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Build It and They Will Come

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The city of Los Angeles is the country’s second-largest media market. Yet, the city has not had an NFL football team to call its own since the 1994 season, when the Rams and the Raiders each played their last games there. After beginning in Cleveland, the Rams called Los Angeles home from 1946 to 1994 before moving to St. Louis in 1995. The Raiders played in Oakland from the team’s beginning in 1960 until 1981, relocated to Los Angeles from 1982 to 1994, and moved back to Oakland in 1995.

But the lack of a Los Angeles NFL franchise did not deter the City Council of Inglewood, California, a suburb of Los Angeles, from approving plans earlier this year to build the most expensive stadium in U.S. sports history near Los Angeles International Airport, the nation’s fourth-busiest airport.

In January 2014, St. Louis Rams owner, real-estate titan, and sports mogul Stan Kroenke purchased, through a holding company, a 60-acre parcel of land in Inglewood just north of the old Hollywood Park Racetrack for about $100 million. After a year of speculation on what Kroenke’s design for the site was (his wife is the daughter of Wal-Mart co-founder Bud Walton and he has developed plazas near Wal-Mart stores), a massive mixed-use development project was announced, including an 80,000-seat stadium, retail and office space, residential housing, a hotel, parks, playgrounds, and open space — all at a cost of $1.86 billion.

After receiving more than 20,000 signatures on a petition, the Inglewood City Council approved a re-zoning initiative by unanimous vote, thus clearing the way for developers to break ground later this year. “We need to do the will of the people and we need to do it tonight,” said Inglewood’s mayor, James Butts, before the vote.

The city of Inglewood is trying to lure the Rams back from St. Louis by approving the construction of a stadium with no guarantee from the Rams that the team will come back. And aside from that, NFL teams that want to move to a different city must have the permission of 24 of the league’s 32 owners.

Build it and they will come.

Stadium economics

What is unusual about the new stadium is that it will be built entirely with private funds, except that the city will reimburse the developers for building streets and sidewalks if tax revenue from the project exceeds $25 million. That is not the case in Missouri, where politicians from the governor on down are desperately trying to keep the Rams in St. Louis.

According to the Federal Reserve Bank of St. Louis, “Between 1987 and 1999, 55 stadiums and arenas were refurbished or built in the United States at a cost of more than $8.7 billion.” About 57 percent of this “was financed with taxpayer money.” Pacific Standard magazine reported in 2013 that “over the past 20 years, 101 new sports facilities have opened in the United States — a 90-percent replacement rate — and almost all of them have received direct public funding.”

That is what happened when the Rams moved from Los Angeles in 1995 after the city of St. Louis, St. Louis County, and the state of Missouri spent $280 million on what is now called the Edward Jones Dome to attract the team. Bonds for construction of the stadium and convention center are scheduled to be paid by all three entities through 2021. After a dispute between the Rams and the St. Louis Convention and Visitor Center over renovations to the stadium, arbitrators in February 2013 ruled in favor of the Rams’ $700 million proposal to upgrade the stadium to the top tier of NFL stadiums, as required by the terms of the Rams’ 30-year lease. Not doing so means that the Rams could either lease the stadium on a year-to-year basis beginning in 2015 or break the lease and move. The state of Missouri is now proposing to finance a $900 million new stadium for the Rams, $460 million to $535 million of which would be publicly financed.

The city of Inglewood wants the Rams because it projects that a football stadium would generate more than $800 million dollars a year in economic activity. St. Louis wants to keep the Rams for the same reason, and because of the hundreds of millions of dollars that it has already invested in the team.

There is just one problem with this: the negligible and sometimes negative economic impact of sports stadiums. Economists may disagree about a lot of things, but the economic impact of sports stadiums isn’t one of them. Bloomberg Business reported in 2012 that “over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion.” The Federal Reserve Bank of St. Louis concluded that “almost all economists and development specialists (at least those who work independently and not for a chamber of commerce or similar organization) conclude that the rate of return a city or metropolitan area receives for its investment is generally below that of alternative projects.”

Michael Leeds, a sports economist at Temple University, says that sports stadiums have “no impact.” He concluded after studying Chicago — a city with five major sports teams — that “if every sports team in Chicago were to suddenly disappear, the impact on the Chicago economy would be a fraction of 1 percent.” Another sports economist, Victor Matheson, at the College of the Holy Cross, is dubious about the projected economic impact of sports stadiums: “A good rule of thumb that economists use is to take what stadium boosters are telling you and move that one decimal place to the left, and that’s usually a good estimate of what you’re going to get.” University of Chicago economist Allen Sanderson even suggests that “it would be far preferable for the mayor of St. Louis to write a check to the Rams’ owner for, say, $100 million and let it go at that, essentially a bribe to stay put and shut up.”

In a paper for the National Association of Sports Economists, Dennis Coates and Brad Humphreys concluded that “sports subsidies cannot be justified on the grounds of local economic development, income growth, or job creation, those arguments most frequently used by subsidy advocates.” The consensus of economists is that there is “no substantial evidence of increased jobs, income, or tax revenues for a community” associated with stadiums, arenas, or sports franchises. Economists universally mention several things that cause stadiums to be poor public investments. Sporting events can create such significant crowds and congestion that they can cause people to stop going to other area events. Sports fans do not spend additional money on entertainment after a stadium is built; they merely redirect the money they would have spent on movies, dining, or other entertainment options. Most of the jobs created by stadium-building projects are temporary jobs that are often low-paying or out-of-state contracting jobs that don’t greatly contribute to the local economy.

Sound economic policy is not a hallmark of state and local governments any more than it is of the federal government. So why do states, counties, and cities continue to seek major league sports franchises at public expense? It could be for any number of reasons — prestige, tradition, bragging rights, civic pride, political self-interest — but sound economics has nothing to do with it.

Libertarian arguments

When writing about the economics of sports stadiums, economists discuss concepts such as market failure, marginal social benefits and costs, positive and negative externalities, opportunity cost, public goods, intangible economic benefits, allocation of resources, returns on investment, alternative use of resources, monopoly power, market distortion, regressive taxation, Pareto improvements, and Pareto-relevant externalities.

But one does not have to be an economist to understand why subsidizing sports stadiums is such a bad idea; one just has to be a libertarian. In fact, most economists who write about the economic impact of sports stadiums miss the real point entirely. The libertarian arguments against governments’ subsidizing sports stadiums have to do with fundamental issues such as individual liberty, private property, the free market, limited government, and the free society. It doesn’t matter if a municipality’s spending millions, tens of millions, or hundreds of millions of dollars building a stadium to keep or attract a major league sports team is a good investment, has a high rate of return, creates or retains jobs, has positive externalities, or has a positive economic impact.

Government entities’ building or subsidizing the building of sports stadiums is an immoral act and illegitimate function of government. It fleeces taxpayers. It benefits the few (sports fans) at the expense of the many (the taxpayers). Communities don’t benefit by taxing working people so millionaires can pay ball teams for the privilege of sitting in luxury boxes watching other millionaires play ball games. Owners of sports franchises are some of the richest people in America — why should tax money be used to finance their business endeavors?

And that is what is usually lost in the debate about taxpayer-funded sports stadiums: sports teams are businesses. Sports teams are in the entertainment business. Sporting events are entertainment. People attend football, baseball, basketball, and hockey games to be entertained — just as they attend concerts, movies, amusement parks, and museums to be entertained. An entertainment business, like any other business, should not be promoted, subsidized, supported, protected, or financed by government any more than any other type of business; that is, it shouldn’t be promoted, subsidized, supported, protected, or financed by government at all. Any government at any level.

Sports teams — like department stores, restaurants, and amusement parks — should buy land, build facilities, advertise what they have to offer, and hope that people will come. But they shouldn’t expect any help from taxpayers.

This article was originally published in the July 2015 edition of Future of Freedom.

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