Sport Stadiums Subsidization Franklin Griffin II
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Franklin Griffin II Sport Law Dr.Garrett Research Paper It can be safe to say that stadiums do not build themselves but with professional sports yielding a multi-billion dollar industry it is nice to know how those dollars are being invested. In a capitalistic society, sports have become one of the truest forms of capitalism. The amount of money that circulates through the media, ownership, sponsorship and advertising are large sources of profit. Professional athletes make a substantial amount of money by playing a game that you learn as a child; yet the stadiums in which they play are incomparable to the athletes of ancient Greeks and Romans (Rich 2000). This is due to the public demand of professional sports in the free and open market which allows for owners to seek the need to build stadiums that will entice the public’s obsession for sports. The research in this paper will take an in depth look at the construction of sport stadiums in relation to the location, various components of political advocacy, building/renovation and the intangible effects that building a new stadium has on a city specifically its citizens. While local officials have a long history of efforts to attract teams to their communities, the task of securing the funds needed to build the required playing facilities is relatively new (Swindel 1996). The American culture has become so engulfed in the competition of sports that they are unaware of the amount of capital that is invested in the stadiums. Coincidentally the trend of growing sport stadiums has come with the owners’ ability to recognize the impact that a team may have on the city that it represents. There are four ways that the government provides subsidies for building stadiums.; publicly financing stadiums and renovations, offering favorable leases to clubs for rent or no rent….and using tax exempt bonds to finance the construction of stadiums (Weiner 2004). Many of the teams are located in “major” metropolitan areas while smaller cities try to get their piece of the pie but at the expense of the citizens. Throughout the evolution of sports, teams have become a mirror image of their cities socioeconomic status. For many reasons such as facility obsolescence, lack of capacity for expanding attendance, and competitive balance, professional sports franchises are requesting new stadiums at an unprecedented rate (Jensen 2011). The three professional sport leagues; NBA, NFL and MLB all have teams that are privately owned or a mixture of private and public ownership. Many of the teams are located in metropolitan areas which is vital to their success and city prestige. . The allure of a professional sports team for a city causes for cities that can economically obtain teams to have them. U.S team-sports leagues are monopolies. As such, they maximize their profits by reducing the supply of franchise below the demand for franchises economically viable cities. There has also been an intangible effect as teams’ look to find venues that can attract more customers and facility lessees. As a result, cities compete with one another to obtain or keep teams in house (Swindell, Rosentraub; 1998).With this beginning to be a growing trend, the question begins to suffice; is the construction or renovation of a stadium an economic burden? What role does the city, team owners and the citizens of city play in the construction? One must first look at how the stadiums were created. In the 1920’s state colleges began to build large football fields and this trend encouraged municipalities, to build public stadiums that promoted city reputation and athletic participation. During the 1920’s, several local governments built large outdoor facilities those being the Rose Bowl and LA Coliseum in 1923, sections of Soldier Field in 1924, Memorial Stadium 1924 and Philadelphia’s Municipal Stadium in 1926 ( Riess 1989). Politicians and advocates see sports as an incremental asset, for the tranquility of the community, the uses of land and property value and it is evident in the precedent case of the Los Angeles Coliseum. The Coliseum, which is on the edge downtown Los Angeles and a few miles south of USC and Exposition Park is in a vital location as an urban area. Sports are a business that attracts other businesses in regards to advertising, sponsorship and licensing. It also gives employment to those that are in need of jobs in the area around which the stadiums are built. City developers in Los Angeles caught on to this early and decided to take action. . It can be initially noted that government officials wanted to obtain the 1932 Olympic games to help enhance the city prestige, gain publicity and promote future developments with a stadium that could be utilized for multiple purposes. During the development of the Coliseum, the CDA (Community Development Association) which were political advocates that included city boosters and William Garland appointed as chairman, who was also the president of the Chamber of Commerce while having vested interests in realty (Reiss 1981). The CDA’s proposal to finance the construction included a tax bond issue to pay for the park or for a leased parcel of Exposition Park. Los Angeles officials had a lot of civic pride during a time where no one really had any money due to the economic crisis but except for the movie business which was booming in Hollywood CA, the possibility of boosting their economy by bringing the Olympics in 5 years was icing on the cake. With Los Angeles eager to surge into the “big market” the CDA prioritized the stadium’s construction over the public’s interest. The CDA was able to get 17 acres of Exposition Park and set up a syndicate which included underwriting $800,000 below prime rate loan which was written by the city and county of Los Angeles. With city and county clearance to finance the stadium many of the voters were opposed and voted not to have the bond issued. The political advocacy caused the court to later rule that the CDA was acting as a representative of the city and that constructing the stadium was in the public interest (Riess 1981 54-58). As a result, the city Los Angeles was able to obtain the Olympics and became the first city that opened a municipal multipurpose stadium. But at what cost would this stadium be for the city of Los Angeles? It cost about 1.9 million and half of the construction of the facility costs $499,225 which the city and county paid for rent each year. It would also be used as the home stadium for USC during the late 1920’s. During this era there was barely enough food on the table in terms of the Great Depression while areas such as Cleveland, Miami, Dallas, New Orleans and El Paso all built public stadiums each hosting a bowl game. (Riess, 1989 145; Bale and Moen 1926,198). The demand for public municipal stadiums grew as more cities began to see the growing trend. Professional sports allow for cities to collectively identify themselves with the sports teams that represent them and unite as they compete with other cities. This identity can have a pretty big impact especially in terms of how the city resident’s view themselves as the culture of sport continues to grow and become more competitive. By not having that “major” team in the city can possibly detract business, employment opportunities and other cities perception of one another. The LA Coliseum development started what would now be the trend of having local politicians and elite class members who allow their own particular interest to coincide with the public interest of the citizens. Politicians went after a sports franchise just as they would industry and businesses that would improve the community’s tax base and quality of life (Riess 1989). Early on city officials were able to identify what they thought was a public benefit for the city especially when money was being issued via bond. The municipal debt was very attractive to politicians and investors because it was tax exempt as individuals were not expected to pay taxes on interest income from the bonds. To make the distinction, there are two types of ways that municipalities look to finance stadiums; general obligation bonds and revenue bonds. Revenue bonds are repaid from the revenues generated by the facilities constructed and general obligation bonds guaranteed for repayment by a pledge of the issuing government’s tax revenues and the general credit. The federal government through the income tax laws provided an exemption for interest on bonds issued “by or on behalf of” state localities since 1913 when the first income tax was enacted (Finterty 1991). Tax subsidies vary on the state and local levels more than the ones available on the federal level in order to finance stadium reconstruction. With the exception of the LA Coliseum, many major league facilities were built from private funds and not at the expense of the tax payer until about the 1950’s. After World War II, the economy begin to go through its own economic transformation with the amount of war bonds being issued and the G.I bill that helped the economy prosper. One of the luxuries that many could not afford before and soon became accessible to everyone else was an automobile. Expressways were built for this purpose and some within close proximity to the stadiums on the outskirt of cities. This was one of the reasons as to why the amount of public subsidies began to arise. State government began to have interest in giving our society a competitive edge again even if it meant loaning a few dollars to locals . According to Riess Public subsidization of private franchises was not limited to construction of ballparks and arenas, but extended to more modest assistance, such as under picking of rents and various fees. Direct subsidies included purchasing broadcast rights, and indirect subsidies included construction highways and exit ramps and giving up future revenues (Rich 30). With more people beginning to come back to the states after WWII sport acted as a liaison bringing our country together again. Professional sports have been in the midst of an economic revolution inspired by the confluence of circumstances both inside and outside the industry (Baade 199). Many cities were eager to revitalize their city for the professional sports market through tax exempt bonds. On the outside, the business of sports began to bloom with city officials wanting to benefit the public by providing them with entertainment while the economy began to move in the right direction. . Deciding whether or not new stadiums should actually be built, how-ever, can differ based upon who is paying for construction. States and political subdivisions are economically aware of the intense competition for professional sports teams; many of the metropolitan areas and cities that already established teams were alert and poised to keep their teams or make sure that their city was suitable for others. As time began to move, stadiums became more and more expensive to build because of the growing demand which meant the revenue for stadiums needed to flow into the owner’s capital. Unfortunately, stadiums of the 1920’s were outdated and needed to be replaced with the amount of private investment beginning to decline. With baseball being the primary sport after the war, professional teams with old private owners and states would have issues with funding and the political restraint of the citizens. One of the first cities to experience this was the city of Milwaukee. When the Boston Braves were lured to Milwaukee by a publically financed park during 1953, it continued the trend of public subsidies and also initiated the movement of teams from one city to another. Milwaukee, currently home of the Brewers was one of the first second rate cities to bring a team to their city. Milwaukee’s path to getting a team was led by advocates and local business powers; they managed to make available the County stadium which was originally made for a minor league team but the city made accommodations to fit the needs of a major team (Gendzel 1995, 537, 539). For 12 years since they moved from Boston, the Braves had the second best major league attendance, won a World Series in 1957 and one of the most profitable reeling in $5 million. Unfortunately once the team began to change its landscape via trade and by losing games, the team was bought out and moved to Atlanta for better media coverage in 1965. (Zimbalist 1992, 128). During the 20th century franchises were not able to seal personal seat licenses like today and with the economy getting back into full swing after WWII the fan base was set for the people that were constantly in the city or worked in the industrial sector. It became hard for small market cities to keep teams because one of the primary generators of revenue was from ticket sales, stadium advertising and concessions; all which meant that in order to be fulfilled people needed to be in the stadium seats. Wisconsin began a plan to subsidize for a new stadium to replace the one that was formerly used by the Braves by proposing that there be a “special sports lottery”. 64 percent of their voters were opposed to constructing the park and the only supporters were those who lived in the metropolitan area. With his political leverage in 1995 Governor Tommy Thompson was able to get a sales tax increase in Milwaukee and 0.1 percent in the surrounding counties to help fund the 250 million dollar project which is now home to the Brewers. The phenomenon of publically subsidizing facilities for professional sports team’s favorable negotiating leverage with local governments because of scarcity of franchise controlled by the leagues monopolistic power, and the institutional alliances between local corporate advocacy groups, and local government (Bunnage 2011). This was deemed to be the same case for two teams with deep historical roots on the East Coast but much bigger opportunity in the West. What many consider the “game changer” in professional sports the Brooklyn Dodgers and New York Giants move to California changed the landscape of sports in America; almost 30 years after having the first municipal stadium, the city of Los Angeles was on the hunt for another sport venue. Los Angeles is a city that has all of the attraction both relative in location both locally and nationally being one of the largest states in the United States. Following a World Series win in 1956, Walter O’Malley, owner of the Dodgers originally wanted to stay in Brooklyn and build a multipurpose stadium to replace Ebbets field which was perceived as unsafe and too far for vital fan base (Riess, 27). Ebbets field was once owned by former President and Manager Charles Ebbets, who also helped finance the stadium in 1912 but after World War II, many of the Brooklynites moved to the suburban areas to escape the urbanization of Brooklyn. The Brooklyn Dodgers were iconic cultural token in the city and symbolized the community during the early 1900’s. So while the city of Brooklyn tried to leverage with O’Malley the two just could not see eye to eye; on the other hand Los Angeles was eager to add a major sports team to its city. The city would end up subsidizing the move and gave O’Malley 99 year lease on parking, 4.7 million in new roads etc. (Rich 200) The Dodgers would play their first game in the in the LA Coliseum while Dodger stadium was being built and for the next 4 years. During this time O’Malley persuaded the city of Los Angeles to approve for his stadium to be built but with private funds worth about 22 million while the city collected property tax from the privately owned stadium. In the case of the Giants, it has been said that O’Malley influenced their owner to move westward with his team as well. Horace Stoneham felt that the Giants were not getting the same amount of exposure that they were to begin with. The city of New York is known to be crowded and their location just did not sit well with Horace. One of the major reasons why Stoneham was opposed to staying in New York was because the Polo Grounds did not have a place for parking to help fill the stadium which hurt the teams’ revenue. Although the team was loved by the city it only drew a total of 633,000 fans during the year 1956. The Giants would eventually relocate to San Franciso a few years later with the stadium cost at about 15 million. What occurred was that the Giants and Dodgers began to realize the needs of fans by both being in New York. Moving to California allowed them to see that not every team needed to be located in the city but between the suburban and city limit (Schaff 2004). The amount of power that metropolitan areas yield in the sport industry is enormous especially when what changes a owner’s mind is the location of his team and the ability to be exposed. Looking at the construction of a stadium, the location in which you construct the stadium is key. By now it can be noted that early on in the construction of public stadiums owners were enticed by bigger cities to push for the construction or relocation of their team. The information above brings insight to state governments that have made tax payers the primary source of stadium funding. States and political subdivisions financed million dollar stadiums by giving out tax exempt debt that became attractive to private investors. During the 1960s and 70s, it began to be increasingly difficult for the private sector to reach the large capital needed to finance the early parts of construction but on the flip side it was easy for owners of sports teams to gain public funding from the government because of this notion that the city would not want to lose a sport franchise or adopt a new one (Baade 1987). Between 1960 and 1990 a total of sixty new facilities were constructed for professional sport franchises. The cost of these new facilities is rather alarming; past estimates indicate that building a stadium cost $500 million in 1960, $1.5 billion in 1970, and $1.5 in 1980 (Lathrope 1997). The stadiums that were built in the early years were not ones that included luxury boxes or club seats and there was very little done technologically to be attractive to visitors. We now live in the era of sports where many facilities are being used for multiple uses, places like the United Center, Madison Square Garden and the Staples Center all work with two or 3 professional sports teams. Taking a look at the city that once hosted two baseball teams; located in the metropolitan area of New York, Brooklyn is now home to an NBA franchise. In 2006, the city approved acquiring an professional sports franchise after missing since the Dodgers left in 56. This past year the New Jersey Nets who were located in East Rutherford relocated to Brooklyn. With the threat of being sold the team was recently bought by Russian billionaire Mikhail Prokhorov along with the naming rights of the stadium being bought by Barclays a financial servicing company in London. The development process of this relocation included a 2 year lease in Newark NJ at the Prudential Center for two years while the stadium was being completed in New York. As seen in the recent development of stadiums , the approach that cities take to entice tax payers has become focused around the intangible effects of placing this source of entertainment. In this case, when the city of Brooklyn presented this 4.9 billion dollar project in 2009, what was known as “Atlantic Yards” is set to be 22 acres, 8 million square feet in apartments along with offices and stores. ; while in Newark the area surrounding the Prudential Center was to be revitalized but there were still the same stores and businesses around the stadium when the team moved in Understanding the historical trend of stadium construction, it is known that the citizen always reaps the benefit or a professional team. Recently in the 2000s, 27 out of 30 cities found that stadiums have no measurable impact (Demuase 2011). Meanwhile the city of Brooklyn looks to unload a $500 million dollar subsidy while the state of New Jersey $200 million for their two year lease. The catchy part here is that in order to build the Atlantic Yards it would require that the city of New York exercise eminent domain for over 22 acres of private property. While the stadium is already built there is now a wait and see approach to the rest of this project, just like others in the past. Bibliography Bhasin, A. (2000). Tax-Exempt Bond Financing of Sports Stadiums: Is the Price Right. Sports Law Journal, 7(2), 181. Retrieved April 26, 2013, from the Digital Commons database. Demause, N. (n.d.). The Nation: Stop The Subsidy-Sucking Sports Stadiums : NPR. NPR : National Public Radio : News & Analysis, World, US, Music & Arts : NPR. Retrieved May 3, 2013, from http://www.npr.org/2011/08/05/139018592/the-nation-stop-the-subsidy-sucking-sports-stadiums Jr., J. F. (1991). Subverting the Internal Revenue Code in the "Game" of Sports Stadium . Marqueete Sports Law Review, 1(2), 301. Retrieved May 1, 2013, from http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1049&context=sportslaw Jansen, S. (2000). Financing Professional Sports Facilities with Federal Tax Subsidies; Is it Sound Tax Policy?. Marquette Journal of Sport Law, 10(2), 425-. Retrieved April 26, 2013, from the Marquette Sport Law Review database. Rich, W. C. (2000). The economics and politics of sports facilities. Westport, Conn.: Quorum Books. Swindell, D., & Rosentraub, M. (1998). Who Benefits from the Presence of Professional Sports Teams? The Implicafions for Public FnIding of Stadiums and Arenas. Public Adminstration Review, 58(1), 11-20. Retrieved March 5, 2013, from the JSTOR database. Weiner, R. (2004). Financing Techniques and Stadium Subsidies in the United States. Joutnal of Urban Technology, 11(2), 41-. Retrieved April 25, 2013, from http://www.geocities.ws/ccnyeconprof/Sta Scott A. Jensen, Financing Professional Sports Facilities with Federal Tax Subsidies: Is it Sound Tax Policy?, 10 Marq. Sports L. J. 425 (2000) John D. Finerty Jr., Subverting the Internal Revenue Code in the "Game" of Sports Stadium Financing, 1 Marq. Sports L. J. 301 (1991) Bhasin, Anoop K. "Tax-Exempt Bond Financing of Sports Stadiums: Is the Price Right,"Jeffrey S. Moorad Sports Law Journal: Vol. 7: Iss. 2, Article 1 (2000) David Swindell and Mark S. Rosentraub Public Administration Review , Vol. 58, No. 1, pp. 11-20, (Jan. - Feb., 1998) Journal of Urban Technology, Volume 11, Number 2, pages 41–59. 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