TCS Daily

How Seattle Slew the Raid on Its Treasury

By Martin Fridson - November 29, 2006 12:00 AM

November's elections brought a small, but encouraging bit of news for disbelievers of the proposition that government exists to advantage the already advantaged. Voters in Seattle overwhelmingly approved a ballot measure ending taxpayer subsidies for professional sports franchises.

The tide began to turn against public financing of athletic facilities when the Seattle SuperSonics basketball team's previous owner offered to put up a mighty $18 million to renovate KeyArena, on condition that the city kick in $200 million. Following the defeat at the polls, Clayton Bennett, chairman of the team's present ownership group, whined that the city had turned its back on the National Basketball Association. Residents now widely expect the Sonics to decamp for Bennett's home base of Oklahoma City.

False Claims of Economic Benefits

Leaving aside integrity-challenged "research" paid for by team owners, studies of publicly funded facilities over the past 30 years have consistently shown that municipalities do not earn back their foregone tax revenues. Increasingly over that period, stadiums have failed even to recover their operating expenses, much less their debt service.

As a fallback position, proponents have tried to justify subsidies on grounds of a positive economic spillover to the community at large. The most common way to test that thesis depends critically on an arbitrary decision about how large a multiplier to apply to team employees' salaries in estimating newly created demand for goods and services. An alternative approach is to compare economic growth in cities that did and did not attract new franchises or build new taxpayer-funded stadiums. This methodology finds that taxpayers achieve no positive payback on building sports facilities. Taxpayers lose out even when "psychic benefits" to the community are quantified and factored into the calculations.

Contrary to the myths perpetrated by the drinkers at the public trough, attracting a professional sports team to a city does not generate new entertainment expenditures. It merely shifts consumers' dollars from other forms of entertainment. Modern sports complexes are designed to make as few of those dollars as possible flow to pubs and eateries in the surrounding neighborhood. League rules require the owners to split ticket revenues with the visiting team, so they strive to capture as much ancillary revenue as they can through luxury suites and in-stadium restaurants. As for the "job creation" for which the subsidy-collectors claim credit, it consists in large part of temporary construction jobs. Under any pretext other than bringing big-league sports to town, local politicians could not get away with spending tax dollars to generate the low-paying service jobs associated with athletic facilities.

Big Bucks Trump the Facts

Despite the empirical evidence, and even though American professional sports thrived for the first 90 years without taxpayer subsidies, the outcome of Seattle's vote is sadly the exception. Recognizing that the value of their franchises can be spectacularly enhanced by public provision of a rent-free stadium, team owners bankroll massive public relations campaigns to assure victory in referendums. They generally receive backing from constructions unions and enthusiastic editorial support from local newspapers, which stand to gain readership (and therefore higher advertising rates) from the presence of a professional sports team.

If this powerful coalition fails in its first attempt, it immediately begins beating the drum for a new referendum. The ragtag assemblage on the other side—ant-tax activists, small businesses threatened with displacement, and neighborhood groups that object to a stadium's intrusive presence—usually lacks the resources to continue contesting the issue.

Seattle's Effective Advocates

Seattle's taxpayers were lucky to have an effective advocate in November's vote. Chris Van Dyk founded a group to oppose public subsidization of professional sports teams and enlisted the support of a statewide health care union. The organization had $60,000 available to place the initiative on the ballot and make its case to the voters.

My only quibble is with the name of Van Dyk's outfit, "Citizens for More Important Things." It derives from the notion that investments in schools, transportation, and health care represent preferred uses of taxpayers' money. The argument against taxpayer-supported sports stadiums, however, is not that athletics is inherently less important than other things in life. For some diehard fans, the fortunes of their team surely do matter more than the frequency of bus service. The test that any proposed public expenditure must meet is whether it rectifies a demonstrable market failure.

Still, it is correct to say that investments in other, genuine public goods are more important than subsidizing already-rich sports team owners, from the viewpoint of attracting corporate plants and headquarters to a region. Companies find that recruiting qualified employees depends little on their access to major league ballgames but a lot on access to good schools and low crime rates.

Whatever line of reasoning carried the day in Seattle, supporters of sensible government everywhere should rejoice in the precedent. Perhaps it is not too optimistic to hope that the city that led the way in grunge rock and gourmet coffee will also help to establish a new trend of turning down billionaire panhandlers who constitute the primary constituency for taxpayer-supported stadiums.

Martin Fridson is author of Unwarranted Intrusions: The Case Against Government Intervention in the Marketplace (John Wiley & Sons).



This article
Would welcome the writer's review of Olympic games.

I agree
The government has no business in business. I have long felt this was a useless waste of taxpayer money. Like all business, it should sink or swim on it's own. The same thing applies to industrial parks, malls etc all funded at taxpayer expense.

Great Article - Truly Stupid Practice
The only economic "spillover" benefits accrue to high profile or exceptional performer athletes. Now, instead of paying the true cost of providing athletic contests, the cost of the physical plant has been off loaded to the tax payers and the owners now simply concentrate on artificially bidding up the cost of sports labor.

Of course, in part we can blame the politicians who agree to this nonsense. A big part of the problem lies with the courts, who vacated the reserve clause and decided that an enterprise (major league anything) with multiple owners of discrete business units (teams), were not a partnership, but a cartel.

I do my part-I don't bother buying tickets or officially licensed merchandise. Age has its advantages, one of which is realizing that public financing of prima donna athletes, is nothing more than the modern version of "bread and circuses".

Whats truly sad is that after Joe-Sixpack has his income forcibly conscripted by politicians currying favor with mercenary rich and celebrity with the public by erecting modern pyramids to support these ventures, he invests time and energy in buying a ticket and giving a damn.

Olympics would certainly be a good followup topic. I haven't researched it in the depth that I have the stadiums issue, but the host cities do appear to lose money under honest accounting. I'm not down on the event at all. And I do follow pro sports. The other correspondents hit it on the head, though. These are just not activities that justify public subsidization. But the glamor blinds people to the economics of it.

Some Exceptions...
Cleveland's experience in building its baseball stadium in the 1990's was a large invigoration of a previously abandoned downtown during the summer months. New restaurants and bars cropped up, sports outlets, and generally more people were found downtown after working hours (at least on game days).

However, this only lasted as long as the Indians were a contender. Once they began scraping the bottom, business could no longer subsidize the slow winter months because summers had slacked off, with less than half-filled stadiums.

Overall, I think that the new stadiums (we've since build one for football, too) have helped the city's image, but have not provided long-term financial benefits. But sometimes old, dying cities need a boost, and the stadiums likely did that, but to no lasting effect, as things are going downhill again.

But our stadiums were mostly financed with sin taxes, and thus the blue collar workers who enjoy the sports the most are paying for it twice. Maybe they wouldn't complain about their sacrifice. But maybe the money would have paid off better if invested in attracting business, such as by updating city services and reducing taxes and bureaucracy. Who knows?


no more sports fans
Except for college teams there are no more sports fans. We only have fans of winning. Doesn't matter what rediculous event they are winning, People support winners and ignore losers.

Another Good Take on this Issue
The authors of Baseball Between the Numbers devote a chapter to this topic as it pertains to baseball stadiums and come to the same conclusions.

Sadly true, and there is no exceptions
Look at college teams with long losing histories; their stadiums are just as empty as losing NFL teams. I would say this has even seeped into the high school realm.

In the 60s, 70s and 80s going to a football or boy's basketball game meant having to look hard to find a seat, if you didn't come early. I remember times were opposing fans were given a couple of hundred "guaranteed" seats, upon request, for rivalry games. By 2000 it was becoming evident this was a thing of the past. In my home town, for instance, we had a great basketball team that went on to place 2nd at the state tournament; home games drew good crowds, but were never "sold out". In 1998 we hosted the State championship football game, our opponent was from close by and a conference rival (also the weather was fantastic); it was "standing room only", but not the biggest crowd I'd ever seen.

The number of true fans has dwindled dramatically. Now, the only people you are sure to see at games (When the team isn't expected to be a big winner) are family, friends and students. The same at the college level. The NFL has little of that, so stadiums are even more empty for losers.

how much of this is do to the explosion of alternative sources of entertainment in the last 50 years
Going back further, turn of the century, early days of baseball, what other forms of entertainment were there?

50 years ago, there was radio, but not that many channels and shows, no TV.

25 years ago, radio much more popular, but TV still in it's early years.

This next only applies to the pro's.
Used to be the vast majority of players would start with an organization (farm teams even for baseball), and spend their entire careers with that organization. Even trades were less common than today. Today it's getting pretty rare for a player, especially the big name players, to last more than one or two contracts with a particular team.

Fan's were loyal to teams, but they were even more loyal to their favorite player.

Some to be sure
But, in the pro ranks, you are exactly right. I'm still a fan of players more than teams and I've always known that was the case. I think a lot of people are.

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