Lots of news happening this week, including Jackson County releasing really confusing ballot language for its Kansas City Royals and Chiefs sales tax referendum and the Chicago Bears social media department accidentally confusing fans about their stadium plans with a bad play on words. And maybe we’ll get to those later, but right now I need to spend some time looking at the ways in which the media all too often amplify the absolute dumbest team owner arguments for demanding public subsidies. None of this is new — Joanna Cagan and I were writing about it 25 years ago — but it’s all the more important precisely because news outlets keep on repeating these claims, despite two decades and counting of evidence that they’re all hogwash.
First up is Alexandria Living magazine, which ran an article on Monday under the headline “Monumental Arena Expected to Pay for Itself, City Officials Say.” The accompanying story explained that even though the legislation for a new Washington Capitals and Wizards arena development says the city can tap any available tax money to pay off the $1.5 billion in public bonds, “the Sports and Entertainment District is structured to be self-funding, according to city officials, and may even contribute additional funds to the city as a whole.” quoting financial consultant James Sanderson as saying tax money collected from the arena district will be “more than sufficient to repay the debt” and those tax revenues “don’t exist without the project itself.”
The first red flag here is “officials say”: Much like it’s bad journalism to take police reports at their word, basing your report entirely on the claims of politicians who support a project is media malpractice. (The second red flag is “financial consultant”: Sanderson turns out to work for an investment firm, and he’s a lawyer with a bachelor’s degree in architecture, with no economic training.) There’s nothing wrong with reporting what elected officials or even unelected consultants are saying, but they shouldn’t be allowed to craft the narrative of your story, let alone the headlines that will be all that many people will read during their morning doom scrolls.
And the central claim here — that tax revenues from a new development don’t exist if the project isn’t built — is fundamentally wrong, as any economist could have told the magazine’s writers if they’d bothered to call one. For starters, there’s the substitution effect, which is the principle that if people spend money in one place, they’re not spending it someplace else, so a lot of that tax money would have been collected elsewhere in the city or the state if Virginians had done something else with their evenings rather than go see a Caps or Wizards game. (Some would be cannibalized from across the river in D.C., certainly, but not all of it.) And then there’s also the but-for problem, which is that the idea this is all free tax revenue assumes that nothing would be built on the site without the public spending, which is also flagrantly untrue:
But then, this is the whole point of tax increment financing: Not to come up with clever ways of funding projects without tapping public dollars, but rather to come up with clever ways of using public dollars while claiming you’re not. Anyone reading the words “Monumental Arena Expected to Pay for Itself” would reasonably expect that this means an Alexandria arena won’t use money that local government would otherwise have available to spend on other things like schools and health care, but it absolutely will.
For Exhibit #2, we turn to Fansided’s Kansas City sports blog KC Kingdom, which features the equally clickbaity headline “Why a New Royals Stadium Will Help KC Win a World Series.” “There is an underrated reason why a new stadium for the Royals will help the organization win a World Series, and fans should be thrilled to hear it,” begins the post, going on to explain that “the Royals are usually in the bottom third of the league in terms of payroll” but that could change with a new stadium, as the four MLB teams to most recently open new stadiums (the Texas Rangers, Atlanta Braves, Miami Marlins, and Minnesota Twins) all saw upticks in player spending in the years that followed.
Props to KC Kingdom for doing some original research — there’s even a chart! — but unfortunately it makes some basic logical errors. First off, showing that player spending goes up after a new stadium opens isn’t by itself evidence of anything: Player spending goes up every year across all of MLB, so a team could easily increase its payroll and still just be running in place relative to its competitors. Also, not all of the teams cited are really good comparables to the Royals: While both the Braves and Rangers have won World Series recently, they’re both relatively big market teams that were among the league’s top spenders even in their previous stadiums, making a combined seven World Series appearances between 1991 and 2011. (It’s also worth noting that the Royals themselves made it to two World Series just in the last decade, winning one of them.)
That said, there is a kernel of truth to the idea that new stadiums mean more spending, but it’s not because “a new stadium will bring in revenue and pressure for Owner John Sherman to spend money on talent,” like the article suggests. John Sherman is a billionaire, and could always spend on bringing in talent if he wanted to. What would change with a new stadium at an estimated $1.4 billion public cost wouldn’t be access to cash, but the rewards available for spending: Before a new stadium, team owners have an incentive to lowball payroll in an effort to convince fans (and sports bloggers) that the team needs a stadium to be able to put a winning team on the first; afterwards, when you have shiny new seats to sell at shiny new prices, investing in a pitching staff that fans might actually want to pay to see instead of the modern record holder for most career innings pitched with a negative Wins Above Replacement starts to seem like a better idea.
How much do teams actually improve after a new stadium opens? As it so happens, I wrote a whole book chapter that addressed this back in 2006, for the Baseball Prospectus book Baseball Behind the Numbers. And in there, I reported that for all MLB teams opening new stadiums from 1991 to 2005, “a new ballpark [was] worth about 5.5 wins a year.”* That’s not nothing, but as I also wrote at the time, “a $500 million stadium is an awfully expensive way to pick up five and a half games in the standings,” and it would arguably be cheaper for taxpayers just to buy the team a new starting pitcher.
This may seem like a lot of words to devote to picking on a local magazine and a sports blog, but they’re just the latest examples of execrable reporting on sports subsidy deals that shows up everywhere, including The New York Times. And both of these false arguments — stadiums and arenas can pay for themselves, and they’re needed for teams to be competitive on the field — are key items in the sports subsidy playbook: #3 (Leveling the Playing Field) and #4 (Playing the Numbers), as we laid out in “The Art of the Steal,” Chapter 4 of Field of Schemes. Sports owners gonna sports owner, but that doesn’t mean sports writers need to take their claims at face value. If you’re wondering why 58% of voter referendums to fund stadiums and arenas with public money are successful, keep in mind that team owners and their political allies are still able to control much of the media coverage, and bad headlines lead to ill-informed decisions at the ballot box.
*UPDATE: Turns out J.C. Bradbury did a more comprehensive study on the effect of new stadiums on winning percentages earlier this year, and the impact is more like zero:
Sorry, this is totally wrong. There is no relationship between teams building new stadiums and winning. Also, the economics of investment flows don't support the conjecture. https://t.co/IxNZImofC8 https://t.co/NEps6dfN8S pic.twitter.com/J7Zpe6Nzdt
— J.C. Bradbury (@jc_bradbury) January 24, 2024
I, for one, am looking forward to the day when every single MLB team is in the top quartile in both revenue and payroll.
It looks to me, based on Mr. Bradbury’s charts, as though building a new stadium for your local (?) billionaire’s team results in a significant drop off in competitiveness 7-8 years post opening in 75% of the sports leagues studied.
And the effect – lets call it the Reinsdorf-Dolan effect shall we – in the post construction years is not only prolonged but is of greater amplitude than the observable negative effect in the final years before a new stadium is built.
That would match well with the theory that team owners put some more money into payroll right when a new stadium opens to try to capitalize on the honeymoon effect, then hold a fire sale as soon as fans start to lose interest.