State and local governments have become increasingly responsible for financing many of the new arenas and stadiums demanded by professional sports teams. While local officials have a long history of efforts to attract team to their communities, the task of securing the funds needed to build the required playing facilities is relatively new. During the early years of professional sports through the 1950s, most teams played their home games in a privately owned stadium or arena. Team owners wanted little involvement from the public sector in their business affairs.
Later, when publicly funded facilities became more common, the teams and other users paid rental fees that helped offset the public sector’s capital and operating costs for the facilities. It has now become commonplace for cities, counties, and states to use a combination of broad-based taxes (e. g. , sales and property taxes) or special taxes (e. g. , taxes on alcohol and tobacco consumption, hotel rooms, and car rentals) to help bad or operate these facilities (Pitts, Stotlar, 2007). In most cases, team owners receive the vast majority, if not all, of the revenues produced by each facility.
There are some privately built arenas and stadiums, but these are the exception. Arenas and stadiums have become large capital responsibilities for most of the governments that host one of North Americas major sports franchises; several local governments now have invested more than $500 million in these facilities. (Brown, 2004) With more than 50 of the United State’s metropolitan areas hosting at least one of the 134 big league franchises, few urban residents are unfamiliar with the arguments that advocates use to attract electoral support to raise taxes to build a facility.
Mayors and governors argue that teams and the facilities they use (1) generate economic growth through high levels of new spending in a region, (2) create a large numbers of jobs, (3) revitalize declining central business districts, and (4) change land-use patterns (Pitts, Stotlar 2007). Supporters also focus attention on vague benefits, including civic pride, a high-profile image and identity and national and even international publicity. Advocates for the building of facilities frequently note that the image of many cities is frequently defined by high-profile teams and sporting events.
If the financial returns from teams and their facilities cannot justify the rather large investments made by the public sector for sports facilities, can the vague rewards from the presence of teams warrant the investment of public resources? Civic pride, reputation, and image certainly are important factors for a city’s overall development. Sports teams could make a substantial enough contribution to the quality of life and people’s perceptions of their community to justify the use of tax money to build or maintain the facilities that attract teams (Macmillian, 2008).
Although there is an abundance of data analyzing the direct and indirect economic impacts of teams, there is very little information that permits public leaders to quantify their intangible benefits. Why Do Sports Teams Receive Locational Incentives? Providing locational incentives to businesses is a long-standing practice of state and local governments. Tax cuts, low-interest loans, job training, and facility and infrastructure development have been some of the incentives offered to influence the locational decisions of firms.
With professional sports teams now a desired asset, the size and scope of public grants are increasing. The owners of sports franchises can demand public assistance because the number of regions that want teams has dramatically outstripped the supply of franchises. The increase in the nation’s population and wealth has led many economists and students of professional sports to conclude that as many as 25 additional franchises could be created by the leagues given the financial performance of existing teams.
However, because the four principal leagues are able to constrain the supply of teams, a virtual bidding war between cities for these rare assets has broken out. Even though team owners sometimes acknowledge that the subsidies they receive are related to the scarcity of franchises, owners’ demands for public assistance is more often pressured by financial issues that have changed the financial side of professional sports.
For example, player salaries have increased rapidly as a result of athletes earning the right to sell their services to the highest bidders (free agency). Normally, these high bids come from teams in the largest markets (New York, Los Angeles, Chicago, etc. ). Since the leagues protect the power of teams in these markets are able to refuse the creation of new franchises or the movement of existing teams into their market areas, the owners of these coveted franchises amass large revenue ases and can thus afford the best players. To offset the advantages of large market teams, owners in smaller regions seek public subsidies that will permit them to earn revenues similar to those of the teams in the biggest markets. (Pitts, Statlor 2007) Despite increasing costs, bitter political battles over tax support of facilities, and increasing salaries of players, the number of individuals willing to buy teams has not increased. The cost of owning a franchise has increased steadily.
For example, the Los Angeles Dodgers were recently sold for more than $300 million, and when the new owners of any franchise invest that much money, they often want to increase their access to revenues produced at stadiums. The increased costs of ownership, then, have also been shifted to the public area and fans in the form of demands for more tax aids, higher ticket prices, and higher prices for food, beverages, souvenirs, and other amenities available at stadiums and arenas. Masteralexis, Barr, Hums, 2009) The Benefits from a Professional Sports Team Usually, justification for the use of public funds to produce a particular good or service is based on the concept of market failure. Government intervention into the free market is necessary to ensure production of these goods and services. Public goods are financed with taxes to maintain equity and prevent free-riding by those who would not voluntarily pay for the good.
First, public goods generate benefits that can be enjoyed by more than one person without decreasing the satisfaction received by the original person. Second, the benefits from public goods cannot be restricted to those who paid for the service. (Masteralexis, Barr, Hums, 2009) Are professional sports a public good? No. Even though someone watching a game in a stadium does not take away from someone else’s enjoyment of the game, it is possible to “package” the good, attach a price to this benefit, which becomes a ticket price, and excludes those unwilling to pay it.
Teams play in facilities for which admission is charged and in which excess crowding would ruin the enjoyment of those who paid for the privilege of attending the game (Pitts, Stotlar 2007). Even those fans who watch games on television, or listen on the radio, are actually charged for the privilege through the commercials that are part of most broadcasts or the fees they pay for cable or satellite services; pay-per-view is another extension of this service.
Though communities across the United States continue to invest a considerable amount of tax dollars in the facilities used by professional sports franchises, there is little disagreement amongst some analysts on the economic benefits of a sports facility and a team. Over the past thirty year, a small group has concluded that teams and the facilities they use are a source of substantial or even meaningful economic development. Some elected officials, team owners, league administrators, consultants, and sports advocates still prefer to ignore the conclusions from these studies.
However, this research has gained a level of acceptance among some of the larger consulting firms that cities retain to analyze the benefits from city’s downtown areas. Sports teams and the facilities they use produce very limited economic benefits. In addition, the vague benefits are valued the most by fans. As a result, investments by the public area in stadiums and arenas should rely on a special tax district that includes only the area immediately adjacent to a sports facility.
Within this district, businesses, fans, players, and other employees that benefit from the presence of teams should be charged taxes or user fees that would permit governments to build facilities without broad-based taxes, sin taxes, taxes on tourism, or taxes on unrelated activities. Under programs like this, team owners would still retain the income from luxury seating, the appreciated value of the team, and other revenues from the operation of the facility. All food and beverage consumption, souvenir purchases, and advertising would be taxed at a sufficiently high rate to help build the needed facilities.
Courtney from Study Moose
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