Research Paper: Financing a Professional Sports Arena

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Football Stadium

Financing a Football Stadium: The Debate Over Public Subsidies

Bringing a professional sports team to a city, or keeping a popular franchise in its current locale, is inextricably linked to the facilities which the site in question is willing to provide. Based on the premise that a professional sports team brings civic pride, greater tourism, opportunities for merchandising and a bevy of new employment opportunities, many localities have used massive amounts of public money in order to court such franchises. But with a rash of new facilities dotting the sporting landscape in recent years, there is ever more an abundance of evidence to contradict the rationality of using public funding to subsidize stadium development. In a discussion on football stadium construction throughout the United States, we are presented with compelling cause to reject the appropriateness of using public financing options for this purpose.

In recent history, financing of stadiums has been conducted as a partnership between the host city and the franchise in question. Often land will be donated for the construction of a stadium, public bonds will be approved for the financing of construction and certain tax incentives will be designed to the benefit of franchise owners. According to the Minnesota Legislative Reference Library (MLRL) (2009), in both its home state and throughout the U.S., an array of tax burdens have been also placed on sectors of the public in order to finance stadium development. Accordingly, MLRL reports that "in Minnesota, funding alternatives have included a cigarette tax, a ticket tax, use of casino or lottery proceeds, and public ownership of the professional team. Funding options that have been used in other states include: hotel/motel taxes, a general sales tax, new excise taxes on tobacco and alcohol, car rental taxes, state lottery funds, and money generated from the sale of luxury seating and rights to purchase season tickets." (p. 1)

More commonly today, private funding from investment groups or prominent corporations will make up the difference in the development cost. Likewise, the naming rights of a stadium are typically sold to a commercial organization such as a bank, an investment firm or a retail organization. This option is becoming increasingly more popular today in the face of steady public resistance to tax subsidizing of private development. To the point "advocates for new sports facilities often stress the economic benefits that a new facility can bring to the community. Opponents frequently point out that many economic impact studies on the topic have found that the benefits may not be substantial. However, the intangible benefits a professional sports team can bring to the community also play a large part in any decision to build a new sports facility." (MLRL, 1)

This captures the dilemma at the center of our discussion, which denotes that the use of public funds as a way of financing the development of a football stadium or other major sports venue is frequently unsuccessful in bringing about the proclaimed economic benefits which are stated at the outset. Myriad examples from recent history suggest that even where the local community is evidenced to support the construction of a stadium at least partially on the strength of public funding, a great many unpredictable factors tend to confound the achievement of intended civic benefits. Gotham Gazette (2010), which compiles some useful comparisons between existing stadiums based on their sources of financing, their expected benefits and their actual impacts on local communities. Based on the examples selected for review under the heading of 'Football Stadiums,' this source provides a cautionary note against the expectations which cities and states often bring to their courtship of professional sporting teams.

Most compelling among the examples which it raises is that of the King Dome in Seattle. Voted into existence by public referendum -- a far greater rarity in most modern sports markets -- the stadium was intended to be a state-of-the-art indoor sports venue playing host to the Major League Baseball's Seattle Mariners and the National Football League's Seattle Seahawks. Opened in 1975 and costing $62 million to build, the city floated $40 million of the original cost as well as an additional $70 million to repair its poorly aging dome in 1994. (Gotham Gazette, 1) It had been initially claimed that the stadium would provide both professional sports teams with an attractive and fan-friendly context in which to solidify their relationship with a locale not known for the intensity of its sports spectatorship. The King Dome failed to deliver on this promise in its 25-year existence, causing both the Mariners and Seahawks to express grievances with the city over poor attendance numbers and the poor maintenance on the facilities.

All evidence suggests that in this case, proper considerations were not made for the community benefits which were to be brought into Seattle as a result of the stadium's construction. Indeed, with this rationale used to justify the expenditure of public moneys, the long-view of the King Dome's life cycle provides a firm argument against this approach. According to the Gotham Gazette, "in March 26, 2000, the Kingdome was imploded. Critics point out that King County still owed debt on the building. The remaining $125 million debt, financed by a 2% hotel-motel tax, will not be cleared until 2016." (p. 1)

This prompts concerns where public funding has been used to finance more recent stadium ventures such as the Georgia Dome in Atlanta (which is home to the Atlanta Falcons) and the Edward Jones Dome in St. Louis (which is home to the St. Louis Rams). Built in 1992 and 1995 respectively, the two stadiums have been successful in their primary objective of retaining the presence of professional sporting organizations. Likewise, the stadium in Atlanta scored a great success when it hosted the international Olympic Summer Games in 1996. However, with the passage of years, the public funding used to court these development projects has proven difficult to recover. The waning attendance in both venues for national and international conventions as they continue to age demonstrates the decreasing return on such projects. Indeed, this is the rationale which would ultimately lead to the defeat of the so-called West Side Stadium project, which would have moved the New York Jets into a $1.7 billion Manhattan facility. In spite of a high level of support from the New York Jets, New York's Mayor, Governor and Senior Senator, the local community aggressively resisted the use of $600 million in public funding for a facility that generates the bulk of its profit for a privately owned sports franchise. (Gotham Gazette, 1)

Findings have increasingly supported this public concern, with the last decade reflecting a wide proliferation of public moneys for the purpose of courting sports franchises. Here is suggested a faulty model for establishing franchise valuation as it may be measured against the taxpayer's burden. While sports organizations do bring about more dynamic job economies and greater opportunities for retailing of merchandise, sale of concessions and the attraction of out-of-towners, these benefits appear rarely if ever to counter the costs which are initially endured. The projection by Bast (1998), made at the outset of the most recent boom in stadium development, predicts that "nationally, subsidies to professional sports facilities cost taxpayers some $500 million a year. More than $7 billion will be spent on new facilities by the year 2006, with most of it coming from public sources. Communities that are hard-pressed to keep their schools open or police on the beat are nevertheless entering into agreements to spend hundreds of millions of dollars to bid away a professional sports team from another city." (Bast, 1)

Here, the article helps to highlight one of the clearest points of controversy in our discussion, which is the notion that many cities have invested in sports franchises that they can… [END OF PREVIEW]

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"Financing a Professional Sports Arena."  Essaytown.com.  August 19, 2010.  Accessed June 19, 2019.
https://www.essaytown.com/subjects/paper/financing-professional-sports-arena/375954.