High Stakes Hold-Up

What good are sports stadiums?

Source: Wikipedia

I don’t mean to the teams. It’s obvious that teams need a place to play. And if they want to attract more fans, the bigger the venue, the better. No, I’m talking about whether stadiums are good for local communities. And there, the record is mixed.

Increasingly, sports team owners are asking the local communities where they play to help them construct a new stadium—with the understanding that if the city won’t help, the team will move its franchise to a new location. Even local colleges—which presumably can’t move—are getting into the act. The University of Las Vegas had asked Clark County, Nevada to raise its sales tax to help fund a $900 million domed stadium, although those plans have recently been scaled back.

Sometimes the teams want outright subsidies for their new digs, like the Minnesota Vikings. They’re getting over $500 billion in taxpayer money to build a billion dollar facility. At a minimum, the stadiums get tax-exempt financing via municipal industrial-revenue bonds, issued by the sports facility and guaranteed by parking or concession fees.

Those bonds aren’t always a good deal. Venues like Yankee Stadium have issued bonds, and those bonds have defaulted. Planners didn’t account for the fact that it’s cheaper to park elsewhere in the city and take the subway to see the Yanks—if you want to.

Inevitably, advocates claim that sports stadiums pay for themselves via increased economic activity. But if this were the case, the owners wouldn’t be looking for public support for their investment. After all, Apple didn’t ask the City of Cupertino for tax-breaks when it decided to build a $5 billion second campus. No, boosters usually appeal to civic pride and claim that people travelling to the area will help the local economy. And Minnesota did win a bid to host the 2018 Super Bowl, which will bring folks to Minneapolis who might not normally want to visit in January. But the City and State had to make tax-concessions, and these won’t be disclosed until after the event.

No, the economics are pretty straightforward. Sports venues with a local appeal pull economic activity away from other local businesses. There’s only so much money to go around. The substitution effect means that the local economy isn’t helped or hurt by new local activity. When put to a vote, citizens usually reject requests for taxpayer subsidies.

Which means there’s only one good reason why these billionaires get public funding for their private activities: because they can.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
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By |2017-07-17T12:34:14-05:00September 22nd, 2014|Global Market Update|Comments Off on High Stakes Hold-Up

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