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A Form of Modern Day Patronage

Recently, the Atlantic Cities website reported that Atlanta and its professional football team, the Falcons, are considering replacing the not-so-old Georgia Dome with a $1 billion “pantheon inspired” stadium. From a community development standpoint, the plans border on absurdity. The city is planning to cover $200 million of the stadium’s cost. In an era of government austerity, this is a huge figure, and causes one to wonder: Do communities get a solid return on these large public investments?

There is strong empirical evidence that the funding of sports stadiums does not improve local economies. Spending public dollars on stadiums is a bad investment for our cities for a number of reasons. First, local governments pay for a large portion of the construction costs. These are expenses that often directly benefit the owners of the sports teams, not the public. In their analysis, Delany and Eckstein found that on average public support for stadiums amounts to around 35 percent to 40 percent of the overall construction cost. And many of the stadium projects are becoming more expensive. A decade ago, they cost around $500 million, but today, as with the proposed Falcons’ facility, the cost is often closer to a billion dollars. Second, local governments do not receive much of a return from their investment of public dollars. According to research, the economic impact of sports teams is a small part of many local economies—usually less than 1 percent. And most of the money earned from this marginal impact is funneled to out-of-state corporations and the owners of the sports teams.

Stadium projects are often funded through complex funding schemes comprised of private investments, direct contribution of public dollars and government-backed bonds. These bonds are tax free—meaning even more public dollars lost to the stadium projects. Some estimates have the federal government losing close to $4 billion in tax revenue. In addition to the bonds, many communities also levy tourism taxes, such as hotel occupancy taxes, to fund the projects. Often due to state laws, these taxes can only be spent on tourism-related initiatives.  A stadium may not be the best way to strengthen tourism or improve the general development in a community. The problem is that public officials are often scared by the threats made by owners that they will move the community’s beloved team to a city that will build their pantheons. In some cases, city officials are too cozy with team owners leading them to make poor fiscal decisions, which in the case of Miami may have violated federal securities law.

This year the Marlins, Miami’s troubled baseball team, are playing in a new, expensive stadium in front of small crowds. The team’s owner asked for public support to help the community retain the team. The local governments secured most of the $643 million in funding on the promise that the new stadium would lead to economic gains. While the Marlins will stay in the community for the foreseeable future, the local economy will most likely not enjoy substantial gains. The owner has decreased the team’s payroll to a level that will ensure that he makes a profit due to the revenue sharing within Major League Baseball. However, this will also ensure that the team will have a difficult time competing in the near future and filling those seats in the new stadium. So far this season, the team is in last place in their division, and the new stadium is close to empty for most games. Furthermore, the stadium is not generating economic growth. For example, the planned storefront development in the facility’s parking garages remains almost empty. In fact, only one business has opened—a cigar shop. To make matters even worse, the Securities and Exchange Commission is investigating the city of Miami due to allegations that officials “misled the public” about the bonds used to pay for the stadium’s parking deck.

The situation in Miami is just one of many examples of the public being led to bad fiscal decisions by team owners and local officials. In Ohio, for instance, the public will most likely pay around $555 million for the new Bengals stadium, even though the project was sold to the public as costing around $280 million.

Degrading infrastructure, troubled school systems, and a thousand other governance challenges are more demanding than financing the construction of sports facilities. In many instances, the owners of sports teams can pay the cost of these stadiums, and since they benefit the most from the projects, communities should require the owners to finance the projects. In many ways, the public financing of private stadiums is a modern day patronage—wasteful spending that takes valuable public resources away from plans that would actually improve development in a community.

Communities would get a much better return on their investments by spending money on policies addressing the quality of their amenities and labor forces. The millions spent on stadiums could improve transportation and technologic infrastructure. The funds could be used to revitalize the design of our downtowns—to promote local businesses and to protect vibrant neighborhoods. The funding could be used to strengthen the labor force of our communities—the most tested strategy of development. Improving the amenities and labor capital of our communities are more evidence-based development goals than financing a new stadium that benefits the owners of the sports teams and out-of-state corporations more than the public.

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Authors: William Hatcher, Ph.D. is an assistant professor in the department of government at Eastern Kentucky University. He can be contacted via [email protected]  Michael Ward is an MPA student and graduate assistant in the Department of Government at Eastern Kentucky University.

 

Image courtesy of http://www.american.com/archive/2008/april-04-08/a-closer-look-at-stadium-subsidies.

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