Is the Age of the Publicly Funded Sports Arena Drawing to a Close?
The past few decades have seen an increase in public underwriting of sports arenas, but attitudes may be shifting.
Ask any two economists a question and you will get three answers, goes an old joke. But there is an exception. With regard to publicly financed sports stadiums, economists seem to be of one mind. There are winners and losers when the taxpayers foot the bill for arenas and ballparks, they say: The rich guys win, and the taxpayers lose.
That's been the consistent finding across both time and the ideological divide. A 1974 Brookings Institution study found that stadium revenues are "insufficient to cover operating costs plus debt amortization." According to a 1990 paper, "the presence of a new or renovated stadium has an uncertain impact" on the local economy and "possibly a negative impact on local development." A 2000 study similarly found that "the presence of professional sports teams, on average, reduces the level of real per capita income in metropolitan areas."
In May, The Cato Institute's Ilya Shapiro wrote on The Huffington Post about a study of 46 cities. It found that "cities with major league teams grew more slowly" than those without. Last week, Travis Waldron of the liberal Center for American Prospect argued: "If taxpayers knew the real costs of stadiums, they might choose to keep paying for police officers, firefighters, and other public services instead."
Depending on how you count them, those costs are high indeed. According to one analysis by Bloomberg News, if you include the revenue lost to tax exemptions on the municipal bonds issued for sports arenas, then the total subsidy for such facilities tops out around $4 billion.
Why don't stadiums bring a big return on the public investment? Part of the reason could be the substitution effect. People have only so many entertainment dollars. What they spend at a ball game, they will not spend at the nightclub. But a nightclub is open almost every night. A stadium sits empty much of the year – while the highly paid team owners and players are elsewhere. So the multiplier effect from a stadium, assuming there is any at all, is probably smaller than the multiplier from other entertainment venues.
The lesson has taken a long time to penetrate the skulls of municipal leaders. As Waldron and his co-author point out in The Atlantic, "just three of the NFL's 31 stadiums were originally built without public funds." And the past few decades have seen an increase in public underwriting of sports arenas.
But attitudes may be shifting.
A couple of weeks ago, the president of Comcast Spectacor trekked to Virginia Beach to pitch a new $350-million stadium to the city council. After the presentation, council member Bill DeSteph made his feelings clear: "I think it's great that we get an NBA team or NHL team or something like that," he said. "But that's with the caveat of private equity building it. My first question is: Who's going to pay for it?"
DeSteph's mention of the NBA was a reference to the rumor that the Sacramento Kings might pull up stakes and move from the West Coast to the East – maybe to Virginia Beach. Speculation about the Kings has been swirling since the spring, when a deal for a new stadium in Sacramento collapsed amid acrimonious finger-pointing.
The Kings had been lining up ducks for a move to Anaheim when Sacramento's mayor, Kevin Johnson (a former NBA star himself), stepped in. Talks ensued. For a while it looked as if the parties had hashed out a deal for a $391-million facility that would open in 2015 at the Sacramento railyards. Reportedly, a verbal agreement called for the team owners – Joe, Gavin, and George Maloof – to put up $75 million. AEG, a sports and entertainment conglomerate, was to have put up $59 million. Sacramento was to have put up the rest.
But then the city asked the Maloofs to cough up about $3 million more for environmental and "pre-development" work. They balked. At the time, the spokesman said the failure to hammer out terms with Sacramento would force the Kings "to explore all of their options." But with regard to Virginia Beach, the team said last month only that it was "not going to comment on every rumor." The Beach might be dodging a bullet.
Granted, there are non-monetary reasons to want a pro ball franchise nearby. It conveys prestige, for instance. Communities might be willing to forego a little bit of income in exchange for the added fun and reflected glory of a hometown club.
On the other hand, those benefits can be fleeting – while the costs often linger. As a Bloomberg article pointed out earlier this year: "From the Kingdome in Seattle to the Astrodome in Houston to the old giants Stadium in New Jersey, today's taxpayers are on the hook for tens of millions of dollars in debt for stadiums that are no longer in use or no longer even exist. The RCA Dome – which Lucas Oil Stadium [in Indianapolis] replaced, and which was imploded in 2008 – won't be paid off until 2021."
If the Kings do move out here, they should be welcome. And they should do it on their own dime. Otherwise, Virginia Beach could one day become one more case study in a growing – and very lopsided – body of economic evidence.
This column originally appeared in the Richmond Times-Dispatch.
