Atlanta, Las Vegas, the Twin Cities, and Arlington, Texas are recent examples of an out-of-control trend: the public funding of private sports facilities. These cities have spent or are likely to spend hundreds of millions of dollars through loans and tax subsidies to fund the construction of multi-million-dollar sports facilities.
Nearly all new sports facilities were privately financed prior to the 1990s, but according to Pacific Standard magazine, between 1991 and 2010, 101 new sports facilities have opened in the United States (a 90 percent replacement rate), and nearly all the projects received direct public funding.
The primary funding mechanisms for these stadiums are tax-exempt municipal bonds. According to Bloomberg, using tax-free bonds to finance stadiums costs the U.S. Treasury $146 million a year, and since 1986, $17 billion in tax-exempt debt has been used to help finance stadium projects, costing taxpayers $4 billion.
In the Tax Reform Act of 1986, Congress passed a law prohibiting direct stadium revenue, such as ticket sales and food concessions, from being used to secure public financing for more than 10 percent of the cost of a stadium. Dennis Zimmerman, a former Congressional Budget Office and Congressional Research Service expert on stadium financing argues legislators often underestimate the power of team loyalty and civic pride. “Congress thought putting this 10 percent rule in would kill it,” Zimmerman told Stateline. “Nobody would expect taxpayers to hand over huge subsidies to these sports centers. But they did.”
Dennis Zimmerman, a former Congressional Budget Office and Congressional Research Service expert on stadium financing, argues legislators often underestimate the power of team loyalty and civic pride. “Congress thought putting this 10 percent rule in would kill [publicly financed stadium deals],” Zimmerman told Stateline. “Nobody would expect taxpayers to hand over huge subsidies to these sports centers, but they did.”
President Barack Obama also proposed getting rid of tax-exempt municipal bonds in his 2016 budget, but his measure ultimately failed.
In addition to receiving public funding, these projects are now receiving more tax dollars than ever before. In her book on sports stadium financing, Public/Private Partnerships for Major League Sports Facilities, Judith Grant Long, an urban planning expert at Harvard University, notes the average public cost for a new facility has increased dramatically since the year 2000. In the 1990s the average tax subsidy given to stadium projects was $142 million, but by 2010 the average public cost had risen to $241 million, a 70 percent increase.
Long also points out, as noted in Bloomberg, the tax subsidies may be even higher than reported, as economists underestimate costs associated with stadium projects, such as infrastructure improvements, capital improvements, municipal services like police security, and lost property taxes. Taking these added hidden costs into account, Long estimates the average taxpayer subsidy for sports facilities could increase by 25 percent, raising the 2010 average cost to $259 million per facility.
Supporters of taxpayer funding for stadiums have long claimed the new facilities act as engines of new economic development, but several economic studies have found their influence to be limited. In a Reason Public Policy Institute report, Samuel Staley and Leonard Gilroy note the majority of research on the economic effects of stadium construction has found no link between the new facilities and job or income growth.
States and cities should end the use of tax-free municipal bonds to fund new stadiums, and they should instead increase economic competitiveness by reducing tax rates or only using taxpayer money on core functions of government.
The following documents provide further information on the economic impact of publicly funded stadiums.
The Economic Impact and Civic Pride of Sports Teams and Mega-Events: Do the Public and Professionals Agree?
Peter A. Groothuis and Kurt W. Rotthoff survey residents and economists about the alleged benefits—both to a city’s economy and to civic pride—of mega-events and sports teams. The authors’ results find like “economists, the public is skeptical that public funding of mega events is a good idea.”
Nevada Lawmakers Consider Wooing Sports Team with Taxpayer Subsidies
Michael Bates writes in Budget & Tax News about recent efforts made by the Oakland Raiders to relocate to Las Vegas to play in a new taxpayer-funded stadium.
Sports Stadium Madness: Is Fan Ownership the Answer?
In this Policy Brief from The Heartland Institute, a free-market think tank whose researchers have questioned government subsidies to sports stadiums since the mid-1980s, the author proposes fan ownership of teams as a solution to “sports stadium madness.”
Sports Stadium Madness: Why It Started, How to Stop It
Taxpayer subsidies to professional sports teams amount to some $500 million a year. The decision to subsidize a team is driven by competition among cities for a limited number of teams, league policies that reward relocation, and lobbying by special-interest groups. The solution is for fans and taxpayers to campaign for nonprofit ownership of teams, a model pioneered by the NFL’s Green Bay Packers in 1923.
Is There an Economic Rationale for Subsidizing Sports Stadiums?
Robert A. Baade discusses whether subsidizing sports facilities makes economic sense for municipalities.
Government-Funded Stadiums Not Worth Price of Admission
Cato Institute Senior Fellow Doug Bandow examines stadium subsidies and their supposed benefits and concludes city officials across the nation should welcome major league sports teams only if they are willing to pay their own way.
Why Stadium Subsidies Always Win
Nick Gillespie of Reason interviews J.C. Bradbury, the author of several books on baseball and economics, about the economics of publically subsidized sports stadiums. A video of this interview is available here.
Take Me Out of the Ball Game: the Efficacy of Public Subsidies in the Success of Professional Sports Stadiums
This paper weighs the relative advantages of multiple factors that lead to the success of professional sports stadiums in major markets, discussing the arguments for and against public subsidies. The analysis demonstrates public subsidies for stadiums don’t generate sufficient economic returns, and that successful stadiums can be built without using taxpayer funds.
Sports and the City: How to Curb Professional Sports Teams’ Demands for Free Public Stadiums
Writing in the Rutgers Journal of Law and Public Policy, Marc Edelman argues for a national law that would protect local communities from sports leagues’ demands for publicly funded stadiums, by requiring pro-rata revenue sharing according to the share of construction costs paid.
The Stadium Gambit and Local Economic Development
Sports franchises frequently use their monopoly power to extract rents from state and local governments. Local officials and their hired consultants tout economic benefits of publicly subsidized stadia, but the consensus of academic economists is that such policies do not raise local incomes. This article describes even more pessimistic results, indicating sports facility subsidies may actually reduce the incomes of the alleged beneficiaries.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s website at www.heartland.org and PolicyBot, Heartland’s free online research database, at www.policybot.org.
If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or [email protected].