Field of Schemes Read online

  The explanation from local officials for these subsidies has invariably been that a new stadium is needed if the team is to stay in town and that, indeed, a team in town is needed if the city hopes to make a great urban comeback or remain a “major-league city.” New sports facilities are highlighted by the national media in pop analyses of a city’s vitality—thus, Camden Yards and Jacobs Field are seen as symbolic of the great revitalizations of Baltimore and Cleveland, as is Coors Field of the supposed renaissance of downtown Denver. As Indianapolis mayor William H. Hudnut III told the New York Times right after the Colts fled to his town’s new dome, “It’s a wonderful thing for our community. It’s a boost to the city’s image nationally and to local morale as a symbol of major league status.”

  All for One and One for All?

  When it comes time to convince taxpayers to vote for new-stadium subsidies, stadium proponents—whether team owners, local business interests, or enthusiastic politicians—don’t rely just on images of an emotionally rejuvenated civic pride. Instead, their central argument has historically been that the new facility will mean an economic windfall for its host town. Building a stadium at public expense—even if the teams don’t pay rent or share ticket, concessions, or parking revenues—will mean long-term prosperity and respect, citizens are told. It’s difficult to find U.S. cities, whether large or small, even with vastly different economic bases and financial prognoses, in which sports teams and their new stadiums are not continually held up as economic bonanzas, worthy of enormous public investment and sacrifice. A new arena or stadium, it is said, can jump-start a flagging economy with millions of new fans and spin-off businesses like restaurants, hotels, and other tourist attractions.

  For example, an organizer of the drive to bring the Oakland Raiders football team to the city of Sacramento in the 1980s once remarked, “The Raiders coming to Sacramento would be an event of the magnitude of the Gold Rush.” And when discussing a threatened exodus of the New York Yankees from their historic stadium in the Bronx, New York mayor Rudolph W. Giuliani, while publicly lamenting any move at all, crowed that a proposed location on the West Side of Manhattan would provide a revenue stream for the city that was “off the charts.”

  It’s a tempting offer, especially for cities that have seen other industries flee town for the suburban plains or for competing cities willing to cough up more-generous tax breaks or a more pliable labor force. But can the numbers be trusted? That’s what Cleveland community activist Marge Misak took a hard look at before the 1995 vote on extending her city’s sin tax, which would ultimately pay for a new football stadium.

  “At the time there was a claim in the Plain Dealer that the mayor basically asserted that the stadium would bring $46 million in economic development to the city,” Misak explains. Since the news article failed to report where Mayor White had gotten the figures, Misak went on the trail of the original source. “It turned out that it had come from an earlier study that the Growth Association, I think, of Cleveland had done. And basically the mayor’s office took this number and extrapolated it for the ’95 season and came up with $46 million. Over half of that money was actually the revenue that would be generated from ticket sales and concessions at the stadium. Well, all of that money goes into the owners’ pockets.”

  There’s a difference, ultimately, and an important one, between benefit to the economy and benefit to the treasury. If people buy an extra $10 million in goods (whether cans of tuna fish or baseball tickets), that’s $10 million extra for the economy, but aside from any taxes it generates, the government doesn’t see any money from that.

  Money for Nothing

  In fact, the claim that public funding of new sports facilities leads to quick and easy urban success stories is vastly overrated, say most economists. These critics charge that, by ignoring basic economic realities and crucial issues in urban planning, the pro-construction studies are left with a central premise that is almost always out of whack.

  “The consulting reports are basically political documents,” says economist Roger Noll, perhaps the nation’s preeminent sports-finance expert and the coeditor of Sports, Jobs, and Taxes, an exhaustive tome from the Brookings Institution. “Usually they’re supported by the people who want a stadium, and so they come up with unrealistically high numbers. Occasionally, they’re supported by people who don’t want the stadium, and they come up with real tiny numbers.” In fact, in study after study, when reports done by local chambers of commerce and the like are thrown out, the claims of stadium boosters are resoundingly rejected.

  “Given the self-serving nature of these studies,” adds economist Robert Baade, the author of several definitive analyses of the topic, “I wonder if we shouldn’t be looking at things a little more carefully than we are.” He’s devoted his efforts to doing just that. A professor at Lake Forest College in Illinois, Baade has gained national attention for his extensive examinations of the actual benefits that sports teams and new facilities do or do not bring to cities. And he, like many other economists across the country, questions the basic claims and priorities of new-stadium deals.

  One of the more extensive examinations of the issue was a 1994 study Baade did for the Heartland Institute, a think tank that opposes almost any government regulation or spending. (On its board of directors are representatives from Amoco, Philip Morris, Fidelity Bank, and Procter & Gamble.) Baade looked at forty-eight cities over a thirty-year time span, examining every U.S. city during that period that had acquired either a new professional sports stadium or arena or a professional sports team (baseball, football, basketball, or hockey). His overwhelming finding was that “professional sports teams generally have no significant impact on a metropolitan economy.” Because of that research, Baade’s study “finds no support for the notion that there is an economic rationale for public subsidies to sports teams and stadium and arena construction. Professional sports does not appear to create a flow of public funds generated by new economic growth. Far from generating new revenues out of which other public projects can be funded, sports ‘investments’ appear to be an economically unsound use of a community’s scarce financial resources.”

  Among the thirty cities with new stadiums or arenas that Baade examined, twenty-seven showed no economic impact on their local economy over a thirty-year period. In three instances—St. Louis, the San Francisco Bay Area, and Washington DC—the new facilities appeared to have hurt the local economy.3

  Economists point out that even when cities do see an increase in spending because of a new stadium or the addition of a sports team, that doesn’t represent new dollars flowing in to the local economy so much as expenditure substitution—money shifted from one entertainment source to another. Far from stadiums’ generating new economic activity, as new-stadium proponents continually assert, the new facilities, according to Baade, at best seem to bring in dollars that otherwise would have been spent elsewhere in the immediate or general region.

  “If you draw larger and larger circles away from the place where the sporting event actually occurs, it’s more and more likely that you’re going to have a zero-sum game,” says Baade. “In the case of Wisconsin, it may well be that you’re taking money away from a dog-racing track in Racine when you subsidize Brewers baseball. It may be that people who ordinarily go to the racetrack may now go up to Milwaukee to see a game at the new retractable-dome stadium. But you have to wonder about the implications for other entertainment activities in Racine.”

  Sometimes the issue of displaced dollars confronts stadium backers themselves. In his push for a new home for his Denver Broncos football team, owner Pat Bowlen cited the new baseball-only stadium the city had just completed as a draw that was taking away from his now-outdated facility. The local media were reporting that season-ticket sales at Mile High Stadium had been suffering since baseball’s Rockies began playing at brand-new Coors Field, and Bowlen had the answer. “Coors Field is a beautiful place to see a game,” he told the Denver Post, “Footba
ll needs those kinds of venues to stay competitive. I have to have a stadium that’s as attractive as baseball[’s stadium].” Thus, a city was in effect being told (much as had happened in Cleveland) that once it got the ball rolling on new-stadium construction, it would be only fair to lay out the public dollars for each and every team in town.

  Mark Rosentraub, a professor of urban planning at Indiana University, also questions the displaced dollars that sporting events take in. “How much more food do people eat because of the presence of a team?” Rosentraub writes. “In other words, if a family eats dinner near the stadium or arena before a game, where did they not eat their dinner that night?… Sports are not only small potatoes, but those potatoes may have been someone else’s before the team or stadium existed.”4

  The same goes for claims of new jobs to be had from stadium spending. Minnesota Wins!, a pro-stadium group funded by the Twins, Vikings, and local corporations, estimated that a new baseball-only stadium costing $310 million would generate an additional $35.9 million in economic activity and the equivalent of 168 new full-time jobs—prompting University of Chicago economist Allen Sanderson to remark that if the money were “dropped out of a helicopter over the Twin Cities, you would probably create eight to ten times as many jobs.”

  Moreover, the new jobs that are created are not necessarily cream-of-the-crop positions. “They’re parking-garage attendants, they are hot-dog salespeople, they are waiters and waitresses, sometimes cooks, people who do maintenance work and repair work and cleaning,” says Cleveland union activist John Ryan. “And none of them are jobs that the mayor hugs his kids and says, ‘I hope you can get one of those jobs someday.’”

  Rosentraub has also examined stadium boosters’ promises in great detail. In a study Rosentraub did for his 1997 book, Major League Losers, he looked at the private-sector payrolls for all U.S. counties with at least three hundred thousand residents, and found that only .06 percent of the jobs in those counties were associated with either professional sports teams or managers. Noting that “if they were classified by their gross revenues, they would be considered small to medium-size businesses,” he concludes that the economic impact of professional sports teams is actually quite small—especially compared to the size of the public subsidies, which can often run as high as $250,000 per job.

  All of which raises an even larger question: If stadium-construction funds end up coming from the same civic coffers as other municipal projects’ funds do, and if massive stadium deals are being given the go-ahead nationwide, what isn’t getting funded instead? When Toronto built the costly SkyDome for some $400 million, the city was having trouble coming up with money for its parks department. “One city official estimated that the city needed 700 new acres of parkland to keep pace with the demand,” writes Charles C. Euchner, a political science professor at the College of Holy Cross, “but the city had a budget of just $500,000 for parks acquisition. Other infrastructure needs that went begging included public transportation, housing rehabilitation, and expansion of the sewer system.”

  Economist Dennis Zimmerman goes a step further in emphasizing what he calls the “opportunity cost” involved in publicly funding a new stadium. “If an alternative generates $2 million of benefits net of subsidy and the stadium generates $1.5 million net of subsidy, the stadium can be viewed as imposing a $0.5 million loss on taxpayers, not a $1.5 million benefit,” Zimmerman wrote in his 1996 study for the Congressional Research Service assessing, among other things, expenditure substitution in publicly funded stadium projects.

  Thus, in a case such as Baltimore’s construction of a new home for the Ravens, Zimmerman believes that “economic benefits were overstated by 236 percent, primarily because the reduced spending on other activities that enables people to attend stadium events was not netted against stadium spending. And no account was taken of losses incurred by forgoing more-productive investments. The state’s $177 million stadium investment is estimated to create 1,394 jobs at a cost of $127,000 per job. The cost per job generated by the state’s Sunny Day Fund economic-development program is estimated to be $6,250.”5

  It isn’t as if these and other studies have been kept hidden from the public. In fact, during the early days of the latest debate in New York over a proposed new home for the Yankees, the Heartland Institute sent copies of its studies to city planners. Baade, Noll, Zimbalist, and others are quoted constantly and often called upon to testify at legislative hearings on the topic, and yet the frantic pace of stadium construction continues. It’s interesting to see how the stadium builders themselves justify the economics of stadium construction—because if local municipalities aren’t benefiting from new-stadium deals, as the research indicates, these people certainly are.

  The Dirty Dozen

  For a look at the stadium builders’ response to the economic studies, one need only have attended the Inaugural Municipal Issuers’ & Sports Franchises’ Symposium on Sports Facilities Finance—a long-winded title for a conference largely devoted to reassuring those who benefit from new sports facilities that their business is alive and well. Filling the conference room at Manhattan’s Grand Hyatt Hotel for the two-day conference in May 1997 was a who’s who of sports-industry movers and shakers: municipal officials, stadium-authority employees, team executives, and financiers from across the country, all gathered to hear how to profit from stadium construction. Jerry Colangelo, whose sports empire had recently grown to three Phoenix-area pro franchises, was the keynote speaker. And featured on the program, along with such panels as “Remodeling vs. Building a New Stadium” and “Beyond Peanuts and Crackerjacks: Examining Unique Revenue Streams,” was what looked to be the owners’ long-awaited counterstrike to the Baades and Rosentraubs of the world: a panel entitled “Letting the Numbers Speak for Themselves: Public Funding and Economics.” “This panel,” a program note promised, “will finally answer the age-old questions, not with anecdotal opinions but with actual numbers derived from detailed studies.”

  With the crowd still buzzing from Colangelo’s lunchtime address, James McCurdy, president of the low-minors Pioneer Baseball League, took the podium. “I’m not going to talk about numbers,” he drawled. “I want to talk to you about how you think about numbers”—then he reeled off a monologue on “paradigm paralysis versus paradigm pioneers” that would not have been out of place at any motivational seminar, and that, as promised, steered clear of any economics at all. McCurdy did, however, manage a dig at economist Mark Rosentraub, calling him “the Howard Stern of the stadium business,” drawing a few chuckles from the otherwise stone-faced crowd.

  McCurdy’s pep talk complete, Philadelphia commerce director Stephen Mullin stepped to the mike. “Are cities getting conned?” he asked. “Are sports teams worth it? Are subsidies too high?” How much benefit do stadiums really have, he asked the crowd rhetorically, then answered his own question: “I don’t know, but I think it is positive.”

  With that, Mullin dropped the subject of economic benefits of stadiums—as did the conference as a whole, which spent its remaining hours mulling how best to get cities to go along with new-stadium plans. The only “detailed studies” presented were Rosentraub’s, which were presented by panelist Joseph Passafiume of Buffalo’s county government, to deafening silence from the assembled onlookers.

  Cities’ willingness to believe the claims of these stadium boosters, despite all evidence to the contrary, reminds Robert Baade of Pascal’s Wager. “The idea was somebody asked if [French philosopher Blaise Pascal] believed in God, and he said, ‘Yes, I believe in God because I can’t take a chance that there isn’t one.’” Baade says. “I think in some ways that resembles city attitudes with regard to this thing. I think that people who make decisions about these things say to themselves that ‘we believe there is an economic impact because we really can’t take the chance that there isn’t one.’ In part I think that’s a reflection of the state of urban America.”

  Notes

  1. The final total for
MLB, NFL, NBA, and NHL facilities that opened during the 1990s was between $9.4 billion and $9.8 billion, depending on the source; add in minor-league facilities and the total would be well over $10 billion. Of this, figures compiled by the group League of Fans calculated the public cost as about $6.2 billion. By the early years of the new century, construction expenses were averaging nearly $1.7 billion a year, with more than $1 billion a year of that coming from the public.

  Moreover, when Princeton researcher Judith Grant Long carefully accounted for such hidden costs as sweetheart lease deals and property-tax breaks, she estimated the 1990s public total as more than $8 billion—and in just 2000 and 2001 alone, taxpayers coughed up almost $2.9 billion for “big four” sports venues. Add in federal tax-exempt bond subsidies, which weren’t included by Long, and it’s fair to assume that total taxpayer expense on sports facilities now approaches $2 billion a year.

  2. The mother of all corporate-subsidy deals came in 2003, when Boeing launched a twenty-state bidding war to be the site of facilities to build its 7E7 Dreamliner passenger jet. The winner: Washington State, which coughed up an unprecedented $3.2 billion in tax breaks for a plant expected to employ between eight hundred and twelve hundred workers—a rate of more than $3 million per job.

  3. Subsequent studies reported similar findings. A report in 2000 by University of Maryland–Baltimore economists Dennis Coates and Brad Humphreys found that although the presence of sports teams tended to raise per capita income, the cost of building a new facility reduced wages by even more, leaving local workers at a net loss. “Our research,” they concluded, “suggests that professional sports may be a draing on local economies rather than an engine of economic growth.”