I am BARRY HESS > Blog

Stadium, F*** Yeah!

Those of you who have seen Team America: World Police may be noticing the fervor shown toward a Twins stadium is strikingly similar to the patriotism in the movie. There is only one choice and those who are against it are against progress and growth. Doesn’t anyone understand how the stadium will be a boon to Hennepin County’s economics? The growth will more than pay for the costs.

To make my position clear, on an individual level I am all for a stadium. I stand to benefit from a stadium far more than I will pay for it. Yet throughout the debate on the most recent stadium, I have been asking for a cost-benefit analysis allowing lawmakers to honestly decide what is right for their constituents (a referendum would be silly). Certainly the economists of the state could show the increased visitor consumption and population growth would more than cover our asses in terms of tax revenue. I have yet to see this analysis and I’m afraid there simply is no defense of a publicly funded (or more accurately, this publicly funded) stadium in terms of dollars and cents.

After doing some of their own reading, several of my friends felt the economic case was still pretty clear cut against this stadium deal. I tended not to believe them and finally I was required to go and find out for myself. I was hit with a mountain of evidence against the decision Minnesota is potentially going to make in the next few weeks.

My initial stop was a surprising article by Daniel McGraw at Reason Online. The article centers around Jerry Jones’ successful push for a new Dallas Cowboys stadium even though he had no claims of losing money. In fact, this is a pretty clear case of Jones getting the public to help fund his venture to make more money then he already is making. Let me assure you, the public will not be the ones benefiting from the Cowboys’ increased revenue.

Within the first few paragraphs it is clear some of the same deadlines Jones was facing are probably in play for the Minnesota Twins. When team representatives say this is the last chance for a new baseball stadium in Minnesota, they aren’t simply referring to the Metrodome lease and baseball’s collective bargaining agreement expiring this offseason. It seems there are two very applicable court cases being argued this year.

When Dallas Cowboys owner Jerry Jones asked Arlington, Texas, voters to pay for a fancy new stadium last November, he did not call the classic plays from the sports welfare handbook. He could not say that America’s Team needed a state-of-the-art facility to compete, since Texas Stadium (in the Dallas-adjacent suburb of Irving) has more luxury suites than any other in the National Football League, and the Cowboys won three Super Bowls in the 1990s. He could not say he was financially strapped, since his franchise ranks sixth in the NFL in profits and second in revenue, according to Forbes magazine. Most important, he did not use the team owners’ favorite and most effective threat-to move to a new city-because the Cowboys have always had very strong local fan support; the Dallas-Fort Worth media market is the fifth-largest in the country, and Dallas Cowboys is a powerhouse global brand name. But Jones had three key deadlines to beat. His lease in Irving was scheduled to run out in 2009, so a new stadium deal needed to be done quickly. Electorally speaking, there was no better time to pass a tax increase than during the high-profile presidential vote of 2004; special elections usually draw low turnouts, and the anti-tax older folks show up in droves. But perhaps the most important deadline of all loomed in 2005, when the window for public financing of sports stadiums in the United States may be slammed shut by two court decisions expected to be handed down during the year. Kelo v. New London, which the Supreme Court is scheduled to rule on by summer, could decide once and for all when or even whether governments have the right to use eminent domain to acquire private property for the benefit of private businesses. Meanwhile, Hamilton County v. Cincinnati Bengals Inc., which is being heard in federal court in Cincinnati, is challenging football’s federal anti-trust exemption, forcing all NFL teams to open their closely guarded books, and arguing that the Bengals’ demand of build-it-or-we-can’t-compete is tantamount to fraud.

After all of that, which seems pretty shady, what did economists think is in it for Arlington?

[Mark] Rosentraub estimated Arlington would lose roughly $235 million over 30 years as a result of the new Cowboys stadium, a far cry from the city’s (and team’s) projected $7 billion gain over the same period. (The raised taxes for the stadium would actually take spending money out of the local economy.) Local businesses tend to be largely unaffected, Rosentraub has found, because teams attempt to control almost all of their fans’ entertainment spending, including shopping and dining. This leaves little room for the promised spillover growth around the stadium.

I highly encourage you to read the rest of the article. Not that anyone reading my post needed more reason to dislike the Cowboys.

So Mark Rosentraub, an economist and Dean of the College of Urban Affairs at Cleveland State University, doesn’t think there is any economic support for mostly public financed stadiums. He testified in front of the Senate Judiciary committee in 1999:

While it is undeniable that there is a level of intangible benefits secured by communities from the presence of a team, these benefits do not translate into any form of economic gain. Across more than two decades a number of researchers from our most acclaimed universities and from the federal agencies have studied the economic development effects of professional sports. There is no evidence that a team’s presence generates economic development for a region. Sports facilities largely reshuffle existing spending for recreation among activities in a region. In other words, in the absence of a team, the money spent by people will continue to be expended for other recreational pursuits. To be sure teams do attract a number of visitors to a community to attend games. In addition, the presence of a team does encourage people to spend their discretionary income on local events as opposed to games or activities in other regions. The combination of economic development from both of these sources has been found to be quite small.

In case you are wondering, Senate bill 952, the Stadium Financing and Franchise Relocation Act of 1999, generally looked like this:

To expand an antitrust exemption applicable to professional sports leagues and to require, as a condition of such an exemption, participation by professional football and major league baseball sports leagues in the financing of certain stadium construction activities, and for other purposes.

Essentially, there seems to be no way to justify this thing economically. (Please comment with any studies to the contrary.) We are left with an emotional decision on the order of, “I drove this new Honda Accord Hybrid. I love it and I want it. The fuel economy savings do not pay for the increased cost, but I love it and I am buying it.” Alan Ehrenhalt focuses on the emotional aspect of this argument as well as the legal monopoly effect:

Where the economists clearly are right is in pointing out that the huge subsidies cities give sports owners are the result of an artificial scarcity the owners have created. There are 30 franchises in major league baseball. The owners refuse to make any more, and so any city that wants a team - or wants to keep its team - has to compete against every other aspiring host city in a rigged sellers’ market. If baseball management wants to demand a $440 million stadium subsidy as its price for allowing the Expos to relocate to Washington, it can get away with that. That’s because no matter what the press releases say, cities that pay big money for teams and stadiums aren’t making an economic investment. They’re making an emotional statement about the kind of community they want to be. They want to be “major league,” in every sense of the word. When St. Louis offered a subsidy that may eventually come to $700 million to attract the NFL Rams, one civic leader expressed the rationale in blunt terms: “Without them, we’re a cow town.” When you lose a team, you lose civic self-respect. When you regain a team, you get some of it back. Even the economists understand the importance of that. And political leaders feel it even more keenly, if possible, than ordinary fans. When the Chicago White Sox threatened to move to Florida in the early 1990s, Illinois Governor James Thompson promised that he would “bleed and die before I let the Sox leave Chicago.” And they stayed, at a cost to taxpayers of $167 million.

It’s important to note the decision for politicians is more than an emotional one. Though some politicians stand to lose on a “yes” vote, if the Twins leave the state a whole heckuva lot more stand to lose on a “no” vote. Stadium proponents make no bones about this.

So what do other economists have to say?

[Roger] Noll and [Andrew] Zimbalist deliver one of many death blows: "A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues." They do not stand alone in their harsh judgment. According to [Robert A.] Baade and Richard F. Dye, "Independent research has not supported the notion that direct economic benefit exceeds cost." Their regression analysis of sports facilities built from 1965 to 1983 concluded, "The presence of a new or renovated stadium has an insignificant impact on area income for all but one of the metropolitan areas." ... Baade and many others argue that sports facilities do not increase economic activity but merely divert entertainment spending from one source to another. "The leisure budget of a family or an individual is limited, in terms of both money and time," Baade writes. "It seems likely, then, that a dollar spent at the Spectrum in Philadelphia may well be a dollar less spent at a movie theater in Bucks County." Rosentraub redoubles the argument, saying, "If the economic activity would have taken place if the team did not exist, then there is NO overall economic impact, just a transfer of economic activity."

Even Frederic Bastiat, a 19th century French economist, weighs in:

This explains the fatally grievous condition of mankind. Ignorance surrounds its cradle: then its actions are determined by their first consequences, the only ones which, in its first stage, it can see. It is only in the long run that it learns to take account of the others.

An interview with Andrew Zimbalist, who has done extensive writing on the economics of baseball (for instance), describes some more concepts to understand, including the Leakage Effect:

...if money gets spent at a ballpark, something like 60% of it on average goes to players, who have an average income of $2.4 million, and when money goes to those players, and most players don’t live in the town where their team is anyway, then the money leaks out, because a millionaire has a very high savings rate, much higher savings rate than somebody with ordinary income, thirty or forty thousand dollars, and that money they save goes into the world money markets, it doesn’t get spent at the local cities, and even more that’s true because the player doesn’t live in the city, so his permanent home is elsewhere, or if he has family elsewhere, a lot of the money gets sent back to the family. ... And, of course, a lot of money goes to the owners and the owners have a similar pattern to the players, and those leakages are much higher than if the entertainment dollar gets spent at the bowling alley or restaurants, where the money ultimately goes to entrepreneurs who have a much more normal income, and who live in the local towns.

The economic discussion appears to be simple. We don’t even need to dig in to the opportunity costs of building a stadium. The stadium and team itself are not providing for the taxpayer cost. It’s a loss.

Does all this change my desire to attend Twins games in a beautiful outdoor stadium? Not by any stretch. I still stand to gain more than I’ll lose. Yet somehow I would feel guilty contacting my representatives, or other state politicians, and asking them to support something that is, as far as I can tell, in a minority of the state residents’ best interests. I feel a little guilty having posted here encouraging others to contact their reps. Perhaps all I can do is ask Connie Ruth what figures she is looking at to make her decision.