Foundation Briefs Advanced Level September/October Brief Resolved

Sports Institutions are Monopolies

Public Law 89-800 had no name—unlike, say, the catchy USA Patriot Act or the Patient Protection and Affordable Care Act. Congress presumably wanted the bill to be low-profile, given that its effect was to increase NFL owners’ wealth at the expense of average people.

The insertion of professional football leagues into the definition of not-for-profit organizations was a transparent sellout of public interest. This decision has saved the NFL uncounted millions in tax obligations, which means that ordinary people must pay higher taxes, public spending must decline, or the national debt must increase to make up for the shortfall. Nonprofit status applies to the NFL’s headquarters, which administers the league and its all-important television contracts. Individual teams are for-profit and presumably pay income taxes—though because all except the Green Bay Packers are privately held and do not disclose their finances, it’s impossible to be sure.

NFL Corruption Benefits Executives AMS

Easterbrook, Gregg. “How the NFL Fleeces Taxpayers.” September 18, 2013. The Atlantic. http://www.theatlantic.com/magazine/archive/2013/10/how-the-nfl-fleeces-taxpayers/309448/%20Y2K

In the NFL, cynicism about public money starts at the top. State laws and IRS rules generally forbid the use of nonprofit status as a subterfuge for personal enrichment. Yet according to the league’s annual Form 990, in 2011, the most recent year for which numbers are available, the NFL paid a total of almost $60 million to its leading five executives.

Roger Goodell’s windfall has been justified on the grounds that the free market rewards executives whose organizations perform well, and there is no doubt that the NFL performs well as to both product quality—the games are consistently terrific—and the bottom line. But almost nothing about the league’s operations involves the free market. Taxpayers fund most stadium costs; the league itself is tax-exempt; television images made in those publicly funded stadiums are privatized, with all gains kept by the owners; and then the entire organization is walled off behind a moat of antitrust exemptions.

The reason NFL executives’ pay is known is that in 2008, the IRS moved to strengthen the requirement that 501(c)6 organizations disclose payments to top officers. The NFL asked Congress to grant pro football a waiver from the disclosure rule. During the lobbying battle, Joe Browne, then the league’s vice president for public affairs, told The New York Times, “I finally get to the point where I’m making 150 grand, and they want to put my name and address on the [disclosure] form so the lawyer next door who makes a million dollars a year can laugh at me.” Browne added that $150,000 does not buy in the New York area what it would in “Dubuque, Iowa.” The waiver was denied. Left no option, the NFL revealed that at the time, Browne made about $2 million annually.

Professional teams are too ludicrously profitable to warrant public funds DAT

One of the great forgotten facts about the United States is that not very long ago the wealthy weren’t all that wealthy. Up until the 1960s, the gap between rich and poor in the United States was relatively narrow. In fact, in that era marginal tax rates in the highest income bracket were in excess of 90 percent. For every dollar you made above $250,000, you gave the government 90 cents. Today — with good reason — we regard tax rates that high as punitive and economically self-defeating. It is worth noting, though, that in the social and political commentary of the 1950s and 1960s there is scant evidence of wealthy people complaining about their situation. They paid their taxes and went about their business. Perhaps they saw the logic of the government’s policy: There was a huge debt from World War II to be paid off, and interstates, public universities, and other public infrastructure projects to be built for the children of the baby boom. Or perhaps they were simply bashful. Wealth, after all, is as often the gift of good fortune as it is of design. For whatever reason, the wealthy of that era could have pushed for a world that more closely conformed to their self-interest and they chose not to. Today the wealthy have no such qualms. We have moved from a country of relative economic equality to a place where the gap between rich and poor is exceeded by only Singapore and Hong Kong. The rich have gone from being grateful for what they have to pushing for everything they can get. They have mastered the arts of whining and predation, without regard to logic or shame. In the end, this is the lesson of the NBA lockout. A man buys a basketball team as insurance on a real estate project, flips the franchise to a Russian billionaire when he wins the deal, and then — as both parties happily count their winnings — what lesson are we asked to draw? The players are greedy.

The financing plan relied on the city’s ability to issue bonds paying interest that is exempt from federal income taxes. Almost 20 years earlier, U.S. lawmakers from both parties set out to block muni bonds for municipally financed stadiums as part of an attack on public borrowing for private businesses, according to former Senator Bob Packwood, the Oregon Republican who was chairman of the Senate Finance Committee.

“We wanted to limit it,” Packwood said in an interview. “It was one of the most egregious uses of the part of the tax code that allowed for industrial development bonds. It was clearly not what the tax code had in mind when tax-exempt bonds were authorized.”

The Tax Reform Act of 1986 removed sports facilities from the types of projects that could qualify for the subsidy. It required such bonds to become taxable if more than 10 percent of the debt for a facility built mainly for nongovernment use was to be repaid with revenue from a private business. The lawmakers who thought this would call a halt to tax-exempt stadium financing were wrong, according to Zimmerman, the economist.

The wording of the law encourages cities and states to offer more-favorable terms to pro teams wanting financial assistance while preventing the borrowers from using stadium revenue to pay off the bonds, he wrote. The measure functions as “an open-ended matching grant” for stadiums, he said. Cities and states borrowed more money backed by tax revenue, not less, to make sure that no more than 10 percent of a stadium’s debt payments came from a private business, Zimmerman said.

“They have to take it out of the pockets of their taxpayers,” Zimmerman said. “It forces a bigger subsidy, if you’re going to use tax-exempt debt.”

A recent example from the NBA illustrates the kind of thing that often goes on now. The Seattle Supersonics were unhappy with their former home, KeyArena, and sought to have the city of Seattle build a new arena. Seattle refused and the team explored moving, which would require breaking their lease with the City of Seattle for KeyArena. A lawsuit ensued and they settled out of court, with the team moving to Oklahoma City, for the 2008-2009 season, and paying Seattle tens of millions of dollars to break the lease. Oklahoma City attracted the team by promising to spend $100 million renovating its existing arena to bring it up to current NBA standards and an additional $20 million to construct a practice facility. The existing arena in Oklahoma City was built without an occupant during the 1990s as part of a downtown redevelopment plan. The Seattle-Oklahoma City case suggests relevant lessons: Professional sports leagues are able to restrict entry and play one city off against another to extract the best subsidy deal. In doing so, there is a significant positional element—one city’s fan-base loses, another gains. And teams exploit the cities where politics most effectively taps the taxpayers.

The Seattle-Oklahoma City case described above is a perfect example of the global case against subsidies. Oklahoma City offered larger subsidies than Seattle was willing to make, so the basketball franchise left Seattle for Oklahoma City. Basketball fans in Seattle lose, basketball fans in Oklahoma City gain. Perhaps there are more fans in Oklahoma City than in Seattle or fans in Oklahoma have more intense preferences for NBA basketball than fans in Seattle, so that there might be some slight gain in average welfare as a result of the franchise move. By and large, however, the franchise changing cities is a zero sum game for basketball fans. The team is enriched by the larger subsidy available in Oklahoma, but the move is clearly not a Pareto improvement in the allocation of resources. From a social perspective, a better approach to maximizing welfare might be for the NBA to expand the number of franchises so basketball fans across the country had their own local team to cheer. That, of course, is not in the best interests of the current league members who derive substantial benefits, like the subsidies, from their restriction of supply.

This case study is demonstrative of the broader professional paradigm: the extraction of profit from any willing suitor. This aids the emotional component of Con arguments: if Con teams can portray sports teams as ruthlessly profit-focused businesses, judges are more receptive to arguments against their continued funding. Combined with the strong evidence against teams’ claims that they drive economic growth, and sports teams are reduced to being an ineffective attempt at economic stimulus.

NFL teams are too highly incentivized to move to have a permanent local impact DAT

Mildner, Gerard, and James Strathman. “Baseball and Basketball Stadium Ownership and Franchise Incentives to Relocate.” Center for Urban Studies. Portland State University. July 1997. Web.

For football, the need to locate in large metropolitan areas is a league concern and not a significant team owner concern. This is because fans are willing to drive longer distance for weekend football games (hence, the market is regional, not metropolitan) and because of the importance of the national television contract in team revenue. Thus, teams are able to survive in small metropolitan areas such as Green Bay and Jacksonville, and teams can make franchise shifts to smaller markets, such as the Rams move from Los Angeles to St. Louis, or the Oilers move from Houston to Memphis (and ultimately to Nashville). In those cases, the desire to reduce stadium rents and increase luxury box and concession revenue were more important factors.