Sacramento columnist: Public arenas are bad, let’s build one!

Every once in a while I get (or ask myself) the question: Why, after nearly two decades of economic studies showing that stadiums and arenas are lousy ways to spend taxpayer money, has this had so little effect on people arguing for public sports subsidies? And here is our answer, courtesy of today’s column by the Sacramento Bee’s Marcos Breton on the pending Kings arena finance plan:

Will an arena by itself create tons of jobs? No. Are arenas an economic drag when the public sector assumes all the costs and the sports owners collect all the money? Yes.

That’s why we can’t have one of those deals. It’s why you are probably not going to hear talk of a sales tax increase to finance an arena. It’s why financing will take some form of hotel or car rental tax, some leveraging of public land, some redevelopment money and some private equity investment to get it done.

Let’s go down that list: Hotel or car rental tax? Public money. Leveraging of public land? Public money. Redevelopment money? Public money. So essentially Breton is saying that to avoid “one of those deals” (the bad kind), Sacramento just needs to have a deal where “some” money comes from a private party — something that’s true of virtually all stadium and arena deals, if only because team owners invariably get to collect naming-rights revenues and throw that into the pot as their “private” contribution.

When newspaper columnists (and, presumably, elected officials) are able to think to themselves, “Sure, virtually every economist agrees that public sports facilities are a terrible deal, but this is a public-private partnership, so that’s a totally different thing!” then there’s really no reasoning with them. And as recent events have shown, when people really want to believe in something, they have an amazing capacity for cognitive dissonance.

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23 comments on “Sacramento columnist: Public arenas are bad, let’s build one!

  1. Wait, so a bunch of Keynesian academics are against public funding for sports stadia? You’re kidding me.

  2. Marcos also mentioned that a new arena would be good for neighboring Placer and El Dorado counties in the region because it creates a “marketplace for businesses and their employees.” I’m sure those counties would love to give away sales tax revenues to Sacramento County and the restaurants, movie theatres, and casinos in the area would love to give away some business. The Bee’s logic, or lack thereof, is mystifying.

  3. The Bee’s logic is based on this: If the Kings leave, they probably lose 20% of their subscriber base overnight.

    Public subsidies involved? Who cares? They’re “voting” for their own self-interests.

    I should point out that the City of Sacramento already owns Power Balance Pavilion. If they try for a “land swap”, the courts will want to know what land the Maloofs gave up in order to get their new land. If it turns out that the City swapped property with the City and the Council calls that good, a deal that involves a land swap will be stopped.

  4. Ben Miller: I’m not sure any group of academics/economists would agree that public funding for stadia are a good idea. I’m a Virginia/Austrian school man myself, and my best friend is finishing up his PhD with Chicago influences, and we’re both acutely aware of stadia sham economics, for example.

  5. @Evan The part I find offensive is the idea that building a sports stadium just takes economic away from other forms of entertainment. (The displacement theory, I believe.) This idea is so silly that it could only come from the university.

  6. I don’t think that anyone thinks sports stadiums *just* take away from other forms of entertainment. But obviously it takes away somewhat — it’s hard to go to the movies when you’re at a baseball game. (Though give them time…) And most of the best efforts to determine how much spending is cannibalized from elsewhere (usually called substitution, not displacement) are that it’s a whole heckuva lot.

    And I certainly wouldn’t call all the economists involved “Keynesian” — one of the original studies showing little economic impact from stadiums came out of the Heartland Institute, and Cato and Heritage have said similar things. They are academics, though, I’ll give you that. I’m not sure what non-academic economists say, other than “Feeeeeeeeed meeeeeeeeeee…”

  7. Neil, you make good points there. I have generally been against public of funding of stadia, but the public mood has swung too much in the other direction. New stadium projects typically do add to the city’s economy and generate new spending on entertainment. How much is new, and is it worth the taxpayers outlay? Tough to say and probably not, would be my best guesses.

    What bugs so much here is that as a native MIlwaukeean, it is (or at least should be) obvious that we need a modern arena. The problem is that this anti-goverment sentiment has gotten so extreme that now even the right wingers are joining the usual suspects on the left in opposing **any** contribution towards a new Bucks arena (or even repairs for the current one, for that matter). I feel like a lot of those folks who are opposing the arena are latching onto some suspect economic studies to support their positions.

  8. @Ben

    It is not obvious at all that the Bucks or anyone “needs” a new arena. If they “want” one they can build their own. If they cannot afford it on their own

    Also, I cannot speak for every place and every time but there is enough evidence in the research to show there is no net increase. But that is not even the issue; even if there “some” benefit to building a new arena the issue is whether it is the BEST investment. That is never the case. There are always other civic investments (public health, basic infrastructure, education, arts, public safety, etc.) that will create more marginal benefit for each dollar.

    There is excellent historical research done on Milwaukee itself (it was a natural experiment on having/not having major league baseball) that showed that Milwaukee benefited in both economic and social ways (increased membership in a wide variety of summer activity) when it did not have the Braves/Brewers.

    This gets us back to the excellent question raised by Neal at the beginning. I think there are a lot of reasons why bad ideas perpetuate themselves but certainly lack of imagination plays a role. The emotional attachments people have to sports teams are very real and real sports fans should resent people who extort them.

  9. Out here in California, and I’m sure this varies by state, there is no tax on “services”, and tickets to sports and entertainment events are included in this. Some families spend close to $10,000/year for their Kings season tickets; I think there are about 4,000 families that do this.

    If these 4,000 families weren’t spending their $10,000/year for Kings tickets, it is extremely likely they’d spend the money on some activity that is taxed. So I think it’s highly likely that some arenas actually reduce local tax revenues.

    Subsidize a mall, you get increased revenues; subsidize an arena, and you don’t. It’s that simple.

    Neil, what do you think of the “Hey, it worked in KC!”-argument? I’m skeptical.

    www.sacbee.com/2011/05/22/3642756/kc-masterpiece-does-it-offer-a.html

  10. @Squeeze When you start using “investments” to describe expenditures like “public health” (I assume you mean health care), education or sports facilities, there’s no point in continuing the conversation.

    A new building for Milwaukee is not extortion or preying on the emotional attachments of people. It’s a real problem. Milwaukee (and Wisconsin, in general) already has low birth rates, an unfriendly business environment (though some steps have been made to correct that) and a lack of cultural attractions. Tons of great people graduate for Marquette and Wisconsin each year, and too many of them leave the state for Minnesota or Illinois. Why send things even further in the wrong direction?

  11. Mike,

    I pay $6,000/year for Clippers season tickets, and that is most definitely not money that would be going to the local economy if they were gone. Having an NBA team (or at least a CBA+ team) in the Clippers causes me to spend money, which causes me to work harder so that I can stave off being broke from overspending for a little while longer, which in turn increases production overall.

  12. Ben Miller: Neil has already commented on this to a fair degree, but I think you’re failing to understand so-called ‘displacement theory’ (the context in which such a thing is used here isn’t *really* displacement theory, but it works for what we’re talking about) – even in this context.

    The fundamental idea behind this theory is that money spent on sports teams…
    A.) isn’t generally money that’s coming in from outside the area, save for major events (which are hardly enough to recover costs), and
    B.) that the taxes raised to pay for these things come directly out of taxpayers pockets in such small quantities that it’d be absurd to suggest the average taxpayer spends the difference outside of the area, and
    C.) the money that is then spent on events in said stadia is generally part of one’s local entertainment budget, and is also unlikely to be spent outside the area.

    I know you’ll argue against this (C), but nobody’s asserting that’s where *all* the money would go. However, if you think people would spend all that money taking a European vacation or something, I’d beg to differ. It’s more likely they’d find something else to fill in their time locally, since that’s what sporting events generally are – something to do for fun in one’s area. Sure, there might be *someone* who would take 6K and spend it outside the area, but I have trouble believing most people would just sit and home and do nothing every night in place of going to sporting events.

    Some math in relation to B, btw: if an arena cost $300 million, for example, and was payed off over 30 years in a city of 1 million people (let’s assume interest keeps up with population so we don’t have to get overly technical), that’s about $10 per year per taxpayer on average – depending on how the revenue is raised and various other things, obviously.

    Now, of course, prices and populations fluctuate, but I think you get the idea. The amount that’s taken from taxpayers on an individual basis is tiny, so it’d be ridiculous to argue that the money would likely be spent outside the area. Additionally, as MikeM notes, sometimes potential taxes of how those other dollars are spent are lost. Nonetheless, as a collective sum, the amount of money that is misspent on corporate welfare (often at a loss) is staggering, and morally shameful.

    It’s moreover noteworthy that even with the hand in the taxpayers pocket, stadia don’t always pay themselves off (Meadowlands, etc.).

    Finally, I think it’s absurd if your argument is really that you work harder because you spend 6K on Clippers tickets. I’m not sure that’s your argument, but it can certainly be read that way.

  13. Ben Miller: Neil has already commented on this to a fair degree, but I think you’re failing to understand so-called ‘displacement theory’ (the context in which such a thing is used here isn’t *really* displacement theory, but it works for what we’re talking about) – even in this context.

    The fundamental idea behind this theory is that money spent on sports teams…
    A.) isn’t generally money that’s coming in from outside the area, save for major events (which are hardly enough to recover costs), and
    B.) that the taxes raised to pay for these things come directly out of taxpayers pockets in such small quantities that it’d be absurd to suggest the average taxpayer spends the difference outside of the area, and
    C.) the money that is then spent on events in said stadia is generally part of one’s local entertainment budget, and is also unlikely to be spent outside the area.

    I know you’ll argue against this (C), but nobody’s asserting that’s where *all* the money would go. However, if you think people would spend all that money taking a European vacation or something, I’d beg to differ. It’s more likely they’d find something else to fill in their time locally, since that’s what sporting events generally are – something to do for fun in one’s area. Sure, there might be *someone* who would take 6K and spend it outside the area, but I have trouble believing most people would just sit and home and do nothing every night in place of going to sporting events.

    Some math in relation to B, btw: if an arena cost $300 million, for example, and was payed off over 30 years in a city of 1 million people (let’s assume interest keeps up with population so we don’t have to get overly technical), that’s about $10 per year per taxpayer on average – depending on how the revenue is raised and various other things, obviously.

    Now, of course, prices and populations fluctuate, but I think you get the idea. The amount that’s taken from taxpayers on an individual basis is tiny, so it’d be ridiculous to argue that the money would likely be spent outside the area. Additionally, as MikeM notes, sometimes potential taxes of how those other dollars are spent are lost. Nonetheless, as a collective sum, the amount of money that is misspent on corporate welfare (often at a loss) is staggering, and morally shameful.

    It’s moreover noteworthy that even with the hand in the taxpayers pocket, stadia don’t always pay themselves off (Meadowlands, etc.).

    Finally, I think it’s absurd if your argument is really that you work harder because you spend 6K on Clippers tickets. I’m not sure that’s your argument, but it can certainly be read that way.

  14. For the record, I think we should have promotion/relegation in American sports so that nobody can threaten taxpayers with the loss of their team if people don’t gladly hand out corporate welfare.

  15. @ Ben Miller:

    My apologies as I may have missed something.

    Huh?

    Aside from the obvious question as to why spend $6000 on the Clippers, it seems like you’re saying that if the Clippers weren’t an option for you to spend money on you’d just as soon forego earning that money because there’d be no other reason to earn it.

    Correct me if I’m wrong.

    Working hard to earn money for the Clippers is fine and dandy but if you choose to work less and leave that money on the table someone will pick up the work for you.

    If you work a second job, someone will replace you when you’re gone.

    If you own a business and decide to cut back on the amount of work, some competitor will gladly take that business.

    And maybe I missed something in poli sci but don’t those staunch right wingers go to voters vowing to cut spending and cut taxes? How do you cut spending and taxes but still find $500M for an arena?

  16. Mike:

    The article you linked to asserts: “It turns a profit for its operators and the city, even though a pro sports franchise has not yet materialized.” That’s an outright lie – the Sprint Center turns an operating profit, but only if you don’t count the cost of building the thing in the first place:

    www.fieldofschemes.com/news/archives/2009/09/3850_is_the_sprint_c.html

    Ben:

    I’d make a joke about how slaving away to go see Clippers games is a sign of impending mental collapse, but more to the point: If you’re actually working *more* (not just harder), then you’re presumably doing work that otherwise would have gone to someone else, who then would have spent that money on something. Yes, there’s some multiplier effect in that by having an NBA team in town it encourages spending rather than, which boosts the economy, but it’s hardly a huge effect — otherwise, the U.S. could have gotten itself out of the recession by encouraging the NBA to expand to 60 teams.

  17. For the record, I think we should have promotion/relegation in American sports so that nobody can threaten taxpayers with the loss of their team if people don’t gladly hand out corporate welfare.

  18. The way I look at these things is when taxes get raised. At the most an average citizen could experience paying an extra $50 a year. Things around the community that want to help build the community through the Arts, Sports, Infrastructure, Parks (for kids not State Parks which I think are wastes of money) that help build the community though I may not use them has my support. You can take it out of my pay since I never see the taxes unless a possible return when I file.

    With Sports stadiums they have to have a good public/private deal like the Sprint Center and Petco Park which have been turning profits and stay the hell away from one of the worst at Paul Brown Stadium in Cincinnati, Ohio. If Sacramento can put a fair deal that the NBA and Maloofs or Burkle can agree upon themselves then let them do it. However, they do need a new Arena if they want to compete with Oracle Arena for big time events, tournaments, UFC and Boxing. Just like San Diego needs a New Arena, etc and etc. One thing that is damn near impossible to do in California is build a stadium even if it’s private because people put so many roadblocks ahead of it.

  19. Neil,

    Well, at least **someone** here is on the anti-immigrant bandwagon. ‘Dem dern latinos is takin’ all ‘r wurk (if you believe that a missing worker will always have their productivity equivalently replaced).

    Productivity is not a fixed amount. If I choose not to work writing a new blog post/study guide/white paper/instruction manual, there is no guarantee that someone else will write one instead. (Keep in mind, I’m self-employed). If someone sees my snazzy new product, they might buy it EVEN THOUGH THEY NEVER PLANNED ON BUYING MY PRODUCT. I am creating new demand by expanding supply. If you get enough of that type of thing, an economy grows.

    The whole argument here is silly anyway, because nobody in their right mind (insert re-run of Neil’s Clippers joke here) would claim that sports arenas provide direct economic benefits to a city. I’m just saying that it is fiction that NBA money would be spent elsewhere in the local economy and that it is double fiction that sports stadia are always bad government expenditures. When you have 1M people in the metro area, a sports-loving populace and an NBA franchise, you do what is reasonable to keep that franchise. That includes helping some billionaires (or in the case of the Maloofs, thousandaires) build a playhouse for millionaires.

  20. Evan,

    It’s absurd that you think my argument is absurd. And it’s double absurd to ask for relegation from an antitrust-violating cartel like a privately owned sports league.

  21. Blog posts count as economic activity now? Man, *I* should be asking for government subsidies.

  22. there’s no room for clear chinking when it comes to professional sports franchises these days. it’s ego, fear and “oh, somebody else will pay for it” that drives things these days…

  23. I am absolutely, without a doubt, 100% confident that I would not quit my job if the Kings left town. I am certain of it.

    Doesn’t mean I wouldn’t miss the Kings, but if it costs $150,000 to save each $100,000 job, we’re better off watching them leave. Right now, I’m seeing $450M (plus financing and infrastructure) to create 4,000 short-term jobs and retain 250 long-term low-wage jobs.

    In other words, let ’em go. There’s no doubt we’re better off without them.

    And boy, did this thread get lively.

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