Assessing the Unique Dynamic Between the Public Funding and Private Enjoyment of Stadiums

 

There is an endemic problem in the United States with the way sports owners are ransoming the necessary funds to supply new sports stadiums with the latest and greatest technology, and this field is one filled with hypocrisy and failed logic.

Balancing Municipalities Decision to Green Light Stadium Construction

Proponents of stadium construction contend that these projects result in an immediate surge of jobs, an irrefutable uptick in the local economy, and a multiplier effect where increased local income causes continued spending and job creation.[1] Further, proponents make the case that even if a stadium is privately funded, it remains self-funded, as the government subsidies are paid off by the sales tax on concessions, the property tax increase arising from the new stadium, and the revenue gained from tax on the tickets.[2] Cities often agree with these notions. For example, the campaign slogan for the recently constructed Levi’s Stadium in Santa Clara, California, was “Build the Stadium – Create the Jobs!”[3]

However, empirical evidence emphatically denies that the construction of stadiums provides sustained job growth to an economy.[4] Logically, those working in construction are major supporters of stadium building, both privately and publicly funded for that matter. However, contractors and subcontractors only benefit to the extent that they did not have work available to them before construction commenced, and these jobs often become obsolete once the facility has been constructed.[5] Moreover, as renowned economists Roger G. Noll and Andrew Zimbalist put it, “increased economic productivity can arise in two ways: from economically beneficial specialization by the community for the purpose of trading with other regions or from local value added that is higher than other uses of local workers, land, and investments. Building a stadium is good for the local economy only if a stadium is the most productive way to make capital investments and use its workers.”[6]

Much of the revenue gained by sports goes to the athletes, coaches, and upper executives. Typical stadium employees work part time and earn below average wages, miniscule fractions of team’s total revenues.[7] Therefore, Government investment in sports tends to actually reduce the total number of full-time jobs, in favor of low-wage seasonal positions.[8]

Backers of stadium construction would also argue that the amount of good will sports stadiums bring into a community, creates a benefit enjoyed by consumers that make the spending worth it. This intangible “good will” that stadiums bring is extremely hard to measure, however, it is present. The danger here lies with what owners will do to take advantage of this good will. For example, in order to secure more public funding for the construction of their new stadium, owners may threaten to move the team. These threats are so effective in fact, that over the past two decades stadiums have had a replacement rate of more than 90 percent.[9] These threats tend to galvanize a segment of the community, who push to keep the team and construct the stadium. Local politicians, fearing political backlash, struggle to maintain any leverage against the owners.

An apt case study for the sometimes nefarious processes for modern day stadium construction, i.e. the securing of aforementioned capital, and the presence of a viable silver lining to such construction, is the new Cobb County stadium being built in Atlanta, Georgia, for the Atlanta Braves Major League Baseball team. The Braves have played in Turner Field in downtown Atlanta since it’s construction in the 1990’s, however construction is reaching completion for a new stadium to be located in the suburbs of the city. Recently, the Cobb County Commission, a small local governing body, approved the Braves stadium construction plan while circumventing laws requiring open meetings when determining large outlays of public funds, by standing in hallways to conduct meetings.[10]

In 2008, Cobb County residents voted for $40 million in new parks, however, the Commission now holds that in order for this to happen taxes must be raised, as the money has been funneled to help build the baseball stadium.[11] This siphoning of public funds was described by the Atlanta Journal Constitution as “sleight of hand” and “unseemly.”[12] Further, due to expanding bridge costs, and money called for to widen highways so as to combat the notorious Atlanta traffic gridlock, the public will be footing a bill of more than $350 million.[13] Ticket prices in the new stadium will average a 45 percent price hike from what they were at Turner Field.[14] When it was uncovered that the Cobb County Commissioner Lee had forced the stadium deal through by, amongst other things, hired an attorney to hammer out the Braves deal, even without disclosing these arrangements with his fellow commissioners.[15] Lee defended himself by pointing out that the ethics code only stated that elected officials “should” avoid acts of impropriety, rather than flatly requiring it.[16] The Cobb County Ethics Board later dismissed any charges brought against Lee largely because he apologized.[17]

However, there is a silver-lining to this entire string of complicated events leading to the Braves new stadium, and there is a major difference between this construction and other less successful projects. According to the author of The Baseball Economist, J.C. Bradbury, this new stadium, unlike many projects, “will actually bring in money into the Cobb area that wasn’t previously being spent there, as fans travel from other metro counties like Fulton, DeKalb, and Gwinnett for Braves games.”[18] There is no doubt that there are more economically efficient ways to bring money into communities, but building stadiums in areas which otherwise would not have a surge in capital joined with the intangible good will that sports teams tend to bring, stadiums may be worth it after all.

For example, the estimated annual economic impact in Brown County since the Green Bay Packers coordinated an extensive reconstruction project on historic Lambeau Field in Green Bay, Wisconsin, is around $282 million.[19] This community-wide impact quickly offsets the $140 million cost in renovations between 2013-15.[20] In addition, this fairly rural community is provided with an influx of money it would not otherwise have; and, because renovations, however extensive they may be, are often considerably cheaper than full stadium construction, the cost of constructions remains feasible. The Green Bay Packers also have perhaps the greatest good will in American sports, as the team is portrayed as representing humble, small-town America.   This is a hallmark of stadium construction success.

Where the Capital Necessary to Fund These Projects is Obtained

The Romans secured the necessary funding to construct the Colosseum by sacking the City of Jerusalem during the First Jewish-Roman War.[21] However, the ancient way of stadium funding, conquest, has been left behind in favor of taxation.

There are over 100 professional stadiums in use in the U.S. today.[22] The funding required to construct almost most every single one of these buildings, was acquired from American taxpayers.[23] In fact, by the year 2000, Americans had poured more than $20 billion into the construction of sports stadiums across the country; then from 2000 to 2010, 51 new sports facilities were constructed, costing American taxpayers around $12 billion.[24] This huge bill is acquired from the taxpayers from a few different ways, however the most prevalent of these are tax-free municipal bonds.

Tax-free municipal bonds have been a common way for local ordinances to obtain a surge of capital. In layman’s terms, purchasing a bond is equivalent to extending a loan to a borrower. However, in this instance the borrower is the local government. The municipality borrows the money and the bond holders, American citizens, receive fixed bi-annual payments, constituting the interest on the bond.[25] Finally, at the end of the loan term, the municipality pays back the capital to the bond holder.[26] The payments received by the bond holder are Federally tax-free.[27] Meaning, that depending on the state and city, the bond holder may not have to pay any tax on the additional income, and this is what makes these Government-back bonds so attractive to Americans.[28] Commercial bonds often yield higher interested payouts, but with these higher dividends come higher taxes.[29] Since the early 19th century these bonds have been used for projects that benefit the public as a whole.[30] The construction of things like roads, turnpikes, railways, and schools, are often the result of tax-free municipal bonds. In summation, tax-free municipal bonds are a way for the Government to obtain private funding for a project that benefits the public.[31]

By exempting the taxes gained from the interest on these local bonds, the Government forgoes revenue that could have been derived from ample taxation. This disregarded revenue then becomes an expense to taxpayers, as the deficit of Government funding must be found elsewhere.[32] This deficit is placed squarely on the shoulders of the citizens. It is often disputed whether the construction of athletic stadiums yield the ample public benefit to justify this growing tax deficiency.

Professional sports teams in the U.S. are of some of the most prolific and successful businesses in the country. Owned by multi-millionaires and billionaires, these teams continue to get citizens’ help. In Detroit, for example, taxpayers promised to front $283 million for the construction of a new stadium for their beloved Detroit Red Wings, this coming less than a week after the city filed for bankruptcy.[33] The Red Wings, meanwhile, are owned by Jeff Ilitch, who has a net worth of over $5.8 billion. How does the publicly-funded construction of stadiums for the private use of wealthy owners fair to taxpayers?[34] The logic is innately flawed.

A landmark decision, wrestling with this subject, came from the Ohio Supreme Court in Meyer v. City of Cleveland, there the court ruled that regardless of the fact that a baseball team would be the primary occupant of a stadium, the bonds issued could not be held invalid, despite a private purpose existing in the stadium’s construction.[35] The court justified its decision by reasoning that the definition of public use is expansive, therefore it incorporates the use of the stadium, however rare, by the public.[36]

Further , the Pennsylvania Supreme Court construed the public purpose requirement broadly in Martin v. City of Philadelphia.[37] There, the taxpayer sought a ruling that these bonds did not serve a legitimate public purpose and, therefore, should be held invalid.[38] In denying the taxpayer’s complaint the court stated that, “public projects are not confined to providing only the bare bones of municipal life, such as police protection, streets, sewers, light and water; they may provide gardens, parks, monuments, fountains, museums, libraries and . . . ‘anything calculated to promote the education, the recreation or the pleasure of the public.’”[39]

However, not all public administrators construe this public purpose requirement as broadly as the two prior. In ‘In re Opinion of Justices,’ the Massachusetts House of Representatives ruled that when stadiums are constructed, with an effect to subsidize private organizations operated for profit, facilities can hardly be said to be for a public purpose. The court provided further detail, adding “the provision of such [stadiums] . . . is not as clearly and directly a public purpose as supplying housing, slum clearance, mass transportations, highways and vehicular tunnels, educational facilities and other necessities.”[40] The Court concluded with setting a standard for stadium construction that would allow funding if it were accompanied by legislation setting forth guidelines to: 1) protect all aspects of the public interest, and 2) guard against public funds being diverted for the benefit of private persons and entities.[41]

Like the court in Ohio, many state legislatures have held that state and local government’s power to use public money to fund construction, or acquisition of property, hinges on if this outlay of money serves a public purpose.[42] Two primary interpretations have been derived from this doctrine. First, a more constrained “use by the public” interpretation, which holds that the public purpose requirement can only be satisfied when the public is the actual user of the property, or the public reserves the right to use the property.[43] Second, a much broader interpretation of the doctrine, holds that anything which enhances or contributes to the general welfare of the public is to be deemed to have satisfied the public purpose doctrine.[44]

Recent court decisions have liberally construed the public purpose doctrine, and have more readily allowed the funding of sports stadiums. Although, municipalities across the U.S. have proposed alternative processes for obtaining the necessary funding, including 1) imposing “taxing districts,” where a portion of the district’s tax revenue goes towards the funding of a new stadium, 2) adding additional surtaxes in specific counties, and 3) taxing the proceeds of Native American casinos.[45] Though unique and potentially less wholly burdening, these options give disenfranchised taxpayers minimal relief.

In order to combat this epidemic of publicly attained money going to support privately held businesses, there must be stricter and more uniform laws in place on a state level, however, this starts with education on the ground level. Municipalities can easily spin that few tax dollars are directly going towards the funding of a new stadium because of the prevalent use of tax-free bonds, and flaunt the possibility of bringing sports teams to their cities; but if citizens are educated on the circumventing process that these affluent owners are taking, they can take action to ensure that their dollars are not ending up in the pockets of the owners.

 


[1] See Doug Sheppard, Do Taxpayers Benefit from Sports Stadium Subsidies?, 2001 Tax Notes Today 64-67 (Apr. 2, 2001).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Aaron Gordon, America Has a Stadium Problem, (July 17, 2013) https://psmag.com/america-has-a-stadium-problem-6eae0a4187e1#.w6bmokbgf.

[10] Neil DeMause, Cobb County Chair Won’t Face Ethics Charges Over Secret Braves Deal, Because That’s not the Ethics Board’s Table, FIELD OF SCHEMES (Nov. 25, 2014) http://www.fieldofschemes.com/2014/11/25/8135/cobb-county-chair-wont-face-ethics-charges-over-secret-braves-deal-because-thats-not-the-ethics-boards-table/.

[11] Neil DeMause, Cobb County and the Braves: Worst Sports Stadium Deal Ever?, VICE SPORTS (June 9, 2016)  https://sports.vice.com/en_us/article/cobb-county-and-the-braves-worst-sports-stadium-deal-ever.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] DeMause, supra note 11.

[18] Id.

[19] Lambeau Field Expansions, PACKERS (July 25, 2016) http://www.packers.com/lambeau-field/stadium-info/history/expansions.html

[20] Id.

[21] Id.

[22] World Stadiums Database, (Last Updated: Dec. 1, 2016) http://www.worldstadiums.com/north_america/countries/united_states.shtml.

[23] Gordon, supra note 9.

[24] Id.

[25] Dennis Zimmerman, Tax-Exempt Bonds and the Economics of Professional Sports Stadiums (Cong. Res. Service Rep. 1996).

[26] Id.

[27] Id.

[28] Edward Jones, https://www.edwardjones.com/investments-services/stocks-bonds-mutual-funds/fixed-income/municipal-bonds.html.

[29] Id.

[30] Id.

[31] Zimmerman, supra note 25

[32] Id.

[33] John Oliver, Last Week Tonight, (July 12, 2015) HBO, (citing http://www.detroitnews.com/story/business/2015/11/04/report-cost-new-red-wings-arena-rises/75146516/).

[34] Id.

[35] 171 N.E. 606 (Ohio App. Ct. 1930)

[36] Id.

[37] 215 A.2d 894, 896 (Penn. 1966)

[38] Id.

[39] Id.

[40] 250 N.E.2d 547, 588 (Mass. 1969)

[41] Id.

[42] Id.

[43] Id.

[44] Id.

[45] See Libertarian Party of Wis. v. State, 546 N.W.2d 424 (Wis. 1996).