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Public Funding of Private Sports Stadiums

By Jeffrey Standen

It is something of a litmus test among sports academics and other commentators: to be admitted to the club, one must be against public funding of sports stadiums. Everyone's against it. The chief reasons are several: that funding constitutes a subsidization of the wealthy, that new stadiums do not pay off economically in terms of increased business activity, and that new subsidized stadiums ultimately generate ticket prices that are beyond the financial reach of the average fan. Indeed, these points seem beyond debate. Every examination I've read or read about confirmed that the claims of net economic benefits from a new stadium are illusory. The fact that the taxpayer subsidies accrue to the benefit of the wealthy seems undeniable given the prevalence of luxury box seats. Even the pricing effect seems obvious: teams have to raise prices to pay their end of the stadium costs, never mind field a competitive squad. So why subsidize a product that doesn't pay off, for the benefit of people wealthier than you and, worse, prices you out of the product?

Sorry to play the contrarian, but I've never followed the academic/political orthodoxy on this one. Public help for stadium construction seems unobjectionable.

1. One point in favor of public funding seems simple, perhaps simplistic, yet deserves consideration: public funding of privately consumed goods is a pretty common. Parks tend to be utilized mostly by their neighbors, museums and libraries and public television by those with tastes for those goods, swimming pools and schools by those with children, and so forth, yet all of the above are typically constructed and maintained with public funds. Admittedly in a sense this argument proves nothing, for just because (one might argue) previous errors have been committed is not a reason to make another. Plus the magnitude of the public subsidy of a sports stadium is probably great enough, as compared to a public park for instance, to render the comparison faulty. Nonetheless, seldom are these other, substantial public expenditures put to a cost-benefit analysis. Some of us may not ever use a particular park or visit a new library, but few of us would want to live in a locale with none of them.

2. The high price tag doesn't bother me. The market for sports franchises is competitive. Cities bid against cities, so presumptively the price/subsidy is a competitive one. It doesn't matter whether a city is bidding to be awarded a new franchise, to lure an existing one, or retain an incumbent: all cities are bidding against the next best empty venue. Now it is true that the "free market" claim only goes so far: clearly the major professional sports leagues have something close to a monopoly (at least at this moment in history) on the highest level of competition in their respective sports. This monopoly gives the leagues a measure of market power. This power is limited, of course, because the professional leagues, although without competition against a rival, do compete with each other for fans' attention and compete with other entertainments and leisure activities. So the market power is limited. The market power is also contrived: it's a product of the leagues' decisions to limit the number and location of franchises. This engineered scarcity makes cities bid on teams; without scarcity, anyone interested in a team could just start one and schedule games. (Presumably Boston and other baseball hotbeds would have about five professional teams each.) Cities bid because the leagues make them.

3. It's a manufactured scarcity, but in my view a desirable one. Although I think amateur sports should eliminate their monopoly for the sake of inclusiveness, I don't want professional sports franchises to be as ubiquitous as fast food. Organizing a competition between the finest players in a sport necessarily means excluding those players who don't qualify; the only way to limit players is to limit the number of teams. Some scarcity of franchises is endemic to professional sports; thus the market among cities is unavoidable. The price is high.

4. That cities should bid on teams, and help build stadiums to lure and retain them, also seems unobjectionable. Having a major sports franchise makes the city into a major city. The team provides luster and publicity. Think of what a treat it must be for the mid-sized city of Green Bay to have its own NFL franchise. I would love for the mid-sized city in which I live to have one too, and would support any reasonable tax increase to make that possible. A major sports franchise also provides a means to create or improve community bonds, surely a matter that a city council or mayor might find important. A sports franchise is a significant asset; the fact that the team may be owned by a private citizen, even a non-resident, is irrelevant: the team is a city asset, although privately supplied. The city should subsidize this privately owned asset to the extent of public benefits, or at least will have to given the competition among cities for teams.

5. To me, a professional sports team has attributes of a public good. The "no-subsidy" school of thought (I'm pretending that enough people agree with me to call my position a "school," too) focuses on the fan experience from inside the stadium in assessing the benefits of a team. (To be fair, assessing the more public benefits is probably too difficult.) But many fans never set foot in the stadium, yet still benefit from the team. For these fans, the pro team product is non-excludable and non-rivalrous. The owners of the team can't exclude these fans (and thus can't make them pay for their consumption); consumption by one fan doesn't diminish the product for another. (Indeed, something like a network effect probably happens: the more fans the team has, the more the other fans enjoy their own fanaticism.) These fans do pay indirectly, by watching television ads or buying some merchandise, but nowhere near their consumption. The rest of it is paid for by the city.

6. Here's the real mystery: some critics of public funding say that presence of sports teams does not generate economic renewal or improvement in the area surrounding the stadium. I was on a panel recently at a symposium at Villanova Law School (click here for brochure and webcast). In the previous panel, an economist (an opponent of public subsidies) showed the audience two images. The first, of Wrigley Field in Chicago from an aerial view, showed how the famous stadium is surrounded by bars and restaurants. The second image, of the new, publicly financed U.S. Cellular ballpark, showed the big ballpark enclosed by highways and parking lots, with none of the neighborhood amenities proximate to Wrigley. His point was that Wrigley, built a century ago with private funds, had generated area economic benefits, namely jobs, whereas the White Sox new home obviously had not. To me, the slides were utterly confusing: certainly the new stadium has given rise to plenty of bars and restaurants, albeit located inside the stadium. The decision about the location of the amenities involves consideration of fan convenience and safety. Regardless of the location of the bars, the jobs provided to the local workers, and even ownership opportunities, are the same. How the stadium looks from the sky seems quite irrelevant.

7. The economist at the conference, in response to my question, said the difference was that the stadium concessions were owned by the team, or by its contractee, and not by local inhabitants. The format of the conference didn't really conduce to a further exchange of views, but I can't see why that's necessarily true, and if so, why it matters. It's just an accounting detail as to who owns the asset. Indeed, the fact that the team can (with a contractor or wholly owned concession) profit further from the good it creates gives the team the desirable incentive to produce as many concesssions and the like as fans would desire. What's the harm in that? I thought fan convenience was a good thing.

8. Of course, if one really for some reason wants fan concessions located outside the stadium (perhaps for use at times other than game times -- although many stadium restaurants have outside access already), then localities should insist that stadium developers purchase the land surrounding the stadium. Indeed, many do, and presumably will use that land for restaurants instead of parking lots if it is more profitable to do so. Yet when stadium developers or team owners do buy up surrounding parcels (as has Ratner in Brooklyn and did Kraft in New England), then critics charge the owners with hogging all the neighborhood benefits for themselves. But what better way to ensure desirable neighborhood economic effects than to have the developer own a personal stake? What exactly do the critics want? And should the desirability of a stadium and its team be judged by its ability to effect urban renewal anyway?

9. Even seat licenses and the higher ticket prices that come with new stadiums seem unproblematic. Everyone likes a winning team. Winning takes money, and teams have to make that money from their fans. If reducing the number of seats and making them more expensive raises revenue, then it has to be done. It is unreasonable to want a monopolist to come to town and then complain when the monopolist extracts monopoly profits.

10. The fans who are priced out of the stadium I'm sure don't like it. They would regard this whole affair as a transfer of public funds from their pocket to those of their better-off brethren. But what does it mean to be a fan? Would I want my team to be poorer, and thus less competitive, or even potentially leave town just so I could sit in my cheap seat? The price of the team has gone up. The new stadium provides a vehicle for the team to extract that price; it's not the cause of the price increase. Bad stadium seats are pretty inexpensive, and always will be. (One can swing from the lights at a Dallas Mavericks game for $2.00.) Good seats are pricey; if a nice, new stadium has nothing but good seats, then it will have nothing but expensive ones.

11. All is not perfect, of course. Sometimes cities, like any buyer, get a bad deal. The distortions of the NFL's revenue sharing (share ticket gate, not concessions and luxury boxes) certainly drive the new stadium market forward at the margin. (Indeed, the NFL obviously prefers to take its monopoly profits by driving the cities to produce new stadiums.) Some of the sparkling new arenas seem excessive by any measure (check out this Texas-sized example of conspicuous consumption). But it's still not too bad a market, and certainly not deserving of the widespread academic criticism it receives.

Full post as published by The Sports Law Professor on November 02, 2008 (boomark / email).