External Policy Outcomes: Stadium subsidies

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External Policy OutcomesStadium subsidies
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Introduction

• If no mayor succumbs to the demands of a
  franchise shopping for a new home, then the teams
  will stay where they are.
• This, however, is unlikely to happen because if
  Mayor A is not willing to pay the price, Mayor B
  may think it is advantageous to open up the
  citys wallet.
• Then, to protect his or her interest, Mayor A
  often ends up paying the demanded price.
• --Washington DC mayor, 1991-1995, Sharon Pratt
  Kelly.

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In Brief

• Why do subsidies continue to be chosen?
• The setting
• Market power.
• Owners claim losing money.
• Positive externalities.
• Special interest politics and subsidies.
• The outlook for the future in this subsidy arena.
• Now, for the long version.

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Tradeoffs and Subsidies

• Confusion reigns supreme on this issue
• If its so valuable, then build it yourself,
• Versus
• Market power, owners losing money, and the
  economics of positive externalities,
• Tangled up with
• Special interest politics.

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Subsidy Sizes Lately

• Best work recently, Long (JSE, 2005). Includes
• Land/infrastructure.
• Net annual public expenses.
• Foregone property tax.
• Total U.S. subsidies are (PV 2001)

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Total U.S. Subsidies PV 2007

• Subsidies equal (PV 2001)
• MLB only 6.1 billion.
• NFL only 5.5 billion.
• NHL only 2.2 billion.
• NBA only 1.7 billion.
• NBA/NHL 1.3 billion.
• MLB/NFL 0.5 billion

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Total U.S. Subsidies PV 2007

• Subsidies (PV 2001)
• Total for 99 major-league facilities 17.3
  billion.
• PV 2001 x 1.17 2007 20.2
  billion.

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Individual Examples

• The only examples where subsidy is .LE. 0
• Minneapolis HHH Metrodome.
• Boston/Foxboro Foxboro Stadium.
• And in the Motor City

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Detroit Team Subsidies PV 2007

• Comerica Park (2000-2001) 120 million.
• Old Silverdome (1975-2001) 100 million.
• The Palace (1988-2001) 30 million
• Total Detroit subsidy 250 million
• (PV 2001 x 1.17 2007 292.5 million.)
• This is before any analysis has been done on Ford
  Field.
• Lets try to fathom why.

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The Sports Subsidy Case

• Owners make their case
• Losing money either literally, or comparatively.
• Creating, but not capturing, large external
  benefits.

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Losing Money?

• Actually losing money?
• Team income-expense reports dont tell the story
• Profit-taking on the expense side.
• Revenues from other related operations.
• Tax rules allow massive phantom depreciation and
  sheltering of non-sport income.
• Cross-ownership saves taxes.

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Losing Money?

• Team income expense reports dont tell the story
• Ive estimated these values (IJSF, 2006) to be
  upwards of 40 of some team sale prices.
• Owners actual loss claims, while technically
  correct for tax purposes, do not provide the
  value of ownership.

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Market Power and Losing

• Losing money Opportunity costs?
• Remember Economic v. Accounting Costs
• Revenues forgone in some other location are costs
  of staying in a current location!
• It could well be that moving is not just a
  bargaining ploy.

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Positive Externalities

• Values created by owners that they do not
  capture.
• But what to do?
• Must government step in?
• Compare and contrast the Disney approach and
  apply the lesson to sports team owners and
  subsidies.

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Disneyland and MLB, 1950s

• I could never convince the financiers that
  Disneyland was feasible, because dreams offer too
  little collateral.
• --Walt Disney

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Disneyland and MLB, 1950s

• Disneyland Opens 1955
• Walt and Roy spent about 17.5 million, 18 rides
  on 85 acres. Two-part pricing 1 admission,
  35-55 additional for rides.
• They get rich and
• Property values in Anaheim soar as service sector
  takes care of visitors to the Magic Kingdom.
• (I wonder what Walt and Roy were thinking when
  they conceived Disneyworld)

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Disneyland and MLB, 1950s

• Im for the dreamers. The only really important
  things in history have been started by the
  dreamers. They never know what cant be done.
• Bill Veeck.

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Disneyland and MLB, 1950s

• Prior to 1950
• All stadiums were privately owned and (mostly)
  privately funded.
• Prior to the 1950 season
• Commissioner Fricke warns cities that they will
  start sharing the bill values are being
  produced, but not obtained by owners.

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Disneyworld and Baseball

• Private solution to positive externalities
  observed at Disneyland?
• The economic logic of shopping malls.
• Disneyworld
• Opens in stages, beginning 1971.
• EPCOT 1982, and so on.
• Originally, 27,000 acres (thats 318 Disneylands,
  but whos counting)

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Disneyworld and Baseball

• Currently 47 square miles (including resorts),
  about the size of the city of San Francisco
• Four theme parks.
• Two water parks.
• Thirty resort hotels.
• Six golf courses.
• Two shopping-dining-entertainment complexes.
• Just recognize the positive spillovers and
  capture them through property purchase and
  development.

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Disneyworld and Baseball

• Sports Owners Following the same mall
  approach, but still with public subsidies.
• HuizengaLand complete sports-oriented business
  and living development with a football stadium
  and a baseball park.
• RiverCityRatner re-development including an arena
  for the NY Nets.

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Disneyworld and Baseball

• Sports Owners Following the same mall
  approach, but still with public subsidies.
• The original Chargers proposal of a 2 billion
  development including a football stadium.
• The proposed As stadium in Fremont will be part
  of a 1.8 billion campus of shops, office space,
  and housing. (NY Times, Oct. 17).

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Disneyworld and Baseball

• But note the difference!
• Disneyworld The private mall approach to
  positive externalities.
• Sports owners The mall approach as well, but
  subsidized heavily by the public.

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Disneyworld and Baseball

• The logic of private capture of benefits is
  clear.
• Sports team owners are typically as wealthy as
  Walt and Roy ever were (it shows in their
  ambitious projects)
• Basic Question
• Why do subsidies continue?

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Disneyworld and Baseball

• Im sure Walt and Roy would have been glad for
  the same subsidy treatment, but
• Why might the Disneys and team owners get
  different political treatment?

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The Setting

• Special interest politics in action.
• State and local politicians face their reelection
  imperative
• Rationally, they will choose policies that create
  net voting gains and enhance reelection chances.
• Expected Result Concentrated benefits and
  dispersed costs.

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Quick Review

• Policy flow Reelection constituency
• gt Elected officials
• The general constituency sits on the sidelines
  and pays.

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The Sports Subsidy Case

• Concentrated Benefits
• Owners (and fellow travelers) get what they want.
• Construction subsidies.
• Generous leases.
• Ongoing operations subsidies.

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The Sports Subsidy Case

• Dispersed Costs
• Small increments, difficult to detect and
  explain, across users and non-users alike.
• Sales tax.
• Property tax.
• Special districts.
• Hotel/motel/rental car taxes.
• Guaranteed revenue bonds
• A Big Mac or 2 two per month.

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The Sports Subsidy Case

• Generally speaking (back to SM 331)
• At the very least, payment exceeds the minimum
  required to keep the owner in place.
• At the very most, absurd public costs.

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The Sports Subsidy Case

• E.G. The Suncoast Dome (now Tropicana Field),
  Tampa Bay.
• Over 1990-2000, when D-Rays actually occupied it,
  I calculate losses were upwards of 350 million
  (Sports Economics, 2006).
• Over 1990-2001, Long (2005 PV 2001) calculates
  subsidy of 321 million (375.6 million 2007).

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Rational Actor Political Change

• Suppose the verdict is that special interest
  politics leads to overspending on sports
  facilities.
• How can this be changed?
• The answer might be surprising.
• Political competition!
• Right now, net voting margins in special interest
  politics favor the status quo.
• And so it will remain until there are politically
  viable competing interests.

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Political Competition

• Will both get something? Will there be a new
  champ?
• And what about the general constituency?

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Pessimism?

• Two causes for pessimism
• First, the observations of Mayor Kelly.

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Pessimism?

• Back to Mayor Kelly
• If no mayor succumbs to the demands of a
  franchise shopping for a new home, then the teams
  will stay where they are.
• This, however, is unlikely to happen because if
  Mayor A is not willing to pay the price, Mayor B
  may think it is advantageous to open up the
  citys wallet.
• Then, to protect his or her interest, Mayor A
  often ends up paying the demanded price.

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Pessimism?

• And owners acting as leagues have always made
  sure there is a Location B.
• Examples
• Tampa Bay and the White Sox
• and the Giants
• and the Mariners!
• The NFL and L.A.

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Full Circle

• The setting
• Market power owners losing money.
• Positive externalities.
• Special interest politics in action.
• The outlook for the future

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Full Circle

• Yogi Berra Things will stay the same unless
  they change.