Laurel Heights

Taxpayer Info-News You Can Use

May 30, 1999

(Summary of article appearing in Reader?’s Digest, November 1997)
What happens when public money is used to help fund private playgrounds
The Stadium Shell Game
By Tim Keown

The citizens of Cleveland were worried. In 1989 the owner of baseball?’s Indians announced that if his team were to remain in Cleveland, there had to be a new stadium. The older stadium didn?’t possess the revenue sources-luxury boxes and upscale food courts-that the Indians claimed they needed to remain competitive. Without new facilities, the team might be forced to move to another city that would accommodate them. Intimidated local officials proposed construction of the $344-million Gateway complex, which would also provide a new arena to lure basketball?’s Cavaliers downtown.

While private sources put up half the money, revenue from the sale of municipal bonds provided the rest. The public was asked to cover its half of the debt through a modest tax on alcohol and tobacco. Voters, not wanting to lose their teams, agreed.

Well, after the complex opened in 1994, it was finally determined that costs had run $76 million higher than the original estimate. The county was forced to beg for funds from the state. And despite the fact that the Indians and the Cavaliers are both very profitable franchises, neither team has offered to help pay for cost overruns.

?“Perverse System.?” One poll found that 80% of Americans oppose the use of public money for professional sports. Few communities, however, pass up the chance to have a professional sports team for the cost of a publicly financed stadium.

In recent years, elaborate schemes to fund essentially private playgrounds with public money have been floating across the land like hot-dog wrappers in a windy ballpark. The pitchmen-often wielding confusing funding plans and irresponsible financial projections-promise new jobs and little taxpayer expense. Such cities as Baltimore, Boston, Chicago, Cleveland, Houston, Miami, Milwaukee, Nashville, New York, Oakland and Sacramento have allowed themselves to be played off one another by pro teams seeking sweet financial deals. Is San Antonio going to be part of this club?

Local residents may get-or keep-a team to root for, but they pay a high price. By the year 2000, it is estimated, U.S. communities will have committed more than $12 billion for the construction of new sports stadiums and arenas, with taxpayers owing an estimated $7 billion.

The real winners are the team owners: Financial World magazine has calculated that the Cleveland Indians?’ new stadium earned them almost $23 million for the 1996 season.

?“It?’s a perverse welfare system?”, says Mark Rosentraub, author of Major League Losers. ?“Taxpayers are being asked to foot the bill so team owners and players can make more money. It?’s amazing, but this has become an accepted practice.?”

Sad Irony. Baltimore is often cited as an example of the benefits sports teams and new stadiums can bring a community. In 1992 the Orioles baseball team moved into the $268 million, publicly financed, state-of-the-art Oriole Park at Camden Yards. Since then, ticket prices have risen dramatically, doubling in some cases, and the franchise took in $4 million last season in luxury-box rentals. Where does this money go? Not to the city or to the state, but to team owner Peter Angelos.

As for the promised new business opportunities, Baltimore has seen a few new sports bars open recently. Robert Baade, a professor of economics at Lake Forest College in Illinois who has studied 30 professional sports markets, notes that Camden Yards has contributed little revenue to a city that already had a burgeoning tourist trade and thriving convention center.

But Baltimore continues to build. Next up: a $220-million football stadium for the Ravens, financed by the sale of state lottery tickets. The Ravens, by the way, came from Cleveland, where owner Art Modell didn?’t get the new stadium he sought.

Often, the communities that push the hardest for professional sports franchises have the greatest need to spend the money elsewhere. Oakland California, for example, has an underfunded school system with problems and also has one of the highest violent crime rates in America. So when Los Angeles Raiders owner Al Davis said he was interested in moving his team back to Oakland (after having abandoned the city for L.A. in 1982), local politicians felt the team?’s return would be a boon. Oakland officials provided $197 million in public funds to woo the team and finance renovation and expansion of the Oakland Coliseum. They promised Davis revenue from ticket sales and luxury-box rentals, and a percentage of the stadium?’s concession sales.

The city financed the $130-million Coliseum construction with bonds, which would be repaid in part through the sale of personal seat licenses (PSLs). Such a license gives the owner the right to buy a season ticket. Other cities sell PSLs for perpetuity. In Oakland, the license was for only ten years, at which point the officials could sell it to someone else. Thus, the point that usually attracts PSL buyers-that PSLs are a long-term investment that might be sold in the future-didn?’t exist in Oakland?’s plan.

In 1995 a lottery was held for fans who wanted to buy PSLs and season tickets. Lifelong Raiders fan Steve Loone plucked down $3000 for the license, which gave him the right to purchase four season tickets at $51 per seat per game.

But only 35,000 PSLs were sold in a stadium that seats 62,500. Many of the luxury boxes weren?’t rented and remained empty on game day, compounding the financial problem.

The shortfall on PSL sales, along with cost overruns on the project, have amounted to $60 million. Taxpayers will have to make up the losses, possibly through an increase in the county property tax. Season-ticket cancellations are already running ahead of PSL sales. Steve Loone is angry. ?“I?’ve paid for the stadium once with a PSL, again with the tickets, and after they figure out how much of a beating the county has taken, I?’ll get to pay for it again with my taxes.?”

And Al Davis? He?’ll get his money-and take it without apology. Last year he announced: ?“I don?’t care what you say, it?’s good for the community to have us back. If you look around the country, Oakland?’s getting a good deal.?”

Red Carpet Treatment. ?“When it comes to deciding whether or not to finance the construction of a sports stadium,?” says Mark Rosentraub,?”the public has to be well informed. People have to know the ramifications of their decision. In most cases, that?’s not happening, and the construction craze continues.?”

If team owners have their way in New York, the public will finance about $1.5 billion worth of construction over the next ten years for the Yankees, the Mets, and the National Hockey League?’s Islanders. In Wisconsin, the state legislature approved a $250 million baseball stadium for the Milwaukee Brewers. Estimates for this stadium now run as high as $313 million, with more than half coming directly from public funds. In Miami, where nine years ago the public financed a $53-million basketball arena for the NBA?’s Heat, team owner Micky Arison got a new $165-million arena to replace the ?“antiquated?” facility.

Recently Sen. Daniel Patrick Moynihan (D.,N.Y.) introduced legislation that would eliminate the exemption from federal taxation for these stadium bonds.

?“Should we subsidize the commercial pursuits of wealthy team owners, encourage runaway player salaries and underwrite bidding wars among cities seeking or fighting to keep professional sports teams??” Moynihan asks. ?“Or would our scarce resources be put to better use for public needs, like higher education and research? To my mind, it?’s not a difficult choice.?”

Supporters of Moynihan?’s bill point to San Francisco, which has financed one of it?’s ballparks without dipping into taxpayers?’ pockets. For years, the owners of the San Francisco Giants complained that Candlestick Park was too cold, too windy, and too primitive for pro baseball. The franchise demanded a new stadium, and the city government tried to help. But the voters rejected four different schemes to use public funding for a new baseball stadium.

Then a new Giants owner, Peter Magowan, and the team?’s executive vice president, Larry Baer, came up with a radical plan: finance the stadium using private sources such as Pacific Bell, whose name will adorn the ballpark in return for a sizable investment. The downtown park is expected to open in 2000.

A happy ending? For everyone but the owners of other teams. ?“The owners who had been trying to go the public-spending route weren?’t too happy with us,?” says Baer. ?“The ones who already had their parks didn?’t like it because it didn?’t make them look too good.?”

But for every San Francisco, there seems to be an Oakland, willing not only to lay out a red carpet but to weave it as well. The attitude of expectancy among team owners was summed up best by San Francisco 49ers owner Edie De Bartolo, worth an estimated $650 million. When asked why his team should be granted $100 million in public funding for a new stadium at the same time the city?’s other sports franchise-the Giants-was building its own, he replied simply,?”We deserve it.?”