July 30, 2002

July 30, 2002 | Commentary on Taxes

Taxpayers Prop Up Sports Profits

Art Modell, owner of the NFL Baltimore Ravens, observed during one of his struggles to get local taxpayers to build him a stadium that "The pride and presence of a professional football team is far more important than 30 libraries, and I say that with all due respect to the learning process." Lucky for him he found soul mates among the political leaders of Baltimore and Maryland who were delighted to divert millions of dollars in tax revenues, ticket sales, and borrowing authority from other public uses - like schools and libraries - to build him a new $220 million stadium when he moved the Browns from Cleveland to Baltimore. After all, fair is fair: six years earlier taxpayers provided $210 million to build a state of the art retro ball park for the Orioles, and to deny the same privilege for the owner of the new football team would have been to discriminate among the city's wealthy sports moguls.

Maryland's political leaders justified this trickle up diversion of public monies from ordinary folk to wealthy owners and players as a beneficial act to stimulate the local economy, which in Baltimore has been fading fast since 1950. Professional sports teams playing in new stadiums, so the argument goes, create lots of new jobs, and these new workers will create even more jobs as they spend their sports-related paychecks around town. While there is some kernel of truth to these claims, what subsidized sports advocates fail to mention is that a costly stadium will pull public money away from other city uses and jobs - such as new schools, better law enforcement - and instead spend it to create low wage, part time, seasonal jobs at the ball park. Such dead end jobs do little to enhance the economic well-being of a city, or the diminishing number of people who live there.

Despite these recent and massive investments in stadiums and professional sports teams, Baltimore continues to struggle. And it remains one of the most depressed and troubled cities in America, even as many other older cities like New York, Miami, Oakland and San Francisco have reversed course and now record their highest populations ever. Among the nation's top forty cities, Baltimore's population fell further than any other, even more than perennially troubled Detroit, Philadelphia and Washington DC. Its crime rate is among the highest in the land: According to FBI reports, in 2000 Baltimore's murder rate was 41 people per 100,000 of population compared to 5.5 people per 100,000 nationwide, 8.4 in New York City, and 20 in Philadelphia.

Baltimore's public schools perform no better than the police department, ranking last among Maryland's twenty-four school districts as measured by the National Assessment of Educational Progress. Among Baltimore's eighth graders, less than 10 percent score at the "proficient" reading level. In a perversely self-fulfilling way, Art Modell was right about sports teams and libraries, what with the low level of literacy now common among Baltimore students. And local leaders last year confirmed their earlier endorsement of Modell's priorities when they announced the city would shut down five public libraries because of budget shortfalls and declining patronage.

Although Baltimore offers one of the worst examples of misplaced priorities contributing to catastrophic circumstances for its most vulnerable citizens, it is not alone among the nation's troubled cities who have undermined their economic well-being in pursuit of professional sports franchises with multi-million dollar bribes of tax payer dollars. Two years ago Pennsylvania's Governor Tom Ridge agreed to provide a billion dollar grant to help build a total of four new professional football and baseball facilities in Philadelphia and Pittsburgh, two of the nation's most economically diminished cities, in one of the most economically diminished states.

Elsewhere, Hartford, CT and New Orleans, LA were recently among the especially generous places where government offered to build stadiums or arenas for prospective teams, and iced the costly cake by promising to use taxpayer money to underwrite a minimum level of ticket sales in the event that fan attendance didn't meet expectations. Even New York's former mayor, Rudy Giuliani, who more than anyone led the city's renaissance with an obsessive focus on basic public services, had wanted to provide many millions of city dollars to build a new ballpark for the Yankees and Mets. Just prior to leaving office in January 2002, Giuliani signed a non-binding agreement with the Mets and Yankees to provide them with $800 million toward half the costs to construct two new ball parks in the city.

However, his successor Mayor Bloomberg was quick to point out that the impact of the 9/11 terrorist attack on the city's economy and budget made it unlikely that the project could be funded this year. Rising expenses and falling tax revenues have led to a city budget deficit now estimated at $4.6 billion, forcing the city to take on billions of dollars of new debt, trim funds from many programs, and reduce by 5,000 the city's workforce. With the city confronting a host of pressing public needs in the aftermath of the attack and the decline the city's economy, Mayor Bloomberg made clear he understood where the city's priorities lay, and subsidizing the businesses of wealthy sports entrepreneurs owning highly profitable teams was not going to be one of them. Instead, he urged both teams to finance the projects themselves, an option the Yankee's management claims it is not considering, and added that it hopes the city gives the teams the promised $25 million in stadium rent credits to cover planning expenses for the new ball parks. So much for sacrifice, and so much for what the city must now see as the empty gesture it was: George Steinbrenner's Yankee ball players sporting FDNY caps in post-season play.

Although Mayor Bloomberg seemed to have a better sense of the city's fiscal priorities than either wealthy team owner, within just a couple of days of pleading poverty to the baseball teams, the mayor announced that he would back plans to build a billion dollar football stadium. Expected to be built on the west side of Manhattan to house the Jets and the Giants, the Mayor also hopes that the facility can house some of the Olympic activities the city hopes to host if it is awarded the 2012 summer Olympics, an opportunity that will likely prove an even worse investment than professional sports facilities.

In everyone of these cases, and in the dozens of others that have been built or proposed around the country in the last decade, the public's investment in the team's facilities is almost always presented as an economic gold mine whose financial returns to the region will more than justify the public's investment in the facilities and the generous lease concessions provided the team. As part of the sales pitch, team owners usually hire an economic consultant to "study" the issue, and the consultant invariably concludes that the new stadium will have a favorable economic impact of several hundred millions of dollars per year. What information these consultants never provide, though, is how the economic impact of a stadium investment stacks up against, say, the impact of an investment in a new university, which could be had for around the same price. Nor do their calculations measures the losses incurred by other local entertainment venues as consumer recreational spending is diverted to professional sports. These consulting studies also overlook the fact the those who receive the bulk of the franchise payroll - the players - will likely reside, and spend, elsewhere.

In contrast to the consultants' optimistic advance projections, scores of serious after-the-fact academic studies on the subject find little or no evidence that stadiums boost the local economy. And some of the more recent research on the subject suggests that public investment in such facilities may even diminish the economic vitality of the community that funds the project.

One of the earliest studies on the economic impact of stadiums was a 48 city study spanning 30 years of economic activity by Professor Robert Baade of Lake Forest College in Illinois. Baade found that in the 30 cities experiencing a change in the number of stadiums or arenas, 27 showed no influence on income, but three experienced significant negative effects, leading Baade to conclude: "Upon some reflection, sports' slow growth pattern should not be surprising…Sports diverts economic development toward labor intensive, relatively unskilled (low wage) part-time jobs." And in a later study Baade explained this lack of measurable impact as a result of the fact that "professional sports realign economic activity within a city's leisure industry rather than adding to it." In other words, money spent at the ball park is money that otherwise would have been spent at the movies or golf course.

Subsequent studies by other academic economists, including a major book on the subject published in 1997 by the Brookings Institution, have largely confirmed Baade's findings that sports teams and their facilities have little measurable impact on the economic vitality of a community. Perhaps more alarming is a 1999 study by Professors Coates and Humphreys at the University of Maryland. After analyzing business activity in 37 metropolitan areas from 1964 to 1994, they conclude that "In contrast to other existing studies, we find evidence that some professional sports franchises reduce the level of per capita personal income in metropolitan areas and have no effect on the growth in per capita income, casting doubt on the ability of a new sports franchise or facility to spur economic growth." Why this occurs, they believe, is that sports facilities divert money from other public infrastructure, public safety, education and other forms of economic development, or increase taxes.

Simple observation and anecdotal evidence, as well as contradictory statements by some owners supports the finding of these complex econometric studies. Yankee owner George Steinbrenner once argued for a new publicly funded stadium in mid-town Manhattan because the stadium's current location in a battered Bronx neighborhood discouraged attendance. In effect, Steinbrenner was admitting to what many economists have discovered analytically: that the Bronx managed to resist 70 years of Yankee Stadium's economic stimulus. And so has north Baltimore, which resisted 40 years of Memorial Stadium stimulus; north Philadelphia resisted Connie Mack Stadium; south Philadelphia resisted Veterans Stadium; and south side Chicago resisted Comiskey Park. And so too has Cleveland, whose population fell 5 percent during the 1990s, thereby inexplicably resisting the salutary effects of Jacobs Field, one of the most expensive ball parks ever built, the $300 million Browns stadium, and the under-performing Rock and Roll Hall of Fame. Indeed, to the extent that there is any apparent correlation in any of this, new stadiums and other costly entertainment facilities seem more closely associated with pervasive urban decline than the other way around.

By way of contrast, New York City, which until recently held the honor of the world's biggest boom town, is one of the few older cities anywhere in the world to experience a record high population, and has managed to achieve this feat with ancient sports facilities, and the absence of professional football teams, who long ago fled to New Jersey. San Francisco also hit an all-time population record, and it recently refused to build a new park for the Giants, who instead built it themselves. Whether New York City gets the publicly-funded ball field some want is now very much in doubt because of the worsening public finance situation in the aftermath of the terrorist attack. But even in the absence of these problems, the proposal was very controversial and a number of thoughtful studies cast serious doubt on its economic value. A 1998 study by New York's independent budget office concluded that a new ball park shared by the Mets and Yankees would only yield an additional 570 jobs for the city. At a then estimated cost of a billion dollars for the new ball park, these few added jobs would cost New Yorkers $1.7 million a piece, a bit steep in today's market.

Although the economic impact of a professional sports team on a community appears to be negligible, or worse, team owners have nonetheless managed to win far more concessions from communities than they have lost. For every Charlotte, Montreal or San Francisco that say no to public financing of stadiums, there are an abundance of Phildelphias, Baltimores, Pittsburghs, New Orleans, Nashvilles, and Clevelands eager to open their citizens wallets in the misplaced hope that some of the glitz rubs off on their down and out cities.

Evidence suggests that it will not, and there is also every reason to believe that the terms of the trade off might get worse in the future as sports fans continue to drift away to other entertainment and leisure time options, leaving costly stadiums underutilized and team owners threatening to leave town unless further concessions are granted. Although overall professional sports attendance had been increasing in recent years, much of this gain was spurred by added teams and the novelty effect of new parks and arenas attracting the curious. As the novelty wears off, attendance wanes, and evidence indicates that peak attendance at professional sporting events may have occurred a few years ago. Total attendance at American League baseball games has yet to recover to the pre-strike peak reached in 1993, and the National League would have experienced the same trend in total ticket sales had it not added two new teams in 1993 and another two in 1998.

Television viewership, which provides a major source of the revenues to professional sports, has been on a downturn for the past decade. Hockey ratings have fallen by half since 1995, and since 1990 baseball's ratings are off by a third, while basketball and football are both down by about a quarter. Indeed, one network last year explored the option of not broadcasting some of the NBA's games for which it had already purchased the rights because it would lose less money by broadcasting reruns in the game's place. NFL Monday night football is also way down in ratings, and is consistently beaten by televised wrestling which draws a larger and younger audience. Early this year, the Fox network's parent, News Corp., wrote down the value of its professional baseball and football contracts by $522 million to reflect declining ad revenues.

As diminished interest leads to a drop off in stadium attendance, many communities may find themselves stuck bailing out a costly stadium project that can't pay its debt service. Indeed, some speculate that Bud Selig, commissioner of major league baseball sees something like this as a real possibility and his attempt to close down two teams reflects an effort to reduce supply to meet a shrinking spectator base.

Either way, as pro team owners hunker down to protect their interests, it is the hapless taxpayer who will get stuck holding the bag for non-performing assets, not to mention the collateral damage from non-performing schools. This is the choice many communities now face, and hopefully more will choose wisely in the future than have done so in the past.

Dr. Ronald D. Uttis a senior research fellow at The Heritage Foundation, a Washington-based public policy research institute.

About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow

Related Issues: Taxes

Originally Appeared in August 2002 Issue of the American Legion Magazine.