Tuesday, May 12, 2009

America’s urban policy failure: Sports facilities as economic engines


Evan Weiner
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Business of Sports Examiner

America’s urban policy failure: Sports facilities as economic engines

May 12, 1:07 PM

In the future, people who study and write about civilizations will make judgments about policies. The future Fred Siegels of the world will dissect urban policies and politics of the late 20th century in the United States and will undoubtedly reach the following conclusion.

Spending public dollars to fund sports stadiums and arenas was a failed public policy and did very little to create economic stimulus in any United States city in the 1990s and into the 21st century. Fred Siegel is a world-class chronicler of past civilizations, an author, a college professor, and a columnist and was a speechwriter for New York City Mayor Rudolph Giuliani. Mr. Siegel also read my book, “The Business and Politics of Sports” and told me that it wasn’t a sports book; it was a public policy book.

I thanked Fred Siegel for elevating me but that doesn’t mean it puts me in the same league as Fred Siegel or others who study urban policies or politics but it does allow me to say this. Sports facility spending was a failure for taxpayers and a bad policy that cost taxpayers billions upon billions of dollars for little or no return.

Who is to blame? Elected officials, not sports owners. Elected officials were so desperate to make sure that their cities were included in big time sports that they raised all sorts of taxes to get facilities built. They chased billionaire owners who had the glamour item they wanted, big league teams with big stars. It was a feel good item, a business that could make a whole city come together but sports franchises do nothing to solve cities and states real problems.

Sports franchises don’t solve unemployment or housing problems, sports franchises don’t improve the quality of health care or education. Sports franchises provide some entertainment, in Major League Baseball’s case, there are 81 home games a year out of a calendar of 365 days or 366 in leap years, a city might have an NBA and NHL team using an arena about 90 days a year and throw in some college basketball, that would be a 100 day use in a 365 or 366 day annual calendar. A National Football League team will use a facility about 10 teams a year.

In 1997, then Nashville Mayor Phil Bredesen said he would have been better off building a full sized supermarket instead of a football stadium or an arena as a supermarket hat is opened 24 hours a day, seven days week employs more people than a team, has people in the community spending money in the place and the employees generally live in the area and spend money within a community unlike sports owners and athletes. Mayor Bredesen though cited an intrinsic value as the reason that Nashville needed a National Football League and either a National Hockey League or National Basketball Association team. He thought Nashville needed an identity even though Nashville is globally known as the world’s capital of country music.

Phil Bredesen words should be studied now, next year and in decades or centuries from now when people ask why did sports become a central part of urban planning. He half admitted that pursuing sports franchises was not a sound fiscal policy.

Here is why the municipal sports arena/stadium building policy has failed. In the late 1980s and throughout the 1990s, politicians sold the public on the need of building sports cathedrals to spur local economies. Construction workers who would spend about two years putting together the facility would lay down the actual brick and mortar. They would have a job even though they would be paid roughly the same amount as if they were building a mall, a factory or homes. Once the facility was built, there would be jobs for people ranging from working in the team’s office to ticket takers, vendors and parking lot attendants. But there was a flaw in that thinking, if a team left an old facility in the city, they would be moving their employees to the new place of business unless they attracted a team from another city but that happened just once in baseball when the Montreal franchise was transferred to Washington, it happened a few times in basketball with the moves of Vancouver to Memphis and Charlotte to New Orleans and with NBA expansion to Charlotte. People did not make the move and lost jobs and were replaced by others. The new Charlotte team hired new employees. In football, Houston moved to Nashville, Cleveland relocated to Baltimore, the NFL expanded, not by choice necessarily to replace those cities, Anaheim and Los Angeles lost teams that ended up in St. Louis and Oakland, the NFL did create new franchises in Jacksonville and Charlotte. The NHL added nine teams, San Jose, Tampa, Ottawa, Anaheim, Miami, Columbus, Nashville, Atlanta, and St. Paul, Minnesota and relocated three franchises, Hartford ended up in Raleigh, Quebec City moved to Denver and Winnipeg relocated to first Phoenix then Glendale, Arizona.

Some jobs were created but not enough to create economic stimulus and some eateries; bars and businesses near arenas were opened but nothing that would shake up an economy.

In return, the municipalities would make money from organization’s using the facility through rent payments, taxes and people would travel from other places to watch games and would stay at local hotels and motels, eat at restaurants and rent cars. In theory, municipalities would make millions of dollars off of the stadiums and arenas.

That has not happened. The failure rates are astonishing. City after city built facilities and in some cases, the buildings were antiquated within the first five years of the building’s existence. Miami and Charlotte opened new arenas in the late 1980s; the Miami Arena was finished as a viable facility within 10 years. Cash strapped Pittsburgh, which was experiencing fiscal problems before the 2007-09 recession, was still paying off the debts of Three Rivers Stadium after the building was demolished. Seattle owes money on the demolished Kingdome and the final bill won’t come due until 2014.

Even the stadiums that are perceived as “winners” like Camden Yards in Baltimore are not. The baseball stadium was the final piece of the puzzle in the rebuilding of Baltimore’s Inner Harbor. The Baltimore Orioles got a gem of a stadium, which cost taxpayers more than $200 million, and there is an additional $14 million in annual payments in upkeep and debt. Maryland then built a football facility for the Baltimore Ravens; some jobs were created at the facility at a cost of more than $100,000 per job created. Maryland taxpayers are picking up an $18 million a year tab to keep the facility in top-notch shape along with paying off the bills.

The jobs that have been created include per diem ticket takers, vendors and some parking lot attendants.

The Maryland experience is the norm. In Indianapolis, the city agreed to build a new arena for the National Basketball Association Pacers and a new facility for the National Football League’s Indianapolis Colts. The agreement with the Pacers owners, the Simon Brothers, included a provision that the Simons pay $15 million to help maintain the city’s arena. The Simons claimed they lost money in nine of the 10 years the team played in the facility and could no longer afford the payment. The lease provision originally signed between Indianapolis and the Simons gave the owners an out after 10 years of paying the annual $15 million fee.

The Indianapolis Capital Improvement Board determined someone underestimated the annual upkeep on the new football facility by $20 million annually and that has blown up a huge hole in the budget. Coupled with the Simons decision to pull the plug on the $15 million annual stipend and costs at the minor league baseball park and the Indiana Convention Center, the Capital Improvement Board is facing anyway between a $43-47 million deficit and the question facing the panel is simple. How do you get revenues to fund the gap?

The answer? Hope the Simons kick in $5 million annually, convince the football Colts owner Jim Irsay to rewrite his contract and give the board $5 million a year after the contract stipulates no payment from Irsay, double the state tax on alcohol with the Marion County extra tax revenue going to pay off the board’s debt, raise the Marion County restaurant tax from 2 to 2.25 percent, which punishes no sports fans who never use the facilities, raise Marion County’s hotel tax from 8 to 9 percent which moves the hotel tax when the state rate is thrown in to 16 percent and direct the hotel taxes generated by a hotel next to the conventional center to the board. Additionally, workers at the facilities will be asked to take a pay cut and ticket taxes will be raised from six to 1o percent.

That hardly sounds like an economic engine or stimulus package.

Indianapolis is not the only city that needs to pay off enormous debt on sports facilities.

In St. Louis, there is a huge hole where construction was supposed to take place as part of a planned “stadium-village” for the St. Louis Cardinals baseball franchise. St. Louis will host Major League Baseball’s All Star Game in July and the stadium was supposed to be the sparkling jewel of the urban renaissance that the owners, St. Louis and Missouri politicians envisioned. It has not happened and with the recession about ready to hit commercial real estate, that hole may be there for quite a while.

Politicians have not learned from their mistakes. In cash strapped Yonkers, New York, Mayor Phil Amicone continues to push to build a minor league baseball stadium-village as part of urban renewal. This project has been on the table for years and doesn’t make any sense. Yet Mayor Amicone and his allies want the project to be built despite example after example of failure. Next time Mayor Amicone goes to Washington, he should stop by the new baseball park and see how much development has taken place in the area.

Stadium villages some green chutes in a mostly barren environment.

Teabaggers and conservatives hit the streets on April 15 to protest high taxes. Teabaggers have been asleep at the wheel for years not monitoring what has happened in the past 23 years since the 1986 Tax Act rearranged how stadiums and arenas were financed. The President Ronald Reagan era tax bill, which was signed off by members of both parties, had a loophole that allowed just eight cents on every dollar generated within a stadium or arena to go to pay off building debt.

As a result, politicians cobbled together a series of tax increases to pay off the buildings. Sports team owners went to politicians after they saw the loophole and said build use a new facility or we will leave. It was a threat but as the late Dr. John McMullen, the owner of the Houston Astros and New Jersey Devils once said about sports, decisions are made from emotion not reality, politicians acted emotionally and did not want to lose a major league team because it would diminish a city’s perceived perception as a “big league” town.

The politicians raised hotel, motel, sales, alcohol, cigarette, car rental taxes, lotteries and funds from casinos to fund construction. One set of politicians was so hell bent on keeping a team, Arlington, Texas, that it seized land from a citrus farmer to build the Texas Rangers baseball franchise, an organization that listed George W. Bush as the team’s managing general partner, a stadium that was partially funded by a one half of a one cent hike in the local sales tax and granting a special tax zone within the stadium’s perimeter. Because of Mayor Richard Greene’s decision to build a stadium, Arlington was sued for taking the land and ended up paying nearly $5 million for the property. Arlington got the baseball team and went after Jerry Jones Dallas Cowboys football team. A leopard never changes its stripes nor does the Arlington government. A new mayor, Robert Cluck, pushed for the team and raised the local sales tax by a half cent and seized land by eminent domain for Jones’ new playpen. Arlington paid out millions in setting eminent domain disputes.

A number of cities had referendums on sports facility construction, sometimes elected officials just decided to build a facility after holding some public hearings. The elected officials sold the local public on stadium/arena building by saying the local population would not be paying for the facilities, as the “tourism” taxes from hotels-motels/restaurants and car rentals would take care of the bill. The politicians neglected to point out that most of the people who rent cars are not out of towners; rather they are people who live in the community. Most people who use restaurants are locals not tourists.

Seattle used the “tourism” taxes to fund a new baseball park and a football-soccer stadium and the package of taxes included a minor league baseball stadium in nearby Everett and an arena.

Cities and states also have paid for infrastructure such as road repairs, water and sewer lines, train platforms and other goodies as part of stadium packages, waived property taxes, created stadium zones where all the tax money collected inside that zone goes to the team owner. Cities and states are now giving land away to owners to build a stadium or an arena along with commercial properties, residential buildings in exchange for payment in lieu of taxes or tax incremental financing. Louisiana was giving the NFL’s New Orleans Saints owner Tom Benson payments along with the NBA’s New Orleans Hornets owner George Shinn. Benson will have a new deal, which will give him the right to develop properties near the Superdome and decrease Louisiana’s annual $23 million dollar payment to his football business if the state legislature goes along with Governor Bobby Jindal’s deal.

Major League Baseball in 1990 demanded that all of the facilities used by the club’s minor league teams be brought up to certain standards by 1994 or those cities that did not go along with MLB’s wishes would lose teams. Most of the cities gave in and spent money to built or rebuilt parks. Cities like Elmira, New York said no and lost teams. The New York-Penn short season rookie league bares no resemblance in 2009 to the 1989 season except in name only.

The lure of the big leagues is a major reason why politicians will pay hundreds of millions of dollars and with debt payment close to a billion dollars in building stadiums and arenas. The politicians think that they will lose a competitive advantage without a major league sports team although during the 1997 National Hockey League expansion talks, representatives from the Hampton Roads, Virginia bid group did a study of the 1993 National Football League expansion into the Charlotte-area, with the team first playing in 1995, and found that no company listed having an NFL team in Charlotte as a reason to locate their business in the city.

Charlotte is the number 2 banking center in the United States but it is not because of football or basketball. Yet after George Shinn moved his NBA team from Charlotte to New Orleans after 2002, Mayor Pat McCoury said one of the reasons that he wanted a new arena built in the city to replace the one that opened in 1988 was that the city would get free publicity every time Charlotte’s basketball team’s highlights were shown on ESPN.

Conventions go to Las Vegas where there is no major league team; conventions go to Orlando where there is just an NBA team but that NBA is not pulling in tourists. Conventions go to New York because it is New York.

It is very hard to figure out just how much money elected officials have spent on stadium and just how much money the public is paying. The number is in the billions however. What was the return on those billions? The sports owners were able to charge more money for tickets, players demanded more money and received it but the economic engine, the economic stimulus from stadium and arena building never trickled down. The stadiums/arenas still employ part time, per diem help at minimum wage or below with no benefits. The conditions are the same for those people as they were at old facilities. People don’t travel en masse to see a game, so all of the predictions that “tourists” would pay for stadiums and arenas turned out not to be true. Taxpayers are on the hook for places that no longer exist.

All of the new sports facilities in Detroit didn’t help the Big 3 automakers, all of the new facilities in Cleveland didn’t remake that city and in fact Ohio voters said no to racetrack casinos in November 2006. Not all of the slot machines would have ended up in Ohio racetracks, two separate slot parlors would have opened in Cleveland in an attempt to get people to spend money in the city.

Building a stadium or an arena in a municipality with public funds is a failed policy but it continues. Miami, which was burned by building an arena that was abandoned by the two main tenants after just 11 years of use, is at it again and will construct a baseball stadium for MLB’s Florida Marlins using “tourist” money among the various revenues of funding. San Jose, California is beginning the process of finding a way to get Lewis Wolff’s Oakland A’s into the city. Santa Clara, California would like to get the San Francisco 49ers into the town. At least no one is using the term “economic engine” anymore in justifying public spending on stadiums and arenas. In fact, there is no justification anymore; it is just let’s build a facility.


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