Have Public Finance Principles Been Shut out in Financing New Stadiums for the Nfl?

By Baade, Robert A.; Matheson, Victor A. | Public Finance and Management, July 1, 2006 | Go to article overview

Have Public Finance Principles Been Shut out in Financing New Stadiums for the Nfl?


Baade, Robert A., Matheson, Victor A., Public Finance and Management


Abstract

Over the past 15 years, new stadiums in the National Football League have been built at an unprecedented rate, and most new facilities have utilized significant public funds. This paper looks at whether the methods used to finance these new facilities honored public finance principles regarding equity and efficiency. While some common sources of public funds for sports infrastructure such as ticket taxes and personal seat licenses are both equitable and efficient, an examination of the 20 NFL stadiums constructed or refurbished since 1992 reveals a trend towards an increased reliance on taxation of visitors through hotel and rental car taxes. Although taxation of persons living outside one's own metropolitan area is appealing, this paper suggests that these sources of funding are neither equitable nor efficient.

Introduction

Sports facilities in the United States for the four major professional sports leagues have been built recently at an unprecedented rate when the entire experience of the twentieth century is considered. Taxpayers in the host communities have shouldered the burden to a substantial degree. The purpose of this paper is to determine if the financing methods through time and currently have honored public finance principles relating to equity and efficiency. If not, why not? Attention in the paper is focused on the National Football League (NFL) in part because it is arguably the most popular and prosperous of the four major professional sports leagues in the U.S., and the NFL has the most comprehensive revenue sharing arrangement, which has implications for various hypotheses identified and analyzed in this report. The evidence and analysis contained in this report suggests that the NFL has been able to use the excess demand for its teams to induce cities to provide subsidies for stadiums that result in substantial increases in revenues, franchise values, and player salaries. The team financial gains are partially the result of appropriating a portion of fan/consumer surplus. Only the largest cities are capable of negotiating with the NFL on near equal footing, and only through collective action can cities counter the NFL's dominance in negotiating stadium deals and other contracts.

The first part of this paper identifies those public finance principles that are commonly invoked in designing and evaluating projects that are publicly funded. In the second part of the paper developments in funding NFL stadiums are identified and analyzed. The analysis will include those imperatives that account for any notable changes in the manner in which stadiums or teams are funded. In the paper's third section the current funding schemes are evaluated using the public finance criteria identified in the first section of the paper. The final section of the paper concludes the work and offers some policy suggestions.

Evaluating Proposals for Publicly Funded Projects

The evaluation of any public works project can be broken down into two main questions. The first question that must be addressed is whether public expenditures for the project can be justified at all. Once it is established that a particular project merits government funding, the next question is how the required revenues for the project are to be raised. Generally these two questions can be answered sequentially, although as will shown later, in many cases a project may merit public funding only if a financing mechanism can be devised that minimizes dead-weight loss or economic transfers.

Government intervention in the free market is generally justified when significant reasons exist to believe that private markets are unable to provide a good or service in an efficient manner. Examples of such market failures include externalities, public goods, and monopoly.

Subsidies for professional sports are often rationalized on the grounds that teams generate substantial economic value for host cities. …

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Have Public Finance Principles Been Shut out in Financing New Stadiums for the Nfl?
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