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Scott Walker and the Terrible, Horrible, No Good, Very Bad Stadium Deal
Two days ago, I praised Gov. Scott Walker’s quiet conservatism. Today, I’ll criticize his inconsistency. The Milwaukee Bucks decided they needed a new basketball arena and they told the government to pay for it. If politicos didn’t cough up $250 million, the NBA warned that the Bucks might leave Wisconsin. Nice team you have here, Milwaukee. It’d be a shame if something happened to it…
Taxpayers would rightly be furious if a private business demanded they fund a supermarket, an office building, or a strip mall — why on earth should they send their hard-earned money to millionaire athletes and billionaire owners? But, like most politicians of both parties, Walker quickly knuckled under to a threat from a major sports league:
Wisconsin Gov. Scott Walker (R) signed legislation Wednesday to spend $250 million from taxpayers on a new arena for the Milwaukee Bucks basketball team — a deal he has championed for months despite fierce opposition from fiscal conservatives who usually agree with him.
The team’s ownership group — which includes one of Walker’s top campaign fundraisers — had threatened to move the Bucks to another state if the taxpayer financing did not come through. Walker said he did not want Wisconsin to lose the millions of dollars in taxes it collects on player and staff salaries, along with the other perks that come with having a professional basketball team in the state.
“The return on investment is 3 to 1 on this, so we think this is a good, solid move as a good steward of the taxpayers’ money here in Wisconsin,” Walker said Wednesday morning after he signed the legislation. “This is just simple mathematics.”
…The team’s investors pitched building a new arena in downtown Milwaukee that would anchor a new entertainment district, revitalizing that part of the city and creating more jobs. The total cost has been pegged at $500 million. Kohl agreed to chip in $100 million, with the new owners paying at least $150 million and Wisconsin taxpayers picking up the remaining $250 million.
Walker’s math is based on the team actually leaving Milwaukee, which isn’t close to a sure thing. The San Francisco Giants threatened to leave if the city didn’t build them a new stadium. The famously profligate city called their bluff and the Giants found a way to build it without tax funds. The same is happening in Los Angeles for an insanely expensive football stadium. If these extremely liberal cities won’t bow to the cronies, why should Walker?
In addition, study after study has shown that sports owners’ promises of “economic impact” rarely if ever pan out.
Economists have long known stadiums to be poor public investments. Most of the jobs created by stadium-building projects are either temporary, low-paying, or out-of-state contracting jobs—none of which contribute greatly to the local economy. (Athletes can easily circumvent most taxes in the state in which they play.) Most fans do not spend additional money as a result of a new stadium; they re-direct money they would have spent elsewhere on movies, dining, bowling, tarot-card reading, or other businesses. And for every out-of-state fan who comes into the city on game day and buys a bucket of Bud Light Platinum, another non-fan decides not to visit and purchases his latte at the coffee shop next door. All in all, building a stadium is a poor use of a few hundred million dollars.
This isn’t news, by any stretch, but it turns out we’re spending even more money on stadiums than we originally thought. In her new book Public/Private Partnerships for Major League Sports Facilities, Judith Grant Long, associate professor of Urban Planning at the Harvard University Graduate School of Design, shatters previous conceptions of just how much money the public has poured into these deals. By the late ’90s, the first wave of damning economic studies conducted by Robert Baade and Richard Dye, James Quirk and Rodney Fort, and Roger Noll and Andrew Zimbalist came to light, but well afterwards, from 2001 to 2010, 50 new sports facilities were opened, receiving $130 million more, on average, than those opened in the preceding decade. (All figures from Long’s book adjusted for 2010 dollars.) In the 1990s, the average public cost for a new facility was estimated at $142 million, but by the end of the 2000s, that figure jumped to $241 million: an increase of 70 percent.
Economists have also been, according to Long, drastically underestimating the true cost of these projects. They fail to consider public subsidies for land and infrastructure, the ongoing costs of operations, capital improvements (weneedanewscoreboard!), municipal services (all those traffic cops), and foregone property taxes (almost every major-league franchise located in the U.S. does not pay property taxes “due to a legal loophole with questionable rationale” as the normally value-neutral Long put it). Due to these oversights, Long calculates that economists have been underestimating public subsidies for sports facilities by 25 percent, raising the figure to $259 million per facility in operation during the 2010 season.
Sports fans and everyday citizens still cite anecdotal evidence as an argument for public financing. “That neighborhood was a dump; now it’s beautiful.” “No one used to go downtown at night; now it’s hopping!” Although the immediate area around the venue might look nicer, the areas further out look slightly worse. This is hard to visualize, so let me create a simplified example.
Here are maps showing the 13 neighborhoods of Anytown, U.S.A. The darker the green, the more economic activity that neighborhood has. Neighborhoods 3, 6, and 10, have the most economic activity, while 7, 8 and 13 have the least.
Neighborhood 13 is the worst of the worst. Abandoned factories, vacant warehouses, and graffiti-covered multi-unit housing. The area was first mapped out decades ago, so the streets, lampposts, sewer lines, and everything else need a major upgrade.
Wanting to revitalize the district, Anytown’s City Council named Neighborhood 13 as the site for a sparkling new, $500 million taxpayer-funded stadium. Urban planners can tear down the ugliest empty buildings and seize the rest using eminent domain. Once the stadium is built, private business will surround it with hip new restaurants, bars, and hotels, while the city improves the infrastructure all around. More economic activity in Neighborhood 13 means more tax revenue for the city. So naturally, the stadium will pay for itself over the long haul, right?
Not so much. Three years after the Anytown Stadium is built, Neighborhood 13 is doing pretty well. The city cut tax rates to lure investors, so hotels and restaurants popped up around it. Sure, some decrepit areas remain, but Neighborhood 13 hasn’t been this vital in years.
But look at the neighborhoods around it. Sure, they’re okay, but each one has a little less economic activity. Neighborhood 13 is more green, but several surrounding areas are a little bit less green. The guy who wanted to expand his restaurant chain built in 13 instead of 6. The woman who wanted to create a sports bar told her realtor to buy in 13 instead of 12. Neighborhood 13 is no longer the poorest in town, but now Neighborhood 7 is in even worse shape.
Anytown residents used to spend money at their local malls and movie theaters. Now the richies in Neighborhood 3 blow $250 at a game instead of buying that French coffee grinder at their local Williams-Sonoma. One neighborhood’s loss is Neighborhood 13’s gain. Notice how little new economic activity is being created; it’s merely shifting dollars from one part of Anytown to another. Worse still, Anytown created the Stadium District Enterprise Zone, lowering the taxes in 13. So the town is collecting less total revenue than they were before the stadium was built. And though the stadium area looks packed on game nights, it’s still pretty empty on the 325 days a year there isn’t an event.
Granted, Anytown is an intentionally simplified example. Urban areas are fluid, unique entities with their own layouts, suburbs, economic patterns, etc. And we shouldn’t forget that it’s nice to get the once-per-decade boost of an all-star game or championship game. But these brief booms slightly mitigate the initial outlay; they don’t come close to paying for it.
Many government revitalization schemes have the same negligible-to-negative impact. Phoenix had a economically depressed street, so they “improved” it with an insanely expensive light rail system. Now that street is much nicer but the streets north and south of it are in even worse shape. If the original street had 100 vacant storefronts, the streets around it now have 150.
Basically, city planners are pushing the air from one side of the half-filled balloon to the other. And each time they do, a little more air seeps out the end. It’s usually a net-negative impact. New wealth isn’t being created; old wealth is shifting around.
If Scott Walker or any other politician wants to argue for a taxpayer stadium, he can point to civic pride, prestige, or other non-tangible benefits. But if he reads the stack of studies from every side of the political spectrum, he cannot in good conscience argue that it will create an economic benefit.
Published in Economics
Separation of Sports and State. It’s the Founders’ fault for not writing it into the Constitution.
Go Spurs Go!
On Jon’s last thread about Walker, I was corrected by Leigh and James of England when I lamented Walker’s purported support of ethanol subsidies. This time it seems more apparent that Walker is in the wrong. Leigh may well be correct on the numbers, but I’m disturbed by a business using it’s potential tax revenue as leverage to get government subsidies. We don’t negotiate with terrorists even though it can cause great pain, because we don’t want to incentivize terrorism. I know the progressive response would be to point out corporations and individuals who have left, or threatened to leave, America to escape high tax rates. The proper rebuttal is to illustrate the difference between objecting to the government taking your money and objecting to the government not giving you money.
This isn’t a deal-breaker. Maybe it’s for the best. Good to be reminded that politicians are human. You can’t expect the president to solve all the nation’s problems.
Or not. The first $3.5 million is to be seized from people. That represents things that were not saved for, invested in, or consumed. The wealth is removed and many are deprived of the choices of use (or saving) closest to where they are best informed or have needs. The gains from those of the good choices are gone. Their wealth and potential added wealth are gone. The costs are thus really unknowable. Even if we follow the simple logic: The first $3.5 million is a reduction of wealth. It is purportedly to be used to “get” for the state an additional wealth reduction of $6.5 million. That’s a cool $10 million removed from the productive part and shoveled off to the unproductive part. Let’s face it, politicians – including Scott Walker – make lousy investors. Let them leave it to the savers and producers. And why are politicians against consumer choice creating and capital unlocking ventures such as Uber and Air-BNB? For one, racks and racks of user fees and taxes tied to financing schemes for stadia to used by corporate executives to watch millionaires play on teams owned by billionaires in cities many of which are long ago broke.
I agree that it’s a terrible business decision. But there’s another calculus here also. Every politician has only so much cred to spend before the enemies win out over the friendlies. Only so many favors you’ll be given. The man fought a hard war against klepto-unions, survived two recalls, and a prosecutor acting like the Stasi. In the course of it, no doubt, they said he didn’t care about the Little Guy. So here’s his chance to show he’s in favor of little bars and restaurants, vendors, and fun. Time to build up the cred.
The difference in this case is that the state is currently receiving the 6.5 million, and would lose it if the team leaves. So it’s coming straight out of the team’s own taxes. If they left, the state would face a shortfall, which would hurt taxpayers.
Again, I’d personally say let the free market handle it all — though it’s fair to note that would perhaps leave Wisconsin competing on a less than equal playing field. But there’s a reason that not just Walker but some of the country’s most conservative legislators supported this.
Also, if the team leaves the state is potentially left with some very significant liabilities for the existing Bradley Center. If that is the case, the math becomes clear enough to potentially put me on the “yes” side.
If I’m an owner in any league I’m always going to want a leveraging city where I can threaten to move. In the NBA it’s Seattle in the NFL it’s L.A where it looks like 3 teams are threatening to move to currently. Living in a small market (Salt Lake City) with an older arena over 20 years old I’m sure one day the owners of the Jazz will threaten to move to Seattle for a new arena.
There is that which is seen and that which is unseen.
https://en.m.wikipedia.org/wiki/Broken_window_fallacy#
I can’t fault Walker on this. Cities paying for sports complexes is the ongoing practice. Right or wrong a precedent has been established and if a city wants to buck it (I think Minneapolis did a few years ago) they take on a big risk. If the team leaves, city pride drops, despite the economic analysis.
It probably helps that the Packers are a publicly-owned non-profit, with fans as shareholders (See this), and that means they aren’t going anywhere.
JoE nails it as usual. The people on the ground in Wisconsin, progressive loons and tea partiers alike, are mostly in favor of this deal. But the optics from far away lead to knee jerk charges of “impure!”
Wisconsin state taxpayers are spending $50 million ($75? with interest), and in return they get $450 million in matching investments ($250 private, $200 city/county Milwaukee), plus a continuous revenue stream of income taxes from some of the richest salaried employees in America.
Denver (county) and the 5 surrounding counties fell for this same argument when the Bronco’s wanted a new stadium. Now, very few sports teams can enjoy 20 plus years of sold out attendance, so when the Bronco’s threaten to move, I took it as a joke. We would have a new NFL team before the Bronco’s could have cleared the the locker room. But local powers the be went for it: hook, line and sinker, resulting in a sales tax increase to pay for half the stadium, which was given to Pat Bowlen, the Bronco’s owner. Bowlen got full control of the stadium, received parking lots all around the stadium (which he did not own before the deal) and all the sky boxes. The sky boxes of the old Mile High stadium that he had sold. He needed the money for his mining operations in Canada. Yes, he is Canadian to boot.
Almost as bad: the TV and radio station coverage of politics and issues surrounding these stadium deals. They turn a blind eye and loose all objectivity–if they had any before. The lure of a new stadium with dedicated media parking, media sky box, media restrooms (Yup), media food and beverage service, on top of not paying for the game (NFL, NHL, NBA tickets ain’t cheap), complementary tickets, field passes, free jerseys, hats and other team bling. It goes on and on and on.
Bottom line is that the local media has a conflict of interest on stadium issues and won’t acknowledge it.
This analogy is B.S. Any examples?
The Bucks were sold last year, and part of the league approving the sale was a clause that required the team to have a new modern facility by 2017, or else the league reserved the right to buy the franchise and sell it to the highest bidder.
The NBA does not want one of its 30 franchises located in a small market in the rust belt where population growth is at best stagnant.
This franchise was gone without a new arena.
This being officially in my bailiwick, I suppose I should say something, but I have no strong feelings on the matter.
1.) The Edifice Complex is a real thing, and an entire industry of consultants exists to say “you need a stadium, a convention center and hotel, and a lightrail system connecting the two.” Your mayor goes to any consultant with any problem they say the same thing. “Solution for your economic problems? Stadium, convention center, lightrail.” “Solution for your erectile dysfunction? Larger stadium, convention center, lightrail…”
2.) The evidence that these consultants are correct is sketchy at best. However the reason they are wrong is in question. Some argue that building civic structures is inherently wasteful, and they never make their money back. Others, however, argue that in some circumstances, they can work. The consultants problem is that they never tailor their solutions -it’s always “stadium, convention center, lightrail.” I am in the latter camp. And not knowing Milwaukee, I cannot, therefore, pass judgment.
3.) Stadia and Convention Centers are an odd duck. Convention organizers don’t use the same city enough to justify building their own convention centers. Hoteliers don’t get enough from conventions to cover the costs, either. Similar logic applies to stadia/arenas. It is arguable that, in fact, it is the cities -in economic development, taxes, and yes, civic pride -that benefit most from their existence. These amenities attract residents and keep current residents.
4.) Just from this read, it sounds like a good candidate for a place where an arena would work. The existing revenue provides some evidence that the arena amenity is attracting business and residents. And the costs of the arena are low enough to pass even a simplistic CBA, let alone one that includes larger projections. That is not guaranteed, though. (We could imagine that the stadium will have another $3m in knock-on costs.)
5.) The larger problem for policy is that we are in a time of urban winner-take-the-most development. Most cities are losing residents to the suburbs (urban areas are growing, but not central cities -a distinction people in my field really need to grapple with more than they do). The cities that are gaining population have stadia, arenas, libraries, museums, and much more. Places like New York, and LA. And, ok, there aren’t actually any other good examples. Cities today rely on their residents, not their businesses. And the people who move to cities are looking for the “urban playground” experience. That makes the stadium necessary, but not sufficient, for a healthy major city.
My view is that there probably can only be at most a dozen “major cities.” The rest will gradually empty out into suburban metroplexes. That actually strengthens the case for the state to do it, rather than the cities -because residents in the suburbs will use it, too.
It seems worth noting that Walker is perhaps the most passionately anti-rail governor in the union. Those consultants probably have to tailor their message a little with him.
Milwaukee’s mayor, on the other hand, is spending $140 million (much of it from a federal grant) on light rail.
Beat me to it.
I don’t have the exact statistics on hand, but my impression is that this describes Milwaukee exactly. The city itself has only about 600,000 people and — if I remember correctly — has been losing population in recent years. For reasons having to do with, well, leftist government and all that goes with it. As I think I said earlier, the state Republicans keep trying to save Milwaukee from itself. They can only do so much.
The economic growth is in the suburbs — both Milwaukee County itself and the surrounding area. But the downtown area is still a draw.
The Brooklyn Dodgers. The Baltimore Colts. The Cleveland Browns. The Minnesota North Stars. The Oakland Raiders. I can probably go on and on.
Manny, what is your measure for city pride dropping? How do you gauge it?
Past wrong doing does not justify continued wrong doing.
Way for a Republican candidate to position himself to take on the crony-capitalist, corporate-welfare establishment.