Stadium Non-Economics

For those of us who are Minnesota Vikings fans, life is weird. After all of those years rooting against him, now we love quarterback Brett Favre. Hey, the 40-year-old, former Green Bay Packer has the Vikings at 4-0, and fans daring to dream of the Super Bowl.

But what’s not weird are pro sports teams seeking handouts and politicians willing to provide those taxpayer subsidies. In Minnesota, Governor Tim Pawlenty (R) has renewed talk about a new, largely taxpayer funded stadium for the Vikings.

According to an Associated Press story, Pawlenty said: “It's fair to say the Metrodome has served us well, but its time is fading. And so we've got to figure out a way to keep the Vikings here. We value the Vikings. They're an incredibly important asset to Minnesota.” And: “The philosophical question is, is this the appropriate time or the appropriate way to spend public dollars. But we need to find a way — setting that aside, we need to find a way to keep our Minnesota Vikings. They're exciting. They bring a lot of joy to a lot of people in our state.”

Speculation is that Pawlenty is trying to position himself as a fiscal conservative with an eye towards the 2012 presidential contest. Doling out taxpayer subsidies to a football team does not line up with fiscal conservatism. Instead, it’s just plain corporate welfare, with no economic benefits being derived by anyone except the team’s owners.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Stadium Business

Two things irritated me about the Indianapolis Colts during the season premiere of NBC’s Sunday Night Football on September 7.

First, since I’m a Minnesota Vikings fan, the Colts managed to lose to our division rival the Chicago Bears by a score of 29-13. Thanks a lot Peyton Manning and Company.

Second, there’s the matter of the Colts new home. The Bears-Colts game marked the official opening of Lucas Oil Stadium. From what I could see on television and in a variety of online photos, it looks like a wonderful facility.

That is, except for the fact that the taxpayers were sacked to build it. That irritates me as an economist.

Teams, government officials, and even many in the business community like to proclaim that new stadiums boost regional economies in order to justify all kinds of taxpayer handouts for such projects. That’s been no different with the Colts new venue.

For example, an article on the Website of WISH-TV opened: “Taxpayers are footing most of the bill for the new stadium, but city and state leaders promise financial blessings will rain down on expectant Hoosiers.” The piece went on to quote various people making all kinds of promises about how the stadium will be an economic plus, including, of course, citing the obligatory study from a hired-gun firm supposedly showing these benefits.

In reality, though, every legitimate, independent study of stadium economics makes clear that these facilities have no effect on jobs, income and growth in local economies. Indeed, some analyses point to a negative impact.

An August 9 article in the Indianapolis Business Journal serves up some of the typical assertions justifying subsidies for new stadiums, but also raises points about this $720 million stadium that should raise questions about sports subsidies in general, including:

• [T]he hard work is only beginning for the city’s Capital Improvement Board, the entity charged with operating the stadium.

The fumbling point: CIB is anticipating a $20 million operating deficit for Lucas Oil Stadium in 2009. Anticipated expenses are $27.7 million—far outstripping the $7.7 million CIB expects to collect from its share of revenue from stadium events.

• Attracting events beyond Indianapolis Colts games to the stadium is crucial because the team gets all revenue derived from its games. CIB and the Colts each get about half of revenue from other events.

• For 2008, the board has an overall budget of $108 million, with $34 million earmarked for debt payments on construction of Conseco Fieldhouse, the RCA Dome and an earlier convention center expansion.

About $60 million of the board’s revenue comes from taxes, including portions of local hotel, car rental, cigarette, and food and beverage taxes.

Grand said he didn’t think the board would need to tap taxpayers for any additional money to cover operating expenses “at this point,” adding that the CIB traditionally has operated “pretty efficiently.”

• CIB isn’t on the hook for the largest expense—the bonds issued to pay for construction.

Under a deal brokered with Gov. Mitch Daniels in 2005, that responsibility fell to the state. The Indiana Finance Authority is handling the bond issues, and the newly created Indiana Stadium and Convention Building Authority is overseeing construction. The state also took responsibility for making the $40 million payment the Colts received for terminating their RCA Dome lease.

The final tab for the project is expected to be $720 million—that’s $5 million more than the initial $625 million budget and its $90 million contingency fund.

• To cover stadium construction, the Indiana Finance Authority sold $666 million in bonds, and it soon will sell bonds to cover the convention center project. Bonds will be repaid from a bevy of new taxes, including increases to the Marion County hotel, car rental and admission taxes, and a regional tax on food and beverage sales.

As is clear form these points, the Colts got a sweetheart deal, and the taxpayers got stuck with the tab, including hotel, rental car and food and beverage businesses. And both businesses and individuals will not reap any great rewards in terms of the economy.

Is there economic value in new stadiums? Sure. But it must be left up to the private sector to decide what that value is. So, just like other businesses, let the team owners finance and build their own sports facilities.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council