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Tuesday, 22 December 2015 01:57

Public Funding of Stadiums; Do Cities Get What You Pay For?

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Public Funding of Stadiums; Do Cities Get What You Pay For? Photo courtesy of LA Times

Should the public foot the bill for the development of stadiums?

Celtics Beat Executive Producer and Host Larry H. Russell recently conducted an informal and firmly tongue-in-cheek "Man on the Street" segment on Celtics Beat Unfiltered on the subject of using public funds to support local sports franchises.

Next month, NFL owners are expected to vote on competing proposals to relocate either the San Diego Chargers and the Oakland Raiders or the St. Louis Rams to Los Angeles.  Rams owner Stan Kroenke is proposing to build a $1.8 billion stadium in Inglewood while the Chargers and Raiders are proposing to share a new $1.78 billion facility in nearby Carson, CA.

The Carson, CA stadium proposal is being touted as ‘privately-financed’ and while the plan is that no public funds will be used in the upfront financing, there is the potential for significant ‘reimbursements’ to be allocated to the developers on the back-end if sufficient tax revenues are generated for the city as a result of the stadium.

The question of using public funds to finance stadium development has been a topic of heated discussion since the stadium/arena construction boom of the mid-late 1990s.  Simply put, the argument boils down to whether it is appropriate or desirable to use public funds to support private enterprise such as a sports franchise that delivers limited public value.

The case against public funding is a simple, yet compelling one.  The presence of a sports franchise in a particular municipality only indirectly benefits a small, yet vocal, portion of the community.  Particularly for municipalities that are struggling to fund more basic and pervasive needs such infrastructure and education, supporting such as a special interest with scarce public funds is easy to consider inappropriate if not outright offensive.

The counter argument is that these public expenditures deliver a valuable return in the form of increased tax revenue and economic stimulus.  Build a stadium, attract a franchise and your economy will boom with not only the tax revenue generated from ticket sales and other activity direct related to the stadium, but also with the increased revenue for bars, restaurants and other businesses indirectly benefiting from the presence of the stadium.

That’s the common wisdom anyway.  The truth is a bit murkier.  Analyses by the Cato Institute and the Brookings Institute indicate that the economic stimulus generated by a sports franchise and stadium to a local economy is negligible at best. 

“If you ever had a consensus in economics, this would be it," says Michael Leeds, a sports economist at Temple University.  "There is no impact."

Studies have compared the impact, particularly on the economy of the type of larger city that are home to most franchises, to that of a department store or a big box appliance store.

Does this mean that franchise owners and stadium developers are snake-oil salesmen preying on naïve and rabid sports fans?  Is public funding of a sports stadium categorically inappropriate?  It’s probably not that simple.

Not all markets are the same, certainly in terms of whether they are trying to attract or to retain a franchise, but also with respect to the state of their economy and what their options are to grow it.

Markets without a franchise, particularly growing markets without a recognizable cultural flagship can benefit from the national exposure that comes along with housing a franchise in one of the four major professional sports leagues in North America.  While the direct economic benefit probably doesn’t justify the public expenditure of funds, the indirect benefit of becoming nationally relevant can be a significant positive.  Oklahoma City, prior to the arrival of the Sonics…err Thunder, are a prime example.

At the other end of the spectrum, there are markets like Boston that are sufficiently economically robust and diverse and whose identity is deeply woven into the brand of the franchises they already provide a home to.  The economics of funding a new stadium doesn’t make sense for these cities.  Beyond the economics though, there is little incentive for them to do so.  There is little risk of a team leaving because the franchise’s identity couldn’t survive the hit. 

It is a simple case of who has the most leverage; the market or the franchise.

The not-so-simple cases are the markets that are in the middle of this dynamic.  Markets with a robust and diverse economy that are home to franchises without a long history or the deep brand equity of franchises like the Boston Celtics, or the New York Yankees.  The economics of public funding don’t make sense but there is little risk to the franchise if it pulls up stake.

Seattle is a perfect case study for this type of market.  It is a vibrant, rapidly evolving economy and a community with a nationally recognizable cultural identity as a center of technology and the arts.  Despite a loyal fan base, the city had little reason to support public funding of a new arena for the Supersonics.  Despite that loyal, local fan base, the franchise’s brand was not significantly tied to the city itself.  Add a bad stadium lease and a new owner without local ties and the result was predictable.

The NBA is now an afterthought in Seattle and those die-hard Sonics fans are the ones left paying the price.

 

Rich Conte

Rich Conte has been passionately following the Boston Celtics and the NBA for almost 40 years.  That interest began with the classic Game 5 of the 1976 NBA Final, blossomed during the original Big Three era, and persisted through the lean years of the 90s and the "Thanksdad" Gaston era.  Rich has been blogging and podcasting through CLNS Radio for the past two years  and also hosts a technology podcast; The Tech Life on the Beats and Eats network.  You can follow him on Twitter @richconte and find him as a frequent contributor to the Celtics Beat Podcast discussion group on Facebook.