Sports Welfare: Your Tax Dollars At Play

Cities and states often finance stadiums, ballparks and arenas with public tax dollars. That's nothing new. But most sports fans don't realize that between 1991 and 2004, the total cost to the public to build or renovate U.S. sports facilities was nearly $16 billion.

Patrick Hruby wrote an article for the website Sports on Earth titled “Let’s Eliminate Sports Welfare”, and he joined Bill to discuss the effect of these projects on communities.

BL: You single out Paul Brown Stadium, the home of the NFL's Cincinnati Bengals, as “perhaps the single greatest boondoggle in the history of public stadium financing.” How did this particular deal qualify for that distinction?

PH: Well, the deal that they ended up signing, it’s something like $500 million-plus of public financing, coming from a county where they’re having to cut basic social services to pay the debt service on this. The other crazy thing about this is it’s not just the basic deal. The county has to pay for improvements to the stadium, they have to pay for potential future improvements. It’s written into the contract that if there’s a future holographic display device that will need to be built, they’re going to have to pay for it. That’s actually written into the deal. That’s the best example of how bad it is.

BL: The argument in favor of public financing for ballparks and arenas is that the new venues create jobs. But you've presented the argument that having a stadium or a team in a particular area might actually reduce average incomes. How so?

[sidebar title="Stadiums Of All Kinds" width="630" align="right"]In April 2012, we dedicated an entire program to the structures where our teams play. We looked at historic stadiums, new stadiums, financing, technology, and even the sad demise of the building once known as the '8th wonder of the world': The Astrodome.

See a complete list of the stories and interviews from Only A Game's program on sports stadiums.[/sidebar]PH: There’s a professor at University of Maryland, Baltimore County, Dennis Coates, who has looked at that question. He’s just an economist looking at the figures, he found that what he calls the “sports environment,” which is basically having teams and arenas in a certain area, it actually correlates with reduced incomes of about $40 per family. Study after study has been done that shows that the overall economic impact of building stadiums is almost always negligible. Every dollar that’s spent in an area, going to a game, or going to a restaurant in the area, it would have been spent somewhere else in the community. So, you’re just sort of shuffling money around, you’re not actually accumulating new wealth.

BL: One of the popular ways to raise money for stadium construction is to levy an additional tax on hotel rooms or rental cars. Tell us about the testimony of Brian Frederick, who heads a fan advocacy group called Sports Fans Coalition, regarding who gets clobbered by such taxes, and who benefits.

PH: We get clobbered as consumers. Brian’s a friend of mine, he’s here in [Washington], D.C. He’s kind of like a lobbyist for sports fans in a way. He testified before Congress about how he goes home to Kansas City. He rents a car, costs maybe $10-11 a day. But then there’s another 40 bucks of rental taxes that are added to that. Kansas City built the Sprint Center a few years ago, which is an arena in the hopes of attracting a pro team. There’s actually no team that plays there right now. There’s no pro basketball team, there’s no hockey team in Kansas City. And they paid for it almost exclusively with rental car taxes and other sort of downtown, hotel, restaurant-type taxes. So, this is literally passing the buck for sports enjoyment from actual fans to just anyone that happens to be visiting the town.

BL: One of the more bizarre facts in your story is that the IRS considers the NFL a non-profit. The NFL takes in $9 billion a year and pays commissioner Roger Goodell $10 million annually. How can this cash cow be a non-profit?

PH: It’s really this arcane legal thing where it’s actually written into the law. There’s a certain class of 501 charities, things like your chamber of commerce, where they sort of are these groups that exist to promote something. The NFL qualifies for this, so does the NHL and the PGA. The NFL is actually specifically written into the law on this point and this happened back in the '60s when the NFL and the AFL merged. I’m sure there must have been some high-powered lobbying that arranged for this. Their executives make millions of dollars because they actually don’t want to show a profit, so there’s actually incentive for them to pay their executives that much more.

BL: Sports Fan Coalition Executive Director Brian Frederick has said that the issue of sports welfare is “a bipartisan cause.” Is he right?

PH: I think it is. In fact, if you look at what’s happening with the fiscal cliff, it’s almost a perfect opportunity because Democrats can raise revenues by getting rid of this, and republicans can say, 'OK, we’re getting rid of government waste and inefficient spending but we’re not raising taxes.' So it’s kind of a win-win for both parties and I do think if they can do something like this, it would actually build some trust and cooperation to tackle the much bigger things that they cant’s seem to agree on right now.

BL: What’s the likelihood that all or part of this phenomenon of what you've labeled “sports welfare” will be addressed in Congress or elsewhere any time soon?

PH: That makes me sigh, because it’s been going on for so long, my feeling is that it may not actually get addressed. Look, the actual dollar signs in terms of the overall federal budget, and even the overall big state budgets, this isn't a huge amount of dollars, but it is a huge amount of dollars in terms of the kinds of public services and goods you could be buying instead. There’s a big opportunity cost there. It is real money. On one hand, I think if people are made aware of it, and they’re made aware of it in a global sense, like, ‘It’s not just the stadium in my town, but it’s happening everywhere. It’s happening all over the country and it’s not just happening at the local level, it’s happening at the federal level with this non-profit status and these tax exempt bonds.’ If people can kind of put it all together, then maybe there could be a groundswell of support for this and maybe there’d be political gain for people in Congress to actually take this on.