The Folly of Taxpayer-Funded Stadiums OPINION: PLEASE DON'T FEED THE FAT CATS
By Cait Murphy Frank Rose

(FORTUNE Magazine) – Now that the Yankees have succeeded in the little matter of winning the World Series, the really important game is under way: how to get the city of New York to give the team a new--or at least a much improved--stadium in which to frolic.

A lifelong Yankee fan, Mayor Rudolph Giuliani has rumbled aloud about the possibility of setting aside $600 million in a commercial-rent tax to either fix up Yankee Stadium (his preference) or finance a new one (Yankee owner George Steinbrenner's dream). The Mets would like a new playground too. And why not? For the most part, teams get their way when they whine about needing a new stadium. On Nov. 3, for example, voters in San Diego and Denver agreed to pay for two new stadiums. Houston and Los Angeles are ardently wooing the NFL's next football franchise (see box). And Hartford (Hartford?) has just pinched the Patriots from Boston with the promise of a $350 million stadium.

There's just one thing wrong here. For taxpayers to vote in favor of tax-funded stadiums is like turkeys voting for Christmas: In both cases, they end up getting cooked. In terms of economic development and job creation, building sports stadiums is extraordinarily inefficient. Allan Sanderson of the University of Chicago, who studies the economics of stadiums, figures that on average it takes $100,000 of government money to create a single stadium-connected job. (Sanderson modestly proposes a more efficient method: "If you were to take $100,000 in $20 bills and dump it over Manhattan," he says, "you'd create seven or eight jobs.")

Surely, though, stadiums can help regenerate distressed areas by bringing free-spenders into the city...right? Sorry. Phoenix likes to credit its ballpark with boosting downtown tax revenues by 34%. But even if the wretched Diamondbacks were responsible for every penny of that, the increase still doesn't come close to paying back taxpayers' $238 million investment.

Then again, how could it? Americans adore sports, but in economic terms, pro teams just aren't important. The broadcast and attendance revenues of the four major pro sports, all told, add up to less than those associated with gardening or magazines. In Chicago, the five pro teams generate less than 1% of the personal income of the city. Thus, the current NBA lockout may be a tragedy for Bulls fans, but it has had roughly zero effect on the Chicago economy. Those who would have gone to a game are taking their dates to dinner or the movies or blues clubs instead: There is a transfer rather than a net loss of economic activity.

It's important to remember, too, that because most states and cities operate on a balanced-budget basis, money spent on arenas is not spent on things like schools and bridges. Consider the deal Baltimore made for the Ravens football team, which could well be the worst of its type. Baltimore, which was terribly upset when the Colts bolted in 1984, proceeded to do the same thing to Cleveland, tempting Art Modell to bring the Browns to Maryland with the lure of a $200 million stadium--free. And he also gets to keep all the revenues from it. The good people of Maryland will never see a return for their money, but Mr. Modell's coffers are as fat as his offensive line. And how are the Baltimore schools? Don't ask.

That is the most sinister aspect of the great stadium boondoggle: Taxpayers are asked to pay for a stadium, typically through a dedicated sales tax, but almost all the economic benefits accrue to team owners and players--who aren't exactly hurting. And since a common goal of stadium wars is to increase stadium revenues (read: luxury boxes), average fans--you know, the ones paying most of the taxes--get priced out. Ticket prices have gone up so much that many teams are now making deals with banks for season-ticket loans.

The amounts hemorrhaged away on stadiums are not small. Andrew Zimbalist, an economist at Smith College and bete noire of the build-me-a-stadium crowd, figures that between 1990 and 2006, some $10 billion will have been spent on new stadiums in America. Of that, 70% to 80% will come out of the public purse. The rest is private--but don't think that means team owners are reaching into their own wallets. No, "private financing" simply means they contribute some revenues from naming rights, assigned-seating sales, and luxury-box revenues--products they would not be able to flog if taxpayers were not giving them a stadium in the first place.

Of course, if taxpayers want to spend millions making rich people richer, fine. What is objectionable is that stadiums are routinely sold to the public as sources of economic development. They are not.

Moreover, it is not impossible for teams to finance their own stadiums. In Washington, Miami, Charlotte, and San Francisco, owners have built state-of-the-art stadiums on their own nickel. And it is a little ironic that as sports revenues reach record heights, owners cry poverty. (Note that until the 1960s, when the sports business was much more modest, owners almost always built their own ballparks. Curious, that.) In fact, they simply don't want to build their own ballparks--and you wouldn't either. If New York wanted to build you a half-billion-dollar house and let you keep the rent, would you say no? Of course not. But then, for most of us, that's not an option. You have to be seriously rich already to get the chance to scarf that greedily at the public trough.

--Cait Murphy