Luxury stadiums point
up problems with pro sports monopolies, economist says
BY KATHLEEN O'TOOLE
American taxpayers and
sports fans will continue to pay through the nose for pro
sports until they decide to outlaw the monopoly status of
professional sports leagues, says Stanford economist
Roger Noll in a new book.
Nearly half of the
professional sports teams in America are either playing
in a new facility or expect to within a few years. The
cost of this $7 billion stadium construction boom is
heavily subsidized by federal and local taxpayers, and
the tax bills won't stop piling up until all 115 teams
have new facilities, Noll says.
When all the teams have
new digs, they will want even better facilities.
"It's never ending. As soon as the bloom is off the
lily, as soon as the newness effect of these stadiums
begins to wane, then we'll start all over again,"
says the economist who knows so much about sports that Sporting
News named him one of the "100 most powerful
people" in sports a few years ago ahead of such
more familiar faces as sportscasters John Madden and Bob
Costas.
Noll and fellow sports fan
and economist Andrew Zimbalist of Smith College argue
against sports monopolies in a new book they edited, Sports,
Jobs and Taxes, for the Brookings Institution. The
National Football League, for example, is a cartel of
team owners that is able to extract monopoly prices in
the form of public subsidies because they have no
competition. "The NFL will always see to it that
there are a few cities who are hungry for a team but
don't have one," Noll says. "Their business
plan is to keep the wolves at the door, so a team can
make a case for more subsidy every time a lease
expires."
For cities, the situation
is not unlike that with railroads in the mid 19th
century, when every town wanted a railroad stop, the
economists say. "Local governments frequently
overextended themselves in offering subsidies to
railroads so as to influence decisions about routes and
terminals."
Noll, who played varsity
basketball at Caltech, and Zimbalist, who tried to start
a new baseball league in 1996, love sports and like the
luxury stadiums that have been built in recent years.
They don't even argue that it is a bad idea for the
taxpayers in Charlotte or Sacramento to provide a type of
welfare to franchise owners and players to lure a team to
their city. The economists don't think, however, that the
teams, their boosters and consultants should continue to
get away with claiming that ever-better ballparks are
sound business investments for local communities.
"Actually," Noll says, "teams are a slight
net drag on the local economy."
Taxpayers should view new
stadiums as a consumption expense, not an investment that
will produce more jobs and local business. Stadiums are
more like public parks a pleasurable amenity used by
some local residents than like a local business that
draws new spending to town or makes money for the
community by exporting local products and services, the
economists say.
Who pays how much?
Some taxpayers get stuck
paying more than others, the authors say.
In San Francisco, where
voters first balked at more expensive stadium proposals
for the Giants baseball team and the 49er football team,
the $200 million-plus subsidy for two new stadiums
probably will cost each city resident about $10 a year
for 25 years, Noll calculates. In neighboring Oakland,
the recent $135 million in renovations for the Raiders
and Warriors will probably cost that city's smaller
population about $50 per capita per year, and the Oakland
Athletics are still threatening to leave unless something
is done for them.
In Seattle, where the
voters also initially balked, the Seahawks managed to win
a statewide referendum to spread the costs over the
state's population, and in Cincinnati, new facilities for
the Reds and the Bengals will be subsidized by a sales
tax throughout the metropolitan area.
In New York, where the
Yankees want at least $800 million from the city for a
new stadium in Manhattan, it would be cheaper if the city
fathers simply gave the Yankees a cash bribe of $10
million a year, Noll facetiously says. "Even better,
the city could pay $100,000 for each game won, with a
million-dollar bonus for winning the pennant."
In nearly all cases, Noll
says, federal taxpayers are also being hit hard. They
provide about 30 percent of the local subsidy in the form
of tax-free bonds that the cities sell to build the
facilities. The 1986 Tax Reform Act encourages cities to
subsidize stadiums, because they can only sell tax-exempt
bonds if the revenues from the stadium account for less
than 10 percent of their debt service.
The book is required
reading for any citizens group hoping to fight plans for
a new taxpayer-subsidized football or baseball stadium or
hockey or basketball arena in their area. It provides the
nitty-gritty details of the many flaws in economic
analyses that are prepared by consultants for stadium
proponents. Such studies usually conclude that a team and
a new stadium will improve the local economy, reduce
poverty and increase jobs.
"We are just pointing
out two important facts," Noll says. "Stadiums
are not a net local economic benefit, and the reasons
cities are paying for them is because the [federal]
government made the professional leagues monopolies"
exempt from anti-trust laws that apply to most other
industries.
The result: "A very
large number of people are getting harmed a little
bit," Noll says, but the subsidies usually are small
enough per citizen that people don't tend to organize
opposition to them. "That biases the outcome in
favor of the well-organized group" of fans and a few
businesses that benefit a lot from the stadium.
Luxurious '80s
changed sports
The current wave of
stadium building began in the 1980s because of new
stadium technology. More luxurious stadiums were
introduced partly in response to fans' increasing
willingness to pay for stadium amenities. As the wealth
of upper-income Americans soared, "there was a much
bigger demand for luxury boxes and upscale concessions. .
. . Going to a football or baseball game 25 years ago was
an experience with a cross-section of society. Now, only
the upper middle class can afford it," Noll says.
Corporations are a factor also, as they often rent the
luxury boxes.
But while ticket and
concession prices are higher and personal seat licenses
have been introduced as another way to collect revenue,
the new luxury stadiums have not generated enough revenue
to cover their cost a minimum of $200 million. Hence
the subsidies from people who don't go to the games.
By far the biggest effect
of subsidized stadiums is that "perfectly good
facilities are forced to retire prematurely and new
facilities are far more elaborate and costly than is
justified by the business that they generate," Noll
and Zimbalist write. "The next largest effect is
that player salaries capture more than half of the value
of the subsidy."
Stadiums also can cost a
community jobs, they say. Most people have a limited
amount of money they can spent on entertainment, so money
spent on sports can cause other entertainment businesses
to cut back jobs or close. Team studies usually claim the
new facilities bring new tourist spending to town, but
the studies grossly exaggerate such effects, the authors
say. "It's like the Angels trying to argue that
Disneyland wouldn't exist if they weren't nextdoor,"
Noll says with a crescendo laugh.
Another effect of sports
monopolies can be seen in the contrast between a fan's
choice of televised Saturday college football offerings
and Sunday's pro offerings, Noll says. Because of a
successful anti-trust suit against the National
Collegiate Athletic Association, the college association
cannot pool all broadcasting rights of member teams. With
competition among the teams and conferences for broadcast
earnings, the consumer gets a choice of football games to
watch all day, compared to only two or three games to
watch on Sunday when the NFL controls broadcast rights.
Noll, who helped plot the
legal strategy that broke up AT&T's monopoly in the
1980s, devotes only about 5 percent of his life to sports
but as Sporting News said in naming him one of the
power brokers, "It's a big 5 percent." An
expert on government regulation of various industries, he
has been an expert witness for professional players'
associations in battles with professional league owners,
and potential buyers of teams have been known to consult
him about the dollar value of franchises. With a certain
flair for sports metaphors and plain talk about difficult
economic concepts, he is often invited to speak in cities
where local politicians and team owners are trying to
sell the public on providing a tax subsidy for a new team
stadium. "What makes Noll happy," the Sacramento
Bee reported after one of Noll's recent visits to
their city, "is going around America smashing sports
fantasies of local politicians and Chambers of
Commerce."
The anti-trust
solution
But Noll doesn't kid
himself about his power. It will be difficult to curb
taxpayer subsidies to pro sports as long as those sports
are popular with the American public, he says.
The federal government
could do the job by removing the leagues' anti-trust
exemptions, forcing the existing ones to form several
leagues that make independent decisions about how many
teams to have and where to locate them, he says.
Members of Congress have
periodically taken an interest in applying anti-trust
law, but their debates have been "driven by their
regional loyalties rather than political ideology,"
Noll says, so nothing gets resolved.
When major league baseball
thwarted the relocation of the San Francisco Giants to
St. Petersburg, for instance, "California's liberal
Democratic senator, Barbara Boxer, hardly known as a
close ally of big business, favored retaining baseball's
antitrust immunity to save her hometown Giants," the
authors write in the book. "Florida's conservative
Republican senator, Connie Mack, the grandson of the
legendary owner-manager of the Philadelphia A's during
the period when they wrested several American league
championships from the famed Yankees of Lou Gehrig and
Babe Ruth, argued strongly for lifting the immunity to
free the Giants to come to Florida. As before, nothing
came of this congressional inquiry."
The Antitrust Division of
the Department of Justice could act, Noll and Zimbalist
write, but it is also "susceptible to political
pressure not to upset sports."
"The most likely
source of reform, though still a long shot, will be
grass-roots disgruntlement and citizen education,"
they write. "These forces have already taken hold in
some cities. Voters, cognizant that sports teams will
bring little benefit to the local economy and concerned
about the distributional consequences of facility
subventions, rejected the idea of public support for
stadiums on ballot initiatives in San Francisco, San Jose
and Seattle. However, in no case has this caused a
stadium not to be built.
"Nevertheless, more
guarded, limited and conditional support from
constituents will prompt political leaders to be more
careful in promoting a team or negotiating a stadium
deal."
Cities on their own,
however, have little leverage, and while grass-roots
movements "may achieve modest success in slightly
altering the terms of stadium subsidies," the
authors say, "until the structural monopoly and
cultural centrality are modified, large-scale public
subsidies to team owners and athletes will be a feature
of the professional sports landscape." SR
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