Sports Subsidies Don't Add Up For Taxpayers. An Analysis of Minnesota Stadium/Arena Subsidies
Anaylysis of the last 48 years of professional sports subsidies in Minnesota reveal a widening gap between public benefit and private profit. During the first three decades sports subsidies were low enough to be justifiable. However at the turn of the century hundreds of millions of dollars worth of sports subsidies actually distort local ecnomics and become a multimillion dollar public liability. This trend will only get worse if additional public money is spent on a Vikings stadium and renovations of existing sports arenas.
Here in Minnesota our fearless governor and legislators are tackling a $5+ billion budget deficit. So far Republicans have promised to erase the deficit with nothing but budget cuts. They’ve cut all aid to local governments, eliminated all grants to non-profit organizations (this will shut down a number of outstate hospitals), cut health care, education, and transportation, all in an effort to keep an iron clad promise to not raise taxes of any kind on anyone. There is however one absolutely necessary program for which the Republicans are willing to raise taxes, and they appear to have bipartisan support- the Minnesota Vikings football franchise. The Vikings want a new billion dollar stadium and once again our state politicians are willing to step up and make it happen! Governor Mark Dayton has said he wants a stadium deal that’s good for the taxpayers. Well that’s the question then, what kind of deal is good for taxpayers?
Related: Stadium Fight in San Jose
Minnesota has a long history of stadium debates. These debates all basically follow the same pattern, the majority of people say they don’t want to pay for stadiums and arenas for millionaires, while stadium supporters make all kinds of economic and cultural claims regarding the benefits of pro-sports. By hook or crook the state’s politicians find hundreds of millions of dollars for new stadiums and hope everyone forgets about it all once the things are built and elections roll around. We’ve had so many of these debates and built so many stadiums and arena’s that we’ve actually racked up a decent amount of economic data here in the Twin Cities. We have enough data now to draw some reliable conclusions about the economic benefits and liabilities of publicly subsidized professional sports.
Before diving into the numbers let me issue a few caveat’s. Although I own and operate my own very small photography business where I do my own accounting, I am not an accountant. While I have some training in statistics and some research experience, I am not an economist. I don’t expect you to rely on my word regarding the facts and figures I’m about to present, while I’m not going to footnote this article I will provide a list most of the reference documents and I encourage everyone to check them out. This is not intended to be an exhaustive analysis, but frankly at this point an exhaustive analysis is not necessary. These are complex issues and I don’t claim to have uncovered all of the relevant data, nor can I vouch for the accuracy of every number I present. However the numbers involved are so large and generally agreed upon that slight variations will not change the over-all conclusions. You’d have to find a really huge chunk of money somewhere to throw these conclusions off. I rely heavily on a 2009 report that was prepared by accounting firm of RSM McGladrey. The McGladrey report itself relies on data derived from a previous CSL (Converntion Sports and Leisure) international report. Both reports were commissioned by the Metropolitan Sports Facilities Commission which manages Metrodome (Now Mall of American Field) in Minneapolis.
There are some problems with the McGladrey and CSL reports. On one level their analysis is overly simplistic. As “reports” they are not serious economic studies. They take decades of financial data, from 1961 through 2006 and 2009 and simply ad up the numbers without doing any calculations to compensate for all the fluctuations that take place over the course of decades. A serious economic study would look at trends over time instead of just compiling and adding up numbers.
Another problem I came across is that their analysis of the Xcel Energy Center (The “Wild” arena) makes some odd assumptions. The arena was built with two $65 million dollar loans, one from the state of MN and the other from the city of Saint Paul. The state loan was an interest free loan to the team that the NHL is helping to pay off, and the City loan was raised via bond sales that are supposed to be paid off by rental payments from the team. In calculating the costs of the state portion McGladrey seems to assume that since it was an interest free loan, it cost the state nothing to issue it. This is an odd assumption to make. That money came from somewhere, and even if the state didn’t borrow it or issues bonds for it, it was money that was not available for other expenses. Even if that money is paid back (which is doubtful since $17 million of that loan has already been forgiven, and the team is now asking for the remaining $39 million to be forgiven) it represents a $65 million hole in the budget at the time of the loan, that’s money somebody somewhere else could have used.
Despite some small reservations regarding the McGradery report I’ve decided to use it because I don’t have any number of my own, and like said previously, the numbers are so huge that small discrepancies are not going to fundamentally change the outcome.
For a couple decades now there has been a consensus amongst economists that pro-sports franchises and teams are not big boosters of local economies. Contrary to supporters claims, stadiums and teams do not generate any appreciable additional economic activity. The overwhelming majority of the economic benefits are enjoyed by the owners, players, and leagues, not the communities that subsidize expensive stadiums and arenas. This is not a controversial finding at this point. In terms of economic development and stimulus it’s hard to imagine projects that deliver less bang for the public buck than pro-stadiums and arenas. Stadiums concentrate economic activity in a single location, and they increase franchise value and revenue, but they don’t grow local economies. That doesn’t mean there’s no benefit for cities that have teams and stadiums, but historically the benefits were greater than current benefits, there’s little or no current economic argument that justifies the huge subsidies that have emerged in the last decade. The extent to which a teams are cultural amenities, or whether or not teams play an important role in community identity etc., are important and debatable questions, but from an economic perspective sports subsidies are a tough sell.
Before we look at the economic claims in detail let’s summarize the subsidies thus far extended to professional sport franchises in the Twin Cities.
Originally (1961- 1982) the Vikings and the Twins played in the Met Stadium, an open air stadium in Bloomington, a suburb of Minneapolis. We also had a Metropolitan Arena or Met Center where the MN North Stars played until they moved to Texas in 1993. The Met Stadium cost $8.5 million dollars to build, the Met Center cost $6 million for a total of $14.5 million dollars. We also had a basketball team- the Lakers. The Lakers moved to Los Angeles, I don’t know when that happened, and I have no idea where they played when they were here, but I think it’s safe to assume they were no significant drain on the public purse.
In 1982 the Twins, the Vikings, and the MN Gopher football team moved into the Metrodome in downtown Minneapolis. The Metrodome was built for $65 million, $33 million of which was a public contribution paid for with a variety of taxes and fees. The Metrodome debt was paid off by 2002 at a rate of around $1 million a year.
In 1990 Basketball returned to MN in the Form of the Timber Wolves. They play at the Target Center arena that cost $104 million dollars to build. Originally the team owned the arena and paid $83 million for the construction while the city of Minneapolis made up the difference with $20 million of financing. However by 1995 the team was losing so much money on the arena they wanted to unload it, at that point the city jumped in bought the arena. Although the stadium was only valued at $35 million dollar by then, the city paid $84 million dollars to take over the arena. Since 1995 the Target Center has continued to lose $1-$2 million a year. In 2004 the Target Center underwent a major renovation but I don’t know how much that cost or how it was paid for, whatever it was, it wasn’t enough because the Mayor of Minneapolis now wants another $155 million, more than the original cost of the arena, for more renovations.
In the year 2000 professional hockey returned to MN at the Xcel Energy Center in Downtown St. Paul. The Wild now play there. The Xcel cost $130 million dollars to build. It was built with two $65 million dollar loans, one interest free loan from the state, and another loan from the city of St. Paul. The team and the league were supposed to pay off these loans with rental payments over the course of 30 years. However $17 million of the state portion has already been forgiven, and the team is seeking to have the remaining $39 million forgiven as well.
In 2009 the Twins moved out of the Metrodome and played their first season in their new Target Field stadium. Target field cost $550 million to build. The public share was $350 million that was raised by selling bonds to be paid off with a county wide sales tax. The debt service in this subsidy is around $20 million for 30 years for a total of $600 million dollars.
The Minnesota legislature and Governor are currently considering building a new stadium for the MN Vikings. Currently plan calls for a $900 million dollar stadium of which at least $600 million would be public financing by state and local bonds paid for with a variety of taxes and fees over thirty years. The estimated debt payment would be around $30 million a year thus making the public cost of that stadium around $900 million dollars.
As of today the public in MN has committed to paying $733 million dollars worth of professional sports subsidies since 1961. If we build the Vikings stadium, and give Mr. Rybak (the mayor of Minneapolis) his $155 million for the Timberwolves arena, in addition to forgiving the remaining the $39 million on part of the Xcel Center debt, we will have committed upwards of $1.7 billion public dollars to professional sports subsidies in the next 30 years.
The reader may have noticed that I refer to these publicly funded stadiums and arenas as public subsidies. That’s because the vast majority of economic benefit as a result of this financing goes to the players and the owners. David Cay Jonston and others have pointed out that in many ways professional sports has hit a wall with it’s business model. We have too many professional sports franchises competing for finite number of eyeballs. Efforts to extend the various sports to European or Asian audiences have pretty much flopped, and the US population isn’t growing that fast. They can’t appreciably increase the number of eyeballs they attract. For this reason the advertising dollars they can generate are hitting a plateau of sorts. They can’t squeeze much more out of naming rights deals, product sponsorship, product licensing, etc. Meanwhile owners keep signing ever more multi-multi million dollar contracts with star players. The Vikings for instance spend $140 million a year on their 56 players.
When you look at the last 30 years of data you see that the new stadiums account for the vast majority of increases in team value and revenue. How? Even though the new stadiums are no larger than the old ones in terms of seats (In fact some are even smaller, they can’t draw larger crowds so they don’t even try to build larger stadiums), they can build in new amenities like luxury boxes, restaurants, etc. The owners can’t sell more tickets so they have to find a way to charge more for the tickets they sell, new stadiums with all their bells and whistles make that possible. New stadiums also provide new naming rights deals, advertising and sponsorship opportunities etc. It’s estimated for instance the Twins made are making another $50-$70 million a year as result of their new stadium.
Now ordinarily when an industry hits a financial wall it has to re-align. For instance when the public recently subsidized the auto industry in the US, the industry had to extract concessions from it’s work force in order to restore and extend profitability. The professional sports industry on the other hand uses it’s subsidies in part to lavish even greater salaries on it’s labor force- the players. This is why I refer to these stadium/arena deals as subsidies. It’s not that the industry isn’t actually making enough money to build their own new stadiums, our subsidies simply allow them to put their money elsewhere. Since these are almost all privately owned franchises and not public entities we are basically subsidizing a broken private business model. I don’t think the question is whether or not these are subsidies, I think the question is whether not these subsidies make economic sense and are appropriate public expenditures, especially at a time when we’re cutting health care, transportation, and education spending.
Returning to the issue at hand, the main economic arguments in favor of sports subsidies basically break down into three claims: 1) Sports subsidies boost the economy with construction jobs. 2) Sports subsidies create and maintain jobs (and attending income tax revenue). 3) Sports subsidies generate additional economic activity for surrounding businesses (and sales tax revenue). There is a fourth argument of sorts which is kind of a broad claim the existence of sports franchises makes a city or state economically attractive. While people certainly enjoy sports this a very weak claim. Los Angeles, London, and Paris have no pro football teams for instance yet they are all bigger and more popular cities than Pittsburg or Green Bay. If football put cities on the map Green Bay would be the capital of Wisconsin, and we would all know what the capital of Wisconsin is.
Assessing the construction jobs stadiums create is a little tricky. Let’s look at Target Field, the new Twins stadium. The twins estimate that 3,500 trade people worked on the stadium over the course of it’s construction. That sounds impressive but doesn’t mean that stadium construction created 3,500 full time jobs. The stadium had had a peak workforce of only 800 jobs. While 3,500 people may have worked on it, many of them only worked for months or even weeks, there were never more than 800 people working on it at any given time, and most of the time there were fewer than that working on it. Construction jobs are temporary and stadium construction jobs aren’t inherently better than construction jobs building something else. In terms of public spending on construction jobs you have to consider the utility of the final project. In this case the result is not public infrastructure of any kind, it’s stadium for a privately own sports franchise. Stadium construction jobs aren’t a “bad” thing, but as general rule when we spend public dollars on construction we want that construction to provide the broadest possible benefit. We all use bridges, roads, court rooms, etc. and we all benefit economically from the existence, construction, and maintenance. As we will see 99% of the economic benefit of stadiums and arenas go a very small number owners and athletes. In fact within the next few years the public won’t even be able to watch the games in these publicly funded stadiums and arena’s on TV for free any more despite having put billions of dollars into these subsidies.
By comparison it’s estimated that $500 million in federal stimulus spending created 4,500 in MN and indirectly benefitted 60,000 Minnesotan’s. That spending left us with better roads and bridges that are actually public infrastructure. When the 35W bridge in Minneapolis collapsed in 2007 it delivered a $60 million blow to the local economy. The new bridge took one year to build, cost $234 million, and restored $48 million a year worth of economic benefits. The bridge saves drivers $400,000 a day in travel and gas time, and there is no charge for using the bridge.
How many new, non sports franchise jobs do stadiums create or sustain? It’s hard to get a handle on this. Some things we know; the vast majority of the jobs created are seasonal not full time, the salaries aren’t much above minimum wage, and the jobs offer few if any benefits. New stadiums don’t create many new jobs because they aren’t any bigger than the ones they’re replacing, and even though there may be more stadiums, because they’re seasonal any given stadium is only operational when the others are not, there’s very little overlap (with the exception of hockey and bastketball). The Vikings only use their stadium 8-10 times a year, and the Twins stadium sits there empty for months. Nor do the team organization sizes change appreciably when they move into a new stadium, they still have the same number of players, managers, coaches etc.
I suspect that job are sometimes exaggerated. There is an interesting “report” on the Metropolitan Sports Facilities Commission website that was compiled by CSL. According CSL a new $900 million dollar Vikings stadium would create 3,400 full and part time jobs in the state, and 90% of those would be directly related to the Vikings! They also talk about the possibility that events like the Olympics, Papal visits, and World Cup championships, could be hosted at the new stadium (although they don’t factor those into their calculations). All I want to know is who are these 3,000 people and what will they be doing on the 355 days of the year that the Vikings are NOT playing a football game in MN?
Meanwhile no one seems to know how many people actually work in these stadiums on any given game day. When I asked the Metropolitan Sport Facilities Commission (they run the Metrodome) how many people work at the Metrodome they said they have 19 full time jobs on their staff, (19?) and pointed me to the McGladrey report. Neither the McGladery reports or the CSL report even try to establish now many people actually work in a stadium, which is kind of odd since they are trying to brag about jobs. So the number of jobs created by stadiums is somewhere between 19 and 3,000? You’re guess is as good as mine, maybe better, but I’m guessing that on a game day you have about 200 people working security, ticket offices, and selling food and drinks, and sports memorabilia etc. Those jobs are seasonal, and not high paying, and they are not new jobs when you’re replacing an old stadium, or breaking one stadium into two. In their book “Field of Schemes” Neil DeMause and Joanna Cagan quote economists Allan Sanderson saying about the new Twins stadium: “If you simply dropped the money on downtown Minneapolis from a helicopter you would probably create eight to ten times as many jobs”.
In the end one has to recognize that unlike other public subsidies that maintain public services like mass transit, or even public subsidies for businesses, sports subsidies are not about expanding economic activity. Sports franchises don’t manufacture or produce anything, they don’t use the subsidy to hire more people, or even add capacity. In a very basic way sports subsidies are about preserving the status quo, i.e. “keeping the team”. One shouldn’t expect any real expansion of any kind from sports subsidies.
Beyond the stadium itself there’s the argument that the games bring business into an area and generate economic activity for the restaurants, bars, and various shops around the stadium or even in the region. There are also claims made sometimes that the existence of the stadium and presence of the team will promote development around the stadium. These claims are the most problematic of all the economic claims made by stadium advocates. Existing businesses have no way of tracking their customers dollars, they don’t know if you’re there because you’re going to a game or not and they don’t separate their sports related revenue from their non-sports related revenue over the course of a year. Consequently it can be hard to confirm claims that teams and stadiums generate economic activity outside the stadiums and arenas themselves.
Over the decades various economists have studied the problem and arrived at the conclusion that stadiums have minimal if any effect on neighborhood economies. Furthermore the revenue the teams themselves generate are entertainment dollars, not necessary dollars, which means they don’t represent any additional economic activity. In effect the economic claims that sports subsidies stimulate the economy beyond construction is little more than a persistent myth at this point.
In some ways the durability of the sports-stimulus myth is surprising because it runs so contrary to lived experience for most people. Want to know what your city looks like without a pro football franchise? The Vikings play 8-10 games a year in Minneapolis, the Twins play around 82. That leaves 355 days a year without Vikings games, and 260 days a year without the Twins. It’s not hard to see what a city or state looks like without a professional football or baseball team, just look around on the vast majority of days no one is playing a game.
Anyone who’s gone to the Metrodome or even driven by it can’t help but notice the virtual wasteland that surrounds it. None of the promised development that was supposed to surround the Metrodome ever materialized. On the other side of downtown Minneapolis we have a huge retail/hotel development known as Block E that is sitting across the street from the Timberwolves arena and two blocks from the new Twins stadium… and it’s dying. Over the years one retail, hotel, or restaurant tenant after another has bailed on Block E and the opening of the Twins Stadium and renovation of the Timberwolves arena has not slowed this down even a little bit. This is not a Minneapolis phenomena, many observers have noted the same lack of “vitality” or development surrounding stadiums and arenas around the country.
These observations are actually consistent with most people’s lived experience. For the vast majority of people who actually go to games in these stadiums and arenas, their experience one of parking, going to the game, and then going home. In fact restauranteurs in Minneapolis and St. Paul have been complaining for years that they see hundreds of people… walking by- on their way to and from games. If you’re not a restaurant or a bar owner it can be even worse. One jewelry store owner within blocks of the new Twins stadium is almost going out of business and will have to move because of the new stadium. On game days the city goes around the city bagging off parking meters so people will be driven into the parking ramps and lots. This means on 82 so game days a year her customers would have to park blocks away and pay event parking rates of around $10.00 in order to patronize her store, obviously that’s not happening. To add insult injury, the reason the city tries to drive parkers into the ramp in the first place is they use part of THAT revenue to pay for the Timberwolves arena. Sure you see a lot of people downtown on a game day, and many of them are wearing sports jerseys, but most of them going to or from the stadium, they don’t linger downtown. Minneapolis isn’t even making much money charging sports fans for parking on game days. Many private and public parking ramps and lots are loosing money despite tens of thousands of parkers on game days. Minneapolis is actually force to spend a big chunk of it’s parking revenue on it’s subsidy of the Timberwolves arena.
Thus far I’ve discussed mostly anecdotal observations regarding the local economic impact of sports subsidies, but every now and then something happens that provides objective window into the real economic impact of a stadium or arena. In 2004 the NHL locked out the players in a labor dispute, this shut down the Xcel Energy Center in downtown St. Paul. Sales tax receipts during the shut down were examined and compared with the previous year and it turned out that sales tax revenue during the lockout was actually $15,000 more than it had been the previous year. Economists explain this phenomena using the concept of substitution. Remember, sports dollars are entertainment dollars, not necessary dollars, that means that unlike other dollars that are spent, people are much more free to choose where to spend their entertainment dollars, they can and will spend them anywhere. The experience of the NHL lockout simply confirms that in the absence of professional sports people just spend their money elsewhere. Instead of spending money on sports tickets they spend it on bowling, movies, restaurants, etc. in other parts of town. Sports dollars don’t disappear if a team disappears, they just go elsewhere. Substitution means that sports subsidies don’t grow economies, they simply move dollars from side of town to the other. This business of moving dollars from side of town to the other, as illustrated by our jewelry store above, actually points to yet another problem with sports subsidies.
Not only might sports dollars go elsewhere if the teams didn’t exist, but one can argue that it’s actually better for the economy if they do go elsewhere. Stadiums and arenas are incredibly localized and concentrated developments. By localized I mean actually inside the stadium or arena, the majority of the economic activity that stadiums and arenas bring to local economies goes on inside the stadium or arena, and 90% of that economic activity goes directly to the players and owners. These are publicly funded private developments. This isn’t even trickle down economics because the trickle is practically non-existent. Professional athletes and sports franchises are not job creators, many of these athletes don’t even live in the cities or states where their teams reside. When you spend hundreds of millions of public dollars to drive customers towards sports events you’re concentrating economic activity into an incredibly small space at the expense of every other entertainment venue in the region. 90% of that economic activity benefits an incredibly small number of people, mostly athletes, owners, and few well paid executives. The Vikings for instance have what? 56 players, 5 or 6 coaches, a handful of owners and executives and some office personnel? A baseball team has 25 players along with the owners, coaches etc. In 2010 the Vikings and Twins combined gate receipts in Minneapolis were $95 million dollars. That’s $95 million dollars that were spent at these stadiums instead of elsewhere, and 100% of that money went into what? 200-300 pockets? If those gate receipts were divided evenly that would be $475,000 – $317,000 per pocket. However we know that the vast majority of those revenues actually went the players and owners so you’re probably talking about less than 100 pockets, that works out $950,000 per pocket, and those gate revenues only account for 20% of the teams total revenues.
Basic economics tells us that we’d better off spreading dollars farther and wider in the community. For instance if you spread that money out you could deliver $10,000 to 9,500 hundred people. Another way to look at it would be that while you can only create 100 $950,000 a year jobs with $95 million dollars you could could create 1,900 $50,000 a year median income jobs. Now I hasten to point that this isn’t how economies actually work, we don’t choose whether or not we put $900,000 in 100 pockets or $10,000 in 9,500 pockets, I’m just illustrating a point. The point is that if people weren’t spending $95 million dollars a year on sports they’d be spending it on something else, and that spending would be spread much more broadly across the economy instead of being concentrated in a small number of pockets. What’s wrong with dumping $95 million a year into 100 pockets? Well again, it’s basic economics. While it’s true that the more dispersed that $95 million is, the more diluted the impact can be, the fact is that 100 millionaires simply won’t spend as much, less of that $95 million is actually going to get spent in the local economy. Setting aside these hypothetical numbers the fact is that 100 guys simply can’t buy that much stuff. How many cars, houses, ipods, can 100 guys buy? How much food and gas, and clothing can 100 guys buy? How many restaurants, plays, and movies can they go to? And since many of those guys don’t even live in MN even when they do buy stuff they’re not buying it locally. Unlike median income individuals millionaires don’t actually spend a majority of their yearly income, they tend to invest it and bank most of their income. None of this benefits the local economy, and we’re spending hundreds of millions of public dollars to drive this business towards stadiums and into these millionaire pockets. This is why I think these subsidies are really better understood as welfare programs for millionaires rather than public amenities. In some ways these franchises are basically sucking millions of dollars a year out of our local economy rather than adding to it.
Even if you accept the notion that you’re driving business towards stadiums and it’s benefitting local restaurants etc. As a matter of principle why does the taxpayer have a vested interest in bars and retailers next to stadiums? In Minneapolis and Saint Paul these stadiums and arena’s are all downtown. Well there are other area’s the city. There’s an Uptown, a Lower Town, North East, Frog Town, and Hyland neighborhoods just to name a few. Who decided the businesses next to stadiums are more important than all the businesses in in the rest of the city, not mention the suburbs and other cities in the state?
Are there any economic benefits at all that can actually be attributed to sports subsidies? The answer is yes… up to a point. Here’s a basic rundown of the figures that McGladrey produced in it’s report to the Metropolitan Sports Facilities Commission in 2009. According to McGladrey professional sports generated $458,711,720 total tax revenue over the course of 48 years between 1961 and 2009. During that time Minnesotans spent $290,950,570 on sports subsidies. At first glance that looks like decent return on a public investment, but a closer look reveals something else.
$459 million is a lot of money but to put it in perspective over the last 9-10 years alone the Vikings, Twins, Wild, and Timberwolves have had a combined income of $4.3 billion, around $860 million of which (roughly 20%) came out of the local economy. Breaking down the number a little further we see that all but $266,202,060 were sales tax revenue. Remember, according to the principle of substitution (as illustrated by Saint Paul’s 2004 experience with the NHL lockout) those sales tax receipts cannot be anchored to professional sports, so most of the $190 million in sales tax receipts collected over the course of 48 years would have probably have been collected anyways. In other words, we didn’t have to spend nearly $300 million in order to get that $190 million in sales tax revenue. Now it is true that not all tickets are sold to local fans, some people do travel to MN to watch their teams play our teams. These outstate fans are particularly visible during high profile games like play-offs and rivalries like when the Vikings play the Green Bay Packers. Nevertheless this probably accounts for a small amount of these sales tax receipts. The real money we’re looking here is the $266 million that wasn’t sales tax revenue, what kind of revenue was it? Over the course of 48 years MN collected $266 million worth of income tax revenue from players and visiting players.
$266 million is also a lot of money but as I mentioned in the beginng, one problem with the McGrladrey report is that it collapses decades of data into totals rather than providing year to year or era to era comparisons. This makes it difficult to recognize trends over time, and trends are important. If you take McGladrey’s data and extrapolate a little you get an interesting picture of spending vs. income tax revenue over time- this is what I meant when I said sports subsidy benefits may exist- up to a point. When you look at spending and income tax revenue over the course of the last 48 years you see that for the first three decades they probably matched or converged, with income revenue equaling or even surpassing public subsidies. However with the advent of half billion dollar stadiums they diverge with public spending outpacing income tax revenue.
Now let me be the first to point out that I don’t actually have 48 years worth of complete data. Teams have left and returned during that period of time and payrolls with their attending income tax revenue have fluctuated over the past 48 years. Tax rates have fluctuated, as well as salaries. Someone may be able to get hold of the actual numbers but I’m just illustrating a point here, and although my graph up to 2006 is contains some guestimated numbers I think most people would agree the trend I’m illustrating is real, a few million dollars one way or the other isn’t going to affect the over-all trend. After 2006 I’ve extrapolated the annual income tax revenue derived from pro-athletes by subtracting McGladrey’s 2006 totals from their 2009 totals and then dividing the difference by 3 (for each of the three years). This calculation leaves us with an average of $22 million a year in income tax revenue from professional sports between 06 and 09. When you plot all of this out over 65 years you see that player income tax revenue and public spending probably run parallel, with player income tax actually exceeding public financing for a period of time. During the 80′s and 90′s public spending remained more or less flat while player’s salaries increased. However once public spending reaches $20 million or more a year, as it did recently did with the addition of the Twin stadium debt, the two lines converge. If you add another $30 million a year, as the new Vikings stadium will, the costs dramatically diverge with public spending outpacing income tax revenue by more than $20 million a year.
So what guestimates am I making to produce this chart? The cost of the old Met center and stadium in the 60′s and 70′s was very low ($14 million total). I gave it value of .5 or $500,000 a year just so it shows up on the chart. I’m guessing players salaries in the 60′s and 70′s were also quite low, I gave them a value of 1. Unless hundreds of millions of hidden dollars were being spent in the 60′s and 70′s the real numbers are practically irrelevant because the lines are going to be indistinguishable from zero on this graph. In the 80′s the Metrodome came online and that cost about 1 million a year. During the 80′s players salaries started to go up, and we started adding teams to the mix so I started bumping the income tax revenue up. By the time we get to 2006 however I’m guessing not so much. I know from the McGladrey report that the the income revenue from the teams was around $22 million that year, and the debt for the Metrodome was paid off. By 2011 the new Twins stadium is online at a rate of $20 million a year, and I can extrapolate the income tax revenue within a few million one way or the other from the McGladrey report. If we put $600 million into a new Vikings stadium the total annual debt payments will come to at least $50 million a year. Technically the historical dollars should be adjusted for inflation but this is close enough for rock and roll and besides, I don’t know how to do that.
Someone could go out and get the real figures but I don’t think it would change the look of the chart that much, and it certainly doesn’t change once we get to 2006 and beyond. Of course if you live in a place where hundreds of millions of public dollars have already been spent on multiple separate stadiums and arenas you’ve already seen this divergence. The numbers may be slightly different in different markets but the trend is going to be the same. Basically the Metrodome can be seen as a good deal for Minnesota. You still have all the other concerns we discussed with the economics of driving so many dollars into sports franchises but on a cost return basis the Metrodome is the best model of a “good deal” your going to find other than privately financed stadiums. Several teams were concentrated in one low cost location with the Metrodome, and rising athlete salaries increased income tax revenue while public expenditures remained flat. However, I think this situation was unique to Minnesota for the most part.
You may question why I leave the income tax revenue flat between 06 and 26? I have no way of predicting players salaries in the next 15 years. That figure may go up or down, for instance if the Vikings were to leave it would almost cut that revenue in half. On the other hand it’s hard to imagine payrolls doubling or tripling in 15 years which is what they’d have to do to converge again with the public subsidy. Another concern is a possible industry wide re-alignment. Basically what we have here is a pro-sports bubble being inflated by public subsidies. All bubbles eventually pop.
The vast majority of people are always opposed to these subsidies. Here in MN right now polls show that 70% of the people are against any big public sports subsidy for the Vikings , and nearly the same percentage actually say they’d rather lose the Vikings to L.A. than build them a stadium. These numbers are historically consistent, even the Metrodome which was cheap, was a controversial deal at the time. The voters in Saint Paul voted down the first Twins Stadium deal that was championed by Norm Coleman in the 90′s. As the decades go by the bag of tricks that can be deployed to create public subsidies despite their unpopularity is getting emptied out. With billions of dollars at stake at a time of huge government budget deficits and declining services it may be just a matter of time before these subsidies become politically impossible. If that happens the leagues will have to privately finance their own stadiums, and that would probably mean extracting wages concessions from players in order to put more money into new stadiums. I’m just saying it’s hard to predict what is really going to happen with player salaries in the 25-30 years, it’s not necessarily safe to assume that they will just keep going up.
One shouldn’t necessarily be too impressed with $22 million a year in income tax revenue in the first place however, especially when it’s costing us at least $20 million to get it. Furthermore it’s not really the case that all that revenue disappears if 150 pro athletes leave town. Remember, part that revenue stems from the $100+ million we spend on sports instead of other entertainment options, and all that spending doesn’t disappear with the athletes, it would just be distributed more broadly. Instead of getting $22 million from 150 millionaires we may get $10-$15 million from a couple thousand median income earners. We also have the previously discussed benefits of more broadly distributed spending in the absence of sports millionaies, there’s no law of economics that says it’s better to collect $22 million in income taxes from athletes than it is to increase economic activity more broadly across the community. It may well be that a loss of some that income tax revenue from athletes would be offset by broader distribution of spending and stimulus.
Even if you set aside the issues of player income revenue and substitution the McGladrey reports reveals other rather startling results. The cities of Minneapolis and Saint Paul are actually carrying rather large burden. Since 1981 the Minneapolis has spent $85 million dollars on pro sports subsidies, mostly associated with the Timberwolves arena, and got $28 million dollars in tax revenue back. Saint Paul has spent $6 million and got $1.7 million back. Hennepin County’s situation is even worse. Hennepin County put $36 million into sports subsidies and gotten $215, 503 dollars back in sales tax revenue. Again, these sales tax revenue estimates for the cities are subject to phenomena of substitution so it’s not clear really how much of that tax revenue would be gained or lost citywide in the absence of pro sports (remember the NHL lockout experience). The state of Minnesota is the biggest “winner” with $266 million worth of income tax revenue and only $65 million worth of sports subsidy contributed. Over all this analysis reveals a distorted and perverse sports subsidy structure that delivers the most benefit to those who contribute the least, and extracts the most revenue from those that benefit the least.
I think it’s clear to anyone looking at the data that any claims of substantial local economic benefits derived from large pro sports subsidies are not credible. This does not mean that there are absolutely no benefits derived from pro sports, however the data clearly show that the less public money involved the better. Once public subsidies get into the $100 million or more range you start digging a hole that you’re not going to get out of, especially on the local level. We’ve now dug that hole in Minnesota with the new Twins stadium and a new Vikings subsidy worth hundreds of millions of dollars will make the hole even deeper. Piling on more sports subsidies in the form of debt forgiveness and Target center remodeling schemes will just make it worse. Minneapolis and Saint Paul are never going come out ahead in these deals nor can anyone else once the subsidies outpace income tax revenue derived from pro sports.
Are sports subsidies an economic catastrophe? No. But clearly when sports subsidies reach a certain size they distort local economies more than they contribute by funneling too much money into too few pockets at public expense. During one of my many debates with a stadium supporters it was once pointed out that as practical matter very few people can actually claim they’ve even felt the cost of the new Twins stadium on their pocket books, and that’s true. The problem is it actually proves my point; we could have raised $20 million a year for education, transportation, or health care… and not have felt it. Why are taxes hikes harmless when funding stadiums but unbearable when funding government services or infrastructure? We have a legislatures filled with politicians all over the country who have actually signed a pledge not to raise taxes to pay for or even preserve actual government services. These same politicians are perfectly willing to raise taxes in order to subsidize sports franchises. While government workers everywhere are accused of breaking our government budgets with their high salaries and generous benefits, the same people who hurl those bogus accusations are working to preserve and raise multi-million dollar salaries for professional athletes and guarantee returns on owner’s investments in sports franchises. How is this not obscene? This is a basic perversion of our public priorities, finances, and policies. The question is no longer whether or not professional sports is good for economies and communities, the question now has evolved into one of how detrimental professional sports subsidies can be for our communities and economies. At this point there is no good deal left for Minnesota tax payers if the deal involves public subsidies. The question is now how bad will the next deal be for taxpayers? A new publicly funded stadium wouldn’t be the end of the world, but I’m pretty sure it would be real bad Karma.
Reference Links
Fedgazette: Stadiums and convention centers as community loss leaders: http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=2177
2007 RSM McGladrey Stadium Impact Report: http://growthandjustice.typepad.com/my_weblog/files/RSM.McGladreyFinal_Report_wAB.pdf
2009 RSM McGladrey Stadium Impact Report. http://prod.static.vikings.clubs.nfl.com/assets/docs/download-rsm-study-021511.pdf
Minnpost.com: Mayor R.T. Rybak and Minneapolis are at center of any ‘cosmic’ sports facilities solution: http://www.minnpost.com/stories/2011/02/03/25465/mayor_rt_rybak_and_minneapolis_are_at_center_of_any_cosmic_sports_facilities_solution/
Minnpost.com: Stadiums and arenas: Is ‘global solution’ the answer for Vikes, Wolves, Wild?: http://www.minnpost.com/stories/2011/02/01/25398/stadiums_and_arenas_is_global_solution_the_answer_for_vikes_wolves_wild
Target Center Fact Sheet: http://www.ci.minneapolis.mn.us/newsroom/2009factsheet-Target-Center.asp
Forbes Magazine 2010 Minnesota Twins Profile: http://www.forbes.com/lists/2010/33/baseball-valuations-10_Minnesota-Twins_330400.html
Forbes Magazine 2010 Minnesota Timberwolves Provile: http://www.forbes.com/lists/2010/32/basketball-valuations-11_Minnesota-Timberwolves_323346.html
Forbes Magazine 2010 Minnesota Wild Provile: http://www.forbes.com/lists/2010/31/hockey-valuations-10_Minnesota-Wild_318976.html
Forbes Magazine 2010 Minnesota Vikings Profile: http://www.forbes.com/lists/2010/30/football-valuations-10_Minnesota-Vikings_309201.html
Wikipedia.com article on Minnesota Twins: http://en.wikipedia.org/wiki/Minnesota_Twins
Minnesota Public Radio: Experts estimate new stadium generates $50-$70 new million for Twins: http://minnesota.publicradio.org/display/web/2010/10/08/twins-ballpark-finance/
Minnesota Department of Transportation: Economic impact of 35W bridge: http://www.dot.state.mn.us/i35wbridge/rebuild/municipal-consent/economic-impact.pdf
Startribune.com Jay Weiner, Lockout’s net effect mostly empty ; St. Paul’s overall economy appears unscathed by the loss of Wild games: http://proxy.elm4you.org/login?url=http://proquest.umi.com.proxy.elm4you.org/pqdweb?did=793596581&sid=2&Fmt=3&clientId=45189&RQT=309&VName=PQD
Wikipedia.com Article on I-35W Bridge: http://en.wikipedia.org/wiki/I-35W_Mississippi_River_bridge
Convention Sports and Leisure (CSL) Report to the Metropolitan Sports Facility Commission: http://www.msfc.com/images/dynImages/Vikings%20Econ%20Impact%20Report%20FINAL1.pdf
Minnpost.com: Vikings stadium jobs: Gov. Dayton, beware! And have someone check those employment numbers: http://www.minnpost.com/jayweiner/2010/12/20/24359/vikings_stadium_jobs_gov_dayton_beware_and_have_someone_check_those_employment_numbers
Metropolitan Sports Center: http://www.vintageminnesotahockey.com/ArenaMetCenter.html
Wikipedia.com: Metropolitan Sports Center: http://en.wikipedia.org/wiki/Met_Center
Wikipedia.com: Metropolitan Stadium: http://en.wikipedia.org/wiki/Metropolitan_Stadium
Minneapolis Star Tribune: Another bite out of Block E as Panchero’s eatery closes: http://www.startribune.com/business/120210419.html
Minnesota Public Radio: Stimulus-Funded Road Projects Create Few Jobs: http://minnesota.publicradio.org/display/web/2009/07/31/stimulus-road-construction/
Comments
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Even if you set aside the issues of player income revenue and substitution the McGladrey reports reveals other rather startling results. The cities of Minneapolis and Saint Paul are actually.