Technology

Sports Stadiums Are a Bad Deal for Cities

But cities can fight back.

Rick Paulas
Jeff Chiu / AP

When I want to go to an Oakland A’s baseball game, I walk 10 minutes to the MacArthur BART station. The station was part of an infrastructure plan that cost Bay Area taxpayers in the 1960s and ’70s $1.6 billion, and currently costs billions in maintenance and expansion. I pay a few bucks to ride—about 75 percent of BART’s operating costs are maintained by fares. If the train car I step into is new, it cost taxpayers $2 million.

The train travels south, dips underground through downtown Oakland, hangs a left around Lake Merritt, and resurfaces in Fruitvale. It stops outside of the looming monstrosity called the Oakland–Alameda County Coliseum, home to the A’s and, for now, the Raiders. Just behind it is the Oracle Arena, home to the Golden State Warriors basketball team, also for now. Both stadiums opened in 1966 and together cost $25.5 million for construction, in addition to $1 million for the land they sit on, all funded by municipal bonds, which is to say taxpayers.

I and my fellow passengers walk over the sloping concrete bridge, where vendors hawk tickets, T-shirts, and beers amid the din of train whistles and street drummers, and we merge with other fans. They’ve come in cars and buses, maybe bicycles or Bird e-scooters, streaming in on public roads that will cost Oakland at least $66 million to improve and maintain in 2019. We all go inside, having given our money to John J. Fisher, the billionaire majority owner of the A’s, who in exchange lets us watch his team play.

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That’s just business, in a sense. Money has to change hands. To help it, cities fund public infrastructure to facilitate commerce. But whereas nearly every other business funds the construction of its facilities and pays taxes too, cities often give money to private pro-sports franchises to entice them to come, and then give them even more to stay.

The Coliseum, for instance, lured the Raiders back to Oakland in 1994 in part by promising to renovate. When that bill is finally paid off in 2025, it will have cost Alameda County and Oakland $350 million. It seems worth pointing out that the Raiders’ value has skyrocketed from $351 million in 2001 to $2.38 billion in 2017—an almost fivefold increase after adjusting for inflation. During roughly the same span, the value of the A’s grew fourfold, to $1.05 billion, and the Golden State Warriors’ worth swelled by a factor of 12, to $3.1 billion. Meanwhile, Oakland’s roads are some of the worst in the country, the Oakland Unified School District is cutting up to 340 jobs for the 2019–20 school year, and the city has to rely on outside spending to cover the mostly inadequate shelter it provides its homeless population.

Pro sports teams are bad business deals for cities, and yet, cities continue to fall for them. But municipalities can support local sports without selling out their citizens in the process.

Hosting a professional sports franchise has legitimate public benefits. Strangers at a bar can commiserate about a loss, and a championship run can bring a city together. “It can give people with disparate political beliefs and backgrounds a common rallying point,” says Michael Leeds, a professor of economics at Temple University. But these benefits are intangible, so city leaders often look to positive economic impact to justify local sports instead.

Their most repeated refrain is that a team or stadium will “create jobs.” But what does that mean? Construction on the stadium might be performed by local workers, but it might not. And either way, it’s likely to be paid for off the books, without protections for workers. Even if the construction workers are local, their gigs last only a few years. Afterward, all that remains are the jobs inside the stadium—ticket sellers, vendors, janitorial staff—which are low-paid, seasonal, and few. “The number of jobs created is smaller than [the number of employees of] a midsize department store,” Leeds explains.

Most of the payroll for sports franchises is spent on players; they are even fewer in number and constantly on the move. Half of their seasons are spent on the road, and most leave during the off-seasons, bringing their money with them. “There is little reason to believe that [players] will reinvest in the local community,” says Mark Cryan, an assistant professor of sports management at Elon University. “They will more likely take advantage of fabulous Florida real-estate opportunities.” This is called “leakage”—money that doesn’t stick in the local economy.

Imagine a stadium as a giant drain. Money flows from the community into the stadium, where it whirls around for a bit, then funnels down some murky pipes, exiting far, far away. Some leaves with players, some with owners and ownership groups, some with the league itself, the headquarters of which are in New York. That last leakage is similar to when you shop at a corporate chain. “If you go to a local bar, that’s probably locally owned, and servers and bartenders are spending it locally, and that causes this ripple effect that doesn’t happen in sports,” says Victor Matheson, a professor of economics at Holy Cross University.

Sure, some of the money will stay local, thanks to the new economic activity that a stadium helps generate. That’s most likely if a new cluster of restaurants and sports bars sprouts up in an underused part of town around a new stadium. But even then, the economic impact can be limited. When new “stadium towns” are built, residents tend to spend their money in the new geographical location rather than another one around town.

“It’s reshuffling deck chairs instead of developing anything new,” Leeds says. “Cities give tax breaks or subsidies to businesses that locate in a particular area, and it might help that specific area. But it’s simply robbing Peter to pay Paul.”

Worse, the new activity may actually hurt the overall economy by “crowding out” other events. (Have you ever stayed home instead of risking the game-day traffic jam?) This effect is perhaps strongest during massive sports events like the Olympics or the Super Bowl. The arguments for hosting them are the same—draw tourists, create buzz, increase economic activity. More tourists arrive, but they often cost cities more than they’re worth.

In 2016, when San Francisco hosted the Super Bowl, the city paid to reroute cars and Muni buses, to fund police overtime for security, and for sanitation workers to clean it all up. In all, the city spent an estimated $9.6 million. Whether it made that money back is heavily contested. “Restaurants were telling us they had a 40 to 50 percent reduction in reservations and services,” says San Francisco Supervisor Jane Kim, who was outspoken against this deal at the time. “I don’t think public taxpayers should subsidize a party for a $12.4 billion company.”

Yet, they do, for one-time parties and longtime drains. And, usually, city-dwellers in big sports towns are happy to do it, because we’ve been conditioned to view ourselves as lucky that franchises would want to be located in our city, on our land. It’s a mind-set that pits cities against one another, resulting in a humiliating race to the bottom. But is there any way to shift power to the cities, and their citizens?

Private ownership is standard policy in every pro-sports league. Major League Baseball even forbade Joan Kroc from passing ownership of the Padres to the city of San Diego. And despite what you might have heard about public ownership of Green Bay Packers, what the team’s superfans own are more collectible gimmicks than actual shares. In part, that’s because leagues don’t want to open their books. “Most teams are more profitable than they say,” Cryan insists. “There are a lot of depreciations of assets, including player contracts, that allow teams to honestly say, ‘We didn’t make any money this year,’ even though the owners have millions more in their bank accounts.” When only one side in a negotiation has accurate intel about a product’s worth, the other side is at a distinct disadvantage.

Changing that imbalance would take a particularly bold move by the feds, but municipalities still have strong hands to play, particularly when a team is already in town.

When ownership wants a new stadium to help their bottom line, they might ask the city for a handout. If the owners don’t get what they want, they sometimes threaten to leave, obliquely or more directly. Some cities cave to the demands rather than risk losing the team. But they could respond to relocation threats by calling owners’ bluff. For example, they might threaten to use eminent domain to reclaim the land where the stadium sits, and even the team itself, for the public good.

Baltimore tried this back in 1984, when Jim Irsay, the owner of the Colts (then located in the city), was deep into talks about moving his NFL team. In the midst of it, then–Maryland Governor Harry Hughes signed a bill authorizing the use of eminent domain to seize the Colts, which would become the property of the city of Baltimore. However, in the late hours of the night before, upon hearing about the impending legislation, Irsay packed up his team’s belongings and equipment and had them driven to Indianapolis. A later ruling hinted that the plan could have worked if the city had have gotten it through before the team moved, but since they were gone, the point was moot.

Pulling off an eminent-domain seizure of a sports franchise requires a precisely timed series of legal maneuvers. At the very least, it’s a helpful move early in negotiations, to flex some of the city’s muscle. If anything, it would offer poetic retribution for the times cities have used eminent domain to bulldoze homes to clear room for stadiums.

But it’s better to get ahead of the matter. Some cities have funded new stadiums with heavy strings attached. In 1982, the Metrodome was built as home for the Minnesota Vikings and Twins. It cost $68 million in public money, a relatively modest sum even back then. But part of the deal was that, in return, the city would get “a large chunk of concessions revenues, a quarter of stadium ad revenue and 100 percent of parking fees.” It’s unclear how quickly this recouped the construction cost, but the deal was at least more mutually beneficial than “we pay, you get all the money.”

Unfortunately, a deal like this is no longer possible, because it’s illegal.

In 1986, Congress tried to close an exemption that allowed stadiums to be financed with tax-free municipal bonds by allowing only a small portion—10 percent or less—of the cost to be repaid by revenues and lease payments. The idea was that no city in its right mind would pick up 90 percent of the cost on its own, and that idea backfired spectacularly. Altering or removing this loophole would push cities to make better deals.

In 2015 and 2016, the Obama administration tried and failed to take away the tax-free status of any bonds used to pay for private sports stadiums. But President Trump and most Republicans seem to agree with the approach. While the most recent tax bill didn’t close this loophole—a last-minute tweak cut out the provision that would’ve done so—there might yet be a bipartisan path forward on this front.

Realistically, any legitimate solution that shrinks the power disparity between municipalities and leagues must come from the federal government, as cities without teams will always sacrifice more to get in the game. One answer would involve regulating the leagues like the natural monopolies they are.

Think of the NFL not as the organizer of American football, but the organizer of the NFL’s version of American football. There are no competing definitions out there, despite the efforts of Vince McMahon. When competition pops up, it quickly and inevitably dies, because we want to see one champion crowned. No competition means no market forces, which leads to a sort of natural monopoly.

That monopoly helps drive the big business of sport. The four major sports leagues in the United States—the NFL, MLB, NBA, and NHL—produce annual revenues near $31 billion. It’s similar to how utility companies can’t really compete because the cost of laying new infrastructure is too great for another business to make a claim. These monopolies allow leagues to self-determine how many teams can exist, and thus how many cities can participate. Predictably, they keep the number low. “There is an artificial shortage of teams compared to cities that would want to host one,” Grow says. The leagues, players, and sports commentators contend that fewer teams keep the level of play from being watered down, but more likely, the shortage allows teams to pit cities against one another.

The curious case of Los Angeles exemplifies this phenomenon. Between 1995 and 2016, one of the greatest conspiracy theories in football held that the NFL kept the colossal L.A. media market vacant so that teams could threaten to move there if their home cities refused to fund new stadiums. Purposeful or not, it worked: During that period, 22 new NFL stadiums were built using billions in public money. It’s similar to how Amazon pitted cities against one another in its search for a second headquarters home, resulting in $3 billion in tax breaks.

Other natural monopolies have been resolved through regulation, either by the government enforcing price caps—in sports, this would trim how much money owners, players, and leagues could drain from a community—or by deciding on the quantity of the product being produced. The latter option (the government forcing expansion) is the most interesting. While having something like a hundred MLB teams is clearly infeasible, an elegant solution already exists abroad.

England’s soccer league, the Premier League, is made up of 20 teams, but the specific teams change year to year. This is because it uses a system of “promotion and relegation.” At the end of each season, the bottom three Premier League teams are relegated to English Football League Championship, the “second level,” while its top three three are promoted to Premier. Meanwhile, the bottom three EFL-C teams are sent down to EFL-1, while another three from EFL-2 come up. On and on it goes, teams moving up and down divisions every season. This design expands how many teams can technically win the championship—currently, 96 in all, though for some, it’d take years to get there—without watering competition down to the point of being unwatchable.

Viewing pro-sports leagues as the public good and natural monopolies they are, and then responding to that by forcing them to expand closer to what the market can bear, would take away the incentive municipalities have to throw gobs of public money at these private businesses. If more cities have teams, there will be no need to wield tax breaks or publicly funded private stadiums in the cutthroat war against other cities. And more public money in the coffers means more funding for roads, schools, and other social services.

But, more importantly, it’d be fun as hell. Imagine a World Series between Albuquerque and Dayton, while Yankees and Red Sox fans spend an embarrassing season rooting for a team in the “minors.” That’s called a win-win.

Of course, cities could also elect leadership that will defend them against bad deals.

Back in Oakland, we’re coming up on what might be the final steps for groundbreaking on a new A’s ballpark. The current options are for the A’s to leave town (a veiled threat they’ve whispered for decades), to stay at the Coliseum on a modified deal, or, more interesting, to develop a sports complex at Howard Terminal, an industrial waterfront shipping yard full of cranes, storage containers, and a scrap-metal-processing plant.

But rather than sacrificing public funds in a desperate attempt to keep one last team, Oakland city leadership has maintained a firm stance: If a team wants a new place to play, they’ll have to pay for it on their own.

“I took the position that I took with the Raiders because I am very painfully reminded every year when we pass a budget about the bad deal that we got into to (entice) the Raiders to move back to Oakland,” Oakland Mayor Libby Schaaf said earlier this year. “And I’m not going to repeat the mistakes of the past. I’m not going to prostitute my city’s future for the pride of having a sports team.”

There’s no reason a city shouldn’t want a sports franchise. Oaklanders certainly do, and Schaaf does too. It’s just important for everyone—mayors, officials, fans, residents— to be truthful in how the team fits into the hierarchy of city needs.

“[A team] should be regarded as a present you give yourself, not an investment in the financial security of your city,” Leeds says. “I didn’t get my children a birthday present to ensure they’d go to Harvard Medical. I got them presents because I love them and want them to be happy.”

That’s what pro-sports leagues do. They offer entertainment and encourage communal bonding. But without the physical cities wherein they reside, outside of the communities who project their hopes on the imported athletes who are paid handsomely to don a certain color of fabric, they’re mostly worthless. It’s time for cities to start realizing that.