Magazine article Government Finance Review

Financing Professional Sports: A New Challenge for Finance Leadership in the 21st Century

Magazine article Government Finance Review

Financing Professional Sports: A New Challenge for Finance Leadership in the 21st Century

Article excerpt

The public financing of professional sports stadiums has become an increasingly controversial and visible issue confronting finance professionals. Does the use of tax dollars for sports stadiums represent sound economic development or a misuse of public funds? In many regions, elected officials are relying on finance officers to participate in the internal policy debates on this issue. Finance officers are often expected to find "creative" ways to fund stadiums, bargain with sports teams on behalf of mayors and county commissioners/supervisors, and position the government to extract as much public benefit from the transaction as possible.

Like many new issues on the municipal agenda, the financing of public stadiums - like privatization a decade ago - is characterized by rhetorical debates. Scholars and practitioners only now are beginning to assemble systematic evidence on the benefits of public financing of sports. As with many complex policy issues, experience is the key to designing a policy that meets the objectives of the citizenry. The editors of Government Finance Review (GFR) felt that public financing of stadiums is an issue that could benefit from an open debate. The authors below enjoin a lively debate on whether to subsidize sports teams and facilities, and if so, what elements of policy design can extract the highest benefits to the citizenry. GFR will continue to publish articles on this topic - especially empirical evidence on cases where public financing worked, where it did not work, and on provisions in agreements that are the keys to reaching policy objectives. The views in these articles are solely those of the authors.

Fool's Gold? Public Subsidies for Professional Sports Teams

By Mark S. Rosentraub

Connecticut has now joined the ranks of states purchasing fool's gold with the public's taxes. To lure the New England Patriots from neighboring Massachusetts a new $350 million stadium will be built to host the team's 10 National Football League games. In addition, the state also agreed to guarantee the sale of luxury suites and elite club seats. What is the anticipated payoff from this investment? Hartford and Connecticut hope to revitalize downtown Hartford from the new economic activity resulting from attendance at the games and the taxing of players' salaries. Connecticut now joins St. Louis, Nashville, and Baltimore as the latest victims hoping for substantial levels of economic development from sports when all of the available data suggest that sports facilities by themselves are not associated with economic development. Indeed, the only sports strategies that generate economic development are those that also include massive levels of financial investments from the private sector in new buildings and facilities for non-sports-related activities.

Just how much has the public sector spent to attract and retain teams? Since the building of Baltimore's Camden Yards, and through the year 2002, state and local governments will spend in excess of $7 billion for sports facilities. Much of this money is justified in terms of the anticipated economic development or private-sector investment that will follow. Very few deals have "guaranteed" private-sector commitments for development that are part of the public/private partnerships for sports facilities. San Diego's recent agreement with the Padres for at least $450 million in development if a new stadium was built and Indianapolis's leverage of more than $1.5 billion in investment in exchange for more than $300 million of city resources are the rare exceptions. More common is the commitment of massive amounts of public tax dollars with the hope that economic development will follow. Research has indicated that very little economic development actually occurs; in virtually all regions there is no statistical relationship between economic development and the spending of money for sports facilities. Yet these findings have not deterred communities and as the data in Exhibit 1 describes, public subsidies of the facilities for professional sports teams continues at a fever pitch. …

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