Why do pro sports teams get tax breaks to build new stadiums?

Andy Uhler Jul 11, 2017
 A general view of Marlins Park. Mike Ehrmann/Getty Images

Why do pro sports teams get tax breaks to build new stadiums?

Andy Uhler Jul 11, 2017
 A general view of Marlins Park. Mike Ehrmann/Getty Images

Major League Baseball’s All Stars take the field tonight in Miami and the city is sure to celebrate. But the venue of Miami’s Marlins Park can be a sore spot for locals. Residents’ tax dollars helped pay for the ballpark just a few years ago. The argument from the team’s owner was that the team would relocate if the city didn’t pay for new digs. Now, rumor has it the Marlins might still take off and leave Miami with a $200 million empty stadium.

It’s now common for for taxpayer money to go into pro sports stadiums. And common, too, for cities to be left high and dry when a team moves. Now, a federal bill aims to curb some public funding for new, shiny stadiums.  

Every day Kirk Howard pushes his 18-month-old son in a stroller in Inglewood, California, just south of Los Angeles. His route takes him past the L.A. Forum, the famous former home of the L.A. Lakers.

“When you think of Inglewood, it’s the Forum,” Howard said, smiling as he remembers. “You think of the great Lakers teams from back in the day.”

The L.A. Forum in Inglewood used to host the L.A. Lakers and Kings until the teams relocated to the Staples Center downtown in 1999.

Howard’s been in Inglewood for 20 years and remembers when the Lakers moved to the Staples Center, downtown, back in 1999.

Now Inglewood’s getting a new life in sports, right across the street. The Los Angeles Stadium at Hollywood Park is where NFL teams the Rams and Chargers will call home starting in 2020. Howard’s fine with the construction noise and traffic.

“At the end of the day, if it provides jobs for the city of Inglewood, new stores, a whole new environment. I think it’s worth it,” he said. “Yeah, I think it’s worth it.” 

The developers have promised 3,500 construction jobs, and 10,000 more jobs at the stadium and the shops, restaurants and office space attached. Los Angeles officials promised not one cent of tax money would go toward the new Hollywood Park. That’s unusual. Most professional sports arenas get financed with tax-exempt bonds.

The Los Angeles Stadium at Hollywood Park is where L.A. Rams and L.A. Chargers will play pro football games starting in 2020.

Jeffrey Dorfman, an economist at the University of Georgia, explained.

“A city or county agrees to pay for some or all of a stadium and uses their power to issue municipal bonds and those are tax free, generally from state, local and federal income tax,” Dorfman said.

There’s a recent paper from the Brookings Institution on this, with a very clear title: “Why the federal government should stop spending billions on private sports stadiums.”

Ted Gayer was a co-author. His research showed since the year 2000, new stadiums or major renovations have gotten $3.2 billion in federal help.

“Because the local government is subsidizing these stadiums to attract teams, the federal government then subsidizes them through these municipal bonds,” Gayer explained.  

He used the New York Yankees’ 2009 stadium construction as a prime example. The bill was $2.5 billion and about 70 percent was financed by tax-exempt municipal bonds, with $492 million in tax revenue, lost.

So, why would cities do this?

The NBA, NFL, MLB, NHL and all the pro leagues in the U.S. only allow a certain number of teams — and lots of cities want one. It’s basic supply and demand.

“As long as supply remains less than demand, the team owners are able to threaten to move from their existing city to a different city in exchange for substantial amounts of funding,” said Marc Edelman, professor of sports law at Baruch College in New York. “This creates a prisoner’s dilemma for mayors and other leaders of cities where the fan base does not want to lose the team.”

But he said cities are only willing or able to offer so much to try to keep them, and cities now compete with each other through bigger and bigger tax breaks.

New Jersey Senator Cory Booker and Oklahoma Senator James Lankford want to put a stop to the tax breaks. A bill they’ve introduced would ban tax-exempt municipal bonds for pro sports stadiums. Dorfman is a fan.

“Is there any rational argument for why the government would want to bestow tax-free status on these bonds? I don’t think there is,” Dorfman said.

He said the reason sports stadiums get access to these bonds is that they’ve been treated like public infrastructure since the 1950s. Team owners and developers have argued, successfully, that new stadiums are a public good. The argument is that they spur more economic activity in restaurants, hotels, conventions.

Dorfman said, in economic terms, that’s not how it works.

“That’s really an incorrect argument,” he said. “There’s no economic growth being generated by pro sports teams.”

No growth above and beyond any big retail or entertainment project. Money spent on tickets to sporting events, or merchandise? “We would have spent that going to the movies or some other dinner, or some other vacation, anyway,” he said.

And when a team leaves town, the gap is particularly hard to fill.  Just ask San Diego. Last year, taxpayers there decided not to fund a new stadium, to keep the Chargers. Now San Diego’s Qualcomm Stadium has to find a second life as the new Hollywood Park in Inglewood takes in the Chargers — across the street from its elderly cousin, the once-great Western Forum. 

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