Sports Stadiums: Boost or Boondoggle?

By GABRIEL PARIENTE

It seems every year that we see that news bulletin or proposal plan on TV for a new sports stadium or arena that will help redevelop abandoned or struggling neighborhoods in urban centers like New York, Detroit, Minneapolis, or Washington DC. We hear how they’ll add jobs in the surrounding communities outside the stadiums, generate more revenue for businesses in the area and spur growth. But despite all the perceived positives, often times these sports stadiums built with tax-subsidies and public taxpayers’ expense fail to produce the benefits they’re expected to have.

“Of course, some people will benefit,” said sports economics professor Robbie Butler at Ireland’s College Cork University. “If you own a small business, bar or restaurant in the area a stadium’s planned you should do better once it’s built, but the common misconception is everybody wins.”

Earlier this year in Detroit, the city council passed a plan to help sponsor a $450 million new hockey arena for the Detroit Red Wings. The team owned by Detroit Tigers’ owner and billionaire Mike Illitch has pledged $200 million from his management group Olympia to finance retail, housing and offices in the community outside the arena, but others argue that this is simply not enough.

Olympia has pledged to finance roughly 42 percent of the arena’s construction costs, which could when everything is all set and done go as high as possibly $650 million depending on delays or other changes to the construction plans. This leaves the remaining 48 percent would come from public investment. This financing agreement would come from Detroit using school property and local tax revenue to pay off state-issued bonds.

The construction of the new arena will supposedly not increase taxes on Detroit residents now, but will have a big impact on future generations. Bond issues increase debt, and this means future generations will be forced to pay for the stadium, as well as see less investment in areas like education, public safety and other vital facets of city life.

“Having binding community benefits is vital, before giving tax subsidies for new sports construction projects,” said John Philow Executive Director of Detroit’s Sugar Law Center for Economic and Social Justice.

Last year, Detroit became the largest American city in history to file for Chapter 9 bankruptcy which gives the government the ability to assist them in restructuring their debts. The city’s in debt between $18-20 billion and is currently undergoing debt restructuring right now which could include the cutting of retiree pensions and healthcare benefits.

“A stadium or an arena by itself does not promote economic activity,” said Smith College sports economics professor Andrew Zimbalis. He went on to add that, “Most of the funding in this case is going to hit the city budget, they will have to make cuts elsewhere or raise taxes.”

Half of Detroit’s streetlights are broken, and almost 25 percent of the city’s high school students dropped out prior to graduation. Zimbalis went on to add that in his mind the money would have been better spent on repairing roads or fixing schools. But others feel that this new arena will help Detroit recover from its economic woes.

“The Illitches have been in this city for a long time and have a very long track record of doing what they say and creating jobs in the city,” said Mark Morante senior vice-president of special projects at the state-funded Michigan Economic Development Corporation. The arena according to experts will generate over 5,000 construction jobs and then sustain over 1,100 permanent jobs, and help redevelop an area of Detroit that’s been neglected over the years.

The same debate is also going on currently in Minnesota as the Minnesota Vikings are attempting to build a new arena for their football team. The stadium which will cost $1 billion to construct is currently being built, in order for the team to start playing there by the beginning of the 2016 season. The team’s owners, the Wilf family, agreed to initially pay $477 million to the project, but after increased pressure from city residents and politicians agreed to increase their funding by $650,000.

“Private money should be used as much as possible to fund stadiums for privately owned franchises,” added Professor Butler. He added that in Europe, “we rarely see public used to solely fund the construction of sports stadium and that private money should be used as much as possible to fund stadiums for privately owned franchises.”

Studies by economists Dennis Coates and Brad Humphreys have also looked into the value that sports arenas or stadiums have on local economies. Throughout their studies, they highlight the point of how many people are attracted to the novelty of their city having a sports team, and soon begin flocking to the stadiums and providing some benefits to the businesses around the arenas.

However, as time passes residents from suburban areas begin limiting their expenses only to the ballpark and the surrounding area, which hurts other businesses in other areas of the city. The economy thus gets weaker because these other areas of the city lose sources of revenue they once had, a term now coined as the substitution effect.

In other words, since prices around the arenas or in the businesses around them are cheaper than other areas of the city, more people will spend money here and not in bars, restaurants or non-sports entertainment facilities. This then causes a ripple effect which is felt in all facets of the local or urban economies.

Many argue that once stadiums are built, they’re only utilized for certain purposes and thus soon become outdated, abandoned and drive up debt. The Olympics are a classic example of this notion especially in how many host cities strive to make their games the best ever, spending billions on stadium construction, transportation improvements, and other infrastructure.

The 2004 summer games in Athens may be the best example of how mismanagement, over-spending precipated an economic collapse. The country spent nearly $11 billion to host the Games, but had no plans for how to convert the arenas or stadiums for other uses to lessen the debt of maintain the structures.

They also spent money building a new airport, improving roads and other things. As the stadiums fell into disrepair, there was no new sources of revenue that the stadiums could have utilized like hosting soccer tournaments, concerts or other forms of entertainment, which drove up debt and damaged Greece’s economy, which is still feeling the effects to this day.

Greece’s mistakes were taken into account by London who had plans for how to convert their Olympic structures for post-Olympic use and lessening the debt that England had to endure thus keeping their economy stable.

Many feel that in order to prevent things like this from happening in Detroit or other cities, stadium construction plans should have conditions attached to them.

“It’s hard to see how projects like this will help the city without job promises for Detroit residents,” said Philow. Jobs at the new arena have not been guaranteed to city residents, a fact that angers a great many of them who are struggling to make ends meet due to unemployment and possibly higher taxes the new arena’s construction could produce.

In addition, studies by economists Dennis Coates and Brad Humphreys from 1969-1996, show that thirty-seven cities with professional franchises saw little growth in per-capita income, and taxpayers often must service-debts on stadiums that were previously torn down.

 

New Jersey owes $110 million to the Meadowlands sports complex, which was torn down in 2008, and in Seattle the city still owes $80 million towards the Kingdome arena which was torn down back in 1999. These are caused by these stadiums having to be renovated, or expanded for other uses like horse-racing, etc… which don’t produce all the revenue they’re expected to make, and depend on funding from the public or state which often have to borrow money to create these changes.

Regardless of the circumstances, Detroit is a symbol of how cities have been mismanaged financially, and this new arena could from all indications be more of a negative than a positive. Some are hopeful that positive changes will come, but others are a bit less secure.

“We must recognize that the overall process has been flawed and conducive to the developers and not the community,” said Simone Sagovac of the Southwest Detroit Community Benefits Coalition. Residents all over the country demand the same, and hope that the people finally get their voices heard.