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This is a fascinating look at how cities and taxpayers are continually screwed by financing stadiums.
http://www.psmag.com/business-economics/america-has-a-stadium-problem-62665/
America Has a Stadium Problem
If it were its own country, Chester, Pennsylvania’s per capita income would rank between Turkey and Dominica. On average, its residents are poorer than those of Uruguay, Lebanon, and Antigua and Barbuda. The city has been part of a program for economically distressed communities since 1995. And in 2010, PPL Park, a $117 million soccer stadium, was opened in Chester’s southwest corner, overlooking the Delaware River. With 97 percent of funding coming from the public, that’s $3,334.90 for every man, woman, and child in Chester.
Over the past 20 years, 101 new sports facilities have opened in the United States—a 90-percent replacement rate—and almost all of them have received direct public funding. The typical justification for a large public investment to build a stadium for an already-wealthy sports owner has to do with creating jobs or growing the local economy, which sound good to the median voter. “If I had to sum up the typical [public] perspective,” Neil deMause, co-author of Field of Schemes and editor of the blog by the same title—the go-tos on the ongoing stadium subsidy story—told me via email, “I’d guess it’d be something along the lines of ‘I don’t want my tax money going to rich fat cats, but anything that creates jobs is good, and man that Jeffrey Loria sure is a jerk, huh?’” This confused mindset has resulted in public coffers getting raided. The question is whether taxpayers have gotten anything in return.
All in all, building a stadium is a poor use of a few hundred million dollars.
Economists have long known stadiums to be poor public investments. Most of the jobs created by stadium-building projects are either temporary, low-paying, or out-of-state contracting jobs—none of which contribute greatly to the local economy. (Athletes can easily circumvent most taxes in the state in which they play.) Most fans do not spend additional money as a result of a new stadium; they re-direct money they would have spent elsewhere on movies, dining, bowling, tarot-card reading, or other businesses. And for every out-of-state fan who comes into the city on game day and buys a bucket of Bud Light Platinum, another non-fan decides not to visit and purchases his latte at the coffee shop next door. All in all, building a stadium is a poor use of a few hundred million dollars.
This isn’t news, by any stretch, but it turns out we’re spending even more money on stadiums than we originally thought. In her new book Public/Private Partnerships for Major League Sports Facilities, Judith Grant Long, associate professor of Urban Planning at the Harvard University Graduate School of Design, shatters previous conceptions of just how much money the public has poured into these deals. By the late ’90s, the first wave of damning economic studies conducted by Robert Baade and Richard Dye, James Quirk and Rodney Fort, and Roger Noll and Andrew Zimbalist came to light, but well afterwards, from 2001 to 2010, 50 new sports facilities were opened, receiving $130 million more, on average, than those opened in the preceding decade. (All figures from Long’s book adjusted for 2010 dollars.) In the 1990s, the average public cost for a new facility was estimated at $142 million, but by the end of the 2000s, that figure jumped to $241 million: an increase of 70 percent.
Economists have also been, according to Long, drastically underestimating the true cost of these projects. They fail to consider public subsidies for land and infrastructure, the ongoing costs of operations, capital improvements (we need a new scoreboard!), municipal services (all those traffic cops), and foregone property taxes (almost every major-league franchise located in the U.S. does not pay property taxes “due to a legal loophole with questionable rationale” as the normally value-neutral Long put it). Due to these oversights, Long calculates that economists have been underestimating public subsidies for sports facilities by 25 percent, raising the figure to $259 million per facility in operation during the 2010 season.
All the while, American cities, counties, and states continue to struggle. Glendale, Arizona, may actually sell City Hall so they can afford to keep subsidizing a hockey team that few people actually pay to see. Detroit isn’t exactly the paragon of fiscal responsibility, with its Emergency Manager—they have an honest-to-god “emergency manager”—offering a stern warning:
And in Hamilton County, Ohio, where a combined $805 million in taxpayer money built the new football and baseball stadiums, police and education budgets have been slashed, while one in seven people live below the poverty line.
Why, then, do we keep paying?
THE BASIC EVOLUTION BEHIND subsidies for sports stadiums is as follows: owner wants new stadium to make more money and increase the value of the franchise. Owner threatens to move team. Politicians save face by pretending they won’t offer millions of dollars in subsidies. Politicians eventually offer millions of dollars in subsidies and keep the team in the city. If there’s a justification for all this, it comes from the concept of a public good.
“The traditional definition of a public good is that the benefits aren’t scarce, they’re non-rival and non-excludable, so the consumption by one person doesn’t limit the consumption by someone else,” Professor J.C. Bradbury, a sports economist at Kennesaw State University and author of Hot Stove Economics, told me over the phone. “So if I’m happy Charlotte has a basketball team, that doesn’t make anyone else less happy.” The stadium itself, though, is a private good. There are only a limited number of seats, and if my ass is in Section 101, Row V, Seat 21, your ass isn’t.
Still, the thinking goes, a fan can enjoy a team without giving the franchise a penny. If you don’t buy Sunday Ticket, don’t attend any games, and don’t purchase any merchandise, then your favorite football team won’t see any of your money, no matter how passionately you follow them. But how do you quantify this? This is where Contingent Valuation Method (CVM), a survey method originally designed by environmental economists to value public park space or clean air, comes into play.
CVM asks people a hypothetical question: suppose their local team was going to move if they didn’t get a new arena. How much would you be willing to pay per year in higher taxes in order to keep that team?
Professor Bruce K. Johnson of Centre College, one of the best-known practitioners of this method, has repeated the CVM technique in various cities, and the results are almost unanimous: the willingness to pay is much smaller than the typical stadium subsidy, about one-fifth on average.
The theory goes that the subsidies ought to be highest in cities where there is only one major league team because it contributes most to civic pride in making the city “major league” and bringing national respect and attention. But the data doesn’t back that up. “[In Jacksonville, surveying the Jaguars] it was something like 75 percent of respondents said ‘yes, this makes us a major league city, it makes us proud to live here,’” Johnson said. “But way less than half the people were willing to pay anything in the way of higher taxes to keep the Jaguars in town … it comes out to be on the order of between $20 to 30 million.” Jacksonville subsidized EverBank Field to the tune of $260 million in 2010 dollars by Judith Grant Long’s calculations, with another $50 million for a new scoreboard on the way.
Professor Johnson has shown there’s perhaps a very real justification for public subsidies to even out the true value a sports team brings to a city—even if they often don’t. But, as deMause told me, “I’m a sports fan, and I’d be the first to agree that there’s absolutely a non-economic value to having a sports team in a city. The question is, how much is that worth? Would your city benefit more from devoting $300 million to a new sports facility or, say, from $300 million worth of extra spending on schools?”
We waste $20 on lots of things all the time. What’s one more stadium?
PROFESSOR JOHNSON HASN’T SURVEYED the Baltimore area, but whether they were willing to or not, Baltimoreans are paying about $20 per capita per year for Camden Yards. Camden Yards rejuvenated baseball in Baltimore and spurred a trend of new retro-style baseball stadiums with modern amenities across the league, making baseball owners everywhere all the richer. And it’s why stadiums continue to be built with limited opposition.
In the world of stadium financing, the few people who stand to gain millions (or billions) from subsidies (owners, developers, contractors, leagues) will invest heavily in lobbyists and campaigning efforts to see that their project is approved, whereas regular voters who only stand to lose $20 per year will invest very little in fighting an issue they may or may not care about. Public choice economics (and common sense) say this is a terrible way to decide how to allocate tax dollars because it kind of goes against the whole democracy thing. Unfortunately, more and more often, it seems to be the way tax dollars actually are allocated.
When I asked Professor Bradbury if he thinks the issue of stadium financing is fundamentally a public choice problem, he said, “You have classic concentrated benefits and dispersed costs, and politicians have time preferences. They want to get re-elected now, and paying it off later is someone else’s problem.” While Professor Johnson was more direct: “I think that’s really what’s going on here.” He recalled that voters in Pittsburgh initially voted down referendums on funding new stadiums for the Pirates and the Steelers, but they got built anyway (which is not an uncommon occurrence).
The really bad news: Public choice problems are incredibly hard to solve. As Professor Johnson pointed out to me, people care about all sorts of things, almost always more than they care about a small amount of tax revenue that may or may not go to a billionaire sports owner. The principle of the matter is gross—the rich taking from everyone through tax dollars to build a new playhouse so they can be worth more money—but people don’t care for a very rational reason. We would rather concern ourselves with supporting a candidate who will let us have an abortion/not let us have an abortion or any other seemingly more important issue. We waste $20 on lots of things all the time. What’s one more stadium?
Except it goes beyond that. The problem arises when our children become undereducated, our police forces understaffed, and our firehouses emptied while stadiums are built with those same dollars. The problem becomes an epidemic when it’s $31 billion-with-a-B spent by American taxpayers subsidizing privately-owned stadiums, and a merely 20-year-old stadium is being replaced months after the city it’s in threatened to raise taxes or shrink the budget by $20 million. The problem becomes unsolvable when voters rarely get to actually vote on the issue, and when they vote “no,” the stadiums get built anyway.
IN THE BACKGROUND OF PPL Park’s beautiful Delaware River-front view sits the Commodore Barry Bridge, which could be mistaken for a much more famous bridge if you didn’t know any better. After the game, everyone makes their way to the highway that spans the bridge, not spending a dime in Chester; there’s nowhere to spend any money, really, other than a place called “Just Pizza,” where I suspect bad things would happen if you asked for a sandwich. When I was there last month, we passed by a row of vacated houses. Outside one house, by the side of the road, was a mountain of garbage almost as high as the two-story structure itself. Car after car filled with soccer fans passed by this monument to Chester as quickly as the traffic cop would allow them; they just wanted to get to the highway.
You’ve heard about all the ways in which sports are a metaphor for society, how the crack of a bat on a hot summer afternoon represents something great about the workaday spirit of the American life, and whatever else. But as I drove out of Chester, that Kilimanjaro of garbage was no metaphor. Those 117 million dollars built a soccer stadium instead of helping whoever left that pile of waste on the side of the street keep their house, instead of hiring someone to clean it up, instead of addressing a whole bunch of other more pressing matters for the city than a new sports venue. Yet we keep going to the games, driving by the garbage and trying our best not to think too hard about how it got there because the stadium is just around the corner, the highway just around the bend.
http://www.psmag.com/business-economics/america-has-a-stadium-problem-62665/
America Has a Stadium Problem
- by Aaron Gordon
- July 17, 2013
If it were its own country, Chester, Pennsylvania’s per capita income would rank between Turkey and Dominica. On average, its residents are poorer than those of Uruguay, Lebanon, and Antigua and Barbuda. The city has been part of a program for economically distressed communities since 1995. And in 2010, PPL Park, a $117 million soccer stadium, was opened in Chester’s southwest corner, overlooking the Delaware River. With 97 percent of funding coming from the public, that’s $3,334.90 for every man, woman, and child in Chester.
Over the past 20 years, 101 new sports facilities have opened in the United States—a 90-percent replacement rate—and almost all of them have received direct public funding. The typical justification for a large public investment to build a stadium for an already-wealthy sports owner has to do with creating jobs or growing the local economy, which sound good to the median voter. “If I had to sum up the typical [public] perspective,” Neil deMause, co-author of Field of Schemes and editor of the blog by the same title—the go-tos on the ongoing stadium subsidy story—told me via email, “I’d guess it’d be something along the lines of ‘I don’t want my tax money going to rich fat cats, but anything that creates jobs is good, and man that Jeffrey Loria sure is a jerk, huh?’” This confused mindset has resulted in public coffers getting raided. The question is whether taxpayers have gotten anything in return.
All in all, building a stadium is a poor use of a few hundred million dollars.
Economists have long known stadiums to be poor public investments. Most of the jobs created by stadium-building projects are either temporary, low-paying, or out-of-state contracting jobs—none of which contribute greatly to the local economy. (Athletes can easily circumvent most taxes in the state in which they play.) Most fans do not spend additional money as a result of a new stadium; they re-direct money they would have spent elsewhere on movies, dining, bowling, tarot-card reading, or other businesses. And for every out-of-state fan who comes into the city on game day and buys a bucket of Bud Light Platinum, another non-fan decides not to visit and purchases his latte at the coffee shop next door. All in all, building a stadium is a poor use of a few hundred million dollars.
This isn’t news, by any stretch, but it turns out we’re spending even more money on stadiums than we originally thought. In her new book Public/Private Partnerships for Major League Sports Facilities, Judith Grant Long, associate professor of Urban Planning at the Harvard University Graduate School of Design, shatters previous conceptions of just how much money the public has poured into these deals. By the late ’90s, the first wave of damning economic studies conducted by Robert Baade and Richard Dye, James Quirk and Rodney Fort, and Roger Noll and Andrew Zimbalist came to light, but well afterwards, from 2001 to 2010, 50 new sports facilities were opened, receiving $130 million more, on average, than those opened in the preceding decade. (All figures from Long’s book adjusted for 2010 dollars.) In the 1990s, the average public cost for a new facility was estimated at $142 million, but by the end of the 2000s, that figure jumped to $241 million: an increase of 70 percent.
Economists have also been, according to Long, drastically underestimating the true cost of these projects. They fail to consider public subsidies for land and infrastructure, the ongoing costs of operations, capital improvements (we need a new scoreboard!), municipal services (all those traffic cops), and foregone property taxes (almost every major-league franchise located in the U.S. does not pay property taxes “due to a legal loophole with questionable rationale” as the normally value-neutral Long put it). Due to these oversights, Long calculates that economists have been underestimating public subsidies for sports facilities by 25 percent, raising the figure to $259 million per facility in operation during the 2010 season.
All the while, American cities, counties, and states continue to struggle. Glendale, Arizona, may actually sell City Hall so they can afford to keep subsidizing a hockey team that few people actually pay to see. Detroit isn’t exactly the paragon of fiscal responsibility, with its Emergency Manager—they have an honest-to-god “emergency manager”—offering a stern warning:
In a report to be presented to Michigan’s treasurer on Monday, Kevyn D. Orr, the emergency manager appointed in March to take over operations here, described long-term obligations of at least $15 billion, unsustainable cash flow shortages and miserably low credit ratings that make it difficult to borrow.
But, they’re somehow on the verge of finding $450 million for a new hockey arena.And in Hamilton County, Ohio, where a combined $805 million in taxpayer money built the new football and baseball stadiums, police and education budgets have been slashed, while one in seven people live below the poverty line.
Why, then, do we keep paying?
THE BASIC EVOLUTION BEHIND subsidies for sports stadiums is as follows: owner wants new stadium to make more money and increase the value of the franchise. Owner threatens to move team. Politicians save face by pretending they won’t offer millions of dollars in subsidies. Politicians eventually offer millions of dollars in subsidies and keep the team in the city. If there’s a justification for all this, it comes from the concept of a public good.
“The traditional definition of a public good is that the benefits aren’t scarce, they’re non-rival and non-excludable, so the consumption by one person doesn’t limit the consumption by someone else,” Professor J.C. Bradbury, a sports economist at Kennesaw State University and author of Hot Stove Economics, told me over the phone. “So if I’m happy Charlotte has a basketball team, that doesn’t make anyone else less happy.” The stadium itself, though, is a private good. There are only a limited number of seats, and if my ass is in Section 101, Row V, Seat 21, your ass isn’t.
Still, the thinking goes, a fan can enjoy a team without giving the franchise a penny. If you don’t buy Sunday Ticket, don’t attend any games, and don’t purchase any merchandise, then your favorite football team won’t see any of your money, no matter how passionately you follow them. But how do you quantify this? This is where Contingent Valuation Method (CVM), a survey method originally designed by environmental economists to value public park space or clean air, comes into play.
CVM asks people a hypothetical question: suppose their local team was going to move if they didn’t get a new arena. How much would you be willing to pay per year in higher taxes in order to keep that team?
Professor Bruce K. Johnson of Centre College, one of the best-known practitioners of this method, has repeated the CVM technique in various cities, and the results are almost unanimous: the willingness to pay is much smaller than the typical stadium subsidy, about one-fifth on average.
The theory goes that the subsidies ought to be highest in cities where there is only one major league team because it contributes most to civic pride in making the city “major league” and bringing national respect and attention. But the data doesn’t back that up. “[In Jacksonville, surveying the Jaguars] it was something like 75 percent of respondents said ‘yes, this makes us a major league city, it makes us proud to live here,’” Johnson said. “But way less than half the people were willing to pay anything in the way of higher taxes to keep the Jaguars in town … it comes out to be on the order of between $20 to 30 million.” Jacksonville subsidized EverBank Field to the tune of $260 million in 2010 dollars by Judith Grant Long’s calculations, with another $50 million for a new scoreboard on the way.
Professor Johnson has shown there’s perhaps a very real justification for public subsidies to even out the true value a sports team brings to a city—even if they often don’t. But, as deMause told me, “I’m a sports fan, and I’d be the first to agree that there’s absolutely a non-economic value to having a sports team in a city. The question is, how much is that worth? Would your city benefit more from devoting $300 million to a new sports facility or, say, from $300 million worth of extra spending on schools?”
We waste $20 on lots of things all the time. What’s one more stadium?
PROFESSOR JOHNSON HASN’T SURVEYED the Baltimore area, but whether they were willing to or not, Baltimoreans are paying about $20 per capita per year for Camden Yards. Camden Yards rejuvenated baseball in Baltimore and spurred a trend of new retro-style baseball stadiums with modern amenities across the league, making baseball owners everywhere all the richer. And it’s why stadiums continue to be built with limited opposition.
In the world of stadium financing, the few people who stand to gain millions (or billions) from subsidies (owners, developers, contractors, leagues) will invest heavily in lobbyists and campaigning efforts to see that their project is approved, whereas regular voters who only stand to lose $20 per year will invest very little in fighting an issue they may or may not care about. Public choice economics (and common sense) say this is a terrible way to decide how to allocate tax dollars because it kind of goes against the whole democracy thing. Unfortunately, more and more often, it seems to be the way tax dollars actually are allocated.
When I asked Professor Bradbury if he thinks the issue of stadium financing is fundamentally a public choice problem, he said, “You have classic concentrated benefits and dispersed costs, and politicians have time preferences. They want to get re-elected now, and paying it off later is someone else’s problem.” While Professor Johnson was more direct: “I think that’s really what’s going on here.” He recalled that voters in Pittsburgh initially voted down referendums on funding new stadiums for the Pirates and the Steelers, but they got built anyway (which is not an uncommon occurrence).
The really bad news: Public choice problems are incredibly hard to solve. As Professor Johnson pointed out to me, people care about all sorts of things, almost always more than they care about a small amount of tax revenue that may or may not go to a billionaire sports owner. The principle of the matter is gross—the rich taking from everyone through tax dollars to build a new playhouse so they can be worth more money—but people don’t care for a very rational reason. We would rather concern ourselves with supporting a candidate who will let us have an abortion/not let us have an abortion or any other seemingly more important issue. We waste $20 on lots of things all the time. What’s one more stadium?
Except it goes beyond that. The problem arises when our children become undereducated, our police forces understaffed, and our firehouses emptied while stadiums are built with those same dollars. The problem becomes an epidemic when it’s $31 billion-with-a-B spent by American taxpayers subsidizing privately-owned stadiums, and a merely 20-year-old stadium is being replaced months after the city it’s in threatened to raise taxes or shrink the budget by $20 million. The problem becomes unsolvable when voters rarely get to actually vote on the issue, and when they vote “no,” the stadiums get built anyway.
IN THE BACKGROUND OF PPL Park’s beautiful Delaware River-front view sits the Commodore Barry Bridge, which could be mistaken for a much more famous bridge if you didn’t know any better. After the game, everyone makes their way to the highway that spans the bridge, not spending a dime in Chester; there’s nowhere to spend any money, really, other than a place called “Just Pizza,” where I suspect bad things would happen if you asked for a sandwich. When I was there last month, we passed by a row of vacated houses. Outside one house, by the side of the road, was a mountain of garbage almost as high as the two-story structure itself. Car after car filled with soccer fans passed by this monument to Chester as quickly as the traffic cop would allow them; they just wanted to get to the highway.
You’ve heard about all the ways in which sports are a metaphor for society, how the crack of a bat on a hot summer afternoon represents something great about the workaday spirit of the American life, and whatever else. But as I drove out of Chester, that Kilimanjaro of garbage was no metaphor. Those 117 million dollars built a soccer stadium instead of helping whoever left that pile of waste on the side of the street keep their house, instead of hiring someone to clean it up, instead of addressing a whole bunch of other more pressing matters for the city than a new sports venue. Yet we keep going to the games, driving by the garbage and trying our best not to think too hard about how it got there because the stadium is just around the corner, the highway just around the bend.
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