The financing of sporting stadiums has continued to generate much public debate over time with benefiting club owners on the one hand supporting it and the public on the other, opposing it. Debate on the economic sense of building stadiums with public money has been intense with some people holding the opinion that there are no economic benefits that are derived from Government funding of stadium construction projects. Those who support Government funding of these projects are hard pressed to prove that construction of sporting stadiums makes economic sense.
For those opposed to Government financing of these projects, their contention is that funding such projects lacks both economic sense but is also exploitative. Government funded sporting stadiums are a burden to the public who have to finance such projects through increased taxation. Worse than the taxation that goes to finance such projects is the fact that these public-funded projects end up benefiting the owners of clubs who are already wealthy individuals and corporations who could actually afford to finance such projects. In 2002, construction work began on the new Yankees stadium in New York (Munsey & Suppes, 2008).
The stadium, which is projected to be completed in 2009, will cost approximately $1. 3 billion and the estimated Government funding is about $220 million with the New York Yankees expected to contribute $1. 1 billion. Construction of the New York Yankees stadium has been the subject of much discussion especially because of the amount of public money that is designated for this project. In addition to funding the New York Yankees stadium, the city of New York announced in 2005 that it would be funding two other complexes, the Jets stadium on Manhattan’s Westside and a Nets arena in Brooklyn (Munsey, 2008).
In total, the city would be spending about $1. 1 billion to finance these operations. The situation in Miami is rather different. Plans to build a new baseball stadium for the Miami Marlins have led to controversy. The estimated cost of the new stadium, $630 million, and if the plans are approved, it will be ready by 2012 (Musibay, 2009). Construction of this stadium has, however, failed to take off because of opposition by Miami residents. Opposition to the construction has led to a legal tussle with a resident auto dealer, Norman, going to the courts seeking to have the planned construction declared unconstitutional (Musibay, 2009).
Others who have opposed the project include Miami City Commissioner Michelle Spencer-Jones who wants guarantees that the project will lead to creation of employment for the youth in Miami. The controversies have led to the stalling of the project until a consensus is reached. The project has developed much controversy because of its funding. Most of the money for this project is supposed to be raised from tourist taxes and most of Miami residents are uncomfortable with the position.
So much controversy has been generated that, during March 2009, Miami-Dade Commissioners and the county staff will be voting on whether or not to approve the construction. The intense debate that the proposed construction has generated has led to fears that the county commissioners could vote against it and thereby deal a deathblow to the project (Musibay, 2009). The situation in Fremont, California, is not much different. Plans to build a new baseball stadium for the Oakland A’s has ran into a myriad of problems.
The managing partner of the Oakland A’s, Lew Wolff had planned to construct a 32,000-seat ballpark in Fremont but has had to shelf those plans because of opposition by the local community (Goll, 2009). In planning to build a stadium in Fremont, Wolff advances the same arguments that have been advanced by team owners – that the presence of a big league baseball team is the desire of every city. In choosing Fremont, Wolff was seeking a home city for the Oakland A’s but Fremont residents, in rejecting the plans to re-locate the A’s to San Jose, have done what they did in 1993.
In that year, San Jose residents rejected plans to build a stadium for the Giants in their city (Goll, 2009). The matter of the construction in Fremont remains unresolved and there is speculation that, if San Jose does not co-operate in this project, an alternative city will welcome the Oakland A’s (Goll, 2009). The funding of sports stadiums becomes an issue of controversy for several reasons. First, as noted by Weinberg (2005) Government subsidies for construction of stadiums are weighed against more pressing needs such as healthcare, schools and transportation.
These are areas which have perennially suffered from a shortage of funds and Government subsidies in such areas would make much more sense than the construction of new stadiums. Additionally, while Government support is given to the construction of stadiums, the real beneficiaries of these developments are private profit-making enterprises (Weinberg, 2005). While different gate collection structures exist for different games, the arrangement in the Major League Baseball, (MLB), is quite generous to the teams.
Reich (2001) states that in MLB matches, gate collections are shared equally amongst the participating teams while in the American League the split is 80-20 in favor of the home team. Moreover, these teams benefit from other sources of revenue including income from television broadcasts, which is further shared amongst the teams. At the end of the day, the community whose tax money financed the construction of the stadium has little to show for the development. Detractors of Government funding for construction of sports stadiums point to the lack of economic sense in the whole exercise.
Reich (2001) dispels an argument commonly peddled by politicians and the owners of sports teams that construction of stadiums creates employment. Reich (2001) quotes Robert Baade who studied stadium construction activities over a period of 30 years with astounding discoveries. Baade’s findings indicate that stadium construction work only generates low-skilled and low-paid employment which is hardly good for the economy. Stadium construction work will be filled with “food vendors, security personnel and hotel and restaurant employees” (Reich, 2001).
Such low-skilled and low-paying jobs are actually harmful to the economy in that regions which promote generation of this kind of employment end up lagging behind in other areas. Not only is this kind of employment generated unlikely to be beneficial to the economy, the public whose tax money is used in stadium construction suffers even more because stadiums, as noted by Bandow (2003) never make enough money to be considered a worthy investment when the construction expenses are taken into account. Not only do stadiums take much money in construction, they consume a considerable amount in maintenance expenditure.
An Economic argument that politicians and team owners who support Government funding of sports stadiums construction advance is that sporting activities actually generate revenue. Reich (2001) however, takes a different view. Quoting Professor William Kern, Reich (2001) explains that the revenues that are evident in the sports industry should not be viewed in isolation with revenues in the rest of the entertainment industry. While money will be spent in attending games at the new sports facility, Reich (2001) explains that this does not constitute any new income but is only a fraction of people’s entertainment expenses.
What this means is that individuals are simply shifting some of their entertainment money to go to the stadium. In the absence of a stadium, the money would still have been spent on other forms of entertainment such as movies or in the bars. The money being brought to the stadium then does not represent any growth in revenue but simply a substitution in the use of already allocated entertainment allowance. Increases in stadium gate collections will be matched by reductions in expenditure in other areas. Opposition to government funding of sports stadiums is faulted for other economic reasons.
Reich (2001) notes that the construction of a sports stadium has an opportunity cost attached to it. The opportunity cost of a product enables for comparison of that product’s use to the alternative that similar expenses would have produced. Detractors of government involvement in construction of stadiums point to the many worthwhile alternatives that the money could be spent on. Projects such as schools, hospitals, new parks and funding for community services such as firefighting or improving police services are better alternatives to spend public money on (Reich, 2001).
In addition, such projects have a greater impact and more long-term benefits than a new stadium. While new stadiums are hailed for their ability to generate money, Reich (2001) notes that a stadium should only be considered as generating money if it is possible to bring in money from outside the region where it is located. If the money it generates is only from local sources, the stadium cannot be considered to be generating new money as what it is receiving is money that has been diverted from other expenditures.
Yet it is possible for a new stadium to attract income from other areas if it could attract spenders from outside the local area. A stadium will then be able to contribute to the economic development of a region if it leads to the development of an export industry. Reich (2001) gives the example of Baltimore’s Oriole Park, which he says has succeeded in creating a successful export industry. It is estimated that over 30% of visitors to this park will be from outside the Baltimore area.
Yet for all the foreign money that Oriole Park brings Baltimore, the impact of the Park on the economy of Baltimore is hardly felt and Reich (2001) estimates that the incremental income from the Park is only about $3 million per year. Compared to the cost of the investment, $200 million, the return is minimal. Not many new stadiums can hope to attract as many foreign visitors as the Park in Baltimore. This means that the ability of stadiums to attract foreign money is limited and even when they succeed in attracting such money; the impact on the local community is minimal.
Where people are opposed to government expenditure on new sports stadiums, they point to the expense involved in funding these projects. A case in point is the proposed baseball stadium in Miami. One of the reasons that the residents of Miami oppose the construction of the new stadium in their city is the $630 million that this project will cost. Over the years, the cost of constructing a new stadium has been rising so steeply that government may not afford to finance such projects. Noting the very steep rise in construction costs in the 1990s, Reich (2001) argues that the government can hardly afford to finance these projects.
During this period, the cost of constructing a stadium stood at about $198 million while the cost of sports arena stood at $153 million (Reich, 2001). Even worse than the estimated costs of stadium construction are the cost overruns that is associated with stadium construction. It is near impossible to accurately estimate the cost of a stadium and overruns could range from 40% to 500%. This is not the result of lethargy on the part of government agencies because even estimates by independent analysts have failed to avoid the problem of cost overruns (Reich, 2001).
Reich (2001) gives examples of cities that have recently built stadiums – “Seattle, Denver, Houston and Pittsburg” – and notes that in each case, costs far exceeded the estimates. This makes government funding of sports stadiums construction especially harmful for the taxpayer. Where costs go up several times, the public suffers by having to absorb unforeseen expenses. Franchise owners have a tough time convincing people to support government funding of the construction of new stadiums and, lacking sound economic reasons for such projects, seek to appeal to the residents’ emotions and civic pride.
Where these fail, franchise owners have no qualms using threats and creating the impression that in building a stadium, the residents are actually helping themselves more than they are helping the franchise owners. Bandow (2003) notes that franchise owners typically win public support for their projects by threatening the public with words like “pay us or we will leave”. This extortionist attitude by franchise owners can be read in the words of Lew Wolff, the managing partner of Oakland A’s when he laments the failure to get a foothold in Fremont.
The shifting of the A’s is made to sound as more important to the residents of Fremont than it is to the team. Commenting about the A’s failure to get a foothold in Fremont, Roger Noll, the economics professor emeritus who comments about this failure, says that, in the future, San Jose can expect “competition from cities hungry for big league baseball, including Sacramento, Las Vegas and Portland” (Goll, 2009). The franchise owners are then simply arm-twisting the public who in some situations give in to avoid losing a franchise.
Yet there are no economic justifications for giving-in to threats by franchise owners. Since expenditure on sports entertainment represents expenditure diverted from other entertainment sources, the city which loses a franchise really loses nothing as whatever money would have gone to the stadium will now be spent on other forms of entertainment. Bandow (2003), noting that the owners of franchises are mostly wealthy people, decries the threats to move base by franchise owners and advises that it makes no sense “to shovel corporate welfare into a billionaire’s hands” just to keep a franchise.
While franchise owners will create the impression that the presence of a team in a city is for the benefit of the residents, Keating (2000) observes that what really matters for such owners are the profits that the teams are able to make. By using public funding, franchise owners are able to avoid the high costs associated with stadium construction. Secondly, franchise owners get new ways of hiding their expanded revenues which they divert to luxury suites and other things that are beneficial only to the club and never to the public (Keating, 2000).
While franchise owners will attempt to get the backing of the public by appealing to their emotions, Keating (2000) observes that the public is largely kept in the dark about the real intentions of franchise owners. In seeking funding for new stadiums, teams usually have a new set of fans in mind. The new stadiums that they manage to get constructed will usually be smaller than the stadiums that they are replacing and this means that the franchise owners are normally hoping to get a new group of fans, usually wealthy individuals and corporations who will be able to afford the increased charges at the stadiums.
This means trouble for the resident whose taxes financed the construction of the stadium as the result is that the new breed of fans succeeds in driving out long term fans and people in lower income brackets whose places are taken by the wealthy and the corporate clients (Keating, 2000). While the residents are supposed to benefit from the new stadium, the real beneficiary is the franchise owner because moving to a new stadium does not lead to the payment of property taxes.
Keating (2000) gives the example of the Knicks and Rangers who never pay anything to the city of New York for the use of Madison Square Garden, so long as they are using it as their home. As a result of moving to a new sports facility, baseball franchises report improved valuations. In the period 1991 -1997, valuations for franchises with new sports facilities went up by up to 79% while the league average is only 11% (Keating, 2000). The franchise owners are therefore only making use of public funds to benefit themselves and not the tax-paying public.
While franchise owners seeking government funding for new stadiums create the impression that they will benefit the community, Keating (2000) notes a loophole in this arrangement that is not only detrimental to the community but also puts the rest of the society at the risk of permanent extortion by franchise owners. Even when clubs are using a stadium as their home, they are never considered the owners but renters. This effectively ensures that such clubs can keep issuing threats to local authorities that they will move unless certain conditions are met.
Keating (2000) thinks it is possible for clubs to operate in a cartel-like nature whereby they will pit “city against city and state against state”. The funding for clubs then becomes not just economically meaningless for a city but potentially detrimental. Advocates of government funding for construction of sports stadiums sometimes make reference to the Keynesian multiplier as justification for government spending. The Keynesian multiplier predicts economic growth when community resources become more productive (Reich, 2001).
In the case of government expenditure on sports stadiums, those who seek justification for it from the Keynesian multiplier claim that the money that is spent will lead to economic growth as more money gets into circulation and is used and reused thus spurring economic activities in all areas. Yet Keating (2000) sees potential flaws with the claims of a multiplier to explain the level of economic growth that communities can expect from activities generated by government expenditure on new sports facilities.
Dismissing claims of a positive multiplier as machination by politicians and franchise owners, Keating (2000) observes that some basic assumptions made by those justifying expenditure on the basis of a multiplier are flawed. One such assumption is that all the money generated will be sent around the facility, which is hardly ever the case. While new sports facilities lead to better incomes for the club and therefore higher salaries for the players, such players hardly ever spend their income anywhere near the facility. Keating (2000), quoting Economist Edward S.
Mills of Northwestern University’s Kellog Graduate School of Management, notes that it does not make sense to expect a multiplier effect to spur economic growth without taking into account the negative multiplier effects of increased taxation. To raise money for the new stadiums, the government taxes people and this leads to reduction in the amount of money that households have as disposable income. With less money to spend, people will reduce their expenditure. Just as the positive multiplier of government expenditure goes round and round, so does the negative multiplier of increased taxation.
The net result is that the economy records no tangible economic growth changes. Keating (2000), in dismissing figures produced by municipal authorities in support of government spending on new sports stadiums as merely speculative and devoid of tangible prove looks at empirical data which paints a less rosy picture. From data obtained by Economist Robert Baade for the period between 1958 and 1987, Keating (2000) observes that the presence of a professional sports club in a city did not significantly improve economic growth rates.
Such clubs not only failed to improve job creation in the cities they are in, they also failed to attract money from outside their specific cities. In fact, studies carried out on the economic effects of a new sports stadium and a new professional club in a city has shown that the new development actually makes cities poorer (Keating, 2000). While politicians and franchise owners create the impression that new stadiums and professional sports are a great aid to a society’s economic growth, the statistics are quite sobering.
Professor Michael Walden of the North Carolina State University, in studies conducted during the 1990s discovered that cities that were the homes of major league teams actually grew less than cities that did not have such teams (Keating 2000). That professional sports could be contributing to the poverty not the economic growth of cities is shown by the research conducted by University of Maryland Economists, Coates and Humphreys, who, in the 1990s discovered that investment in sports stadiums and teams led to a drop in the per capita incomes of the cities involved.
For cities with new ballparks, per capita income dropped by $100 while cities with new baseball teams recorded reduction in per capita income of $400 (Keating, 2000). The story of baseball clubs in the US is similar to the story of teams in the other three professional sports leagues. Reich (2001) notes some similarities that provide fertile ground for public manipulation by politicians and franchise owners. Franchise owners retain controlling power over the public by keeping the number of teams in all the professional leagues below the number demanded.
This means that at any time, there is a city that will be requiring a professional team. This excess demand makes cities desperate to hold on to the teams that they have. Moreover, it puts the teams in such a strong bargaining power that they are able to get things done their way as all a team needs to do is threaten that it will relocate to another city. Franchise owners know they can count on the politicians to push their agenda because the latter fear their careers could be ruined if they lost a team to another city.
In this way, managers of the professional sports leagues keep American cities at war with each other for the few teams available while at the same time guaranteeing that government subsidies for their operations will be easily available (Reich, 2001). While government funding for the construction of new sports stadiums could take the form of a direct subsidy, it is possible for franchise owners who undertake construction as a private venture to benefit from government support.
While the city of New York has offered to fund the construction of new stadiums and Miami is still discussing whether to go the New York way, the situation in Fremont is a bit different. In Fremont, the Oakland A’s will be constructing the new stadium using private funds. Even in situations where club owners finance the construction of stadiums, however, there is always the possibility that public finances will be used. Reich (2001) notes the existence of what are known as “sweetheart deals” which private developers are able to take advantage of and which in most cases constitute a considerable subsidy from the government.
Sweetheart deals are available to the private developers through means that are not very visible to the public but which could lead to massive savings to the developers or assist in the generation of unexpected income. Some of the ways in which private developers could benefit from sweetheart deals include contributions from the government for the development of the infrastructure around the stadium in addition to government support to cater for moving expenses. In some situations, club owners receive free land from the government for the development of the sports facilities.
One notable beneficiary of a typical sweetheart deal is Art Modell, owner of the Baltimore Ravens (Reich, 2001). The sweetheart deal that Modell enjoys enables him to pocket the revenues from parking and other stadium-associated revenues, which at the end of the day translates to a lot of money. Construction of the stadiums in New York has encountered litigation from an Ohio Congressman who, among other things, claims that the value of the land the stadiums will be built on is misrepresented and amounts to a sweetheart deal (Baxter, 2008).
Government support for the construction of baseball stadiums and other sports facilities, though rising, cannot be supported by any economic reasons. In fact, support for the construction of stadiums would seem to be driven more by emotional considerations and political expediency. Analysis of the benefits that the residents of a city receive from hosting a baseball team or having a new stadium constructed reveals that the residents are better off without taking on such a burden.
Moreover, managers of professional sports seem to deliberately keep the number of teams available for the various cities artificially low and in this way permanently hold the public at ransom. For this reason, the cheering crowds who fill sports stadiums to cheer what they consider home teams are only playing into the hands of exploitative business owners who do not have much respect for the locals. Given the way such businessmen seem to be guided by no other considerations than the profits that accrue to the franchises, the residents who support government funding of a stadium in their city act in the most gullible manner.
Since the expenses associated with construction of a baseball stadium run into many millions, supporters of government expenditure on the construction of new stadiums not only burden themselves but also help divert resources that could be put to more meaningful, economically viable and socially beneficial projects. As Sawyer (2006) suggests, financing of massive projects such as stadiums need not be a burden to the public as there are other sources that could be utilized. A combination of both public and private funding sources could be more effective and less burdensome for the taxpayer.
With so many factors militating against government support for the construction of baseball and other stadiums, it is time that such assistance was withdrawn permanently. References Bandow, D. (2003) Surprise! Stadiums don’t pay, after all. CATO Institute, The Washington Post. Retrieved March 18th 2009, from http://www. cato. org/pub_display. php? pub_id=5640 Baxter, B. (2008). Foul ball: Congressional committee criticizes new yankee stadium deal. The am law daily. Retrieved March 18 2009, from http://amlawdaily. typepad. com/amlawdaily/2008/09/foul-ball-congr. html Goll, D. (2009).
In bay area: A’s start all over again. Sports News Today, Retrieved March 18 2009 from http://today. sportingnews. com/sportingnewstoday/20090303/? pg=25 Keating, R. J. (2000). It’s time to get government out of the sports business. USA Today, 128(2658), 28 Munsey & Suppes. (2008), New Yankee stadium, Retrieved March 18 2009, from http://www. ballparks. com/baseball/american/nyybpk. htm Musibay, O. P. (2009). In Miami: Marlins’ make-or-break votes. Sporting News Today, Retrieved March 18 2009, from http://today. sportingnews. com/sportingnewstoday/20090303/? pg=25
Reich, B. (2001). Baseball and the American city: An examination of public financing and stadium construction in American professional sports. Retrieved March 18 2009 from http://www. stadiummouse. com/stadium/index. html Sawyer, T. H. (2006). Financing facilities 101: Public funding, private funding, hard taxes, soft taxes – welcome to the complex world of facilities financing. JOPERD – The journal of physical education, recreation & dance, 77(4) 23+ Weinberg, P. (2005). The Eminent domain for private sports stadiums: fair ball or foul? Environmental law, 35(2) 311+