One of the most interesting phenomena in society, but a lesser known one is the use of public money to help fund the building of private professional sport stadiums. The governments of cities that have professional sports teams have been agreeing to help fund the building of private stadiums and/or arenas for professional sport team owners. Professional sport teams have very expensive stadiums or arenas. This phenomena is not a new one either, as it actually began in 1923. The first stadium to be built using public money was the Los Angeles Coliseum (Alakshendra, 2016). It has continued to current day. One recent example is the construction of AT&T stadium, the home of the Dallas Cowboys. The total construction cost was 2.1 billion dollars, and the taxpayers paid $325 million of the total cost (Watkins, 2013). This seems like a small fraction of the total cost, but Jerry Jones will keep one hundred percent of the revenue. This leads to the question of what is the reasoning behind using public money to fund these stadiums?
Before we can look at the reasoning of using public money, we should first understand how this all began. All stadiums were privately funded up until the 1950s, except for the Coliseum in LA, Soldier Field in Chicago, and Municipal Stadium in Cleveland, as these stadiums were built in an attempt to lure the Olympic Games to their city (Alakshendra, 2016). This changed, when professional sports teams recognized that using public dollars significantly reduces their burden in financing their new stadiums (Alakshendra, 2016). This opened the door for owners. Most of them are businessmen by trade, so they are always looking to save money. Team owners, historically, did not see new stadiums as a smart investment for them to make, because the new stadium would have to generate enough revenue to pay for itself plus the existing costs, like player salaries and organization expenses (Zimbalist & Noll, 1997, pg. 98). How they convinced the cities is the most intriguing part. They convinced cities using a two part argument. First, the owners justified asking for government subsides with the argument that there are “spillover gains” to the local economy (Gayer, 2016, pg. 5). They argue that to the local taxpayer these financial gains would be much greater than the costs they would incur from the government subsidies (Gayer, 2016, pg. 5). The government subsidies that they use are commonly tax-free municipal bonds (Povich, 2016). They can also use tax increases to finance the stadiums. There are “hard taxes” like income, sales, property and real estate taxes, and there are “soft taxes” like car rentals, hotels, restaurants, “sin” taxes (Siegfried, 2000, pg.101). It is more common to see the “soft taxes” implemented, because they impact visitors to city more than the permanent residents (Swindell, 1998, pg. 16). Also, they claim that many people find value living in a city with a “major” sports team (Gayer, 2016, pg.6). This argument is more accurate for smaller cities, especially in the southern and western portions of the United States (Eckstein, 2002, pg. 243). On top of these economic arguments, cities were effectively held hostage by these professional sports team owners. As stated in a study in the Richmond Public Interest Law Review, “A common trend is for team owners to persuade or threaten their way into stadiums largely built at the public’s expense” (Schein, 2017, pg. 4). Team owners will promise the city that a new stadium or arena is the only way that they will stay in their city (Schein, 2017, pg. 4). They are able to do this to cities, because in American professional sports leagues there are a limited number of teams and entry to the league is restricted.
The communities of cities that have professional sports teams were told from the start that the economic benefits of stadiums were undetermined, but they still continued to finance the stadiums. These cities had other motives that led them to agreeing to finance the stadiums. “Some civic leaders, however, hope that new stadiums and professional sports will let outsiders know that they are an important city” (Eckstein, 2002, pg. 242). This shows why certain government leaders are willing to take a risk on financing a stadium, if it helps the image of the city around the world. They hope to attract important companies or just more citizens in general, to their city. On top of this many people, in communities, believe that sports can act as a “social glue” that can bring all different types people together under one shared urban identity (Eckstein, 2002, pg. 242). A city’s government could also hand over cash subsidies to the team, but still choose to build the stadium. The government does this in hopes to gain political backing from the team owner and also a stadium gives the team a source of potential revenue instead of the revenue up front. This will hopefully keep the team competing at the highest level and winning championships (Zimbalist & Noll, 1997, pg. 100). The argument that sports can bring people together and get rid of different socioeconomic divides is one that is used a lot by stadium supporters, because the benefit is almost impossible to measure (Eckstein, 2002, pg. 246). These reasons had led to a lot of debate of the true influence of stadiums on the community.
It has been common for public officials to see sports teams and their facilities as important components to establish a regional identity (Swindell, 1998, pg. 14). The argument that sports can help civic pride was researched by Swindell and Rosentraub (1998), and they found in Indianapolis sports teams were the second and third ranked asset or events that generated civic pride among residents, behind museums (Swindell, 1998, pg. 15). They also researched what visitors most often ask to see when in Indianapolis and once again the two professional sports teams were ranked behind museums (Swindell, 1998, pg. 15). There are intangible benefits for residents of the city who identify as sports fans, but the consumer surplus for non fans is very little. Since professional sports teams have monopolistic strength, cities need to find away to have the stadiums funded by the beneficiaries (Swindell, 1998, pg. 17). This would allow those who benefit from the stadium and team to fund it. Direct beneficiaries are the players, media, owners, fans and concession operators (Swindell, 1998, pg. 17). A proposed example of this is that the public sector should be able to assess a per ticket charge to pay for its investment, like private team owners can do (Swindell, 1998, pg. 18). Since it was found that there are intangible benefits gained, but for limited groups of the community, it is unfair for the entire community or tourists to be funding the public side of these stadiums. Swindell and Rosentraub (1998, pg. 19) concluded that cities should consider using a special tax district that only includes the business, fans, players, and employees within the area immediately surrounding the new facility.
When owners first started asking and/or demanding that cities finance his or her new stadium, the city would usually try very hard to keep the sports team. The public funding of stadiums has started to evolve, as economists continue their research of the economic benefits of professional sports teams. Originally, the economic reasoning that cities usually used in when deciding to subsidize sports facilities was that they economy would be improved in four main ways (Noll & Zimbalist, 1997). First, the building of the new stadiums or facilities themselves would require the addition of construction jobs into the local economy. Second, the fans that will eventually attend them games or the future employees of the team will create new spending into the economy, and thus down the road expand the local employment. Third, a new sports team, in the new facility, will attract fans from out of town and other tourists to the city. This would then continue to increase the local spending in the community and create even more jobs. Fourth, once again, they claim there is a spillover or multiplier effect that benefits all who live in the community (Noll & Zimbalist, 1997). These economic gains to the economy have been consistently refuted by economists. One economist from the University of Chicago, Allen Sanderson, once said, “If you want to inject money into the local economy, it would be better to drop it from a helicopter than invest it in a new ballpark” (Demause, 2011).
He is not the only economist or researcher to be against public subsidies for private professional sports teams stadiums. In a study by Coates and Humphreys (2003), they reported that in some of their findings, it was discovered that in reality sports team franchises and their stadiums have a net negative impact on the local economy, in both income and employment (Coates and Humphreys, 2003, pg. 2). Another researcher, Judith Grant Long, believes that if governments and taxpayers were more educated on the real costs of public subsidies for sports teams then they could make more informed investment decisions (Long, 2005, pg. 139).