Taxpayer Money and Professional Sports

My column is up this week at Forbes, and discusses the role of taxpayer money in professional sports.

A  critical battle is underway challenging the very heart of the professional sports economics model — and it is not the NFL labor negotiations.  The unlikely fight is between a struggling league (the NHL), a suburb with delusions of grandeur (Glendale, Arizona), and a small, regional think tank (the Goldwater Institute).   At stake is an important source of value for nearly every professional sports team:  taxpayer subsidies....

Consider the Arizona Cardinals new football stadium in Glendale, for example.  In part due to the promise of a Superbowl bid, the local taxpayers paid $346 million of the total $455 million cost of the facility — a building that will be used just three hours a day on ten days a year for its primary purpose.  By contrast, in 2010 Forbes valued the Arizona Cardinals at $919 million, meaning well over a third of the franchise’s value accrues from the public subsidy of its retractable roof palace.  It can be argued that much of the increase in player salaries and team owner wealth in the NFL over the last twenty years has come at the expense of taxpayers.

If anything, this example from the NFL understates the importance of public funding of stadiums.  Why?  Because of all the major sports leagues, the NFL gets the lowest percentage of its total revenues from its stadiums.  Leagues like the NBA, and in particular the NHL, are far more dependent on stadium revenue for their well-being.

Let’s return to precocious Glendale.  In 2003, the city agreed to publicly fund $180 million of the $220 million cost of building a new arena for the Phoenix Coyotes hockey team.  Whereas Glendale’s subsidy of the Cardinals represented about a third of that franchise’s value, their $180 million subsidy of the Coyotes represents over 130% of the current $134 million value of the team.  Stuck in Arizona and losing as much as $40 million a year, the team is literally worthless without ongoing public subsidies.

The column goes on to discuss yet another bond issue proposed by Glendale to subsidize these teams.

  • Dave Boz

    Warren - very astute article in Forbes. You touched on a subject that I've wondered about for some time: did the Arizona Cardinals actually pay anything for their stadium? I've never been able to find publicly available information that states their contribution to the stadium's cost. I think they were given the naming rights to the stadium for free, and subsequently sold those rights to the University of Phoenix for a lot of money. Was this the source of the team's "contribution" to the stadium? In other words, is it possible the Cardinals put in not one dime of their own dough?

  • James

    Excellent article. I've been following this closely.

    If the Coyotes end up back in Winnipeg, it should be a wake-up call for all municipalities that build sports stadiums. The Coyotes originally had a 30-year lease that was terminated by the bankruptcy judge. What cities need to realize is there is no such thing as an iron-clad lease. If the team is doing poorly enough they can always find a way out, and you're stuck servicing the debt on a white elephant.

    A good site that covers all these stadium shenanigans is http://www.fieldofschemes.com/

  • Don

    Here in San Antonio, we have a really cool Dome, the Alamo Dome, that has had (I think) less than 10 professional and fewer than 100 amateur football games played in it since it was built 15 or more years ago. The 1/4 cent sales tax that was JUST to pay for this, has never gone away, and has now also paid for the AT&T Center (where the Spurs play), Wolf Stadium, and other sporting venues. And now, they want to "upgrade" the Dome (it's not "Modern enough" - like Jerry World I guess)!

    The one good thing about it is it makes for a really nice place for the Boat, Car, and Home&Garden shows 4 times/yr.

    And one of the local colleges (state owned) is starting a football team and will use it for a few years to get started, but then will build YET ANOTHER STADIUM!!! And all this because they THOUGHT we could attract an NFL team (after Bud Selig said no how, no way).

    On the bright side, there were no Bonds involved, they paid for it in cash with the 1/4 cent sales tax.

  • Matt

    Don,

    Bud Selig wouldn't have any say on San Antonio getting an NFL team. He is the Baseball commisioner.

    All,

    Once, just once I would like to see state and local governments respond to one of these blackmail attempts to force a publicly funded statdum as follows:

    So sad. Sorry to see you go. Here, let me help you pack.

  • chuck martel

    Arizona is just getting started on nefarious stadium issues. Enabling legislation for the ball park downtown (Chase Field now?) contained a proviso that no NFL game could ever be played there. Why? We may never know all the shenanigans that attended the birth of the suburban football and hockey facilities but we do know that Glendale is on the hook for a fortune in the Coyotes deal. And the area also includes Wells Fargo Arena, America West Arena, Sun Devil Stadium and seemingly a new spring training facility for most of the major league baseball teams. The Valley of the Sun is the Valley of Stadiums. Turf Paradise is nice.

  • mahtso

    Although the focus of this blog has been on the Coyotes and Glendale, I’ve read that Tucson is still paying for the Diamondbacks’ spring training facility even though the team has now moved to the Phoenix area. (The new facility is on one of the Indian Reservations and I don’t know how it was paid for.)

  • Bart Hall (Kansas, USA)

    The NHL missed a fantastic opportunity during the lock-out a couple of years ago. They could have contracted to an incredibly solid league with three 5- or 6-team divisions:

    EUROPE: Stockholm, Helsinki, Prague, Moscow, St. Petersburg, and perhaps Berlin.

    CANADA: Vancouver, Edmonton, Calgary, Toronto, Montreal, and perhaps Ottawa.

    AMERICA: Boston, New York, Detroit, Chicago, Philadelphia, and perhaps Denver (or Long Island, or Pittsburgh).

    Three division champions, one wild-card. Semis, Cup, done. No hockey in June. Lively regional rivalries. 66-game season, six against each team in your division and three against each team in the other divisions. Wanna keep 82 games? Add two more games per team in your own division and one extra game against half the teams in another division.

    No dilution of talent. No tolerance for goons, head-shots, or butt-ending. Just really solid talent, with no Junior-A guys getting paid NHL salaries. Full rinks, and nobody asking for subsidies in Phoenix, Washington, Minneapolis, San Jose, or Gopher Gulch.

    Oh, yeah, and go to the international size rink everywhere, 'cause it makes for a much better game.

  • L Nettles

    The Miami Experience

    "Voters swept Miami-Dade Mayor Carlos Alvarez out of office by a stunning margin Tuesday, capping a dramatic collapse for a politician who was given increased authority by voters four years ago to clean up much-maligned county government but was ushered out in the largest recall of a local politician in U.S. history.

    The spectacular fall from power comes after two years of missteps, ranging from granting top staffers big pay hikes to construction of a publicly funded stadium for the Florida Marlins to implementation of a property-tax rate increase that outraged an electorate struggling through an ugly recession."

    Read more: http://www.miamiherald.com/2011/03/15/2117129/9-of-10-say-yes-to-ousting-alvarez.html#ixzz1GmGebVX0