Are Publicly Funded Stadiums Worth It?

Sports venues can be funded in a few different ways: private financing, public financing, or a combination of the two. Public financing occurs when state and local governments issue tax-exempt bonds, which help finance sports stadiums. Since these bonds are tax-exempt, the interest that must be paid is lower, thus reducing the total amount that the city and team pay for a stadium. Private financing occurs when the owners or people in charge take out loans from banks or other private investors to help pay for the stadium. Most of the time stadiums are funded through both public and private funds, which can be seen in the chart below breaking down the finances of NFL Stadiums built from 1997 – 2015.

Even if stadiums are not publicly subsidized  for the actual construction of the stadium and fully cover costs through private financing, local and state governments will give them different incentives. These incentives “can take several forms: forgone property tax revenue if cities offer an exemption, missed ticket and parking tax revenue if teams are allowed to keep it for themselves, or passed on stadium maintenance and improvement costs” (Farmer). MetLife Stadium in East Rutherford, New Jersey, home of the New York Jets and New York Giants, was built in 2010 and was the first stadium that was fully privately financed. Although this stadium is fully funded privately, “the state gave the Jets and the Giants 20 acres each for training facilities, as well as the right to develop 75 acres into a sprawling development of stores, restaurants and entertainment sites. The state spent over $250 million on improvements to surrounding highways, construction of a new train station, utilities, and other infrastructure benefits. And the teams got control of the hundreds of acres of parking lots surrounding the stadium” (Bagli).

In return for all of this, the Jets and the Giants will pay $6.3 million a year in rent and other expenses to the sports authority. Along with those yearly payments, the two teams covered the costs of demolishing the old stadium. The state of New Jersey is also still paying off debt from the old Giants Stadium. Although Jets and Giants owners “reluctantly covered the cost of demolishing the old stadium, taxpayers are still paying off about $100 million in bonds on a building that no longer exists” (Bagli). Even though this stadium was the first sports stadium to be fully funded privately, the state and taxpayers still suffer from former financing bills and from consequences of tax revenue

The financial and economic impacts are always used as an argument in favor of public funding, but many economists are fighting back against these beliefs. Robert A. Baade, a sports economist at Lake Forest College, conducted a study that found that the NFL tended to overestimate the benefits while underestimating the costs of putting on a Super Bowl. Victor A. Matheson, a sports economist at the College of Holy Cross, said, “Most economists who are not connected with the league or the teams think that spending money on pro teams is a pretty lousy way of promoting economic development” (Bagli). 86 percent of economists agreed that local and state governments should stop providing subsidies to professional sports franchises.

In the coming years there should be a push to get away from publicly subsidizing sporting stadiums. Economists agree that the economic impact felt by communities tends to be less than they are projected to be. There are other forms of entertainment that will bring relatively the same economic impact and cost taxpayers much less compared to the subsides. Sports teams can secure the private financing for their stadiums, proven by the Giants and the Jets private funding for MetLife Stadium. For teams, it makes sense to threaten to leave their current location because government officials are nervous about the negative economic impact that would be felt if the team ended up moving. But what happens when a team decides to leave anyway, like the Oakland Raiders? The taxpayers will still have to pay off the debt of the publicly funded stadium ($85 million in Oakland) even after the team leaves and there is no longer an economic impact being received by the community. It makes no sense for local and state governments to continue to fund sports stadiums because the economic impact is not as profound as they once thought, and the teams and leagues still have the power to move locations and leave all the debt from their prior stadium behind to the taxpayers.

References

Bagli, C.V. (2013). Giants and Jets, Super Bowl Hosts, Have Already Been Richly Rewarded. New York Times. Retrieved from: https://www.nytimes.com/2013/11/29/nyregion/giants-and-jets-super-bowl-hosts-have-already-been-richly-rewarded.html?&pagewanted=all

Farmer, L. (2018). Even When Teams Pay, Stadiums Still Aren’t Free for Cities. Governing the States and Localities. Retrieved from: http://www.governing.com/topics/finance/gov-sports-stadium-columbus-soccer-mls-austin.html