Sports et villes: Enjeux économiques et socioculturels

4. Some Observations on the Evolution of Subsidies for Professional Sports

CHAPITRE SOME OBSERVATIONS ON THE EVOLUTION OF SUBSIDIES FOR PROFESSIONAL SPORTS Robert A. Baade* Lake Forest College 4 Subsidies for professionals sports have proliferated in the post World War II era in North America. Popular resistance to these subsidies has been galvanizing across the United States and Canada in large measure because of equity concerns. Subsidies clearly enhance what are, by any measure, the extraordinary financial rewards for professional athletes and team owners, which often are provided at the expense of non-fans and/or taxpayers of modest means. In some cases public protest has scuttled stadium projects as initially proposed. In other cases public antipathy has modified the character of the subsidies such that the fraction of stadium financing borne by the private sector has grown. Have subsidies evolved to a point where the financial burden has been shifted away from the public to the private sector? To state the issue somewhat * baade@hermes.lfc.edu 88 Sports et villes differently, has the evolving private-public financial partnership in building professional sports stadiums reduced the financial windfall stadiums provide professional sports teams? In addressing this issue, it is logical to first identify the extent to which new stadiums are being constructed and at what cost. This is the subject of the first part of the paper. In the second section of the paper the financial dynamic, which has compelled the unprecedented construction of facilities, is identified and analyzed. The third part of the paper assesses the impact subsidies have had on team financial fortunes. In the fourth section of the paper data on the nature of the public-private partnership is discussed and analyzed. Particular attention is focused on lease arrangements and tax schemes, which obscures the nature and size of the subsidies the public sector provides. The last section of the paper summarizes the findings and offers policy suggestions. The conclusion reached in this paper is that although the private financing has increased in percentage terms, the size of the public subsidy has increased absolutely and perhaps in percentage terms when the more generous lease arrangements are considered in tandem with the initial financial commitment. The financial dynamic which has evolved and been exploited by professional sports team must be understood and neutralized if cities are to avoid the considerable financial risks they assume when hosting professional sports in the United States and Canada. Cities must be alert to see changes in the financial dynamic which occur periodically in professional sports, and, as a group, act early and decisively on the marked tendency that professional sports teams exhibit in imitating the most aggressive financial behavior of teams within their leagues. 4.1. STADIUM CONSTRUCTION IN THE FOUR MAJOR PROFESSIONAL SPORTS LEAGUES OPERATING IN NORTH AMERICA In assessing how the public sector financial commitment for stadium construction has changed since public funds were first used in their construction in 1953,1 several developments must be considered. First, have stadium construction costs changed over time? If so, what accounts for the pattern? Second, what is the trend with regard to the number of stadiums that have been built? What factors explain this trend? Understanding 1. A publicly funded stadium was built in Milwaukee, Wisconsin in 1953 in a successful bid to bring the Braves from Boston to Milwaukee. Some Observations on the Evolution of Subsidies for Professional Sports 89 the dynamics of stadium construction will offer insight into what steps can be taken to temper the undesirable financial implications of the exercise of monopoly power on the part of professional sports leagues. Stadium construction costs have increased in both nominal and real terms. Consider the information provided in Figure 4.1. Other authors have reached the same conclusion with regard to escalating stadium costs defined in nominal terms. Siegfried and Zimbalist (2000) observed: “The average cost of facility construction in current dollars rose from $3.8 million in the 1950s, to $25 million in the 1960s, $71 million in the 1970s, $103 million in the 1980s and to $200 million from 1990 through 1998.” Stadium construction costs actually are increasing FIGURE 4.1 Stadiums’ Cost to the Public in Current Dollars and Constant Dollars for Five-Year Intervals (1966-2000)a,b,c a Counts new stadiums and renovations. b Since information is not available on the cost of each new stadium, average stadium construction costs were computed with available data and multiplied by the...