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23 Regulation 15 (2000)
The Stadium Gambit and Local Economic Development

handle is hein.journals/rcatorbg23 and id is 93 raw text is: ECONOMIC DEVELOPMENT POLICY We play the Star Spangled Banner before every game -you want us to pay taxes too? -Bill Veeck The Stadium Gambit and Local Economic Development BY DENNIS COATES AND BRAD R. HUMPHREYS N RECENT YEARS SPORTS FRANCHISES HAVE FREQUENTLY used their monopoly power to extract rents from state and * local governments. Typically, a franchise owner declares an existing facility unsuitable. Perhaps it is too old, or too small, or lacks enough luxury boxes or suites to raise the necessary revenues to field a competitive team. The owner reminds the local government and business community that many other cities would like to have a team, and those cities would also build a new stadium. Cities all over the country, desperate for a professional sports team, gear up to convince the owner to move. Often, the promise of a new stadium and a sweetheart lease convinces the owner to stay, but some franchises move. Regardless of whether the team stays or goes, tax- payers foot the bill for a new stadium, improvements to an existing stadium, or infrastructure needed to make the new stadium or arena as attractive as possible. The practice of professional sports profiting at the expense of taxpayers is not new. Before the stadium gam- bit there was the tax shelter dodge in which the purchase and reorganization of a team could generate up to five years of losses, which could be used to offset the new owner's income from other ventures. And there is the common practice of funding stadium construction using private- purpose local bonds because their interest payments are exempt from federal income taxation and they therefore carry a lower interest rate. The net effect is that the federal government subsidizes construction of the stadiums and are- nas built by state and local governments for professional Dennis Coates is associate professor and Brad R. Humphreys is assistant professor of economics at the University of Maryland Baltimore County sports franchises. Indeed, closing the loophole in the law that allowed this subsidy has simply been replaced by explicit state and local funding of stadiums that can be turned over rent free to franchises. The recent spate of sweetheart stadium and arena deals is only the latest manifestation of owners of professional sports franchises getting richer at the public's expense. While not entirely new, this phenomenon has become front-page news across the country in recent years. Com- bined with the build it and they will come attitude of many city governments, the stadium gambit has led to a marked increase in new stadium and arena construction, franchise relocations, and negotiations between teams and local governments. Despite the beliefs of local officials and their hired con- sultants about the economic benefits of publicly subsidized stadium construction, the consensus of academic econo- mists has been that such policies do not raise incomes. The results that we describe in this article are even more pes- simistic. Subsidies of sports facilities may actually reduce the incomes of the alleged beneficiaries. REGULATION VOLUME 23, No. 2

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