One of the trickier pieces of writing about sports subsidies is determining what, exactly, is a sports subsidy? If a state legislature dropped off a briefcase full of unmarked bills at a team owner’s office, that’s pretty cut and dried. But what about handing over public land at a price that appears to be much less than market value? Or providing tax breaks to a related real estate development that might or might not have gotten tax breaks otherwise? Allowing the team owner to get all the money from naming rights to a public building, because “standard business procedure”? Subsidy math is tough!
All of which brings us to today’s quandary, which involves the Arizona Diamondbacks‘ latest plan to raise money for multi-hundred-million-dollar renovation of Chase Field:
A theme park district created by Maricopa County and the City of Phoenix would be authorized to issue bonds to pay for sports, entertainment and other recreational amenities. The bonds would be backed and paid off with revenue generated from a new 9% tax on sales of tickets, merchandise, food and beverage at the ballpark.
That’s tax money! It says it right there, “9% tax”! And also in the Arizona Republic’s headline, “Get ready to pay a(nother) 9% tax to take in an Arizona Diamondbacks game”!
Except, it sorta isn’t? As we’ve covered before, ticket taxes are a special beast: Since they only apply to items sold by the team itself, and which are already being priced at the maximum the market will bear, most economists will tell you that any ticket taxes end up coming out of the team owners’ pockets: If fans are already paying as much as they’re willing to, and the marginal cost of producing one more ticket is near zero, then it just means the D-Backs will have to lower their ticket prices by 9% from where they would be without the tax.
In fact, I took the trouble this morning to bother one actual economist, Victor Matheson of College of the Holy Cross, to confirm that I was interpreting this correctly. (Which is the reason for this post being posted unaccountably late this morning, OMG, people on the West Coast may already be awake already.) Matheson replied:
There are only two differences between a $60 ticket with $10 being used for stadium construction and a $50 ticket with an additional $10 tax being used from stadium construction — and neither of them affects sports fans in AZ since they are paying $60 either way.
1. The tax allows the Diamondbacks to report a lower revenue figure to MLB which reduces their revenue sharing bill. MLB owners might want to get mad about this but not AZ fans.
2. The tax provides some fairly minor tax benefits to the Diamondbacks. Basically, a tax immediately reduces their tax bill while building the stadium with retained revenues only allows the team to reduce their taxes over time as the investment in the stadium is depreciated over an extended period of time.
These are actually interesting points. On the first one: By shifting a chunk of their ticket revenue from “team revenue” to “state tax revenue,” the Diamondbacks owners could be cutting down on how much revenue they have to share with the rest of MLB. (I think stadium costs are still deductible from revenue-sharing, though, so this might not be as big a benefit as it would be otherwise.) One the second one: The D-Backs get to shift some tax payments from the near future to the far future, which does cost Arizona taxpayers something, but not much.
There’s also the whole issue of whether Arizona just doing the D-Backs owners a favor by lending them the state’s ability to take out low-interest loans counts as a subsidy, or just the kind of solid that friends do for billionaire friends. And the question of how far the “stadium tax” extends: The more non-stadium revenue (such as tax money from a proposed team-owned hotel nearby) gets dumped into the stadium pot, the more the risk that you’ll be cannibalizing revenue that would otherwise go to the state. And from what I can tell from the text of the bill itself, it just adapted some old “theme park district” legislation to let the state set up a stadium district to levy taxes and give the money to the team for stadium work, but doesn’t actually specify who will be taxed for what.
In other words, it’s still pretty much impossible to tell whether this would be a massive subsidy, no subsidy at all, or (more likely) somewhere in between, though the initial signs are somewhat hopeful. Ideally, all the unknowns would be spelled out before the bill gets a final vote, which is coming up — oh jeez, the house and senate already both voted for it, and now it just needs to go back to the house for one more vote on changes the senate made? Maybe it would be a good time to tap the brakes on this, to be sure of just what Arizona is getting itself into.