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External Policy Outcomes: Stadium subsidies

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Special interest politics in action. State and local politicians face their reelection imperative: ... margins in special interest politics favor the status quo. ... – PowerPoint PPT presentation

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Title: External Policy Outcomes: Stadium subsidies


1
External Policy OutcomesStadium subsidies
2
Introduction
  • If no mayor succumbs to the demands of a
    franchise shopping for a new home, then the teams
    will stay where they are.
  • This, however, is unlikely to happen because if
    Mayor A is not willing to pay the price, Mayor B
    may think it is advantageous to open up the
    citys wallet.
  • Then, to protect his or her interest, Mayor A
    often ends up paying the demanded price.
  • --Washington DC mayor, 1991-1995, Sharon Pratt
    Kelly.

3
In Brief
  • Why do subsidies continue to be chosen?
  • The setting
  • Market power.
  • Owners claim losing money.
  • Positive externalities.
  • Special interest politics and subsidies.
  • The outlook for the future in this subsidy arena.
  • Now, for the long version.

4
Tradeoffs and Subsidies
  • Confusion reigns supreme on this issue
  • If its so valuable, then build it yourself,
  • Versus
  • Market power, owners losing money, and the
    economics of positive externalities,
  • Tangled up with
  • Special interest politics.

5
Subsidy Sizes Lately
  • Best work recently, Long (JSE, 2005). Includes
  • Land/infrastructure.
  • Net annual public expenses.
  • Foregone property tax.
  • Total U.S. subsidies are (PV 2001)

6
Total U.S. Subsidies PV 2007
  • Subsidies equal (PV 2001)
  • MLB only 6.1 billion.
  • NFL only 5.5 billion.
  • NHL only 2.2 billion.
  • NBA only 1.7 billion.
  • NBA/NHL 1.3 billion.
  • MLB/NFL 0.5 billion

7
Total U.S. Subsidies PV 2007
  • Subsidies (PV 2001)
  • Total for 99 major-league facilities 17.3
    billion.
  • PV 2001 x 1.17 2007 20.2
    billion.

8
Individual Examples
  • The only examples where subsidy is .LE. 0
  • Minneapolis HHH Metrodome.
  • Boston/Foxboro Foxboro Stadium.
  • And in the Motor City

9
Detroit Team Subsidies PV 2007
  • Comerica Park (2000-2001) 120 million.
  • Old Silverdome (1975-2001) 100 million.
  • The Palace (1988-2001) 30 million
  • Total Detroit subsidy 250 million
  • (PV 2001 x 1.17 2007 292.5 million.)
  • This is before any analysis has been done on Ford
    Field.
  • Lets try to fathom why.

10
The Sports Subsidy Case
  • Owners make their case
  • Losing money either literally, or comparatively.
  • Creating, but not capturing, large external
    benefits.

11
Losing Money?
  • Actually losing money?
  • Team income-expense reports dont tell the story
  • Profit-taking on the expense side.
  • Revenues from other related operations.
  • Tax rules allow massive phantom depreciation and
    sheltering of non-sport income.
  • Cross-ownership saves taxes.

12
Losing Money?
  • Team income expense reports dont tell the story
  • Ive estimated these values (IJSF, 2006) to be
    upwards of 40 of some team sale prices.
  • Owners actual loss claims, while technically
    correct for tax purposes, do not provide the
    value of ownership.

13
Market Power and Losing
  • Losing money Opportunity costs?
  • Remember Economic v. Accounting Costs
  • Revenues forgone in some other location are costs
    of staying in a current location!
  • It could well be that moving is not just a
    bargaining ploy.

14
Positive Externalities
  • Values created by owners that they do not
    capture.
  • But what to do?
  • Must government step in?
  • Compare and contrast the Disney approach and
    apply the lesson to sports team owners and
    subsidies.

15
Disneyland and MLB, 1950s
  • I could never convince the financiers that
    Disneyland was feasible, because dreams offer too
    little collateral.
  • --Walt Disney

16
Disneyland and MLB, 1950s
  • Disneyland Opens 1955
  • Walt and Roy spent about 17.5 million, 18 rides
    on 85 acres. Two-part pricing 1 admission,
    35-55 additional for rides.
  • They get rich and
  • Property values in Anaheim soar as service sector
    takes care of visitors to the Magic Kingdom.
  • (I wonder what Walt and Roy were thinking when
    they conceived Disneyworld)

17
Disneyland and MLB, 1950s
  • Im for the dreamers. The only really important
    things in history have been started by the
    dreamers. They never know what cant be done.
  • Bill Veeck.

18
Disneyland and MLB, 1950s
  • Prior to 1950
  • All stadiums were privately owned and (mostly)
    privately funded.
  • Prior to the 1950 season
  • Commissioner Fricke warns cities that they will
    start sharing the bill values are being
    produced, but not obtained by owners.

19
Disneyworld and Baseball
  • Private solution to positive externalities
    observed at Disneyland?
  • The economic logic of shopping malls.
  • Disneyworld
  • Opens in stages, beginning 1971.
  • EPCOT 1982, and so on.
  • Originally, 27,000 acres (thats 318 Disneylands,
    but whos counting)

20
Disneyworld and Baseball
  • Currently 47 square miles (including resorts),
    about the size of the city of San Francisco
  • Four theme parks.
  • Two water parks.
  • Thirty resort hotels.
  • Six golf courses.
  • Two shopping-dining-entertainment complexes.
  • Just recognize the positive spillovers and
    capture them through property purchase and
    development.

21
Disneyworld and Baseball
  • Sports Owners Following the same mall
    approach, but still with public subsidies.
  • HuizengaLand complete sports-oriented business
    and living development with a football stadium
    and a baseball park.
  • RiverCityRatner re-development including an arena
    for the NY Nets.

22
Disneyworld and Baseball
  • Sports Owners Following the same mall
    approach, but still with public subsidies.
  • The original Chargers proposal of a 2 billion
    development including a football stadium.
  • The proposed As stadium in Fremont will be part
    of a 1.8 billion campus of shops, office space,
    and housing. (NY Times, Oct. 17).

23
Disneyworld and Baseball
  • But note the difference!
  • Disneyworld The private mall approach to
    positive externalities.
  • Sports owners The mall approach as well, but
    subsidized heavily by the public.

24
Disneyworld and Baseball
  • The logic of private capture of benefits is
    clear.
  • Sports team owners are typically as wealthy as
    Walt and Roy ever were (it shows in their
    ambitious projects)
  • Basic Question
  • Why do subsidies continue?

25
Disneyworld and Baseball
  • Im sure Walt and Roy would have been glad for
    the same subsidy treatment, but
  • Why might the Disneys and team owners get
    different political treatment?

26
The Setting
  • Special interest politics in action.
  • State and local politicians face their reelection
    imperative
  • Rationally, they will choose policies that create
    net voting gains and enhance reelection chances.
  • Expected Result Concentrated benefits and
    dispersed costs.

27
Quick Review
  • Policy flow Reelection constituency
  • gt Elected officials
  • The general constituency sits on the sidelines
    and pays.

28
The Sports Subsidy Case
  • Concentrated Benefits
  • Owners (and fellow travelers) get what they want.
  • Construction subsidies.
  • Generous leases.
  • Ongoing operations subsidies.

29
The Sports Subsidy Case
  • Dispersed Costs
  • Small increments, difficult to detect and
    explain, across users and non-users alike.
  • Sales tax.
  • Property tax.
  • Special districts.
  • Hotel/motel/rental car taxes.
  • Guaranteed revenue bonds
  • A Big Mac or 2 two per month.

30
The Sports Subsidy Case
  • Generally speaking (back to SM 331)
  • At the very least, payment exceeds the minimum
    required to keep the owner in place.
  • At the very most, absurd public costs.

31
The Sports Subsidy Case
  • E.G. The Suncoast Dome (now Tropicana Field),
    Tampa Bay.
  • Over 1990-2000, when D-Rays actually occupied it,
    I calculate losses were upwards of 350 million
    (Sports Economics, 2006).
  • Over 1990-2001, Long (2005 PV 2001) calculates
    subsidy of 321 million (375.6 million 2007).

32
Rational Actor Political Change
  • Suppose the verdict is that special interest
    politics leads to overspending on sports
    facilities.
  • How can this be changed?
  • The answer might be surprising.
  • Political competition!
  • Right now, net voting margins in special interest
    politics favor the status quo.
  • And so it will remain until there are politically
    viable competing interests.

33
Political Competition
  • Will both get something? Will there be a new
    champ?
  • And what about the general constituency?

34
Pessimism?
  • Two causes for pessimism
  • First, the observations of Mayor Kelly.

35
Pessimism?
  • Back to Mayor Kelly
  • If no mayor succumbs to the demands of a
    franchise shopping for a new home, then the teams
    will stay where they are.
  • This, however, is unlikely to happen because if
    Mayor A is not willing to pay the price, Mayor B
    may think it is advantageous to open up the
    citys wallet.
  • Then, to protect his or her interest, Mayor A
    often ends up paying the demanded price.

36
Pessimism?
  • And owners acting as leagues have always made
    sure there is a Location B.
  • Examples
  • Tampa Bay and the White Sox
  • and the Giants
  • and the Mariners!
  • The NFL and L.A.

37
Full Circle
  • The setting
  • Market power owners losing money.
  • Positive externalities.
  • Special interest politics in action.
  • The outlook for the future

38
Full Circle
  • Yogi Berra Things will stay the same unless
    they change.
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