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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
Brooklyn may still be pissed off about the dodgers.
Sports teams are all about civic pride and mayoral bragging rights.
Cleveland was harmed when the Browns left.
This is true. The economic arguments are just a fig leaf for giving the people what they want: Bragging rights that their town has a major league team.
” why on earth should they send their hard-earned money to millionaire athletes and billionaire owners?”
…because they’re idiots!
So I’ve been following this story for a while. Did you see Christian Schneider on it in NRO? I wouldn’t agree with all of it — but it’s worth reading.
1) First, I think I’d vote against it.
2) Second, from what I understand locally, it actually is considered a done deal that the team will leave — probably to Seattle. The NBA has been pretty clear. It wasn’t a bluff.
So Walker’s math (we’re spending less on this than we’d lose from their income taxes) holds up. Conservative legislators outside Milwaukee — those whose districts wouldn’t directly benefit — voted for it. I don’t think that would be enough for me, but I see the argument.
3) It’s not absolutely clear legally, but it may well be the state would be stuck with liabilities for the current Bradley Center if the team left. There was evidently no zero-dollar option. Now the Bucks have to pay for maintenance and any cost overrides. Walker’s team was clearly looking out for the taxpayer in the negotiation process.
4) There’s been some happy talk, but I haven’t heard any of that utopian language you refute so effectively from Walker. (Abele, yes.)
Losing the team would be one more blow to the city of Milwaukee — which doesn’t need it, psychologically or economically. The Republicans in Madison keep trying to find ways to save Milwaukee from itself. Sometimes it’s a vain endeavor.
How many people in Brooklyn were even alive way back when?
Richard Epstein?
The math argument is pretty simple: Wisconsin currently gets $6.5 million per year from the Bucks’ income taxes, and likely more after next year. That’s certain, not based on fuzzy hopes of economic development. Wisconsin’s portion of the stadium will be $3.5 million per year. And it really stays at 3.5 million. If it goes over cost, the team pays. If the team changes its mind and goes to Seattle anyway, the team still pays.
6.5 is greater than 3.5. That doesn’t rely on any fuzzy future projections of vague economic benefits or property taxes.
The state isn’t doing all of it. The team is funding part of it. Part of it comes from a ticket surcharge.
Now I’m not in love with that argument — you could take it all sorts of places, though there are unique considerations here — but it’s not an assault on taxpayers. I’d be a no vote, but I wouldn’t be running a furious campaign over it either.
Wait a minute, did you just say taxpayers are paying for the kind of government that pays for this team’s stadium–in part–so that they can then pay rather more directly for the stadium–ditto–in higher ticket prices? Is that the economic sense it makes? Is the point that this makes sense for government revenue? Is that so good for the folks in your state?
Great argument. I’m generally in agreement that the whole “stadium building” thing doesn’t seem to pan out out. We discussed some of that stuff in a class I was taking. But I don’t know about the specifics of Scott Walker’s decision. If the team really were to leave, that probably would hurt Wisconsin.
@Leigh
Also very interesting. There may be some greater rationale to his decision than “Walker is a fan of welfare for businesses!” like I’ve been seeing on Twitter.
Arenas are about the only exception when it comes to sports complexes that actually make money for local and state governments that own them on average. So in general I am against the idea and all it shows is Mr. Walker is not a pure Free Marketer. However that does not mean he can’t still have fiscally sound policy and budgets in cases were the government gets into businesses they should stay out of.
I’m not sure I get your question. You’re asking whether it’s fair that people who will actually go to games and use the stadium should have to pay more for it?
It’s a Milwaukee team. The revenue calculations convinced some out-state legislators that it’s worthwhile for other taxpayers, but it absolutely makes sense for the people who actually benefit from the stadium to pay a little more.
The team didn’t really want the surcharge, but that’s what it took to get it through, and it won’t hurt them. NBA tickets are a luxury item anyway. No real Bucks fan is going to complain about paying two extra dollars (that’s all it is) in order to keep the team there.
The ticket surcharge is one thing I have absolutely no quibbles with at all.
(You can’t waste “Terrible horrible no good very bad” on this deal, Jon. It’s not worthy. Maybe “ideologically questionable” or “iffy.” But save Alexander’s lament for something awfuller.)
This is a no brainer, sign me up right away, absolute steal of a deal for state taxpayers outside of Milwaukee. Make no mistake, the NBA was salivating at activating their option to buy back the team and sell it to tech billionaires in Seattle. There’s is no major outcry from Wisconsin residents over this deal (as opposed to the Miller Park deal 20 years ago) because they realize it is a great deal. The NBA TV contracts are set to be renegotiated through the roof and player salaries will grow like weeds. Had we let this franchise skip town it would be talked about for decades to come as a black mark on the state.
As someone noted above the thing about arenas as opposed to football/baseball stadiums is that you can use them 365 days a year for myriads of things.
One of the biggest reasons for Consol Energy Center in Pittsburgh is that the Civic Arena could not handle modern stage shows by the big music acts or host NCAA tournament games.
Pittsburgh was losing a lot of revenue because of that.
I’ve always thought that these sort of projects are what should be funded by lottery. Instead of lottery money being funneled into general funds, (ostensibly it funds education, but as we all know, money is fungible),public lotteries could be held for these sorts of projects.
I would have sold him the Astrodome for fifty bucks.
The long exposition in the OP about the false promise of development around a stadium or arena is completely irrelevant to this issue. This deal is not being sold on the basis of expected or hoped-for development.
It’s being sold on one fact:
The Bucks pay more to the state of Wisconsin in income tax each year than this deal will cost the state each year. If the bucks leave, that money is gone. If the bucks stay, that money stays, and grows over the following years.
It’s basic math, and it would be irresponsible to not do the deal.
I wish he’d put it up to a referendum, but apparently the voters of Wisconsin ruled that out a long time ago.
The Bucks owners and the Milwaukee Association of Commerce both sold the plan on new economic development. I didn’t see Walker do that, but business interests certainly did.
Really appreciate the local perspective, Leigh. Thank you!
One of my pet peeves is taxpayer-funded stadia, so I still oppose the appearance of impropriety on these things (some of those who profit in this deal gave BIG money to his SuperPAC), but this deal obviously isn’t as awful as venues in Phoenix, Miami and Columbus.
Whoops
I should clarify that I’m not local… anymore… I just still follow Wisconsin almost obsessively. Partly because I came to genuinely care about the place, partly because it’s more interesting and less frustrating than trying to figure out what’s going on in Richmond. (Not that I don’t do that. But it’s painful.)
Other interested parties may have used whatever pitches they liked.
Gov. Walker’s pitch has always been based on the income tax money – notice the sign on the podium in the picture you chose to illustrate the main post: “Cheaper to keep them”.
My main beef with the deal is that the owners of the Bucks were able to pick up several acres of vacant land adjacent to the new site for $1, on which they plan to develop the “entertainment district”. I would have preferred the local governments involved to have stuck them for a couple million. (A local radio host offered to double the price paid: $2 if he could have the land).
Milwaukee has a basketball team?
Who knew?!
I’ll be shocked if there’s any significant economic development in the surrounding area. The arena is being built on land that’s been vacant for over a decade since they tore down a freeway overpass. Its been vacant all this time for a reason.
But again, the income tax from player salaries more than offset the state investment.
My old office building is being razed this week for a park that will abut the new Vikings Stadium. The old stadium, a charmless hulk, was sold as a spur to economic development. The result: one bar. This time they’re not waiting for the area to generate new businesses on its own – Wells Fargo is building two office towers, developers are putting up three residential structures, and there’s a hotel under construction as well. It’s the largest urban renewal project downtown has ever seen, and the whole point was to ensure that the stadium was integrated into the city, not dropped in a sketchy part of town with the hopes that a thousand flowers would bloom.
I’m not a fan of publicly funded stadiums, but every day I walk around this project, and I think: Hot Chiggers, this is incredible.
I hate complaints about this. Of course, in a strict sense it’s stupid. But that’s the game. And these mayors and governors are in the game whether they like it or not. Don’t want to play? Fine. You lose. Congratulations. Good luck in November.
Would you really prefer a Governor who lost everything you love because his econ textbook said he should?
I don’t think that $150k deserves an all caps, CoC busting, emphasis on “big”. A CoC compliant italics or bold, at most.
It’s also not from an owner. It’s from the company of a son of an owner. There were a fair number of Milwaukee backers for the stadium. A fairly high proportion of Milwaukee businessmen have strong opinions on Walker and either back him or his opponents. The father in this instance is John Hammes, who is the finance chair for Walker for President. He’s given a lot before and is (obviously) pretty committed to the Walker campaign. Even if it was him giving, which it wasn’t, it doesn’t appear plausible that he’s giving as an immediate quid pro quo.
Similarly, Walker has backed this for a long time. If you want to make the argument that his backing projects of allies is awful, then fine, although it’s worth noting that the world of the Wisconsin super rich is not huge; of course the governor will be involved in financial decisions that involve them. What is hard to argue is that Walker’s position on this was influenced by the donation.
In terms of how difficult or controversial a decision it was in Wisconsin to support it, this bill got a veto proof supermajority in one of the most divided senates in the country. There really wasn’t a motivation for a bribe to be offered, and there isn’t a reason to believe one was needed. It’s also worth noting how utterly trivial a sum this is in the context of the tens of billions of Wisconsin state budget.
It makes sense that Reason and CATO will throw around casual implications of felonies, but I’m hoping Ricochet will do better. The optics are bad if you take the CATO/ Think Progress/ NYT framing, but those are clearly misleading framings.
It’s projected to create an economic benefit. I’m with you that those projections are often faulty. The projections are enough, though, to make the funding cheap. You’re right to talk about civic pride and non-tangible benefits. This deal is cheaper for Wisconsin than similar deals have been for other places where they have been democratically popular, and, perhaps more importantly, Badgers seem to be more into the expression of civic pride through sporting enthusiasm than most.
A state that isn’t huge and isn’t hugely wealthy is able to support a team as big as the Packers because sport appears to be genuinely important to these guys. A bunch of Tea Party legislators backed the stadium, because that’s what the grass roots wanted as well as the establishment. Evaluating it just in dollar terms is obviously the wrong approach, but the relatively impressive balance sheet argument by public stadia standards does make it a better deal.
That said, this was always going to be a vote loser in Iowa and South Carolina, and a bigger vote loser in Nevada and New Hampshire. This will be a stone around his neck for the whole campaign, the reason for a whole lot of people to write him off as a progressive.
Whether he was right or wrong about the decision, it appears that he believed that it was the right thing to do, and he did it in the knowledge that it was going to be unpopular with primary voters. That, to me, is what principle and courage look like. He’s not going to be re-elected in Wisconsin (running for national office doesn’t allow Blue State governors the Perry luxury). This was a straight up effort to do what was right despite knowing the cost. Even if you disagree with him about the policy decision, it seems hard not to admire the guts to take it.
Now, if you don’t mind me, I’m going to be quietly cursing the fact that he did. CATO and pals need pandering to and I’d frankly prefer that he made bad choices for Wisconsin if that’s the cost of keeping the tantrum throwers half way on board. There’s a time for principle, and it kicks in in November 2016. Sadly, that’s not the stuff that Walker’s made of.
I’m als0 opposed to the taxpayer funding of sports stadia for professional teams. However, on the list of issues I care about this is way, way down the list. This issue will play no role when I decide whether or not to support Walker in the GOP primaries.