Feb. 3 (Bloomberg) -- As you watch the Super Bowl Feb. 5, spare a thought for the taxpayers in the host city of Indianapolis. The stadium in which the game will be played has been financed largely at their expense and, like so many sports venues built with public money, the cost just keeps growing.
Lucas Oil Stadium, where the Colts play eight regular season games per year, has every amenity: a retractable roof, state-of-the-art turf, seven locker rooms, 137 luxury suites, 1,000 flat-screen televisions. And well it should: It cost $720 million to build.
Of this, the Colts paid only $100 million. To cover the rest, local officials raised taxes on hotels, restaurants and rental cars, and issued bonds that soon led to ballooning financing costs.
As Bloomberg News reported Feb. 2, the cost overruns resulted partly from the city’s reliance on auction-rate securities, which became extremely expensive as the market for such bonds collapsed in 2008. Interest rates on some of the stadium bonds reached 15 percent at one point, according to data compiled by Bloomberg.
All told, this led to about $43 million in unexpected financing costs. As projected deficits grew larger, the county board that operates the stadium had to reduce arts and cultural grants, and the city increased taxes on hotels even further.
Threat to Leave
In its outlines, this is a familiar story. With the Colts threatening to leave town in 2006, an economic-impact study done for Indianapolis suggested wondrous civic advantages would soon flow from a new stadium: Along with the expansion of an adjacent convention center, the project would create $2.25 billion in economic benefits over 10 years, 4,200 new permanent jobs and 4,900 construction jobs. And, of course, the team would stay. The stadium duly opened in 2008.
But like many studies of its kind, this one will probably turn out to be fantasy. Public funding for sports stadiums has been found, in dozens of studies over several decades, to fall short of its promised benefits and to cost taxpayers more than expected.
Robert A. Baade of the Heartland Institute, a research group in Chicago that promotes free markets, examined 48 cities over a 30-year period and found “no factual basis” for the argument that professional-sports stadiums and teams have a significant impact on economic growth. A study by Judith Grant Long, an associate professor of urban planning at Harvard University, found that public subsidies for stadiums are typically 40 percent more expensive for taxpayers than initially advertised.
And the debts linger: From the Kingdome in Seattle to the Astrodome in Houston to the old Giants Stadium in New Jersey, today’s taxpayers are on the hook for tens of millions of dollars in debt for stadiums that are no longer in use or no longer even exist. The RCA Dome -- which Lucas Oil Stadium replaced, and which was imploded in 2008 -- won’t be paid off until 2021.
All of this might be justified if hosting a team brought an abundance of jobs at a time of high unemployment. But the data suggest that this, too, is unlikely. A study by Jordan Rappaport and Chad Wilkerson of the Federal Reserve Bank of Kansas City found that the net number of jobs created by hosting a pro-sports team “is almost certainly less than 1,000 and likely to be much closer to zero.” Another study concluded that hosting a sports team might actually destroy jobs.
Reducing Local Wages
Stadiums probably don’t help wages, either. Dennis Coates of the University of Maryland and Brad R. Humphreys, now at the University of Alberta, looked at about 30 years worth of data and found that new stadiums, and sports more generally, may actually reduce local incomes.
This is because spending on sports typically displaces spending on other forms of entertainment, and it tends to have a small multiplier effect, since so much of the money spent is funneled to small numbers of athletes and owners who often live elsewhere. New taxes imposed to pay for stadiums may also come at the expense of projects with greater economic potential, and the city may become less attractive to visitors as it boosts fees on hotels and rental cars to support the stadium. Finally, most of the permanent jobs that actually materialize at new stadiums aren’t high quality: They are typically part-time, seasonal and low-wage, and they often carry no benefits.
A sounder argument for public financing of sports arenas is that they can help drive investment to a specific area. For instance, they can lure money from the suburbs into a struggling downtown. Camden Yards, the baseball stadium that helped revitalize part of downtown Baltimore, is the oft-cited example. But building a stadium is usually an inefficient way to accomplish this. At Camden Yards, according to Roger Noll, an economics professor at Stanford University, the cost per job created was $125,000. Other redevelopment programs in Baltimore typically spent $6,000 per job.
Although the economic rationale for publicly financing stadiums is poor, an important fact remains: People really, really like sports. And they will often be willing to pay a high price to keep their favorite teams or lure new ones. Sports are part of what makes a city a city -- what would Boston be without the Red Sox, or Chicago without the Bears?
But this calculus is an ethereal one. What price could a city government place on its citizens’ love for their sports teams?
The answer is that public funding for new sports stadiums should be up to voters to decide. Cities should make sure the public has access to independent evaluations of the costs and benefits of building a stadium -- not just the inflated “economic-impact studies” done at the behest of team owners and publicized in the media. It should also be made clear exactly what other subsidies the sports teams will be getting: from cheap loans to cheap rent to cheap land.
Finally, in structuring a deal, cities should strive to use fees -- such as surcharges on tickets -- that place more of the cost on those who actually use the facilities, and the city’s share of the cost should, as much as possible, be dedicated to associated public-works improvements that will have benefits beyond game day. Most importantly, the teams should shoulder the heaviest financial burden in any deal.
If, confronted by an honest cost-benefit analysis, citizens vote to pay more in taxes or forgo other civic improvements, then, by all means, give them their retractable domes, their plasma TVs and their years of expensive enjoyment.
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