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TAX-SUBSIDIZED SPORTS STADIUMS.
Term Paper ID:26281
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Essay Subject:
Analyzes benefits & costs of "sports welfare system" & public/private partnerships for cities & pro sports teams.... More...
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15 Pages / 3375 Words
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Paper Abstract:
Analyzes benefits & costs of "sports welfare system" & public/private partnerships for cities & pro sports teams.
Paper Introduction:
Introduction
While citizens complain of the extraordinary incomes of owners of professional sports teams and the salaries of sports players, most cities and states throughout the nation continue to negotiate costly deals to keep professional sports teams. Usually these deals involve taxpayer financed stadiums, but they also involve other benefits for the teams--nearly all of which are financed directly or indirectly by the taxpayers.
This research examines whether such tax-subsidized sports stadiums and team benefits are worth the investment. It is argued that in most situations such investments amount to nothing more than “welfare for the rich” and that the public rarely gets much return on its investment and, in fact, loses out in the deal.
Background
A welfare system exis
Text of the Paper:
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Are pro sports teams worth it? In addition, the public authorities who ownedfacilities frequently shared in the revenue collected from parking and thesale of food and beverages. Prior to World WarII public contributions to the building of playing facilities were quitemodest. They do not understand--or they choose to ignore--how small sports areas a part of any area's economy and how minuscule their impact is on aregion, a city, or even a segment of a city. They are, however, a bit peculiar and do indeedproduce a bizarre and regressive subsidy system. At the current time, almost 3 teams have either threatened tomove or have moved in an effort to secure a facility that would generatemore income and that included a larger welfare bonus than they werecurrently able to secure. 14). 14C.Donovan, W. This report found thatseemingly profitable and unprofitable teams were increasing in value, thusgenerating substantial returns on the investments made by owners (Donovan,1997, p. The Providence Journal-Bulletin, p. D2). By virtually any measure, professional sports is an extremelysuccessful business. The owners are not the only ones reaping substantial benefits fromthese subsidies. First, only one of the partners, the team, generally shares in therevenues or profits earned from the operation of the facility. The modern sports welfare system was born in the 198 s as willinggovernments were found that were only too eager to create the revenuestreams owners and players wanted. Fortune, p. Can teams themselves attract other businesses and bring economicdevelopment to a community? The owners of the FloridaMarlins and Colorado Rockies paid $95 million in 1991 to join MLB. Youhave to decide if your community's investment in professional sports isworth the enhancements to the quality of life. 575-576). The TexasRangers, also a weak team, were sold for $1 .5 million in 1974 and for $79million in 1989. NFL Team Owner Assets MLB owners are not the only investors in sports with appreciatingassets. 23.Mays, A. (1997, February 26). To be sure, there were exceptions to thesepatterns, but through the 196 s and into the 197 s, for the most part, theprofessional sports leagues were able to operate without substantialsubsidies from state and local governments. It is argued that in mostsituations such investments amount to nothing more than "welfare for therich" and that the public rarely gets much return on its investment and, infact, loses out in the deal. Today, the situation isquite different from the world Bob Cousy, Willie Mays, Andy Bathgate,Johnny Unitas, Lenny Moore, Frank Gifford, and Ray Felix knew. Cities that cannot get major leagueteams believe a need exists to at least have a minor league team. In 1995, theminimum salary for players in the National Basketball Association (NBA) was$2 , , and the average salary in the National Hockey League (NHL) wasmore than $7 , . The Seattle Mariners, long a financially weak team, were soldin 1981 for $13 million and again in 1988 for $89.5 million ($77.5 millionchanged hands with the buyer taking over $12 million in liabilities). The median salary for major league baseballplayers in 1994 was $5 , , and the game's top 2 stars earned in excessof $4 million each. Several surveys have been conducted to estimate the amount of economicactivity that is real or net growth, and not merely a transfer betweendifferent forms of recreation. In the same waythat some cities "steal" corporations from other communities in theirregion, teams are sometimes convinced to relocate within the same marketarea. In terms of understanding the value of an NFL franchise,it is also instructive to point out that the Eagles are not a perennialchampion (Rosentraub, 1997, pp. First, sports teams themselves are small to medium-sized firms. Some teamslike the New York Yankees, Chicago Cubs, and Atlanta Braves were able toincrease their revenues through cable television and "super-station" deals.Teams in smaller markets, however, could not access large cable televisioncontracts, and not every team was owned by a media giant with a "super-station." New and different revenue sources were needed, and luxury suitesand club seating, together with expanded restaurants, became the routes tofinancial success (Conley and Ward, 1996, p. Other center cities seek teams to improve their identities, whilestill other cities fight to retain teams to avoid a loss of identity or toavoid a stigma of decline. The players--once underpaid and abused--are nowenjoying princely salaries, and the vast majority of teams earn profits andgenerate substantial wealth for their owners through the escalating valueof most franchises. Suite deals luxury seat: A foundation for building new ballparks. The Cleveland Browns provide another example of a team moving toanother state to take advantage of a better welfare program. Foul Play. Are sports abetter investment? With assets of thisvalue it is hard to justify that any team owner deserves welfare or thesubsidies they have been receiving from state and local governments. However, when salaries began to escalate fasterthan these existing revenues, new revenue sources were needed. Some teams move as a result of a loss offan support or interest or out of a desire to locate in larger markets.Increasingly, though, the movement of teams has very little to do with fansupport but a great deal to do with the subsidies or welfare teams receivefrom different communities and the amount of revenue the teams arepermitted to keep from the tax-supported facilities built for them. If state and local governments could be convinced to pay a largeportion of the capital costs for building these new facilities, thenplayers could earn their astronomical salaries and owners could still earntheir desired profits. It is long past time that cities and states force professional ownerassociations to accept majority public ownership of sports teams. As a result, when Oakland increased the size of the subsidy itwas willing to provide to the team, the Raiders returned home for the 1995season. However, if changes are to be made, andif providing hundreds of millions of dollars in welfare to millionaireowners and players is to end, elected officials and community leaders mustunderstand why this welfare system exists, how it operates, and howtaxpayers are its victims. Third, when the spending that sports frequently generates at hotelsand restaurants is added to the impact from the teams themselves the totalnumber of private-sector jobs created is still quite small. Followingthe example of Green Bay, Wisconsin, in which the city acquired a majorityshare of the professional football team--the Green Bay Packers--theNational Football League, followed by other professional ownersassociations, decided to impose a strict limit on public ownership ofsports teams. 138-139). The successful bidders for these few scarcefranchises pay an extremely large and arbitrarily defined fee for the rightto have a franchise. The Los Angeles market never embraced the Raiders asthe fans in Oakland had, and the Los Angeles area governments were notwilling to respond to Al Davis's increasing requests for additionalassistance. (1993). Theowners of the new MLB teams that will play in Phoenix and St. New York: Basic Books.Senkiwicz, T. In three years, then, thevalue of a new MLB franchise increased 37%. (1997). These franchise fees are then equally divided amongthe existing owners, generating more income. Los Angeles County lured the Raiders with promises of renovations tothe aging Coliseum. B1). Their purchaseof luxury items may also generate very little economic activity in yourcommunity. The art of the ballpark deal. In the 197 s,governments typically were responsible for 9 % of the cost of constructionof the facilities used by professional sports teams. Itwould save the public considerable tax dollars and preserve what should beconsidered the primary principle underlying professional sports--to provideexcitement and enjoyment for the public. 29.Whitford, D. The governments that were landlords to professional teams generallylost some money, but the franchises were required to pay for their use ofthe stadium or arena. If thepublic sector receives even a small portion of the revenues from theoperation of a stadium or arena, these funds are counted as part of theprivate sector's contribution to the partnership. C14). In nocounty do professional team sports account for as much as 1% of thecounty's private sector payroll or 1% of all of the private sector's jobs. (1997). 23). Who are these individuals profitingfrom this life on the dole? The overallpayroll dollars associated with the sports sector and with the relatedspending at hotels and restaurants amount to a very small proportion of anycounty's private sector economy. Still other communities seek to redefine theirimage or establish their identity as a "major league" community (Spiers,1996, p. Wealth has been growing for team owners not only in terms of the valueof their franchises but from the fees charged to individuals or groups whoseek expansion teams. However, players tend to save more money than do other people,their productive lives are shorter, and they also tend to spend money intheir "home" communities which often are not in your county. How were these franchise feeschosen? (1996, January 15). If people eat ameal at; or near a stadium or arena, they likely did not eat a meal atanother restaurant located elsewhere. (1997, September 14). It also costs a small fortune to join the NFL (Mays, 1996, p. While many of us grewto adulthood amazed that Mickey Mantle, Willie Mays, or Henry Aaron couldearn $1 , by playing a game, suddenly $1 , became "chump change." Multimillion-dollar contracts are now the expected norm for starplayers, and even average players command extraordinary salaries. D1.Laing, J. Major league losers. Conclusion Overall, it appears that public investment into sports teams andsports stadiums is not only a poor investment of public dollars, but moreclosely resembles welfare for the wealthy owners of professional sportsteams. Expanding television revenuesand favorable federal tax regulations, combined with the ability of eachleague to control the number of franchises that existed, created aprofitable environment for team owners. Other cities seekteams to enhance their entertainment image or to complement otherentertainment venues. Second, the professional sports sector, even in urban areas withmultiple teams, is a very small portion of any region's economy. These funds,of course, are distributed to each existing owner. Indianapolis, Cleveland, and Baltimore tried to change theirimages through investments in sports. Sixth, sports are an important part of any community's quality oflife. (1996, September 6). Increases in economic activity fromsports facilities and teams result from people making additional trips intoyour community for recreation and from your own residents staying home fortheir recreation. ReferencesConley, S., & Ward, S. Princeton: Princeton University Press.Rosentraub, M. Washington D.C.: Brookings Institute.Quirk, J., & Fort, R. New York: Doubleday. (1996, August 19). The financial world of professional sports has been substantiallyaltered during the past two decades; these changes have reshaped theeconomics of stadium financing and have created the modern sports welfaresystem (Laing, 1996, p. And for some baseball teams, it has never been stronger. But docities really get anything from this self-defined and media-hyped "bigleague image"? Second, theprivate-sector partner, the team, generally passes the cost of itsinvestment to fans who attend games, while the public-sector partner isforced to ask all citizens to support the playing facility through highertaxes. At first glance, then, thesepartnerships seem reasonable and hardly the cornerstones of a multimillion-dollar welfare system. A1). Seton Hall Journal of Sports Law, 8, 575-599.Snel, A. Mobility and Welfare The welfare system that now exists in professional sports is actuallyencouraging team owners to move their franchises to communities where morerobust subsidies will be provided. In the past, players did not receive a substantial shareof the wealth produced by professional sports. For facilities builtin the 199 s, the public sector was typically responsible for less than 6 %of the cost (Rosentraub, 1997, p. First, as a result of court rulings and laborconfrontations, players have secured expanded rights to sell their skillsto the highest bidder. "Free agency" has become a slogan to describe aprocess whereby players' salaries sharply escalated. The Los Angeles Rams had just left for Anaheim, and Los AngelesCounty and the city of Los Angeles wanted another team. Cities choose to get involved with sports for a variety of reasons.Some central cities seek teams to help them rebuild their downtown areas.Some communities hope for direct economic development (Donovan, 1997, p.A1). B1.Spiers, J. Furthermore, it is possible that more than four-fifths of the spendingwould occur in the absence of the team. As a result, tile actual benefit of the team's presence is afraction of the spending that takes place at the stadium or arena. The OaklandRaiders regularly sold out their home games at the Oakland AlamedaColiseum, but that did not stop the team's owner, Al Davis, from moving theteam to Los Angeles in 1982. What isnow taking place that makes the recent moves of teams different from thosein the past is that teams with substantial levels of fan support are drawnto other communities as a result of welfare packages. Experts: Stadium tax not fair, Alternative funding methods urged. This increment needs to beevaluated relative to the investment made by the public sector to be sureyour taxes are not merely producing welfare for the rich. Louis, SanAntonio, Phoenix, and Portland wanted to underscore or establish theirstatus as "big league" communities. At least some evidence suggests that these numbers were literallypicked "out of the air" by the other owners, who then divided the fundsreceived among themselves (Rosentraub, 1997, pp. Many football teams routinely sell all tickets to theirgames, and NBA teams are also playing before sold-out arenas or near-capacity crowds in numerous cities. Either someone else had to pay for the playingfacilities, or the owners would lose their profits to the players and the"free agency" system. Fan interest, as measured by attendance,while declining in baseball and hockey from some earlier levels, is stillquite robust. Starting players in the NBA now earn in excess of $1million, and several players on each team now earn more than $4 millioneach season (Rosentraub, 1997, p. One report for the U.S. This "welfare for the rich" trickles down only so far as to ensurethat "star" players also get extraordinarily high salaries and benefits.The people who subsidize this welfare system are the public sector and thetaxpayers. Introduction While citizens complain of the extraordinary incomes of owners ofprofessional sports teams and the salaries of sports players, most citiesand states throughout the nation continue to negotiate costly deals to keepprofessional sports teams. This welfare system isnot needed. C2 ).The owners of the Carolina Panthers and the Jacksonville Jaguars each paidthe NFL $14 million to become league members. In the post-World War II era public participation in the financingof playing facilities did increase, but in most circumstances teams paidsubstantial rent for their use of a stadium or arena (Noll and Zimbalist,1997, p. In1996, the Cleveland Indians became the first Major League Baseball (MLB)team to sell all tickets to all of its games four months before the 1996season started. Usually these deals involve taxpayer financedstadiums, but they also involve other benefits for the teams--nearly all ofwhich are financed directly or indirectly by the taxpayers. Congress evaluated the state of MLB when acongressional committee was reevaluating the sport's exemption fromantitrust laws during the 1994 strike and lock-out. While the "average" baseball player does not receive the salary of thestar free agents, the salary received by at least 5 % of all major leaguebaseball players would make the vast majority of Americans feel as if theyhad won a lottery. It is time the public say "no" to blackmailand defend its anti-trust rights. However,quality of life is an important factor in any locational choice, andprofessional sports teams do add to any community's quality of life. As a result, when analyzing the total revenue generated by ateam or a facility, remember that with more than half of all funds spent byfans being used to pay players, one-half of that total will not be re-spentin your economy. The stadium binge: Stadium capsules. And NHL team owners sawtheir team's values increase 11.9% from 1991 to 1994. Could you invest in otherthings that would also enhance the community's quality of life and thusincrease its attractiveness as a place to live and work? 138-139). Seattle Post-Intelligencer, p. (1998). Finally, real economic gains can accrue to a city if a team moves fromanother community. 3-4). Stadium and arena financing: Who should pay? Cities and states should instead be empowered tooffer a third alternative: buy the team themselves for public ownership. (1994, March 3 ). By themselves, sports teams are e not economic engines; they havetoo few employees and involve too few direct dollars to be a driving forcein any city or county's economy. The driving force behind this move was thecommitments local governments in Los Angeles were willing to make to havean NFL team. No one knows for sure, so you would have to decide ifthe investment is worth the perception of an enhanced quality of life moreso than any other investment. Two of the most recent moves illustrate this process. That level of fan support, together with the city of Cleveland'scommitment to spend $176 million to improve Cleveland Stadium, did not stopArt Modell from taking his team and its five decades of history with thefans of Cleveland to Baltimore. Where couldthe owners find the money to pay these salaries and still earn the profitsthey had in previous years? Arlington, Irving, St. City and state leaders havealso ignored or failed to realize just how few jobs professional sportsteams produce and that businesses do not select an office or plant sitebecause of the presence of a sports team. Now, the NFL is discussingfranchise fees of $2 million and $25 million for new teams. (1992). Fifth, the majority of the revenue collected by teams is used to payplayers. Why was Los Angeles interested in subsidizing professionalfootball? In 1994, it was estimated thatplayers earned more than half of the revenues received by baseball,football, and basketball teams and 41% of the revenues earned by NHL teams. Baltimore, of course, had been left withits 3 years of memories of Alan Ameche, Johnny Unitas, Lenny Moore, DonShula, and two Super Bowl appearances when the Colts moved to Indianapolisin 1984. The estimates of growth range from 11.9% ofthe spending by fans to 34%. What Is the Attraction? Playing hardball: The high stakes battle for baseball's new franchises. (1996, September 16). "Sports Welfare System" Once upon a time, the investors who owned teams and hired players alsopaid most of the costs for building stadiums and arenas. 22-26). In this manner, thepublic sector does not receive a monetary return on its investment; fiscalreturns on investments are reserved for the team owners while the publicsector's investment--through taxes--does not generate any revenue or directfinancial returns (from the operation of the facilities). Each of these players had contractswith their teams for no less than $3 million in annual pay. Second, teams earn money from ticket sales, the broadcast of games andrelated programs, souvenir purchases, and the sale of food and beverages atstadiums and arenas. The actual market value of NFL teams is probably best illustrated bythe $175 million Jeff Lurie paid for the Philadelphia Eagles in 1994.Financial World magazine estimated the team's value in 1992 to be $149million, but that figure, as illustrated by the 1994 price, was probably abit conservative. NFL team owners have found their investments to be appreciating aswell. By the 199 s,player salaries represented more than two-fifths of MLB team revenues, a1 % increase from the 197 s. As long as income from these sources continued toescalate, owners could pay players the new higher salaries and still earnthe profits they wanted. Each city that decides to provide subsidies to teams genuinelybelieves sports and the presence of a team are essential for a "big league"identity and economic development. Players ineach of the four major sports are very well paid for their work, with"star" players receiving unimaginable amounts of money. In 1996, $1 -million contracts became part of theworld of professional sports (Senkiewicz, 1998, pp. Few taxpayers and electedofficials have invested the time needed to understand why this welfaresystem exists and just how profitable it is for the team owners and playerswho now control it (Knight, 1996, p. USA Today, p. Stadiums: Winners or losers? Background A welfare system exists in this country that transfers hundreds ofmillions of dollars from taxpayers to wealthy investors and theirextraordinarily well-paid employees. Yes. Sports, jobs and taxes. From 1986through 1994 the Browns averaged more than 7 , fans for each of theirhome games despite four straight years of below .5 teams (199 through1993). From this position of strength, team owners can present ultimatums tocities and states of either financing new and elaborate sports stadiums orface losing the team. 2). However, this gain is likely to be no more than $1 million or $15 million in new economic activity. Through these public/private partnerships,the public sector's responsibility or share of the cost of stadiums andarenas actually declined (Quirk and Fort, 1992, pp. 112-123). In theabsence of a team or new facility, people will still spend money onrecreation and at restaurants. 2 CNoll, R., & Zimbalist, A. Barron's, p. The following points, by way of summary, provide an answer. 23). Sports teams havealso become competitive assets within metropolitan areas. The owners' restrictions on public ownership of professional teamshas never been tested in court. USA Today, p. All that was needed to make this system work werewilling public-sector partners who could be persuaded to contribute largeamounts of tax dollars to the building of arenas and stadiums (Snel, 1997,p. In the case of the NFL, a team may only have a small minorityof public ownership, thus ensuring monopoly privileges of private owners. They will even continue to buy clothes andhats regardless of the presence, or absence, of a team. Denver Post, p. 7). Theyare clearly vibrant, vital, and important components of any city orcounty's economy, but no more so in economic terms than many, many otherfirms. This research examines whether such tax-subsidized sports stadiums andteam benefits are worth the investment. They are the owners of North America'sprofessional sports teams and the athletes who play in each of the fourmajor sports leagues (baseball, basketball, football, and hockey). Fourth, a substantial portion of the spending that takes places atarenas and ballparks, and at the restaurants and retail outlets near or inthese facilities, is merely a transfer of economic activity within yourcommunity. Franchise revenues grew by nearly 12% per year from 197 to 1991, a6.3% annual growth rate over and above the rate of inflation (Whitford,1993, pp. These community leaders anticipatedreceiving a large return on their investments, and few bothered to askwhether cities could prosper from professional sports Public/Private Partnerships Beginning in the 198 s many state and local governments formedpartnerships with teams to build new facilities; by the end of the decadeand into the 199 s, all of these facilities contained substantial numbersof luxury suites and club seats. Thiswelfare system exists--indeed it thrives and continues to grow--becausestate and local government leaders, dazzled by promises of economic growthfrom sports, mesmerized by visions of enhanced images for theircommunities, and captivated by a mythology of the importance ofprofessional sports, have failed to do their homework (Rosentraub, 1997,pp. The Baltimore Orioles, a profitable team, were sold for$12 million in 1979, $7 million in 1989, and again for $173 million in1993 (with the benefit of a new stadium complex financed by Marylandtaxpayers). Does the sports industry need welfare to exist? Petersburgeach paid $13 million to join the major leagues. Pay dirt: The business of Professional team sports. Suburban cities sometimes seek teams toemphasize their economic vitality in an urban region. Probably not; too many other factors affect acorporation's decisions regarding where it needs to be located. As a result, whatever gross figure is used toestimate the economic activity generated by a team or the facility that isused, no less than 66% would exist in your community even if the team didnot. A1.Knight, B. By 1993,at least 18 players had contracts and endorsements that guaranteed them anannual income of $6 million or more. In1992, they were sold again for $1 6 million to a group of local businessesthat offered to invest an additional $19 million in the team. Some cities are speculators; these are the citiesthat build facilities in the hope of attracting a team. This welfare system can be dismantled; and it can be changed so thattaxpayers do not subsidize a very healthy industry and some of thewealthiest people in this country. In addition, sports as a business is having no seriousproblem attracting consumers.
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