Taxpayers subsidizing a new arena - argument pros and cons

[Lupulfan*]

Under what basis should taxpayers fund new arena projects?

Are there reports claiming tangible economic benefits for the city? Do arena's spur development in surrounding areas? What about non-economic benefits?

What method should be used to fund the arena? Bonds? Casino Tax?

 

[Fourier]

Under what basis should taxpayers fund new arena projects?

Are there reports claiming tangible economic benefits for the city? Do arena's spur development in surrounding areas? What about non-economic benefits?

What method should be used to fund the arena? Bonds? Casino Tax?

Off the top of my head...

Pros: An arena provides significant opportunities for mass entertainment and
an anchor tenant like a pro sports team can be a rallying point for a city.
This is the "intangible factor".

The region immediately around an arena can in the right circumstances benefit greatly.

Cons: Just about everything else. There is absolutely no evidence for tangible
economic benefits for a city as a whole.

 

[MAROONSRoad]

Good topic.

I am against massive tax subsidies for billionaire owners of professional sports franchises. I am personally disappointed when some of these billionaire owners hold a city and fan-base hostage and in certain cases play city against city when trying to negotiate the latest sweetheart arena deal.

In regards to the NHL, it is the prevalence of massive tax payer subsidized arenas in certain USA markets that causes a competitive imbalance for NHL teams. This means teams end up playing in locations which are not necessarily the best hockey markets from a purely private sector point of view. The natural economics of supply and demand for hockey franchises is skewed in favour of markets offering public subsidies.

On top of that, every single study I have come across by economists has concluded that professional sports franchises do not add any net economic benefit to a city and thus tax payer subsidized facilities are a poor use of public funds. See some examples below:

Pro sports stadiums don't bolster local economies, scholars say

http://www.news.uiuc.edu/news/04/1117stadiums.html

Benefits of pro sports on economy often overstated

http://www.bizjournals.com/louisville/stories/2001/04/30/editorial4.html

Professional sports haven't delivered promised benefits in seven California cities, says new UC Berkeley report

http://www.berkeley.edu/news/media/releases/98legacy/08-20-1998.html

GHOST

 

[Sotnos]

Just lost my answers so I'll try again

Under what basis should taxpayers fund new arena projects?

Never or on a limited basis IMO, but complaining about it is fruitless. That train left the station a long time ago in the U.S. I don't like handouts to billionaires personally, but that's life.

Are there reports claiming tangible economic benefits for the city?

Reports? I dunno, but sports teams definitely claim they have an impact. A lot of it is hard to measure, I'd think.

Do arena's spur development in surrounding areas?

No question this is true. It's been very obvious in Tampa, and probably in some other areas as well. There were actually some good articles during the lockout that talked about the local impact. I think they were on ESPN, but I'm not sure anymore. I remember one in particular that talked about a charity in south Florida that had received a lot from the Panthers' foundation and they were hurting without that money.

What about non-economic benefits?

Not sure what you're asking here. Civic pride? Players & owners contributing to local charities?

In regards to the NHL, it is the prevalence of massive tax payer subsidized arenas in certain USA markets that causes a competitive imbalance for NHL teams. This means teams end up playing in locations which are not necessarily the best hockey markets from a purely private sector point of view. The natural economics of supply and demand for hockey franchises is skewed in favour of markets offering public subsidies.

It's part of the "game", so get used to it. You bring up all these (old!) studies showing the negative impact of sports teams, yet you want one for your city?

Personally I have a problem with the "substitution effect", unless I am misunderstanding it. I wouldn't be spending ANY money in Tampa or in Hillsborough county if I wasn't going to a sporting event, and I'd bet loads of people across the country who live in the suburbs (or the sticks) are in similar situations. My money would stay closer to home, which is in the metropolitan area, but still. I find it hard to believe there's no impact on a city's economy if you're getting in people from the suburbs who'd otherwise never go there. Forget hockey, if we're talking NFL & half the crowd is from the suburbs, that's 30k putting money into the city's coffers instead of their more local economy for the day. Is this being considered at all?

 

[MAROONSRoad]

It's part of the "game", so get used to it.

What kind of response is that?

You bring up all these (old!) studies showing the negative impact of sports teams, yet you want one for your city?

What is wrong or "old" about academic studies published in 2004, 2001 and 1998 respectively? How are they even "old?"

The articles are about the neutral, 'negative' or dubious beneficial economic impact of publicly subsidized sports arenas/teams, not about the negative impact of sports teams. Don't be ridiculous. There are obviously psychological or other benefits to a community having a sports franchise, especially if the community has deep roots to the particular sport in question.

GHOST

 

[LeftCoast]

I'm not a big fan of corporate welfare either. I think one of the key considerations for any expansion team or franchise move/sale should be that the new owners have the financial stability to build their own stadium. Having franchises move is not good for the league, but is sometimes necessary if the franchise is truely failing. An owner who has committed $200M or $300M on top of his franchise costs to build a stadium is unlikely to quickly look for greener pastures somewhere else. A sports stadium is a very large sunk cost. It can't really be used for much else, so it carries a real committment. It also means that before someone invests half a billion for a team and stadium they had damn well better take a really good look at the market to determine if an NHL team is going to thrive there.

I also don't like the typical way these tax payer funded deals end up. They inevitably lead to more corporate welfare. If the team struggles, they go back and demand a more favourable lease, renovations or upgrades to the building, better shares of parking and residuals, etc. with the threat that they will move the team (sticking the community with the sunk costs).

 

[MountainHawk]

No economic benefits? Tell that to Columbus.

 

[The Korean*]

I dont know. If city owns the arena, wouldnt they make some profit off it?

 

[Sotnos]

What kind of response is that?

I'll translate: "you can cry all you want about how unfair it is to "real fans" (which I'm guessing means Canadians), but it doesn't change anything". You're naive if you think otherwise. Canadians should be happy they have stood firm on this issue actually, because once the ball gets rolling with the handouts it doesn't stop, and every owner in town wants a piece of the pie or they threaten to go to City B, who would be glad to accomodate them.

There's a reason no one wants to build these things, they depreciate horribly, which is the main reason the Lightning won their battle with the property appraiser's office.

What is wrong or "old" about academic studies published in 2004, 2001 and 1998 respectively? How are they even "old?"

Nothing has changed in the world since 1998 that would effect the outcomes (of a study that only looked at California)? If anything, sports have grown since then and expanded to different markets, and who's to say if those markets had been studied they would've gotten different results? Heck, there is that silly study that people link here every few months about over-extended sports markets. Some seem to think it's gospel, but if you look at what they called metro areas, it's obvious why the results are so messed up. That article from '01 looked like an editorial btw, not an academic study.

Put it this way, both for the reason I previously brought up and for what I have seen in downtown Tampa with my own eyes, not to mention where the Bucs play, I find it hard to believe that the impact is completely negative. Did they take into account the positive impact of hosting things like the Superbowl or college bowl games in any of those studies? I somehow doubt it.

 

[edmontonoilers89]

No economic benefits? Tell that to Columbus.

Well I don't know, has there been? If you're referring to the revitalization of the city's downtown, then I definitely agree, but the usual argument for economic benefits is that there is money being spent that previously would not have been.

If Columbus didn't get the Jackets would people simply not spend the money that they are now? Or maybe they'd just spend it somewhere else in the economy?

Just random thoughts. It's always an interesting topic with regards to public subsidies and what is even more interesting is the divide that there is among not only citizens, but sports fans of the same team.

 

[Fourier]

I'll translate: "you can cry all you want about how unfair it is to "real fans" (which I'm guessing means Canadians), but it doesn't change anything". You're naive if you think otherwise. Canadians should be happy they have stood firm on this issue actually, because once the ball gets rolling with the handouts it doesn't stop, and every owner in town wants a piece of the pie or they threaten to go to City B, who would be glad to accomodate them.

There's a reason no one wants to build these things, they depreciate horribly, which is the main reason the Lightning won their battle with the property appraiser's office.


Nothing has changed in the world since 1998 that would effect the outcomes (of a study that only looked at California)? If anything, sports have grown since then and expanded to different markets, and who's to say if those markets had been studied they would've gotten different results? Heck, there is that silly study that people link here every few months about over-extended sports markets. Some seem to think it's gospel, but if you look at what they called metro areas, it's obvious why the results are so messed up. That article from '01 looked like an editorial btw, not an academic study.

Put it this way, both for the reason I previously brought up and for what I have seen in downtown Tampa with my own eyes, not to mention where the Bucs play, I find it hard to believe that the impact is completely negative. Did they take into account the positive impact of hosting things like the Superbowl or college bowl games in any of those studies? I somehow doubt it.

Sotnos,

I have to support Ghost's position on this one. This is a topic that comes up quite
often in many places. The "studies" supporting the economic benefits for a publicly
funded arena are essentially without exception commissioned by the party looking for public funding. These studies tend to have a very narrow scope and often quote
things like redevelopment in the area around the arena and tourist dollars brought into a city. However, I have never seen even 1 peer reviewed study support this
position when the full scope of such a project is considered.

I am not an economist, though my background in this area is comparable to most
people with an undergrad degree in the area. I am however an academic, and I will
freely admit that not all published research is high quality or even correct. But after
spending the good part of two days during the Nashville debate reading a number of
these papers it is clear to me that economic argument for public money is at best
extremely thin. Unfortunately, I do not have time right now to do another literature
search but you can find other references in some of my old posts.

Ironically, I am actually someone who would not mind public investment in an arena.
I would be happy to pay more taxes to support an arena development in my area
particularly if it meant an NHL team. I am also not surprised to hear that the arena in
Tampa has had a positive effect locally since I grew up within a ten minute walk of
the arena in Edmonton.

 

[red34]

There is little to no economic sense for a community to support a professional franchise via a tax. The tax is normally just for the county it's built in, which means those tax payers are paying for the surrounding counties as well.

The tax is brought in for the owners to create a discriminating monopoly. What that means is that there are plenty of people who would pay more than the ticket price to see the game (such as you and I) but they don't charge that price because the vast majority of others won't pay it. Instead, they create other opportunities to get into the real fans pocketbook (mainly, PSL's). Seeing as how most cities have voting turnouts in the 25-40% range, they can count on those who are passionate about the issue to show up and vote.

But the REAL reason why any tax gets on the ballot and approved are lawmakers. It's pure publicity. "Look what I did." It's an easy sell to say that the city is better because of a pro sports team. It's just too bad the numbers don't back it up. That's why they all get their pictures taken at ribbon cutting ceremonies, etc.

As for Columbus, we actually voted down a voter subsidized arena and it was then privately funded.

 

[triggrman]

Nashville needed an arena for concerts more than anything but needed a major tenant to so they could help pay for it. Now a bunch are going to come on here and talk about how the city is helping the Predators too but they're only giving back tax money generated from tickets sales in the arena, they don't give all of it back, just a portion. Without pro sports or something filling those 41 dates it's would cost the city out of pocket money to keep the arena functional.

 

[Fourier]

Nashville needed an arena for concerts more than anything but needed a major tenant to so they could help pay for it. Now a bunch are going to come on here and talk about how the city is helping the Predators too but they're only giving back tax money generated from tickets sales in the arena, they don't give all of it back, just a portion. Without pro sports or something filling those 41 dates it's would cost the city out of pocket money to keep the arena functional.

When you say that Nashville needed an arena for concerts I think that you change the discussion from a purely bottom-line question and move more into the intangibles. At that point one needs to ask what broad appeal does an arena and a sport franchise have for a community. Personally, I think that there is great "value" to a multi-use facility and a major league sport franchise. This is something that I would love to see in my own community and I am already on record that I would
be willing to pay extra on my tax bill to make this happen. As such, I have no problem with some concessions being made by the City of Nashville, particularly since the arena is already built.

The issue of public subsidies for arenas/sport franchises remains a touchy one up
here. Traditionally, I think Canadian's have been in general more fiscally conservative and more adverse to risk than American's. Public investment in things like health care tends to get wide ranging support because most people feel that it will have a direct pay-back for them or their families. An arena is viewed as a luxury item to be enjoyed by only a small fraction of the population.

 

[Foy]

I'm not sure if it has helped the overall economy of the City, but the Verizon Center in Washington has shown a dramatic increase in the economy in the surrounding neighborhood. It used to be in the middle of a moderately scary neighborhood, but during the last ten years that it opened there has been constant improvements in the neighborhood and surrounding blocks to the point where it's one of the most improving areas of the city. The ring of construction around the arena has moved out in concentric circles throughout the last ten years, and it's very easy to see the positive economic impact that the arena has had on the area. That said, the stadium wasn't financed entirely by taxpayers, nor do I have any information about how it has impacted other areas of the city. It's just an example of how an arena in the middle of an urban area has had an extremely positive impact on the surrounding neighborhood.

 

[Classic Devil]

I'm not sure if it has helped the overall economy of the City, but the Verizon Center in Washington has shown a dramatic increase in the economy in the surrounding neighborhood. It used to be in the middle of a moderately scary neighborhood, but during the last ten years that it opened there has been constant improvements in the neighborhood and surrounding blocks to the point where it's one of the most improving areas of the city. The ring of construction around the arena has moved out in concentric circles throughout the last ten years, and it's very easy to see the positive economic impact that the arena has had on the area. That said, the stadium wasn't financed entirely by taxpayers, nor do I have any information about how it has impacted other areas of the city. It's just an example of how an arena in the middle of an urban area has had an extremely positive impact on the surrounding neighborhood.

Bingo. Arenas can help revitalize cities and neighborhoods incredibly quickly.

 

[boredmale]

The best arguement pro trying to keep a sports team i ever heard was if Team X plays in province/state Y think of how much of that milllions of dollars they pay out to the players goes to the city/state tax(ie if a team payroll is 40M, the city/state are going to claim about 8-10M a year of that).

 

[Hockey Outsider]

I wrote a paper about this in an economics class many years ago. (So my data and sources aren't current). With that said, virtually all of the research I did showed that there is no net economic growth when sports arenas are built. Whatever amount consumers bring to the stadium is offset by a roughly equal decrease in spending in other areas. So if consumers spends $10 M at the new stadium per year, local restaurants, movie theaters, clubs, etc., will suffer a corresponding $10 M decline in revenue. This makes intuitive sense, because consumers have a fixed level of disposable income and a fixed marginal propensity to consume (in the short term). Thus, stadiums cause no economic growth. If this argument is true, then it would be very bad to use taxpayers' money to build a stadium. Taxpayers get no benefit, and the profit goes to the private owners.

There are some other factors to consider. The above argument fails if sports stadiums bring in fans from out of town (thus they indirectly promote tourism). Basically this transfers disposable income from people in another area, into the city with the arena (which benefits the city's taxpayers). However, empirically, I'm not sure if this argument has ever been proven. I'd guess that this argument would probably work for small, tourist-heavy teams like the Green Bay Packers, but probably not for most teams in major cities.

Sports stadiums also bring a level of prestige to the city, but how much is the average taxpayer willing to pay for that? (This is a serious question-- if the average taxpayer is willing to pay $X to promote the city's image Y%, a stadium might be a good investment).

I like Boredmale's argument, but I'm not sure if it's empirically true. In Canada, incorporated businesses all pay tax at the same rate (notwithstanding the SBD, M&P credits, etc). So even if the company owning the stadium brings in more tax revenue, this is offset by a decrease in profits in the city's other businesses (which would likely pay tax at a similar rate).

In summary, all of the economic research indicated that stadium cause no economic growth, so they're a bad investment for taxpayers. But there are some alternative arguments that are worth considering.

 

[The Korean*]

Just putting in my little thoughts here. Sure there is some arenas that have been privately funded, but how many? One or two? Majority of team owners dont want to pay for the arena. Therefore, if we dont pay for their arena, we wouldnt have a franchise to support.

 

[Foy]

Bingo. Arenas can help revitalize cities and neighborhoods incredibly quickly.

It'll be interesting to see what happens in Newark around the Rock. I was there this week for the first time, and the surrounding area, while I never felt like I was in danger, wasn't exactly very nice. It'll be interesting to see what it's like in 10-15 years.

 

[Foy]

Just putting in my little thoughts here. Sure there is some arenas that have been privately funded, but how many? One or two? Majority of team owners dont want to pay for the arena. Therefore, if we dont pay for their arena, we wouldnt have a franchise to support.

Verizon Center is fully owned by Washington Sports and Entertainment. While the company (owned in majority by Abe Pollin, owner of the Wizards and former owner of the Caps and Mystics) paid for the arena itself, they were leased the land it is on for next to nothing, and given many, many tax breaks by the city government to help defray costs. So they did build the stadium themselves, but the city government certainly helped.

 

[coolguy21415]

I wrote a paper about this in an economics class many years ago. (So my data and sources aren't current). With that said, virtually all of the research I did showed that there is no net economic growth when sports arenas are built. Whatever amount consumers bring to the stadium is offset by a roughly equal decrease in spending in other areas. So if consumers spends $10 M at the new stadium per year, local restaurants, movie theaters, clubs, etc., will suffer a corresponding $10 M decline in revenue. This makes intuitive sense, because consumers have a fixed level of disposable income and a fixed marginal propensity to consume (in the short term). Thus, stadiums cause no economic growth. If this argument is true, then it would be very bad to use taxpayers' money to build a stadium. Taxpayers get no benefit, and the profit goes to the private owners.

There are some other factors to consider. The above argument fails if sports stadiums bring in fans from out of town (thus they indirectly promote tourism). Basically this transfers disposable income from people in another area, into the city with the arena (which benefits the city's taxpayers). However, empirically, I'm not sure if this argument has ever been proven. I'd guess that this argument would probably work for small, tourist-heavy teams like the Green Bay Packers, but probably not for most teams in major cities.

Sports stadiums also bring a level of prestige to the city, but how much is the average taxpayer willing to pay for that? (This is a serious question-- if the average taxpayer is willing to pay $X to promote the city's image Y%, a stadium might be a good investment).

I like Boredmale's argument, but I'm not sure if it's empirically true. In Canada, incorporated businesses all pay tax at the same rate (notwithstanding the SBD, M&P credits, etc). So even if the company owning the stadium brings in more tax revenue, this is offset by a decrease in profits in the city's other businesses (which would likely pay tax at a similar rate).

In summary, all of the economic research indicated that stadium cause no economic growth, so they're a bad investment for taxpayers. But there are some alternative arguments that are worth considering.

This doesn't have to be proven, it's demonstrably true. I can say without doubt that I would spend a total of $0 in Buffalo annually if the Sabres did not play the Canadiens. As Buffalo does play the Canadiens at home, I am in Buffalo up to 4 times each season spending money. Likewise to many (and I mean many) Toronto fans who would otherwise have no reason to be in Buffalo.. ever.
Recently a poster on the Habs board was taking his family to Buffalo for a game and staying for the weekend. That you assume this to be false is (to me, anyway) significant error. There is significant revenue for (at least some) teams/arenas/cities/local businesses that comes from outside the immediate and traditional area from which those businesses would ordinarily draw revenue.

As for the benefit to the taxpayer, it is in fact not zero benefit for many (if not most) taxpayers. Those who do not spend any money at the arena and do not experience its intangible (which you have to assign a value to for any reasonable cost-benefit analysis) benefits end up with negative benefit. As for the "private owner," the net benefit you describe would already be going to private ownership, just private ownership of other businesses. You've assumed that the MPC is the same, so that money is effectively already spent somwhere. The only thing that's happening is the redistribution of expenditure among private ownership.

Arena revenue to the city (a net benefit for the taxpayer) is also a consideration, which would obviously vary city-by-city (and arena-by-arena) but would be an annualized benefit.

I don't necessarily think you're wrong, but the points you brushed on certainly wouldn't convince me that the analysis done was presenting the most accurate picture available.

 

[MAROONSRoad]

Just putting in my little thoughts here. Sure there is some arenas that have been privately funded, but how many? One or two? Majority of team owners dont want to pay for the arena. Therefore, if we dont pay for their arena, we wouldnt have a franchise to support.

No, not only one or two.

See the below which isn’t complete. At the bottom is a link to the all of the NHL data:

Team: Anaheim Ducks
Arena: Honda Center
Date Built: 1993
Facility Cost (millions): $120
Percentage of Arena Publicly Financed: 100%
Facility Financing: Publicly Funded, Ogden Entertainment is assuming the debt for the city issued bonds.

Team: Atlanta Thrashers
Arena: Philips Arena
Date Built: 1999
Facility Cost (millions): $ 213.5
Percentage of Arena Publicly Financed: 91%

Team: Carolina Hurricanes
Arena: RBC Center
Date Built: 1999
Facility Cost (millions): $158
Percentage of Arena Publicly Financed: 87%

Team: Florida Panthers
Arena: BankAtlantic Center
Date Built: 1998
Facility Cost (millions): $212
Percentage of Arena Publicly Financed: 87%

Team: Nashville Predators
Arena: Sommet Center
Date Built: 1997
Facility Cost (millions): $144
Percentage of Arena Publicly Financed: 100%
Facility Financing: General obligation bonds issued by the City of Nashville.

Team: Phoenix Coyotes
Arena: Jobing.com Arena
Date Built: 2003
Facility Cost (millions): $220
Percentage of Arena Publicly Financed: 82%

--------------------------------------

Team: Boston Bruins

Arena: TD Banknorth Garden
Date Built: 1995
Facility Cost (millions): $160
Percentage of Arena Publicly Financed: 0%

Team: Chicago Blackhawks
Arena: United Center
Date Built: 1994
Facility Cost (millions): $175
Percentage of Arena Publicly Financed: 7%

Team: Colorado Avalanche
Arena: Pepsi Center
Date Built: 1999
Facility Cost (millions): $164.5
Percentage of Arena Publicly Financed: 3%

Team: Columbus Blue Jackets
Arena: Nationwide Arena
Date Built: 2000
Facility Cost (millions): $150
Percentage of Arena Publicly Financed: 0%

Team: Montreal Canadiens
Arena: Bell Centre (Le Centre Bell)
Date Built: 1996
Facility Cost (millions): $230 Canadian; $208 American
Percentage of Arena Publicly Financed: 0%

Team: Ottawa Senators
Arena: Scotiabank Place
Date Built:1996
Facility Cost (millions): $200 Canadian; $181 American
Percentage of Arena Publicly Financed: 21%

Team: Philadelphia Flyers
Arena: Wachovia Center
Date Built: 1996
Facility Cost (millions): $210
Percentage of Arena Publicly Financed: 11%

Team: Toronto Maple Leafs
Arena: Air Canada Centre
Date Built: 1999
Facility Cost (millions): $265 Canadian; $250 American
Percentage of Arena Publicly Financed: 0%

Team: Vancouver Canucks
Arena: General Motors Place
Date Built: 1995
Facility Cost (millions): $160 Canadian; $144.5 American
Percentage of Arena Publicly Financed: 0%

Calgary had their arena paid in full by the government 20 years ago as part of Canada’s hosting the Winter Olympics back in the late 80s. See the link for data on all of the other NHL venues:

http://law.marquette.edu/cgi-bin/site.pl?2130&pageID=3413

GHOST

 

[golfortennis]

Just putting in my little thoughts here. Sure there is some arenas that have been privately funded, but how many? One or two? Majority of team owners dont want to pay for the arena. Therefore, if we dont pay for their arena, we wouldnt have a franchise to support.

The big problem is that it doesn't just stop at building the arena. The city/region will pay for the arena, and the owner has negotitated a deal that gives them basically all revenue, if not complete ontrol of the building.

So not only are you paying "for a franchise to support", but then you're also not receiving any return other than "having a franchise to support". And rest assured, if demand is anywhere near supply, that owner isn't going to give you any breaks for forking over your tax dollars for the privilege of having a "franchise to support."

It needs to be looked at economically, not emotionally: If the city/region is going ot fork over the stadium, and then all the operating revenues, why should it do so? The revenues involved in a professional sports franchise are such that owners are willing to pay big money for the franchises, so why should a city government, which in almost all cases has roads and schools to deal with, hand over a building with no return on the investment? People need to be able to say adios when an owner holds them hostage.

 

[krudmonk]

A city should fund it to lure teams, but an established team should never hold a city hostage.