December 7, 2004

December 7, 2004 | Commentary on

Baseball Boondoggle?

The price of two tickets … $38. The price of hot dogs and soda … $12. The price of bringing major league baseball back to D.C. … exorbitant!

That is, at least as the deal now stands. Under the existing agreement with Major League Baseball, the District is much more likely to lose than to win. Mayor Anthony Williams' proposal calls for a new gross receipts tax that will further undermine the District's already fragile tax base. That's a tax on gross receipts. Whether or not you earn a profit, you pay the tax. Naturally with the tax, fewer will earn a profit. And so the tax base starts to shrink.

The Mayor's plan is typical of 20th Century political thinking. He and his aides have based their revenue claims on simply multiplying the new, higher tax rates against existing business receipts. Only the 2000 largest businesses are targeted with this tax, not the "mom and pop" stores. But these biggest businesses are also the ones who can flee most easily, not the corner delicatessen. It won't be long before every accountant in the area is pointing out to larger businesses that, by moving across the river or into Maryland, they can have the benefits of baseball and access to Washington without the added cost.

For many businesses, this is a one-sided choice. The result: fewer businesses, fewer workers, fewer residents. And, in all likelihood, less tax revenue.

Meanwhile the remaining residents would be on the hook for the cost of the stadium and subsidizing the ridiculously low rent that the new baseball owners would initially pay.

The barons of baseball want to have their cake and eat it, too. Don't we all? They are looking to make a tidy profit on their ownership of the former Expos. But the same people who are willing to risk several million a year on a free agent, sore-armed pitcher who might help them somewhere down the road, seem to be totally risk-averse on this deal.

The barons want the District to purchase the land, to pay for the park, to guarantee low rent, to allow the owners to keep the revenues from parking (all but 12 days a year), tickets, concessions and selling the park name to some corporation, to assume all risk on environmental hazards on stadium land, and, just for good measure, to promise to renovate RFK stadium.

The city assumes all risk, and the barons of baseball reap all the rewards. It's heads "I get to resell the franchise at an enormous profit," tails "you pay for any losses." Wouldn't we all like to invest our 401(k)s like this!

Of course someone is bound to claim that bringing baseball to the Capitol will bring bountiful bonuses. Sorry, that's not what the data show. Most studies of baseball and football stadia reveal that only one publicly funded stadium has paid off in the last half century. That's Dodger Stadium, way back in the 1960s. All subsequent public deals have cost taxpayers more than they got back, even Camden Yards.

Luckily there is an alternative: private financing. In recent years, for example, the costs and risks of the football stadium in New England, SBC Park in San Francisco and the MCI Center here in the District have been borne primarily by the team owners or private sources, not the taxpayers. There is no reason this cannot be done for the baseball park as well. Let those who stand to gain from the resale of the franchise bear the risks associated with their investment. Taxes from tickets, parking and concessions, revenues from game-day parking plus the proposed rent payments can more than cover the debt servicing. The owners still get to keep the revenues from tickets and concessions.

Without such risks, the incentives for an owner to field an exciting, competitive team are miniscule. Why sign an expensive star when all the owners have to do is sit back and just cover their subsidized basic costs?

Who will be the next Calvin Griffith? With global capital markets, there are plentiful possibilities. John Henry, the principal owner of the World Champion Red Sox is no Bostonian. If there is a chance for profit, they will come. If not, why is this commitment being proposed in the first place?

There are already a couple of private financing proposals on the table that accomplish D.C.'s goals without the onerous gross receipts tax. These proposals should be carefully considered before anyone seals a deal.

Let's bring baseball back to D.C., but at terms fair to the residents. Now that's priceless.

Marc Miles is director of the Center for International Trade and Economics at The Heritage Foundation (heritage.org).

About the Author

Marc Miles, Ph.D. Senior Fellow
The Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy

First appeared in the Sunday Washington Times