The Ugly Truth of Public Financing

Despite research showing stadiums are a poor use of tax dollars, professional sports complexes are continually financed by cities, counties, and states. In the most recent example, Major League Baseball’s Atlanta Braves announced the team will move to a neighboring county after being promised $300 million in public funds for a new stadium, but some politicians plan to oppose the deal.

For years, economists have been telling a different story than team owners want taxpayers to believe. Owners argue that a new stadium will create jobs, increase tourism, provide opportunities like hosting the Super Bowl, and offer other examples of economic growth.[1] Yet studies have shown the opposite.[2] New jobs are temporary, low-paying, or out-of-state.[3] Fans don’t increase spending; instead, they reallocate funds they would have spent elsewhere to the stadium. In the end, stadiums don’t result in the vibrant economic future promised and temporary increases in revenue end after a short honeymoon period.

With a limited number of professional teams and a seemingly endless list of cities that want one, team owners have a strong bargaining position in negotiations. Additionally, under the guise of public good, government officials often pay up and succumb to the team’s threats of leaving. Finally, owners contend that citizens receive other, non-economic, benefits from the team, including a sense of unity among fans and the community. The plans get pushed through as “serving a public purpose.”

However, research shows even non-economic benefits are worth less than the cost to taxpayers. One study used a taxpayers “willingness to pay” to value non-economic benefits. Researchers asked how much a taxpayer would pay to keep the team in their city. On average, taxpayers are only willing to pay one-fifth of the typical subsidy costs.[4]

No matter how much research exists to demonstrate the poor value, governments continue to pay big bucks for private stadiums. The Atlanta Braves’ stadium is the most recent example. In a surprise announcement on November 11, the team announced it would leave Turner Field for a new $672 million stadium in Cobb County.[5] The new field will open about 13 miles northwest of downtown Atlanta in 2017. Cobb County will pay $300 million, about 45 percent, of the costs. In return, the county will only get the right to conduct “a limited number of special events” at the facility.

The deal hasn’t been approved yet — the Cobb County Board of Commissioners is expected to vote in favor of the deal on November 26 — but until a decision is made, community members will debate its merits. Under the current proposal, the board says it has various options that will not require raising taxes. The chairman says the project is an “excellent deal.”

However, members of the Atlanta Tea Party are making a stand against the deal by reaching out to voters and urging them to contact the board. In addition, the group is organizing an event to point out the deal’s financial details. The Tea Party co-chair believes “[t]his is another example of the good ol’boys getting rich and the taxpayers getting the shaft. They are going to have to raise property taxes.”

While the Braves’ deal — and the ongoing debate — seems ordinary, the situation has some interesting twists. First, bucking the trend of succumbing to threats, the city refused to pay to keep the team. Atlanta Mayor Kasim Reed said “the city was presented with a choice, and that choice was encumbering between $150 million to $250 million in debt and not having money to do anything else.” With a $900 million backlog in infrastructure projects, Reed felt there was no choice.

Other cities have cut spending to make room for the cost of a new stadium — even cities with more debt than Atlanta. Detroit is paying $283 million for a new Red Wings arena.[6] At the same time, the city is in bankruptcy, with nearly $18 billion in debt.[7]

Interestingly, Atlanta already agreed to pay $200 million toward a new stadium for the National Football League’s Falcons.[8] That decision was made despite strong criticism for using public money in the cash-strapped city. Mayor Reed defended the inconsistent decisions by stating the situations were much different; he says the Falcons deal will use the hotel/motel tax and a similar option was not available in the Braves deal.[9]

It appears the Falcons deal was approved due to a repeated theme: a community held hostage by team threats of moving elsewhere. The same occurred in 2012 when the NFL’s Buffalo Bills received more than $200 million in state and county funding for stadium improvements. Buffalo, one of the poorest cities in the nation, is known for its devout fans. Owner Ralph Wilson seemed dedicated to keeping the team in Buffalo, but as the 94-year-old owner ages, the pressure to move increases. Now, the Bills play several games each year in Toronto, a city that (like Los Angeles) is vying to house a team. Moreover, Wilson is reportedly advising his children to sell the team after his death.

With a very real possibility of losing the team, Buffalo gave in and fronted the money. The worst part of the deal for the city? It’s only guaranteed to last for seven years.

Cincinnati was in a similar situation to Atlanta; teams threatened to leave in quick succession. The Bengals and Reds originally shared a facility, but after a torrid history, they were separated. While the Reds stadium was 90 percent financed with taxes, the Bengals complex was financed almost entirely with taxes, and ended up costing the county more than expected. The initial budget was $280 million; the county says the actual cost was $450 million. Meanwhile, a Harvard professor says the true cost was closer to $555 million.[10]

At least Atlanta’s deals curb some of the risk. While it might lose revenue, savings from the team’s move are likely greater — especially because the team isn’t moving far away. In addition, Cobb County is only paying $300 million and cost over-runs are paid by the team. The same is true of the Falcons deal; it has a $200 million cap.

In many cases, funding demands do not arise from a lack of money. In 2013, the New York Yankees were valued at $2.3 billion — the fourth most valuable team in the world.[11] Despite that, taxpayers were forced to pay part of a new $1.3 billion stadium.[12] After tax exemptions and subsidies, the stadium cost taxpayers an estimated $850 million.[13]

Often these plans are approved regardless of voters’ views. Pittsburgh voters originally rejected funding stadiums, yet two stadiums received public funds there. In San Francisco, voters weren’t able to voice their opinion because “financing agreements were administrative, rather than legislative, acts, and so not subject to voter approval.”[14]

Therefore, these deals pass for a combination of reasons. Decision makers start with misunderstandings about a stadium’s benefit; whether or not they believe them, many times their constituents do. On top of that, huge lobbying efforts by groups of wealthy and powerful individuals and companies push for these deals.[15] Also, if a team leaves, politicians have the public relations nightmare of losing a team. All of that, and more, often comes with pressure to redevelop downtown areas.

Today, privately funded stadiums are the minority. In 2000, the San Francisco Giants played the team’s first game in AT&T Park — the first wholly privately financed baseball stadium to open since 1962. [16] After voters rejected funding, the Giants decided to use private funds. A politician opposing public financing said, “[f]rom the standpoint of the integrity of taxpayer money, that simple notion of letting public monies be used for police, fire, the other regular services of local government, has been preserved — not using those monies to pay for an enterprise that’s able to generate its own profits.”[17] In fact, the Giants’ vice president even said paying for the stadium has been a good deal. Without the public money bureaucracy, the team was able to design the stadium to their liking, complete the project on time, and rent it out whenever it wants. And while construction was paid by private funds, the team still received a hefty public subsidy. The ballpark is located on city-owned real-estate; the waterfront property is some of the most valuable in the country. In addition, San Francisco paid $80 million for infrastructure improvements around the park.

The only way for governments to get away from these deals is too look solely at the economics. Publically funded stadiums are not a good investment and end up costing taxpayers hundreds of millions of dollars that could be spent otherwise. With almost no return on investment, stadium funding should be put to better use.