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October 25, 2010
Could a sports profit tax help recoup stadium costs?
This ran last week, but it just crossed my radar now: South Florida Sun-Sentinel sports columnist Dave Hyde suggests that if sports teams want public money for stadiums, we should tax their profits to pay for it:
And why not institute a tax on sports team's profits? Say 10 percent. Instead of the Marlins making $100 million over the the last four years, they'd make $90 million. They'd re-pay the free money they got. They'd be a better citizens.
The Dolphins want to go after public money? Fine. Isn't it about time the public went after the profits from sports teams made from public money?
Sounds great, but I suspect it's totally unworkable. Even if a special sports-profits tax proved legal, I don't see how you'd enforce it: There's be nothing to stop the Marlins owners from starting the South Florida Flange and Grommet Company as a wholly owned spinoff, shifting all their profits there, and thus evading the tax. You could conceivably get around this by taxing all sports revenues, but then teams would scream bloody murder that the taxman is taking away dollars needed to re-sign Dan Uggla or whomever.
The better way to accomplish a tax on sports profits is to put it in the stadium lease: If you want public money, agree to share any resulting profits with the taxpayers. On the few instances elected officials have had the chutzpah to suggest this, though, team owners have roundly rejected it: It would require them to open their books, it would prevent them from re-signing Dan Uggla, etc.
More to the point, though: If the whole goal is to boost your profits at public expense, it defeats the purpose if you have to turn around and give the money back through taxes. Looked at that way, it's a bit like responding to a bank robber by saying, "Gosh, that won't leave us with much money. Wouldn't it make you feel like a better citizen if you deposited your boodle in our bank?"
dave hyde is now off samson and loria's christmas card list.
the obvious answer is to limit taxpayer financing of stadiums to no more than 20%, or less.
Just curious - haven't seen anything mentioned here before - but do flat service fees make sense when civic monies are directed towards construction of arenas/stadia?
For the owners asking for $350M for arena construction costs why doesn't the city assume the 30 year mortgage and charge each paying customer (including season ticket holders) a 10$ service fee.
On an 18000 seat arena over a 45 game pre/regular season schedule the government could pocket about $8M. If their doing some similar with concerts and trade shows and maybe charging something less for smaller events is it impossible to imagine the government recouping most if not all of the money for their mortgage payments? If this number still comes up short could the naming rights cash not make up the difference?
I know there are a multitude of issues and quandaries with this suggestion but considering the current climate I wonder if it would be the lesser of two evils.
It's a good point to bring up. Several cities that have built (or heavily renovated) facilities using taxpayer dollars have added 'facility fees' to recoup their investment. This model has been used to fund (or, more accurately, to cover the obligations necessitated by the instrument used to fund) renovations of several arenas/stadia in Canada.
I'm fine with cities making modest contributions to privately owned facilities if there is some form of pay back to the city (whether in terms of citizen entertainment options, attractions or even added tax revenue from the grand buildings, though this last hardly represents profit.) so long as that contribution is truly modest. I would put it somewhere south of Paul's acceptable number, maybe 12-15% (with an absolute cap at $10/city or area resident).
I read the review of the Penguins new arena recently. Anyone else stunned that there are 700+ HD tvs in the arena, many of which are on walls that no-one looks at (in non-spectator areas)? Somehow this is taken as a sign of the quality of the facility. To me, it's evidence of the stupidity of the government of Pennsylvania (who's electorate is paying a good part of the tab).
What would be the cost of a new 18000 seat facility if we eliminated all the ridiculous excess that the public funding model makes possible (some would say guarantees)? My bet would be no more than 50-60% of the present cost.
thanks for the response. I'm still curious if there are examples to be cited as success stories in squeezing service fees out of customers and how far it can be taken.
I'm guessing that since there's always something shady going on with these agreements that city councils would have to include some minimum attendance marks that teams have to meet or else make up the difference.
The other problem is that these agreements for facilities always seem to be malleable and whether the original agreement would stand for the length of the contract is another matter. Teams frequently cite their agreements as always being the worst in pro-sports.
To your point, I agree about the extras that push the price up in these facilities. Why they can't produce a standard model arena in the $175-250M with opportunities to be upgraded (hint: by the owner) as the facility ages is beyond me. Actually, it's not beyond me: it's understood that in 30 years the owners will see a new parcel of land in desperate need of "revitalization".
A facility fee (or ticket tax, as it's more commonly called) is a fine idea, and in fact would mostly come out of the owners' pockets, not fans'. Think about it this way: If people are willing to pay $50 to see a game and no more, then they don't care whether it's a $50 ticket price or a $40 ticket price and a $10 facility fee, so the ultimate effect of a ticket tax is to keep ticket face values down.
(And before anyone brings up price elasticity, yes, it's not completely a one-to-one correspondence. But given that the marginal cost of selling an extra ticket is damn near close to zero, it's close enough.)
As for caps on public involvement, that's tricky, because depending on the revenue sharing in the lease, you could easily have a 20% public deal that's worse than a 100% public deal. (Compare the new Yankee Stadium with the Metrodome, for example.) You can't just look at up-front costs, you have to look at who gets the revenue.
And as for how much stadiums and arenas would cost if teams were paying the whole way, you could certainly build a new building for half the price of what teams are currently doing. But then they'd look a lot like the old buildings, which would defeat the purpose. I've long suspected that if you could wave a magic wand tomorrow and eliminate sports subsidies, the stadium and arena construction boom would slam to a halt — not because "sports needs subsidies to make these buildings happen," but because the whole point of getting the buildings is to get a load of HDTVs at taxpayer expense. "State of the art" is whatever you can get away with.
As Neil says, there is a limit to how much 'extra' fans will pay, specifically if it's for a ticket surcharge.
The ones I'm familiar with (and have paid, on occasion) are generally quite low. On a $45 ticket, you might pay $1.50-$3, and no-one (ummm, make that few) here minds paying that for necessary improvements. Municipalities here can borrow at preferred rates (1.5-2%, generally), so a relatively small surcharge on each ticket is enough to pay the toll on a significant facility fund in a relatively short time. Some of these fees have become permanent fixtures - once the original reno is paid for, the money goes into a fund for future improvements.
Neil, can you expand on the 20/100 Yankees/Target field analogy a little. I'm not sure I fully understand the comparison. Thx.
Not Target Field — the Metrodome. It was built entirely with public money, but the Vikings and Twins agreed to share enough of the revenues with the public owners that taxpayers came out ahead. Whereas the Yankees' new stadium was technically "privately funded" (not counting land, tax breaks, etc.), but ended up the largest public stadium subsidy in history. So it's about way more than up-front costs.
And I think I didn't explain the ticket surcharge issue well enough: It's not that people "don't mind paying a ticket surcharge for necessary improvements," it's that a ticket tax pre-empts a share of the market value that the team could have collected. So if people are now paying $45 + a $3 surcharge, in the absence of a surcharge the team would be charging $48 for tickets themselves, since that's what the market will bear.
I really feel like the best, most comprehensive approach to this is to adopt the same approach King County, Washington took with Initiative 91.
That is, they must guarantee a rate of return equivalent to bonds. So, fine, King County will loan $400M for an arena, and your annual payment will be enough to cover the bond payment.
As soon as you tell these parties, sure, we'll lend you money, and you have to repay the entire amount, they go away. I still don't think it's too much to ask that you repay what you borrow. I guess I'm old-fashioned that way.
Charging the users makes better fiscal sense than forcing the entire community to subsidize stadiums. Unfortunately here in Indianapolis our gutless leaders have created two buildings at little or no cost to the team owners with the bulk of the funding coming from taxes and fees not the team owners.