With much fanfare, Washington’s new downtown sports arena (the MCI Center) recently opened. President Clinton was there, and the Washington Wizards thrashed the Seattle SuperSonics 95-78. Abe Pollin–owner of Wizards, the MCI Center and the Washington Capitals, the local hockey team–hoped that the new arena would help revitalize the city’s downtown. Well, the public ought to receive some benefit, because it paid more than 20 percent of the project’s $260 million cost and won’t share any of the profits. Even at that, Pollin is among the angels when compared with other team owners, who see huge government subsidies as an entitlement.
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The stellar example is Paul Allen, co-founder of Microsoft and (says Forbes magazine) America’s third-wealthiest man with a fortune of $17 billion. He agreed to buy the Seattle Seahawks only if the state financed 75 percent of a $425 million stadium. In the 1990s, states and localities have built six baseball parks; teams contributed only 13 percent of the costs. Since 1985, about $6.5 billion of tax-exempt bonds have been issued to pay for sports complexes, estimates Muller Data-MuniView, a research firm.
It’s a bonanza for owners and players. What business wouldn’t want such a deal? Taxpayers build your factory; then you keep the revenues.
Economist Mark S. Rosentraub, author of “Major League Losers: The Real Cost of Sports and Who’s Paying For It,” estimates that players ultimately get about 55 percent of the gains (in higher salaries) and owners 45 percent (in higher profits). Subsidized stadiums are one reason–the other is higher TV revenues–that pro baseball, football, basketball and hockey teams have soared in value. In 1996, an average franchise rose 18 percent to $146 million, estimates Financial World magazine.
The stadium swindle flourishes for two reasons: sports mania and team scarcity. There are more cities (and regions) that want teams than there are teams. A team coveting a new arena or stadium need merely threaten to move.
If legislators or voters won’t supply sufficient subsidies, the team decamps for someplace that’s more obliging. Thus, the Minnesota Twins may leave for North Carolina, because the state legislature has so far refused to approve a bond issue for a $250 million stadium.
The threat is now so real that it often goes unstated. Washington D.C. was in a silent competition with its Maryland and Virginia suburbs for the new arena. So the city–almost bankrupt–bought and prepared the site for about $60 million. How absurd is this? Well, the arena can easily generate $100 million a year in revenue from sales of luxury boxes, tickets and concessions.
Sports is entertainment, and entertainment is business. But the process need not be sprinkled with government subsidies. Whatever Pollin is doing for downtown Washington, downtown Washington is doing more for him. His arena has stores and restaurants that will be open daily and will further boost its profitability. Having the arena in the middle of the nation’s capital (and on a subway line) creates a huge customer base: 250,000 workers within 10 blocks and 20 million annual visitors.
Could the subsidies be stopped? Well, yes. Congress could first pass a measure introduced by Sen. Daniel Patrick Moynihan (D-N.Y.) that would prohibit states and localities from issuing tax-exempt bonds to build sport stadiums and arenas.
Bondholders don’t pay federal income taxes on the interest. This is an indirect subsidy (and means that other taxes are slightly higher) that lowers interest rates by 2 to 4 percentage points, estimates Dennis Zimmerman of the Congressional Research Service.
Next, Congress could recognize the sports leagues for what they are–unregulated monopolies–and regulate them. Create, say, a National Sports Regulatory Authority to approve all team moves. Let’s concede the obvious: regulation would be costly, cumbersome and often stupid. Its only virtue is that it would be better than today’s extortion, in which teams exploit monopoly power to prey on fans’ emotions and extract unjustified subsidies.
Teams should be allowed to move: If one set of owners or fans isn’t supporting a team, then other owners or fans should get a chance. But moves should be prevented if any government subsidy were involved.
Perhaps team prices would suffer slightly; the same might happen to players’ salaries. So what. There’s no need to enrich the already rich. And a little bit of regulation, clumsy as it might be, would serve as a warning.
If pro leagues can’t solve some of their other pressing problems–revenue-sharing among large and small markets, the creation of new franchises–these matters could also be regulated. Professional sports leagues are sanctioned monopolies. If they can’t behave responsibly, let them be supervised like children.