees have been notorious for outspending all comers on talent. Thirteen out of the last 14 seasons the team has had the highest payroll in Major League Baseball, often by ridiculous margins. For instance, this year they spent $201 million, $52 million more than the second-place New York Mets.

The main source of this spending disparity is easy enough to identify: The Yankees field an elite team in the country's richest media market. According to estimates from Forbes, the team's annual local television revenue is $92 million, compared to the runner-up New York Mets' $52 million, contributing to an overall revenue of $375 million over second-place Boston's $269 million.

None of which would necessarily be objectionable to your run-of-the-mill free marketeer. But this is where the lesson in political pull comes in. In very much the same spirit—only much, much worse—that rich rock stars never have to pay for guitar strings, rich baseball owners (i.e., all of them) never have to pay anything close to full market price for their most important asset: their home stadium. Chamber of Commerce Republicans and Democrats, can-do boosters, and middle-age-crisis jock-sniffers, convince themselves that—all economics to the contrary—keeping or wooing a professional sports team will improve the local economy. Knowing that there's a sucker born every City Hall meeting, franchises play these local politicos like this nine-year-old hockey whiz plays goalies.

And the richer the team, the richer the brew of public subsidies, tax breaks, law-rewrites, and eminent domain assistance from government. And not just local government, either—the federal government, too. In other words, that money comes from Red Sox fans, Angel fans, and (most outrageously of all) people who'd rather open beer bottles with their eye sockets than have to know who Super Joe Charbonneau is.

This year the Yankees moved into a new stadium. According to baseball economist Neil deMause of the excellent Field of Schemes website, the facility cost a stunning $1.56 billion, and the total project (including replacing 22-acres of parkland that had been destroyed by the construction) totaled $2.31 billion [pdf]. Both figures are all-time records in the history of sports stadia. "Of that," deMause estimates, "the public—city, state, and federal taxpayers—are now covering just shy of $1.2 billion, by far the largest stadium subsidy ever."

The biggest three categories of government contribution were the following:

• $417 million in property tax waivers from the City of New York.

• $327 million in federal tax-exempt bond subsidies.

• $232 million worth of land giveaways from the city.

The bond subsidies can be complicated to explain. Here's deMause in the 2009 Baseball Prospectus annual, describing the Yankees' second round of bond financing (for $308 million), after an initial tranche of $775 million. Both offerings were tax exempt.

While the team would pay off the bonds, it would be saving more than $50 million by avoiding the private taxable bond market. (The subsidy would cost taxpayers, mostly through loss of federal tax revenue, about $75 million.) While using public bonds for a private project was supposed to have been made illegal in 1986—preicsely because local governments were handing out tax-exempt bonds like candy and fobbing off the cost of local projects onto the feds—the Yanks (and Mets) had obtained a so-called private-letter ruling from the Internal Revenue Service signging off on the deal, under the convoluted reasoning that the team's private construction bond payments were actually public property taxes. (Don't ask. Really. If you must know, go to fieldofschemes.com and search on the keyword PILOTs.)

Though baseball fans tend to focus on the unfair advantage that such rule-bending gives the Yankees over their baseball competition, the real scandal in this story is the unfair advantage that the team gets over any business that needs to raise $1 billion in bonds. And, by extension, the unfair advantage that $1 billion bond-seekers tend to get over people who just need $10 million. The greater the number of laws and regulations and taxes, the more that full compliance (or negotiated avoidance) become the exclusive province of the deepest pocketed, who are often—ironically!—the very same companies targeted by the initial legislation. It's true of Sarbanes-Oxley, it's true of the Consumer Product Safety Improvement Act, and it's true of prohibitions on using tax-exempt bonds for private commerce.

Ah, some tax-haters will counter, but what's so wrong about paying lower taxes, particularly on projects that might not otherwise exist? Answer: nothing! Particularly when the same rules apply to one and all, or at least don't favor the rich over the less well-off. Which is, of course, the opposite of what's going on with sports franchises.

In 2006, Daniel McGraw wrote a piece for Reason about Tax Increment Financing (TIF), which is the kissing cousin to the Payment in Lieu of Taxes (PILOT) scheme employed by the Yankees:

Although politicians portray TIFs as a great way to boost the local economy, there are hidden costs they don't want taxpayers to know about. Cities generally assume they are not really giving anything up because the forgone tax revenue would not have been available in the absence of the development generated by the TIF. That assumption is often wrong. […]

And since most cities are using TIFs, businesses…can play them off against each other to boost the handouts they receive simply to operate profit-making enterprises.

This is where the cycle gets both virtuous (for the Yankees) and vicious (for the rest of us). What did the Steinbrenner clan get for that $1.2 billion public boost, besides the $1.2 billion? A shiny new money-machine, that's what. A new stadium means new luxury boxes, more efficient/extensive/expensive concessions, and a chance to jack up single-game ticket prices into four-figure territory. The team has projected $331 million in stadium revenue for 2009 alone, up an estimated $100 million over 2008 (baseball balance sheets, more than those in most other industries, are shrouded in guesstimations and competing numbers that don't necessarily add up).

To sum up: The most successful, most opulent, and most hated baseball franchise in North America, widely known as "the Evil Empire," receives an unprecedented amount of government giveaways in a time of recession and government budget-squeezes, with which it increases its already sizeable revenue advantage, partly by charging ticket prices that only the rich can afford. With all that dough safely pocketed, the team then shells out $423 million in free agent contracts for just three players, who help vault them back into the League Championship Series for the first time since 2004.

Back in the mid-1970s, when the Yankees were re-emerging from more than a decade of uncharacteristic mediocrity, a favorite negative stereotype on the political right was the "welfare queen," living high off government largesse that had been intended for the genuinely poor. It's an enduring puzzle in contemporary America that long after "welfare reform" restructured transfer payments to individuals, the corporate welfare queens—who by any estimation have been sucking more from the public teat than all welfare recipients combined—continue gobbling hundreds of billions each year, image largely unsullied.

So root, root, root against the home team tonight. It's bad enough that they play in a fascist stadium; the real outrage is that you paid for it.

Matt Welch is editor in chief of Reason magazine.