Stanford University

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NEWS RELEASE

12/17/97

CONTACT: Kathleen O'Toole, News Service (650) 725-1939;

e-mail kathleen.otoole@stanford.edu

COMMENT: Roger Noll, Economics Department (650) 723-2297

Editors: Noll will be available until Dec. 23 and after Jan. 4

Super sports stadiums becoming bigger expense for taxpayers

American taxpayers as well as sports fans will continue to pay through the nose for pro sports until they decide to outlaw the monopoly status of professional sports leagues, says Stanford economist Roger Noll in a new book.

Nearly half of the professional sports teams in America are either playing in a new facility or expect to within a few years. The cost of this $7 billion stadium construction boom is heavily subsidized by federal and local taxpayers, and the tax bills won't stop piling up until all 115 teams have new facilities, Noll says.

When all the teams have new digs, they will want even better facilities. "It's never ending. As soon as the bloom is off the lily, as soon as the newness effect of these stadiums begins to wane, then we'll start all over again," says the economist who knows so much about sports that Sporting News named him one of the "100 most powerful people" in sports a few years ago ahead of such more familiar faces as sportscasters John Madden and Bob Costas.

Noll and fellow sports fan and economist Andrew Zimbalist of Smith College argue against sports monopolies in a new book they edited, Sports, Jobs and Taxes, for the Brookings Institution. The National Football League, for example, is a cartel of team owners that is able to extract monopoly prices in the form of public subsidies because they have no competition. "The NFL will always see to it that there are a few cities who are hungry for a team but don't have one," Noll says. "Their business plan is to keep the wolves at the door, so a team can make a case for more subsidy every time a lease expires."

For cities, the situation is not unlike that with railroads in the mid 19th century, when every town wanted a railroad stop, the economists say. "Local governments frequently overextended themselves in offering subsidies to railroads so as to influence decisions about routes and terminals."

Noll, who played varsity basketball at Caltech, and Zimbalist, who tried to start a new baseball league in 1996, love sports and like the luxury stadiums that have been built in recent years. They don't even argue that it is a bad idea for the taxpayers in Charlotte or Sacramento to provide a type of welfare to franchise owners and players to lure a team to their city. The economists don't think, however, that the teams, their boosters and consultants should continue to get away with claiming that ever-better ballparks are sound business investments for local communities. "Actually," Noll says, "teams are a slight net drag on the local economy."

Taxpayers should view new stadiums as a consumption expense, not an investment that will produce more jobs and local business. Stadiums are more like public parks a pleasurable amenity used by some local residents than like a local business that draws new spending to town or makes money for the community by exporting local products and services, the economists say.

Who pays how much?

Some taxpayers get stuck paying more than others, the authors say.

In San Francisco, where voters first balked at more expensive stadium proposals for the Giants baseball team and the 49er football team, the $200 million-plus subsidy for two new stadiums probably will cost each city resident about $10 a year for 25 years, Noll calculates. In neighboring Oakland, the recent $135 million in renovations for the Raiders and Warriors will probably cost that city's smaller population about $50 per capita per year, and the Oakland Athletics are still threatening to leave unless something is done for them.

In Seattle, where the voters also initially balked, the Seahawks managed to win a statewide referendum to spread the costs over the state's population, and in Cincinnati, new facilities for the Reds and the Bengals will be subsidized by a sales tax throughout the metropolitan area.

In New York, where the Yankees want at least $800 million from the city for a new stadium in Manhattan, it would be cheaper if the city fathers simply gave the Yankees a cash bribe of $10 million a year, Noll facetiously says. "Even better, the city could pay $100,000 for each game won, with a million-dollar bonus for winning the pennant."

In nearly all cases, Noll says, federal taxpayers are also being hit hard. They provide about 30 percent of the local subsidy in the form of tax-free bonds that the cities sell to build the facilities. The 1986 Tax Reform Act encourages cities to subsidize stadiums, because they can only sell tax-exempt bonds if the revenues from the stadium account for less than 10 percent of their debt service.

The book is required reading for any citizens group hoping to fight plans for a new taxpayer-subsidized football or baseball stadium or hockey or basketball arena in their area. It provides the nitty-gritty details of the many flaws in economic analyses that are prepared by consultants for stadium proponents. Such studies usually conclude that a team and a new stadium will improve the local economy, reduce poverty and increase jobs.

"We are just pointing out two important facts," Noll says. "Stadiums are not a net local economic benefit, and the reasons cities are paying for them is because the [federal] government made the professional leagues monopolies" exempt from anti-trust laws that apply to most other industries.

The result: "A very large number of people are getting harmed a little bit," Noll says, but the subsidies usually are small enough per citizen that people don't tend to organize opposition to them. "That biases the outcome in favor of the well-organized group" of fans and a few businesses that benefit a lot from the stadium.

Luxurious '80s changed sports

The current wave of stadium building began in the 1980s because of new stadium technology. More luxurious stadiums were introduced partly in response to fans' increasing willingness to pay for stadium amenities. As the wealth of upper-income Americans soared, "there was a much bigger demand for luxury boxes and upscale concessions. . . . Going to a football or baseball game 25 years ago was an experience with a cross-section of society. Now, only the upper middle class can afford it," Noll says. Corporations are a factor also, as they often rent the luxury boxes.

But while ticket and concession prices are higher and personal seat licenses have been introduced as another way to collect revenue, the new luxury stadiums have not generated enough revenue to cover their cost a minimum of $200 million. Hence the subsidies from people who don't go to the games.

By far the biggest effect of subsidized stadiums is that "perfectly good facilities are forced to retire prematurely and new facilities are far more elaborate and costly than is justified by the business that they generate," Noll and Zimbalist write. "The next largest effect is that player salaries capture more than half of the value of the subsidy."

Stadiums also can cost a community jobs, they say. Most people have a limited amount of money they can spent on entertainment, so money spent on sports can cause other entertainment businesses to cut back jobs or close. Team studies usually claim the new facilities bring new tourist spending to town, but the studies grossly exaggerate such effects, the authors say. "It's like the Angels trying to argue that Disneyland wouldn't exist if they weren't nextdoor," Noll says with a crescendo laugh.

Another effect of sports monopolies can be seen in the contrast between a fan's choice of televised Saturday college football offerings and Sunday's pro offerings, Noll says. Because of a successful anti-trust suit against the National Collegiate Athletic Association, the college association cannot pool all broadcasting rights of member teams. With competition among the teams and conferences for broadcast earnings, the consumer gets a choice of football games to watch all day, compared to only two or three games to watch on Sunday when the NFL controls broadcast rights.

Noll, who helped plot the legal strategy that broke up AT&T's monopoly in the 1980s, devotes only about 5 percent of his life to sports but as Sporting News said in naming him one of the power brokers, "It's a big 5 percent." An expert on government regulation of various industries, he has been an expert witness for professional players' associations in battles with professional league owners, and potential buyers of teams have been known to consult him about the dollar value of franchises. With a certain flair for sports metaphors and plain talk about difficult economic concepts, he is often invited to speak in cities where local politicians and team owners are trying to sell the public on providing a tax subsidy for a new team stadium. "What makes Noll happy," the Sacramento Bee reported after one of Noll's recent visits to their city, "is going around America smashing sports fantasies of local politicians and Chambers of Commerce."

The anti-trust solution

But Noll doesn't kid himself about his power. It will be difficult to curb taxpayer subsidies to pro sports as long as those sports are popular with the American public, he says.

The federal government could do the job by removing the leagues' anti-trust exemptions, forcing the existing ones to form several leagues that make independent decisions about how many teams to have and where to locate them, he says.

Members of Congress have periodically taken an interest in applying anti-trust law, but their debates have been "driven by their regional loyalties rather than political ideology," Noll says, so nothing gets resolved.

When major league baseball thwarted the relocation of the San Francisco Giants to St. Petersburg, for instance, "California's liberal Democratic senator, Barbara Boxer, hardly known as a close ally of big business, favored retaining baseball's antitrust immunity to save her hometown Giants," the authors write in the book. "Florida's conservative Republican senator, Connie Mack, the grandson of the legendary owner-manager of the Philadelphia A's during the period when they wrested several American league championships from the famed Yankees of Lou Gehrig and Babe Ruth, argued strongly for lifting the immunity to free the Giants to come to Florida. As before, nothing came of this congressional inquiry."

The Antitrust Division of the Department of Justice could act, Noll and Zimbalist write, but it is also "susceptible to political pressure not to upset sports."

"The most likely source of reform, though still a long shot, will be grass-roots disgruntlement and citizen education," they write. "These forces have already taken hold in some cities. Voters, cognizant that sports teams will bring little benefit to the local economy and concerned about the distributional consequences of facility subventions, rejected the idea of public support for stadiums on ballot initiatives in San Francisco, San Jose and Seattle. However, in no case has this caused a stadium not to be built.

"Nevertheless, more guarded, limited and conditional support from constituents will prompt political leaders to be more careful in promoting a team or negotiating a stadium deal."

Cities on their own, however, have little leverage, and while grass-roots movements "may achieve modest success in slightly altering the terms of stadium subsidies," the authors say, "until the structural monopoly and cultural centrality are modified, large-scale public subsidies to team owners and athletes will be a feature of the professional sports landscape."

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