Gun to the Head in Seattle

David Stern is putting a gun to the head of Seattle taxpayers:

NBA commissioner David Stern is putting the screws to Seattle
in his attempts to get the community to provide taxpayer subsidies that
are lucrative enough to keep the team from departing the "Emerald City"
to even greener fields in Oklahoma.

Stern blasts city officials
and the overwhelming majority of voters in the city for passing a law
requiring (gasp!) that any funds used to help build an arena earn the
same rate of return as a treasury bill. "That measure simply means
there is no way city money would ever be used on an arena project,"
Stern said. Effectively, Stern has just confirmed what sports
economists have known all along: taxpayer spending on sports
infrastructure is unlikely to provide significant returns on the
investment.

We went through the exact same thing here in Phoenix, with various outsiders and city politicians chiding the voters to voting down taxpayer funded palaces for the Cardinals and Coyotes  (eventually, they found a sucker in the local city of Glendale).  In the past, I have written about sports team and corporate relocations as a prisoners dilemma game.

To see this clearer, lets take the example of Major League Baseball
(MLB).  We all know that cities and states have been massively
subsidizing new baseball stadiums for billionaire team owners.  Lets
for a minute say this never happened - that somehow, the mayors of the
50 largest cities got together in 1960 and made a no-stadium-subsidy
pledge.  First, would MLB still exist?  Sure!  Teams like the Giants
have proven that baseball can work financially in a private park, and
baseball thrived for years with private parks.  OK, would baseball be
in the same cities?  Well, without subsidies, baseball would be in the
largest cities, like New York and LA and Chicago, which is exactly
where they are now.  The odd city here or there might be different,
e.g. Tampa Bay might never have gotten a team, but that would in
retrospect have been a good thing.

The net effect in baseball is the same as it is in every other
industry:  Relocation subsidies, when everyone is playing the game, do
nothing to substantially affect the location of jobs and businesses,
but rather just transfer taxpayer money to business owners and workers.

   

The Sports Economist writes about this move in the context of another economic game:

Indeed this is a classic example of the time inconsistency problem for
which Finn Kydland and Ed Prescott (my graduate school macro
professor!) won the Nobel Prize in 2004. Stern would like to threaten
Seattle with the permanent loss of their NBA team in order to secure
taxpayer concessions now. But should the team move, the NBA has every
reason to want to back off its previous threats and relocate a team
back into to the area due to the size, location, and income levels of
the city. Even having lost a team, Seattle will likely remain a better
candidate for a successful franchise than smaller and poorer cities
such as New Orleans or Memphis. Certainly Seattle should not fall for
Stern's bluster.

  • Jim Collins

    Let's see. The City of Pittsburgh collects a 40% parking tax for each vehicle that goes to a Pirates, Steelers or Penguins game. The average parking fee is about $20.00 so we'll call it $8.00 per vehicle. Now multiply that by the total number of games (about 130 not counting playoffs) and the number of vehicles at each game. This isn't mentioning the tax on the tickets for these events or the tax on food, drink and other items sold at these events. I'm not even going into the income tax that is charged to the players in these events. These Local Governments have made themselves partners in these ventures, it is only fair that they "pony up" some of the costs.

  • Bearster

    Umm, Jim?

    Where do you think that local governments will get the funds to pony up?

  • Mesa Econoguy

    Interesting.

    David Stern is quickly becoming the front-runner for the J.P. Morgan “Monopolist of The Year” award.

    Then he punishes towns who won’t pony up for Mike Holmgren’s bloated GM/Coach salary (different sport, same market), and “rewards” Phoenix with the 2009 “all-star” game.

    So this shithouse lawyer Stern says “the rule is the rule,” nihil ad rem.

    I thought commissioners from my hometown Milwaukee were fatally stupid….

  • The Dirty Mac

    A related issue is the use of taxpayer money to build smaller venues to create scarcity and raise prices. The affordable walk-up ticket for a major league baseball game becomes a thing of the past every time one of those new "fan friendly" ballparks opens.

  • Charlie B

    Stern is a saint compared to the MLB Owners. At least he isn't putting the money directly into his own pocket. MLB owned the Montreal Expos /Washington DC Nationals. Once they got the city with arguably the worst public schools in the nation to pony up $600M for the new ball park, MLB sold the team for $450M. If the new owners had to build their own park as the San Francisco Giants did, MLB would have been luck to get $50M for the team as nobody was going to cough up $1B for the team and new park.

  • Robert C.

    Take a look at Houston, Texas.
    We have been saddled with 3 new stadiums in recent years, IE: Minute Maid Park, Reliant Stadium and Toyota Center, all together the tax payers of Harris county are shelling out over $1 Billion to pay for these things.

    And i hope Seattle sticks it to the NBA.

  • http://austinzoning.typepad.com/austincontrarian/ AC

    Let me play devil's advocate.

    I know there are oodles of studies showing that these publicly-funded stadiums do not give cities a reasonable return on investment.

    Still, there are some pretty sizable intangible benefits to having a hometown team. At least if there is a lot of enthusiasm for the sport and team. A New Yorker can get a lot of pleasure out of following the Yankees even if he only goes to a ballgame once or twice a year. All of this enjoyment is a consumer surplus because it is not captured by ticket sales. And there's an assurance it won't be competed away because the number of teams is artificially limited.

    Cities know that they will (may) generate a surplus by landing a team. So they bid for the team. Just like any buyer. As long as the aggregate surplus exceeds the price paid (including the disutility caused to tax payers who don't care about the team), it is a welfare-improving transaction.

    Cities would be better off by cooperating. The Prisoner's Dilemma analysis applies. But it applies to every cartel; that's why cartels are so unstable. The dominant strategy is always to cheat (or tattle), at least for the marginal player.

    The problem with these deals is not that cities are being "exploited." It is that these deals inevitably redistribute wealth from people who don't care about the sport to people who do. It is unfair. If the team really will generate a large surplus, there ought to be some way of getting the people who benefit to fork over the money.

  • Anon E. Mouse

    The "pretty sizable intangible benefits" are sure helping Buffalo, NY.

  • The Dirty Mac

    "Still, there are some pretty sizable intangible benefits to having a hometown team."

    Hey kid, you ever heard of the New York Jets?