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Jim Brown

Should State Government Subsidize Pro Sports?

 
Should State Government Subsidize Pro Sports?
Posted January 16th, 2014 @ 7:32am

Throughout the current NFL season, I have remained a die-hard New Orleans Saints fan.  But I also have really admired the Green Bay Packers. The Packers are one of the best examples of how a sports franchise should operate. They don’t go to the state capitol hat in hand, looking for a handout.  The team is owned by citizen stockholders all over Wisconsin, and the Packers’ management doesn’t regularly try to blackmail public officials into giving more handouts under threat of picking up and moving the franchise.

Recently, when it came time for Green Bay to revamp and refurnish legendary Lambeau Field, the state of Wisconsin didn’t put up one penny.  All proceeds to pay for the renovations came from the private sector. Season ticket holders were charged a one-time user fee of $1,400, which fans can pay over several years.  In addition, the Packers did a stock offering, just like many corporations do for capital improvements.  And finally, the Packers took out a team loan to be repaid out of yearly revenues.  No sweetheart deals from the state, no special considerations, no coming to the public trough for taxpayer money.

What happens in some states, including my home state of Louisiana, is that team owners cry wolf saying that they will have no choice but to move their franchise elsewhere if the tax incentives and outright dollars are not bountifully offered.  But a review of the NFL team financial arrangements will show that team income is structured in such a manner that it is theoretically possible to run a profitable franchise even in a small location like my old hometown of Ferriday.

Unlike other professional sports operations, individual teams do not sell television revenues.  In baseball, the New York Yankees get broadcasting revenues significantly greater that what a smaller market team like the Kansas City Royals receives.  In pro football, every team shares in one gigantic pie.  Little Green Bay receives the same television revenues as does a team in New York or Chicago.

The other major factor that lets a small market stay competitive without taxpayer dollars is the National Football League salary cap.  Not only is the incoming revenue approximately the same for each team, expenditures are also more or less the same, as each team shares the same parameters as to just how much can be spent on team salaries.  This means salary limits, which allows a small market team like Green Bay to stay competitive year after year.

Finally, the Packers have bought up 28 acres spending more than $27 million to develop an entertainment district.  This would give the team revenues that it would not have to share with other clubs.  It is a business strategy that a number of NFL franchises are undertaking.  Yes, the New Orleans Saints are following this diversity approach.  But here’s the difference.  The Saints get it all paid for by Louisiana taxpayers.

Forbes Magazine recently reported that the Saints owner will receive almost $400 million from state subsidies through 2025.  “Four years ago, he negotiated one of the most complex — and lucrative — stadium lease agreements in the NFL, adding to his fortune as his team was bringing in estimated yearly profits of $31 million. Over 15 years, the term of the lease, the state will pay Benson at least $198 million in increased revenue from the Superdome, $142 million in rental payments on property Benson owns, $10 million in bonuses for bringing the Super Bowl to New Orleans and $2.6 million in tax breaks.

Then there is the agreement for the state to lease office space in a downtown office building adjacent to the SuperDome being purchased by the Saints owners.  The state is to lease more than 320,000 feet at $24 dollars square foot, which is one of the highest rental rates in the state today. So Louisiana taxpayers are basically paying the cost of the building the Saints ownership is buying.

 “That’s incredible. I‘ve never heard of that one before,” said Robert Baade, an economist at Lake Forest University who studies stadium financing. “There is no end in how creative governments get to supporting subventions. That’s just another form of subsidy.”

But what about all these projections of how much the economy in New Orleans will be positively impacted, with millions more in tax revenue. Figures are being wildly thrown around, with little study, indicating a $500 million economic impact. A University of New Orleans study, quoted in a New Orleans Times Picayune editorial, estimated the Saints produce some $22 million in state revenue.  Here’s the fallacy.  Any such study assumes that all of the dollars spent at Saints games are dollars that are new to the region’s economy.  Most dollars spent on football tickets are dollars that would have been spent on other leisure activities in the area.  There are numerous choices as to how to spend leisure dollars.  Going to a football game is just one.

The Brookings Institution’s recent 500 page study titled, Sports, Jobs and Taxes, concluded that professional sports teams “realign economic activity within a city’s leisure industry rather than adding to it.  Professional sports,” they write, “are not a major catalyst for economic development.”  They are saying, in effect, that all the public subsidies accomplish is to help shift spending from other forms of entertainment to stadiums like the Dome, with little net employment gain or significant increase in new tax dollars.” Consultants, often hired by team owners who say otherwise, according to the Brookings study, “are peddling snake oil.”

The Green Bay Packers are on of America’s great football franchises. But more important, the Packers represent the best of the American free enterprise system.  They built a championship team by paying their own way without trolling for taxpayer dollars.  It’s the way a franchise should be run.  Go Packers!

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