Crony Capitalism

How Government-Funded Stadiums and Museums Harm Taxpayers

A few lessons in crony capitalism from the state of Virginia.

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The meal you get at the take-out window usually doesn't look much like the picture on the billboard. But advertisers know hungry motorists base their decisions on pretty pictures, not reality. Hence the adage "sell the sizzle, not the steak." Falling for the sales pitch, though, is how you get burned.

Nearly a decade ago, state leaders and Richmond boosters groused when the region lost out to Charlotte in the contest to become home for the NASCAR Hall of Fame. Gov. Mark Warner lobbied hard for the hall, calling it a "world-class facility." Others termed the chance to host it a "once-in-a-lifetime" opportunity. "You can't underestimate what it would mean to bring it here," Warner gushed. "It'd probably be as big an economic stimulus to the region as anything we're looking at."

Warner—now Virginia's senior senator—offered to make a substantial investment in the Hall of Fame. Economic development officials waved heady predictions about its likely attendance and economic impact. The Richmond proposal consisted of a $103 million, 129,000-square-foot facility that supposedly would draw 700,000 visitors its first year. As The Times-Dispatch reported in early 2006, "Richmond planned a theme hotel, retail shops and restaurants to surround its museum and projected an economic impact of $188 million, which was nearly twice that of the nearest competitor, Atlanta ($100 million)."

Charlotte, however, made even bigger promises. It proposed a $200 million facility of 150,000 square feet that would bring in 800,000 visitors its first year and 400,000 annually after that.

Things haven't quite turned out that way. In its first year in Charlotte, the Hall of Fame drew only 270,000 visitors. By 2010, sponsors had pledged only $5 million. By last year attendance had shrunk to 170,000. Bank of America and Wells Fargo had loaned the project $19 million, with the promised sale of commemorative bricks and corporate sponsorships offered as collateral. A spokesman said the hall should be able to pay off its loans in 10 to 12 years.

That turned out to be overly optimistic, too. As a Charlotte Observer story—spotted by Style Weekly's Ned Oliver—reported last week, "the hall has lost more than $1 million a year." As a result, the Charlotte City Council has now "approved an agreement with Bank of America, Wells Fargo, and NASCAR to forgive more than $22 million in debt from the NASCAR Hall of Fame. Under the agreement, the city will pay the two banks $5 million. In exchange, the banks will write off $14.1 million in principal and $3.5 million in accrued interest. In addition, NASCAR will waive $3.2 million in royalties that it's owed since the hall opened." With all those changes, the hall might be able to break even next year. Fingers crossed.

This isn't the first time the Richmond region has won by losing. A lot of teeth got gnashed and fingers pointed in 2008 when the Braves baseball team pulled up stakes and headed to Gwinnett, Ga., which had agreed to build it a brand-new stadium. Many felt Richmond had blown it by failing to build a new stadium to keep the team here, and the arrival of the Flying Squirrels was a poor consolation prize.

As it turned out, Gwinnett soon suffered a severe case of buyer's remorse. The price of its new stadium shot up from $25 million to $64 million. Gwinnett borrowed $33 million to build it. Fans endured sticker shock at the high price for seats. Attendance fell far short of projections, and remains consistently near the bottom of the International League—even though a consultant had assured everybody Gwinnett was "one of the strongest markets in the country to support a minor-league baseball team."

Gwinnett's county administrator had promised that the stadium would pay for itself from the very start. It hasn't. Rent, ticket sales and money from naming rights and parking fees can't even cover Gwinnett's debt. Nor is the county reaping much ancillary benefit. A developer had planned nearly a million feet of adjacent retail and office space, along with 610 residential units and 300 hotel rooms. But as The Atlanta Journal-Constitution reported last January, "six years later, most of the development exists only on paper."

Many economic development projects succeed; some not only do so but surpass even wild expectations. It's dangerous to generalize. But it's also dangerous to take boosterish claims on faith. And such claims have been floating around Central Virginia regarding all sorts of things.

Richmond Mayor Dwight Jones' proposal for a baseball stadium is full of them. Richmonders also have been told to expect 450,000 visitors for the 2015 World Cycling Championships here next fall. That's more people than attended last year's World Cup soccer extravaganza. And Gov. Terry McAuliffe is asking state lawmakers to replenish economic-development funds that are used to lavish taxpayer dollars on private companies that relocate or expand in Virginia.

In his first year, McAuliffe already has burned through $68 million, even though a study by the state's legislative watchdog commission found such handouts have only a "small impact" on companies' decisions about where to locate.

A lot of sizzle. But how much steak?

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  1. I don’t like this term “crony capitalism”. Why not just say “cronyism”. Extra syllables are almost as bad as extra words.

    1. But not as bad as missing question marks.

      1. Crapitalism.

  2. Never mind how these things have consistently worked out. This time, we have the winning formula. You can trust us this time because shut up yes you can.

  3. it’s more than just arenas and stadiums. I live in Charlotte, did some time on a Chamber of Commerce group on a legislative agenda. The General Assembly has a hard-on against incentives, what some would call corporate welfare. A lot of industries covet these incentives, as you might suspect, and not all are created equal.

    The reality check is this: incentives for whatever industry are not confined to a single state. It would be one thing if the other 49 refused to play, or if states were more discriminating in handing them out.

    NC played the no game a few decades ago as foreign carmakers were beginning to put plants here. As a result, BMW went to SC, Mercedes to SC, and since then, not a single one has come to NC. I suspect those displaced when textile mills shut down might have liked working in an auto plant.

    1. I think it’s one thing to lure a business with some tax breaks, but it’s another for the govt to basically fund said business when.

      Getting a car manufacturer is very different than getting a sports team or museum.

      1. It’s patently disparate treatment to tax new businesses less than old ones. Just because I’ve been around for 5 years doesn’t mean the new startup should be allowed to pay less taxes. Were I in a jurisdiction that treated me that way, I would leave.

    2. Hello, fellow charlottean!

  4. The only professional sports team I know of with a rational relationship with its host city is the Green Bay Packers. And I note that the NFL HATES that relationship and has publicly stated that no similar arrangement will ever be allowed esewhere.

    1. I honestly don’t know the deets. What are they?

      1. I know the Packers are *the* non-profit community-owned team. It’s still a stone’s throw away from a ‘normal’ corporation, but it’s as close as the NFL wants to get.

        The Team either has the capital to make changes or sells voting shares to any changes that need to be made to team/stadium/etc.

  5. Years ago, when I was a young man, I heard that Phoenix was passing a tax to build a Civic Center. It shocked me. I was such a political naif back then. I had never heard the word libertarian, but knew that taxing people to build something many, like myself, would never use, was wrong. Those who want a civic center, opera house, sports stadium are free to pay for it. But if you force me to pay for it (because all government action is backed up by deadly force) then you have violated my rights. You are stealing from me.

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  7. There should be ZERO government money going to facilities for professional sports. They should pay their own way to build arenas and stadiums etc.

    If they want a butt in every seat, every event then LOWER THE PRICES.

    But the economists who set those stupid high prices think that the way to increase income when sales are down is always to increase the price.

    Japan found out that if you build it, then charge too much, nobody will come. Look up the Tokyo Bay bridge and tunnel. Most people in Tokyo live on the north side of the bay and work on the south side, thus they have to drive or take cabs or mass transit a long distance all the way around the bay. The bridge and tunnel across the bay is a heck of a lot shorter.

    But to meet the overly optimistic payoff goal they set the toll to an ungodly high price and the only people using it were a tiny number of business executives, and only when they absolutely had to get across the bay extra quickly.

    So they cut the toll to “only” $50 each way. Economic know-nothing idiots. They don’t even bother to figure out what the market will bear, they just run some numbers and set the price. If the thing doesn’t sell then there must be something wrong with the intended customers.

  8. Socialism for Capitalists is a Major part of those who taut “Trickle Down Economics”, because there is on “Trickle Up” in reality”…. aka “redistribution of wealth the the wealthy”

  9. If you guys think stadiums & museums are a money pit, you clearly haven’t looked at film subsidies.

    US taxpayers hand over roughly $1.5bn (yes billion, with a b) a year to Hollywood in order to get them to come and shoot movies in their state. States like Louisiana will refund 30-35% of the cost of shooting a movie if you film there, 90% of that money then leaves and goes back to California along with the crews that it’s paying for, only a tiny amount remains in the state that’s giving it away, which is why every study that isn’t funded by the MPAA shows these things are a HUGE loss for every state that implemented them (curiously, studies sponsored by the MPAA show that they’re ridiculously profitable, funny that).

    At least if you build a museum or stadium, you have a permanent physical result of your subsidies where any taxable profits remain in your jurisdiction, with film subsidies, for any state except California, all they’re doing is making it cheaper for Hollywood to make movies, any profits remain with the corporate parent in Los Angeles (assuming you can prove that any movie ever turned a profit).

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  12. How They can Funded Stadiums and Museums Harm Taxpayers ? but this still not clear

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