Ethanol of the Entertainment Industry

Great post from SM Oliva via Tom Kirkendal at Houston Clear Thinkers.  They both make a point I have been making for years -- that the large growth of major sports team revenues and player salaries is attributable, in large part, to enormous public subsidies

The NFL encapsulates, perhaps better than any other single business entity, the popular conceptions -- and misconceptions -- about capitalism and the nature of markets. The league is the epitome of statist "crony" capitalism. Its franchise operators demand huge government subsidies for stadiums while jealously guarding its prerogatives as a "private" business. Governments (and their media enablers) largely go along with this because they've been led to believe the NFL's popularity is so immense that no respectable city can go without a franchise.

Professional football is the ethanol of the entertainment industry. Since 1990, nearly every NFL franchise has either opened a new stadium, made substantial renovations to existing stadiums, or is currently in the process of obtaining a new stadium. Over this 20-year period the league's franchises obtained over $7 billion in taxpayer subsidies raging from direct taxes to publicly backed bonds. Ten stadiums are 100% government-financed, while another 19 are at least 75% government-financed. Every single franchise receives some amount of government subsidies.

Here is a great way to think about it -- many new NFL stadiums cost in the one billion dollar range.  That is a billion dollars for a building that is used 3 hours per day for 10 days a year (8 regular season and 2 preseason games).  A billion dollars for a building with 0.3% occupancy.  How can a private entity afford such an investment and still pay multi-million dollar salaries to their employees?  They can't.  Which is why you and I as taxpayers are so often on the hook for the costs.

Heck, here in the Phoenix area, we are hundreds of millions of dollars in the tank for a for-god-sakes hockey team, and about to spend hundreds of millions of more to support it.

Update: This reminds me of my Forbes article on triumphalism and large building projects

Mark Thornton of the Mises Institute wrote a few years ago about the “skyscraper index,” a correlation first studied by economist Andrew Lawrence, which purports to connect downturns in the business cycle with the construction of the world’s largest skyscraper. Thornton did not suggest the “skyscraper index” was an infallible predictor of economic downturns, but there was ample empirical evidence to suggest “the cause of skyscrapers reaching new heights and severe business cycles are related to instability in debt financing and that the institutions that regulate debt financing should be reevaluated, if not replaced with more efficient and stabilizing institutions.”

Cowboys Stadium may prove to be the NFL’s version of the Chrysler Building, where the groundbreaking occurred a month before the stock market crash of 1929. By most accounts “Jerry World” is the most opulent, luxurious stadium ever built for an NFL team. Not surprisingly, it is also a debt-ridden project that exists only because Jerry Jones had easy access to a government-backed credit card.

  • me

    So true - where I live, I end up financing a football stadium with my taxes (for the record, professional sports teams do not interest me at all). Meanwhile, a new bridge can't be paid for by taxes but is instead tolled.

  • DrTorch

    The stadia are often used for more than just the games. But not much more. And not anything that scores enough revenue to pay for themselves. But, it's more than 30 hr/year. Just adding a minor detail.

  • Husker

    I live near San Antonio. Nearly 20 years ago, the City of San Antonio built the Alamodome with the expressed purpose of attracting a NFL team to relocate to the city. Guess what? 99% or more of the time, the dome is empty. No team has ever relocated to the city (with the possible exception of the New Orleans Saints during Katrina), and with the new basketball arena (also built with public funds) the city has a major hole in it's budget.

    There's talk now of updating the dome to accomodate more luxury boxes for the rare times that the city actually uses the dome for something.

  • marco73

    The new stadium in Tampa, the Raymond James, was built with an increase in sales taxes. The owners receive a cut of any monies spent on the property, even if the event isn't an NFL game.
    Well the worm has actually turned here in Tampa.
    With the recent economic downturn, owners of luxury boxes have asked to have their names removed from their doors. It seems that some local businesses and poohbahs where getting bad press about paying for a luxury box in an NFL stadium, when they were laying off employees.

  • Bearster

    The statists love the term "crony capitalism", as if it were a kind of capitalism. The formal word to describe it is "fascism".

  • mahtso

    Cargo cult? All great cities have major sports teams.

  • Matthew Brown

    At least hockey and basketball arenas are a feasible size to fill most of the time with concerts and the like, and they tend to be OK concert venues.

    Fewer events can fill a football stadium, so they get used less.

    Given that (as I recall, anyway) the vast majority of the revenue for football comes from TV contracts, do they really need big fancy stadiums?

  • http://southbend7.blogspot.com/ SB7

    So the question is Bob Kraft a genius for being able to build a new stadium for the Patriots without public financing, or is he a fool for not scooping up some public financing?

  • http://www.nx44.com/ tom and gerry - NX44.COM

    welcom tom and jerry free online

  • Doug G.

    $1 Billion for a stadium amortized over 25 years, 10 games per year, 80,000 seats per game, comes out to a cost of $50 per ticket, probably about half of the typical ticket price. There are other costs to running the team of course (player salaries most notable) but there are also other sources of revenue (broadcast deals, in-stadium advertising, stadium naming rights, merchandising). It's not that the football team cannot afford it. But they of course are not going to turn away government officials willing to heavily subsidize the building costs.

  • oddjob in NM

    taxpayer-funded boondoggle or not, jones' new stadium is scaring the living crap out of the casino czars in vegas. they can bid more than vegas can for megafights, since it seats 100K+, (as opposed to 15-20K at caesars or mandalay) and that incredible screen means everybody gets a great view. they're going after NFR *hard* - again, they can pay more: 100K seats vs. 15K at the T&M - and NFR is all that keeps vegas afloat from thanksgiving till christmas. AND dallas has much better titty bars than vegas.

    if vegas doesn't come up with something new pretty fast, they better start sprinkling crack on the prime rib in the buffets or they're gonna go the 'detroit' route. they could start by seeing that a 4-lane highway to phoenix finally (after 60 years) gets built, but...no, wait....that would cost MONEY, so that's out.

    bad management kills cities just as easily as good mgmt. builds them. see: detroit, cleveland, AC, toldeo/youngstown/scranton/buffalo/LA/stockton/oakland/new orleans......

  • jay

    "$1 Billion for a stadium amortized over 25 years, 10 games per year, 80,000 seats per game, comes out to a cost of $50 per ticket, probably about half of the typical ticket price. "

    Compare that with a hotel, or Walmart, or even a casino. How much of your $100 expenditure goes to amortizing the building over 25 years?? Certainly not 50%, I'd be surprised if it were more than a couple of percent.