Freeman

SPOILER ALERT

Take Me Out to the Cleaners

Crony Capitalism and Stadium Funding

JUNE 12, 2013 by MICHAEL NOLAN

For years, taxpayers have been shaken down for money to build ever-fancier stadiums for professional sports teams. It’s probably not the most expensive example of cronyism out there. But since it forces everyone to set up tidy little business-and-vanity ventures for guys who are already rich, it’s among the most egregious.  
 
According to Deadspin, 78 stadiums were built from 1991 to 2004, at a cost of $85 billion. Taxpayers are on the hook for 61 percent of that. To see just how bad it’s gotten, check out the animated charts they put together.  
 
The lion’s share of the revenue created by the stadiums goes right into owners’ pockets. Maybe they pay a nominal rent. Maybe they share some money from the concessions, since it’s sort of grimly funny for the cities to be paid in literal peanuts. 
 
Owners are notoriously loath to discuss the profitability of their franchises, except when they need leverage while negotiating new collective bargaining agreements with players. The revenue streams created by stadium deals, however, determine teams’ values, according to Forbes. And team values, as Deadspin explains, have doubled in the past decade or so. 

Meanwhile, whatever scheme is originally cooked up to pay for the bonds—usually soaking tourists, or people who engage in fancy rich-people stuff like eating at restaurants and buying lottery tickets—turns out to have been a pipe dream. Or the interest on the bonds goes up. Or the economy craters. Or maybe some mixture thereof. In other words—and sports likes nothing so much as cliché—they wind up overcharging on bread to provide the circus.

How do all these guys pull this off? Usually, a team threatens to leave unless they get new digs—or at least renovations that add more luxury boxes. Fans get loud because that’s what they do, politicians sniff some easy votes, and Bob’s yer uncle. 

 
It doesn’t always work this way, if you believe the Indianapolis Colts, a team with a pretty checkered past when it comes to stadiums and moving. I really want to believe them, because they’re responsible for the single greatest event in the history of human achievement. But even if they didn’t stiff-arm the city into their new stadium, the stadium deal itself still constitutes making some people’s leisure-time preferences a matter of law. 
 
It also involved eminent domain abuse. Other stadiums have been built as much on eminent domain as on bedrock. Setting aside whether eminent domain can ever be anything but abusive, combining it with this legislation of preferences produces deals that always stink. 
 
And I say this as a sports fan myself. I’ll be the first to admit that sports fandom partakes of very little rationality. And when it comes to tastes, rationality can get stuffed—you likes what you likes. That’s all the more reason why none of us should be forced to underwrite anyone else’s preferences. That it keeps happening beggars belief. If you’re in Cincinnati, you'd be lucky if only belief was being beggared. 
 

The Hail Mary

 
Of late, though, there have been some faint signs of hope for us liberty types. 
 
You might have heard about the first one. In May, the Florida state legislature refused to hold so much as a vote on a bill to use tax proceeds to renovate SunLife Stadium, home of the NFL’s Miami Dolphins. The team got huffy, issuing a threat to move that was veiled only in the sense that cellophane veils sliced cheese. 
 
The Dolphins’ owner, Stephen Ross, says he had no idea the stadium was in such bad shape when he bought the joint in early 2008. You’d think a guy who made his fortune in real estate would have done some due diligence, but only if you’d been in a coma since about August of that same year. 

Incidentally, it’s not surprising that Ross would feel entitled to tax dollars. His first big business move, after wall, was to launch a company that sold tax shelters made from federal housing projects.

Besides, everyone else has been doing it. Writing in Bloomberg, Aaron Kuriloff and Darrell Preston report that in 1986, Congress touched off the publicly financed building boom by trying to do exactly the opposite. They tried to end the use of tax breaks aimed at helping cities build schools and hospitals and such. “Lawmakers’ revisions instead unintentionally encouraged local officials to borrow even more for pro sports,” write Kuriloff and Preston. 

 
If that sounds like a line from a Public Choice study, you ain’t seen nothing yet. “You have the costs spread out, with small losses to hundreds of thousands—maybe millions—of people,” Dennis Zimmerman, a former economist for the Congressional Research Service, told Kuriloff and Preston. 
 
Those small losses come from shifting money from voluntary transactions into the pockets of the politically connected. But it’s hard to see the unseen when you’ve got a giant stadium blocking your view. And there’s no reason to look for it when you’re hanging onto $4 billion extra (like the bondholders) or trying to keep track of all the new revenue streams while this gigantic asset goes about doubling in value (like the team owners). If you own a bar that lives on gameday receipts, you’re too busy pouring drinks; if you’re leaving that bar after the game, seeing anything at all is probably a dicey proposition.  
 

The Squeeze Play

 
Beyond the Miami deal, though, there has been some recent pushback. 
 
Around the same time the Dolphins were getting the Gerald Ford treatment, the Minnesota Vikings were showing off the artists’ renderings of their new stadium. It’s a doozy, too—but what would you expect for a cool billion dollars?
 
Not exactly a victory for free markets, then. But at least the fight over funding was long and bitter (insert winter pun). It almost didn’t even get approved in the first place, and that’s with Los Angeles, which already snatched the NBA’s Lakers away from Minneapolis, allegedly hungry for a football team. 
 
At least L.A.’s stadium, according to news reports, would have been privately funded by AEG group, to the tune of $1.2 billion. The NFL didn’t believe AEG could make enough money to pull off the deal anyway. The next time the NFL worries about that with a tax-funded proposal will be the first. The NFL, after all, is a nonprofit seemingly set up for the express purpose of obtaining publicly funded stadiums.
 
Still, Minnesota got the Vikings’ owners to split the tab. In the sports world, that’s called a “moral victory,” distinguishing it from the kind that gets people paid. In real life, though, both the Dolphins and Vikings episodes represent a kind of progress. 
 
Miami, for instance, got to strike another retaliatory blow for the Marlins Park debacle. Taxpayers found out after the funding was approved that it was actually going to cost them $2.4 billion over the 40 years it would take to pay off the bonds. This for a team that was turning healthy profits all through the recession, no matter how the team was doing. Voters sacked two mayors and a handful of flunkies as soon as they got the chance. 
 
What’s more, the Marlins’ Little Havana palace hadn’t even lost that new-ballpark smell when the team set about letting the fans know exactly what they thought of them. The manager said some nice things about Fidel Castro just as the season was starting. Then the team had a lousy season, and then it dumped every player who might have given fans some hope for the next year. One wonders if they sell those foam “We’re #1” fingers at Marlins Park—and if so, which finger exactly is sticking up. The fans seem to have a pretty good idea.
 
The NFL’s San Francisco 49ers got a new stadium recently as well, but the team is putting up 88 percent of the cost, according to Forbes. Of course, that new stadium helped the city land the gig as the host of Super Bowl L, which will mean, if Bay-Area residents are really lucky, no net effect on the economy at all. 
 

The Airball

 
I want to hope that at some point all of this, plus the stories about how Olympic host cities tend to fare after the games, will add up to one almighty big kibosh being put on these funding deals. It seemed like a sign of progress when, one morning, I saw the Indianapolis Star running a column about the city’s deal with its NBA team, the Pacers. They’re on a year-to-year lease—only it’s the city paying the team $10 million to get them to stay. They’d just won a big playoff game against their main rival, and yet here came the wet blanket. 
 
I mean, get a load of this: “The owners of sports teams arrive at [stadium] negotiations with outrageous demands and tremendous egos—with a deep belief in the idea that taxpayers are there to subsidize their businesses.”
 
I was ready for the owners to get it with both barrels. But then came the usual pitch, including this howler, explaining that if the Pacers left for, say, Seattle, “[Indianapolis] would lose one of those few things around which the community bonds. Sports provides that bond.” Get that? The community might crumble without this bond, which the State provides. Politicians probably don’t mind the insinuation that they are, in a sense, creating the community, but the suggestion is risible, to say the least. 
 
People who sign off on these deals, however, have to rely on things like equating transfers to team owners with “civic pride” or “community bonds” because they don’t have any actual numbers on their side. They can claim that consumers get some goods, so the stadium funding isn’t just a straight transfer. If you happen to like the local team and are willing to spend some money on them, this looks sort of valid.
 
But elevating one group's preferences for entertainment into law turns the irrationality of fandom into something more insidious. It's akin to using patriotic-sounding language to demonize dissent and push through, say, an all-powerful surveillance State. The relatively small amounts of money involved (check out Tom Coburn’s sideshow about the NFL dodging $91 million in taxes, which is what Congress loses in the couch cushions between campaign events), and the certainly tiny amounts taken from each individual taxpayer, might make this issue relatively small beer on the national scale. Even Deadspin’s $85 billion figure isn't enough to buy a decent invasion, even if it was a yearly budget instead of a cumulative total. But neither this logic nor the per-capita version—“hey, it’s only a couple bucks here and there from each taxpayer”—simply excuses something blatantly corrupt. Each time it's accepted, the number of times it will be used in the future increases, probably exponentially. So it's small beer, sure. It's also, as far as reducing the corruption and oppression of the State goes, low-hanging fruit. 
 
And there’s very little risk to a city as a whole if a team storms off in a huff. Los Angeles, Seattle, and St. Louis, to cite some recent examples, have all managed somehow to exist and thrive both before and after professional sports came to town. Montreal built the second-most expensive stadium in history for the 1976 Summer Olympics, ultimately paying about 10 times the initial estimated costs. The stadium hasn’t had a primary tenant since baseball’s Expos left for pastures in D.C. made greener by layers of public-financing fertilizer. As far as anyone knows, Montreal still exists, and people still like it. Even Winnipeg, which lost the Jets to the hockey hotbed of Phoenix in 1996, was allegedly a place both before and after professional hockey came to town. Hockey returned last year, well after Winnipeg started getting recognition for its thriving economy.
 
The next time this issue comes up in your area, keep an eye out for politicians, PR types, and reporters who start talking about unquantifiable (maybe even “priceless”) things like civic pride and community bonds (the kind you have to swap at a discount for the ones that pay tax-free interest to investors for a few decades). It’s the sign to check your pockets. You might be surprised whose hands you find in there.
 

ASSOCIATED ISSUE

July/August 2013

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MICHAEL NOLAN

Michael Nolan is the managing editor of The Freeman

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