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.