The Great Stadium Swindle

"Council Approves Deal for Stadium" blared the headline across the front page of the Cleveland Plain Dealer on March 9. After months of political wrangling and public melodrama, the Cleveland City Council had just approved $220 million "most of it in public money" to fund a new stadium to house a football team that would replace the Cleveland Browns. The previous fall, the Browns' owner, multimillionaire and GOP fundraiser Art Modell, announced he was moving the team to Baltimore to play in a new $200 million publicly funded stadium. A headline in the same paper, a day earlier: "Cleveland Schools to Cut Sports, Teachers." The accompanying story reported that the Cleveland school system, in the worst financial shape of any school district in the country, according to its superintendent, planned to lay off up to 160 teachers and eliminate interscholastic athletics.Four years earlier, used-car magnate Bud Selig approached the state of Wisconsin for land on which to build a new stadium for his Milwaukee Brewers baseball team "just land," he insisted, not a penny of public money. The state said OK, even though the land Selig desired had an expressway sitting on top of it, an expressway that would have to be moved at a cost to the state of some $6 million.Then, last summer, Selig got around to asking the state if he could have just a little public money. Gov. Tommy Thompson, the same governor renowned for his draconian approach to welfare, pulled key politicians into his office for a series of closed-door meetings. They emerged with a stadium plan that could cost the state as much as $880 million in construction costs and interest payments, while the Brewers would only be responsible for securing a $50 million loan. At last word, Selig was trying to get the state to pick up the loan as well.Meanwhile, in Seattle last September, residents were invited to vote in a referendum on whether to raise local sales taxes in order to pay for a new stadium for the Seattle Mariners baseball team. (The old stadium, the Kingdome, was built in 1976 with $67 million in public funds.) On one side, the Mariners' owners (including electronics giant Nintendo) mounted a tremendous campaign for a yes vote; the Seattle Times donated free ad space to the campaign. On the other, a handful of underfunded groups rallied against the massive use of public funds. Against all expectations, the referendum was defeated by a narrow margin. The following month, the state legislature passed a new tax on restaurants and car rentals -- dubbed an "emergency measure" -- to avoid having to submit to another referendum -- and the Mariners had their stadium.If you can't be a defense contractor, the best way to get public funds for private gain these days seems to be to own a professional sports team. While local governments lay off workers and slash welfare rolls, spending on new sports facilities is booming at a pace unheard of since the early '70s: Well over half of all pro football and baseball teams are either planning a new stadium or already ensconced in one -- virtually all at public expense.Even as corporate welfare goes, sports stadiums are a questionable investment for cities. Tax breaks to, say, keep a factory in town might at least guarantee a few thousand jobs. But sports subsidies, despite local politicians' claims to the contrary, just wind up in the pockets of team owners and a few players. The jobs created are mostly low-paying, even below minimum wage often "parking garage attendants, hot dog sales people, waiters and waitresses," says John Ryan, head of Communications Workers of America Local 4309 in Cleveland. "None of them are jobs that the mayor hugs his kids and says, 'I hope you can get one of those jobs someday.'"Stadium backers counter that the real benefits of stadium building come from indirect economic gains. Sports fans, they argue, spend money not just on tickets and hot dogs but on hotels, restaurants and other local businesses. The entire municipal boat supposedly floats on the rising tide of sports revenues. The Plain Dealer spouted this conventional wisdom in a front-page editorial last November urging voters to approve an extension on the local sin tax for stadium renovations. The editorial crowed about the "tens of millions of dollars" the Browns bring to the city of Cleveland.New York Mayor Rudolph Giuliani, who is proposing a $1 billion Manhattan sports complex for the Yankees and an unspecified football team, has bought the same bill of goods. He told the New York Times last April that such a stadium "could be built at little or no cost to the city's taxpayers."Evidence, however, suggests that promises of economic windfalls are simply untrue. Robert Baade of Lake Forest College concluded in a 1994 study for the Heartland Institute on the impact of new sports facilities that "far from generating new revenue 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." In that study, Baade looked at 30 new stadiums or arenas over a 30-year period and discovered that the impact on the local economy in 27 cases was nil. And in the remaining three cases -- St. Louis, the San Francisco Bay Area and Washington, D.C. -- the new sports facilities appeared to have hurt the local economy.Baade argues that any increased municipal income is merely a result of a shift in spending from one form of entertainment to another. "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," he said in an interview. "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."The other argument of public stadium backers -- that the huge revenue streams produced by new stadiums will allow local governments to pay off incurred debts -- is even more dubious. "If you're going to build an $800 million Yankee Stadium," says sports economics expert Roger Noll of the Brookings Institution, "it's going to cost you $45 to $50 million a year to finance that debt, and another $10 million or so to operate the facility. Compare that with any revenues the city might obtain because of the presence of the stadium, and the revenue stream is an order of magnitude lower than the cost stream."Ironically, this state of affairs is abetted by the tax-exempt bonds that cities use to finance stadium construction projects. These bonds reduce cities' own debt payments at the expense of the federal treasury. According to Noll, since localities must show that the revenue generated by a stadium is less than 10 percent of the annual cost of the debt service, the desire for tax-exempt bonds has actually encouraged money-losing stadium projects. Noll estimates that 30 percent of a project funded by tax-exempt bonds is thus underwritten by the federal treasury; the rest of the bill is footed largely by local governments. And the local taxes are almost invariably regressive ones: sales taxes or "sin taxes" on cigarettes and alcohol that hit the poor the hardest.New stadiums are in fact being built on the backs of those least likely to be able to attend the games. "One of the things I've noticed, as a lifelong Indians fan," says Ryan of the spanking new Jacobs Field in Cleveland, "is that the increase in prices, and the decrease in low ticket prices, has made the crowd much more white. And with the special parking and all that, the wealthier people don't mix with the working-class people. And to me that's disturbing."Disney. Little Caesar's Pizza. Turner Broadcasting. Nintendo. These aren't advertisers you're likely to see sponsoring sports telecasts or placing advertising on outfield walls. These are the corporate owners of teams themselves, every one of them figuring to reap windfalls from public largesse. Pro sports is a speculative business; teams typically run at close to break-even on their ledgers (though in a business with closed books and such financial gimmicks as depreciating your players, it's always hard to be sure). The real money is made when it comes time to sell your investment at a huge markup.The biggest value booster for a sports team, hands down, is a new building, which draws in curious fans and yields millions of extra dollars in luxury-box receipts and advertising revenue. The five pro sports franchises that increased the most in value over the last year, according to Financial World magazine, were the Atlanta Braves (up 36 percent), Detroit Tigers (28 percent), St. Louis (formerly Los Angeles) Rams (26 percent), Cincinnati Bengals (24 percent) and Baltimore Ravens (the ex-Cleveland Browns) (23 percent). The Braves will move into a new stadium next year, the Rams moved into their new stadium last year, and the Tigers, Bengals and Ravens have recently announced new stadium deals. If New York City goes ahead with the new stadium for the Yankees, the magazine estimated, the team's value to owner George Steinbrenner and his corporate partners would soar from $209 million to $356 million by the year 2004. To those yearning to make a killing in the sports world, Financial World recommended finding a team that meets three criteria: low current revenues, no new stadium yet in the works, and an easily breakable lease.Sports stadiums apparently do have economic benefits, but only owners are receiving them. Take name-lease rights, whereby stadiums are in effect treated as giant billboards on which corporations can affix their names. While bequeathing to the sports world such timeless names as Bank One Ballpark, the Trans World Dome and the Pepsi Center, the name-leasing craze doesn't usually benefit cities at all. Instead, the fees are generally counted as part of the team's revenue stream, even when the stadium itself is publicly owned. So when Milwaukee announced plans to name its new Rold-time stadium Miller Park (after the beer giant), the $40 million in naming fees was counted as part of the ballclub's contribution to its construction.As tidy a sum as naming rights bring in, nothing compares to the income generated by stadium luxury boxes. Any sports fan who's watched as all the best seats are bought up by corporations knows that it's not out of fandom or civic pride, but for tax purposes. Since luxury boxes are still deductible as a business entertainment expense, up to 40 percent of the price of corporations' purchases are underwritten by the federal government. With some new stadiums boasting as many as 200 boxes that rent at up to $70,000 per season, this can mean as much as another $5 million a year in indirect public subsidies to team-owner profits. Why, in the face of the huge costs and questionable economic benefits, are local politicians willing to bend over backwards to surrender public money for new stadiums?"There's always the simple explanation that they actually believe the consulting reports, which is always conceivable," says Noll. "But I think it's important to recognize that sports are popular, and usually people who own sports teams are very well connected politically." The bigger puzzle, he says, is "why is it the case that in many cities you can get 60 to 65 percent of the people voting to spend hundreds of millions of dollars on a sports team, in an era when they're not willing to spend money on schools or streets or other things?"While it's true that threatened franchise pullouts have often prompted voters to back normally unpopular tax increases, nationwide opposition to such giveaways has been mounting. In Detroit, a group of fans and public-policy advocates banded together as the Tiger Stadium Fan Club after the city last December overturned a public referendum that had blocked public funds from being used to replace that historic ballpark, which has no luxury boxes. "Detroit only got $63 million in [federal] block grants last year," according to Kim Stroud of the Tiger Stadium Fan Club. "The stadium's going to cost $240 million. It's kind of out of whack."But despite garnering 11,000 members, the fan club was unable to counter a $600,000 pro-stadium advertising campaign, losing a repeat referendum this March by a nearly 4-to-1 margin. A separate lawsuit by the fan club against the use of state funds for the stadium ended in defeat just two days later.In Seattle, there was enough public activism to send the stadium-tax referendum down to a narrow defeat. When the state legislature turned around and passed a stadium tax anyway, attorney Shawn Newman sued on behalf of citizens' groups in Seattle seeking another referendum to block new stadium financing. (The case lost at the trial court level in February, and is currently under appeal.) "In my last statement to the judge," says Newman, "I said: 'Where do people go when they've said no? The polls say they don't want this publicly funded, and the legislators just ignore that. Where do they go but the courts?'"Even in Baltimore -- where the glistening new Camden Yards baseball stadium is often held up as the modern architectural paragon for new ballparks -- popular opinion on whether to fund the new stadium was extremely divided. But an attempt to force a public referendum on the deal was shot down by the courts in 1987, which ruled that private citizens had no power to challenge what it considered an appropriations bill. "In other words," wrote Peter Richmond in his book Ballpark, "the court ruled that the stadium funding was a necessity to maintain the operation of the state. The governor, of course, agreed wholeheartedly with the interpretation, even if some of his constituents -- those without jobs, those trying to learn in a Baltimore school system that ranked among the nation's lowest in reading test scores -- did not see a ballpark as a necessary ingredient of state government.""The fundamental fact of life concerning stadiums and arenas," noted James Quirk and Rodney D. Fort in their definitive 1992 book on sports economics, Pay Dirt, "is that once they are built, they are fixed in place, while the teams that use them are potentially mobile." Combine this with the monopolistic nature of professional sports (leagues actually grant exclusive regional franchises to each club owner), and you have the now-common scene of cities bidding against each other for the right to hand over chunks of the public treasury to sports owners.Even expansion by the sports leagues hasn't dulled the threat of moving your team; if it's no longer possible to make eyes at Los Angeles (as the Dodgers did in trying to get a new stadium from Brooklyn 40 years ago), team owners will hold up the prospect of departing for places like Sacramento or Charlotte. The competition is now so extreme that the city of Baltimore not only promised a 30-year rent-free lease to lure the Browns, but it also chipped in a $50 million signing bonus -- in effect, directly paying the team to play in the city.It's a sight that appalls many sports fans even as they find themselves reluctant participants in our newest national pastime. "Ten stadiums aren't going to do what's needed for Detroit, and I think most really understand that," says the Tiger Stadium Fan Club's Stroud. "But you still get into the kind of hysteria about 'Oh my god, what would we do without a sports team?' You're missing opportunities to spend money on things that actually will create economic growth for your area, and that's obscene, as far as I'm concerned."

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