Why Are Sports Franchises on Welfare? A Look Into Stadium Subsidies

When the Red Sox triumphed on Wednesday, it was the first time they had clinched the World Series in their home city since 1918. It was a happy day for Red Sox fans everywhere, but Bostonians should also be proud of the great deal they got on Fenway Park. Fenway was built in 1912, back in an era when the owners and investors who profited from a sports franchise actually paid the cost of building a stadium. Not so anymore: today, nearly 80% of the cost of the average major league sports stadium falls on the government, and that's resulted in taxpayers losing more than $30 billion subsidizing stadiums. Your local major league sports team might just be the biggest welfare queen in town.

There are lots of ways team owners manage to part cities from their taxpayers' money. Often, a local or state government will simply shoulder the cost of building a new stadium, sometimes letting a team use it virtually free of charge. Typically governments will raise sales taxes or levy new taxes on car rentals, hotel stays, or restaurants to fund a stadium's construction. The city of Indianapolis, for example, spent over $250 million in 2013 dollars to build Conseco Fieldhouse, now known as the Bankers Life Fieldhouse, for the Indianapolis Pacers basketball team. The Pacers get exclusive use of the publicly built arena, for which they pay $1.

Many teams also get operating subsidies, public payments made every year just to convince a team to stick around. Sometimes these operating subsidies are even greater than the rent a team pays on a public stadium: the Milwaukee Brewers pay the county governments that built the $527 million Miller Park about $1 million annually in rent to use the stadium. However, the Brewers also receive a $4 million operating subsidy, effectively allowing the team to pay negative rent. In 2010, the owners of the Pacers demanded $10 million per year in government subsidies to stay at the stadium the taxpayers had built for them.

The taxpayers of Indianapolis paid to build Bankers Life Fieldhouse and pay the Pacers to stay.
Photo credit: Wikimedia 

Sure, but voters have to approve this stuff, so what's the problem?
In addition to the flashier giveaways, there are more subtle ways that team owners get rich off the public purse, and they're not always as easy to see. For starters, municipalities are often expected to pick up the tab for connecting infrastructure like power, water, and city streets to stadiums. When stadiums are built on previously developed land, governments have to use eminent domain to seize the land for a "public use," but they also have to pay the existing landowners market rate for their property. These costs can easily be hidden when people vote on constructing a stadium.

Taxpayers are also left to cover the shortfall left by the many highly profitable professional sports franchises that don't pay taxes, or are allowed to underpay. Many municipalities excuse sports teams from local taxes in order to entice them to come to town or to stay. In addition, some professional sports leagues, including the highly lucrative National Football League, don't have to pay any income tax at all because they are, incredibly, legal non-profits. Not taxing these organizations means that regular people, who typically lack the lobbying money to get themselves declared non-profits, have to pay more to make up the difference.

Altogether, the public costs of stadium construction and maintenance, infrastructure, operations, and foregone property taxes cost the taxpayer $259 million per stadium in 2010, according to a recent study by Harvard academic Judith Long.

But building a stadium is a public investment in the local economy!
Nope. Economists don't agree about much, but they agree on this: stadium subsidies don't work (PDF). They don't bring extra jobs, higher incomes, or faster economic growth to their areas. Sure, the restaurants and hotels right around the new stadium might do a booming business, but overall, stadiums don't make an impact on the broader economy. A big part of the problem is that stadiums and their parking lots are empty when there isn't a game or special event. That leaves the prize pieces of real estate stadiums occupy totally unproductive for most of the year, employing nobody, selling nothing, buying nothing.

Anaheim's Angel Stadium isn't developing any local economies while empty.
Photo credit: Wikimedia 

Even where there is a game, most attendees are locals and would have spent their dollars in the local economy anyway. When residents go to local restaurants or movie theaters, their money tends to stay local. When residents are instead enticed to spend money at a stadium, the money goes to owners and players who don't necessarily live or invest in the home city.

Worse, since the team is likely to be tax-advantaged, money spent at a stadium won't go back to pay for public services like education the way it would have if it were spent at a good ol' property tax-paying bar. Due to all these factors, plus the opportunity cost of investing in a stadium rather than, say, better schools and transportation, there's some evidence that having a professional sports franchise actually hurts the local economy, to the tune of about $10 per person. As public investments go, it's hard to do worse than a stadium.

But, if we don't pay for the stadium, my beloved home team will leave!
Of course, it's up to every town to decide whether they want to pay for a stadium or not. And in some cases, teams did indeed leave because the local government didn't offer enough cash to stay, most notably when the Seattle SuperSonics became the Oklahoma City Thunder after Washington State refused to fund a new arena, but Oklahoma City offered up $100 million.

However, moving a franchise is in and of itself expensive, and one might be inclined to think that if no cities offered corporate welfare in the first place, not only would taxpayers save around $2 billion per year, home teams wouldn't have the incentive to move. Besides, if a team is only staying in your city for the welfare payments you can offer, maybe they don't deserve your loyalty.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 04, 2013, at 5:39 PM, prginww wrote:

    Quite true-working class taxpayers subsidizing multimillionaires. makes no sense-and most team owners will desert their "homes"at the drop of a hat-loot at the Browns-they left Cleveland in favor of a better offer. Its been proven time and time again-but local politicians are well paid as well. It is like the latest scheme to pick taxpayer's pockets-casinos. As long as the voters go along with this flim flam, they deserve what they get!

  • Report this Comment On November 04, 2013, at 6:02 PM, prginww wrote:

    Who can afford to go to a sports game? I make about

    $60k and I can't afford it.

    I suggest $2k tickets and forget the subsidies. The rich can pay for their own recreation.

  • Report this Comment On November 04, 2013, at 7:55 PM, prginww wrote:

    Art Modell did not want to leave Cleveland. He left because of the estate tax. He did not plan his estate well during his lifetime of owning one major investment--the Browns. He got toward the end and realized his family would have to sell the franchise to pay the estate tax bill (55% at the time). Maryland agreed to pay him cash; Cleveland wouldn't give him cash. So he moved, and used Maryland's cash to purchase life insurance which was used to pay the estate tax upon his death. While most owners would move their team for an extra $100, Mr. Modell was not one of them. Sadly, he felt there was no way out, made his choice and will forever life in Cleveland shame due to this heinous tax.

  • Report this Comment On November 04, 2013, at 9:00 PM, prginww wrote:

    Thanks for exposing the hidden subsidies. In NZ the government is looking at building a state of the art stadium in Christchurch to replace the one damaged by earthquakes, while more than 3 years after the event, many people are still waiting for their insurance company to pay them out for damage, living in broken homes. Priorities!.

    Sport has the aura of a religion in many countries, and there are many parallels with the way the Church in times past took lots of money to build huge edifices with which to wow the masses. Bread and circuses.

  • Report this Comment On November 05, 2013, at 1:54 AM, prginww wrote:

    The real "KEY", would be have the franchises lose their "Non Profit" status. Share the monies with us U.S.A. tax payers??

  • Report this Comment On November 08, 2013, at 12:07 PM, prginww wrote:

    Gee, Daniel Ferry, thanks for this eye-opening article-albeit about 25 years too late-and as-if-we-didn't-already-know-this. Yes, as liberals pound us to death with the age-old maxim 'let's put that new stadium in a ghetto so we can create some jobs' the Middle Class gets whacked again with the bills. And I didn't mean the Buffalo Bills. I agree with 'mountain8' - the Bears, White Sox, Bulls, Hawks, and Cubs don't need MY money-it isn't good enough for them. Try walking to go see the Atlanta Hawks, White Sox, Bulls, Dodgers, and Angels like I have. As I learned the hard way, you'd better be packing. Sadly Professional Sports has reduced itself to nothing but another run-away Entitlements Program...

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