Baseline Welfare Cases: Stadiums, Subsidies, and the Dole

(by Raymond J. Keating) Baseball’s Opening Day ranks as one of my favorite occasions of the year. In fact, throughout the season, I’ll enjoy almost any baseball game I can get to–from Little League to the major leagues.

I’m a free-market economist, however, so baseball presents a real dilemma for me. As I’ll explain, Major League Baseball has become a regular recipient of corporate welfare. In particular, taxpayer subsidies to fund ballparks–which once were the rarest of exceptions–have become the norm.

Unfortunately, over the years, some businesses and their representatives–in particular, many state and local business groups–have been regular supporters of subsidized stadiums. It is often the case, in fact, that the business leaders in a community become the loudest cheerleaders for tax giveaways to baseball teams.

In reality, though, such support is grossly misguided, as only select businesses clearly benefit from such subsidies–namely, the baseball team that plays in the facility, and the architectural and construction firms that build the ballpark. In contrast, though, practically all other businesses in the region or state receive absolutely no benefits, but instead face increased costs and lost business due to higher taxes paid by consumers and businesses, and/or due to consumer spending being redirected as a result of a new subsidized stadium.

As we shall see, while government handouts to baseball benefit team owners and players, they make no economic or political sense.

New Ballparks

The 2001 baseball season has the Milwaukee Brewers moving into Miller Park, and the Pirates taking up residence in PNC Park. Miller Park is a new facility with a controversial history. Happy Birthday, Billionaire!In fact, there were several controversies.

In 1995, voters overwhelmingly rejected government subsidies for a new ballpark, but that did not stop Bud Selig, who was then the Brewers’ owner and is now the Major League Baseball commissioner, from continuing the push for handouts. Selig’s effort was supported by Wisconsin’s then-Governor Tommy Thompson (R). Thompson earned a national reputation for welfare reform, but still supported corporate welfare for the Brewers.

In addition, after voting twice against the proposed sales tax hike to pay for the stadium, State Senator George Petak (R) switched to a “yes” vote at the last minute, and the tax increase passed by one vote in October 1995. Petak later became the first and only Wisconsin lawmaker ever to be recalled. Then, tragically, a crane accident in 1999 at the ballpark construction site killed three workers. Finally, in recent months, there have been reports of cracks in the rail system that operates the ballpark’s retractable roof.

Miller Park is estimated to cost $ 399.4 million, $90 million of which were private funds, with the public sector coming up with $309.4 million.

As was the case in Milwaukee and elsewhere recently, Pittsburgh voters overwhelmingly rejected a sales tax increase in 1997 to fund new facilities for both the Pirates and the NFL Steelers, but the public will was ignored. State and local politicians wound up pushing through a massive subsidy project that included a new ballpark, football stadium and convention center. However, at the start of the 2001 season, a proposed pirate ship beyond the right field wall–which would have been 70 feet long and 50 feet high–had not been built, as the Pirates were seeking out a corporate sponsor to raid for the $2 million price tag. At least the taxpayers would not be attacked for a pirate ship! The tally for PNC Park was $262 million, including $40 million in private funding, with the public sector covering $222 million.

Overall, the stadiums for which we have complete funding data or estimates, and that have hosted Major League Baseball teams at some time, cost approximately $11.5 billion (in real 2000 dollars) to build. Roughly, government, i.e., the taxpayers, picked up 81% of the tab.

How It Was, What It Is

It is important to note that ballparks were once largely financed with private dollars. Like other businesses, baseball team owners bought the land and erected their own facilities. Prior to 1953, only one Major League Baseball club played in a government-funded stadium–the Indians in Cleveland’s Municipal Stadium–and 75% of funding for stadiums used at some time for big league baseball came from private sources. In addition, if one factors out the Los Angeles Memorial Coliseum, which was built for the Olympics and only briefly hosted the Dodgers before Dodger Stadium opened in 1962, then the percentage financed with private money shoots up to a minimum of 83%.

If the scope is narrowed a bit further to those ballparks specifically built for baseball–Cleveland’s Municipal Stadium also was built in an attempt to get the Olympics–then the private financing share for ballparks built prior to 1953 rockets to 100%. In fact, prior to 1953, every ballpark built specifically for Major League Baseball was completely funded with private dollars.

But with the rise of the welfare state, particularly after World War II, the entitlement mentality spread to baseball as well. As time passed, privately-built ballparks became the exception, and subsidized stadiums the norm. The post-1952 ballparks data drives home this point, with about 82% of ballpark funding coming from the government. In fact, only one big league ballpark since the early 1950s was built without taxpayer money, and that was only achieved because the Olympic Games built the facility. Meanwhile, a whopping 19 baseball stadiums were built after 1952 with absolutely no private money involved whatsoever–100% taxpayer funded.

Unlike most other small businesses, baseball teams today arrogantly assume that they deserve taxpayer money. It is quite typical for a team owner to demand that taxpayers help finance a new ballpark, so the team can increase revenues, pay their players more, and better compete.

And quite frankly, it does not matter where they finish in the standings each year, the pursuit of taxpayer dollars can be justified no matter what. For example, the 2000 World Series’ champions, the New York Yankees, have been pursuing a new stadium for several years, as have last year’s lowly Philadelphia Phillies and Montreal Expos. For team owners, this is a win-win scenario. If the ball club is successful, then stadium subsidies are justified as some kind of reward, as well as insurance to keep the team competitive in coming seasons. On the other hand, if the owners and players perform poorly and the team stinks, then a taxpayer-financed stadium is justified as the path to becoming more competitive–that is, it’s a taxpayer bailout.

More Ballparks Coming, Along with More Subsidies

So, the push for new ballparks has become a constant. There are several ballparks being built, on the drawing board, or being proposed by major league teams. In fact, 11 teams are either in the midst of having a new ballpark built, or pursuing funding for a new stadium–the Red Sox, Reds, Marlins, Twins, Expos, Mets, Yankees, A’s, Phillies, Cardinals, and Padres. Given just these efforts, another $5 billion to $6 billion could be spent on new ballparks in the next few years, with taxpayers easily on the hook for at least $3.5 billion to $4 billion.

The Economics and Politics of Ballpark Welfare

Over the years, teams seeking subsidies, politicians looking to dole out subsidies, and other cheerleaders for baseball subsidies have produced voluminous reports finding that new, subsidized ballparks provide big benefits to local economies. Surprise! For example, the Virginia Baseball Stadium Authority (VBSA) released a report in July 2000 prepared by a George Mason University professor, Stephen S. Fuller, asserting that over 30 years, a new baseball team and ballpark in Virginia would generate $8.6 billion in economic activity, and produce $693 million in revenues for state and local government.

These reports amount to little more than artful speculation, dressed up with numbers, charts, and equations. They rely on such dubious concepts at the Keynesian multiplier effect, and input-output models of the economy. Such tools seem to have little basis in economic reality, but allow economists and politicians to make all sorts of grand claims about the latest, fanciful government project, including subsidized ballparks.

Excluded from such analysis are three critical economic factors.

1. The substitution effect is completely or largely ignored. As applied to the ballparks issue, the substitution effect merely points out that at any given time, consumers have only so many leisure dollars to spend. Therefore, if there was no taxpayer-funded ballpark around, that money would be spent on some other recreational activity.2. The negative multiplier is not considered. After all, if the government takes money from taxpayers to build a ballpark, then it must be recognized that those dollars will be extracted from other parts of the economy. If the multiplier effect holds true, then this negative effect will further spread in the region’s economy.

3. Finally, higher taxes have a general dampening effect on the economy, whether by reducing consumer spending, by creating disincentives for working, saving, investing and risk taking, or by affecting decisions as to locating one’s home or business in a particular area.

The only clear beneficiaries of ballpark subsidies are team owners and players. After all, owners don’t have to pay all or part of the costs for a new ballpark, and they usually don’t pay any property taxes either. Combine those massive savings with a big increase in revenues that comes with a new facility, and that means a boost to the bottom line and/or higher player salaries.

Consider the results for three teams just recently moving into new facilities. As noted above, the Pirates and Brewers move into subsidized ballparks this season, and their respective team payrolls are expected to jump by about two-thirds over last year’s levels. Meanwhile, revenues for the Seattle Mariners increased from $89 million in 1998, their last full season in the Kingdome, to $146 million during their first full season last year in Safeco Field.

Legitimate studies examine what actually has happened in the economy as it relates to ballparks. Every one of these studies I have ever read that looks at a wide range of cities over a significant period of time show that a new ballpark or sports team have either no impact, or slightly negative effects on employment, earnings, job creation and economic growth. In a study I wrote for the Cato Institute in 1999 (“Sports Pork: The Costly Relationship between Major League Sports and Government,” April 5, 1999), I highlighted the results of several such analyses.

The most recent additions to the ever-growing library of studies debunking the notion that stadiums are economic engines came from two economics professors at the University of Maryland, Baltimore County. In their June 27, 2000 study, Dennis Coates and Brad R. Humphreys examined the effect professional sports has on earnings and employment. They concluded:

Our results suggest that professional sports have a small positive effect on earnings per employee in the Amusements and Recreation sector, but that this positive effect is offset by a decrease in both earnings and employment in other sectors of the economy. These results have several important implications. First, these results call into question the validity of multipliers as a tool for assessing the impact of sports on the economy. The multiplier approach attempts to quantify indirect benefits flowing from professional sports by assuming that each dollar of direct spending on sports propagates through the economy and increases spending and income in other sectors. Our results suggest that direct spending on sports does not lead to additional earnings in other sectors of the economy like restaurants, bars and hotels. Second, our results shed new light on the reason that professional sports reduce the level of income in cities. The negative effect of sports on earnings of employees of restaurants and bars, and on employment in Retail and Services supports the idea that sports reduce real per capita income in cities through both substitution in private spending and through the creation of new jobs which pay less than the average prevailing wage.

In 1998, Coates and Humphreys examined the impact on growth from sports franchises, stadia and arenas. They observed:

In contrast to other existing studies, we find evidence that some professional sports franchises reduce the level of per capita personal income in metropolitan areas and have no effect on the growth in per capita income, casting doubt on the ability of a new sports franchise or facility to spur economic growth.

Interestingly, they noted the following at the close of their report:

While there is no evidence that either the level or the growth rate of real per capita income is enhanced by construction of a sports arena or stadium, attracting a franchise from any professional sport, or providing incentives for current professional sports teams to remain in the [region], our results do not invalidate the contribution of sports to the sense of community and overall satisfaction enjoyed by residents of metropolitan areas. Rather, our results suggest that efforts to attract or retain a professional sports franchise should be motivated and justified by these factors, and not by false claims of economic benefits flowing from professional sports.

Indeed, one would hope that debates over ballpark subsidies would proceed from this sound and truthful economic foundation. However, don’t expect to see such changes any time soon. If sports-happy politicians and team owners hooked on corporate welfare acknowledged that building a new ballpark would at best have no positive economic impact, and very well could mean reduced income, earnings or employment, the days of the sports dole would be numbered.

If the economic truth was fully acknowledged, team owners and politicians would have a tough time convincing voters that it is worth spending hundreds of millions of taxpayer dollars for some vague feeling of satisfaction or community in having a new ballpark and baseball team in the area. Imagine the outcry if taxpayers saw quite clearly that owners and players would reap enormous economic rewards from a subsidized ballpark, while their own pocketbooks would be hurt.

Corporate welfare is always unsavory business. The politically connected and high profile gain at the expense of business owners and consumers who work hard day to day but have no so-called friends in high places. Decision-making is shifted from the private sector, which is guided by price and profit signals to meet and create consumer demand, to the public sector, which is guided by politics and the quest for power. Taxes are increased on the many, so that resources can be funneled to a select few–in the case of subsidized ballparks, multi-millionaire team owners and players.

In reality, taxpayer subsidies to Major League Baseball make for bad economics, as well as bad politics. Think about it–while several examples exist whereby politicians were hurt for hiking taxes to fund ballparks, it is difficult to think of any elected official being hurt who decided to protect the taxpayers by not doling out sports subsidies.

As was the case in the early half of the twentieth century, beautiful ballparks can be built without taxpayer aid. When you consider the countless sources of revenue at ballparks today–naming rights, signage, luxury suites, club seats, parking fees, concessions, etc.–you see that team owners certainly could build their own fields of dreams. However, when politicians stand willing to fork over millions of dollars in subsidies, team owners have no incentives to pay for their own ballparks. The San Francisco Giants experience made this clear–after being turned down four times for a subsidized ballpark, the team finally went out and built PacBell Park with mostly private money.

Make no mistake, baseball has economic value. As a fan, I know this first hand. However, that value cannot be determined by politicians. Instead, baseball teams need to compete in the marketplace just like any other business: offering a product, gauging the consumer’s response, and running the business accordingly–including determining what type of ballpark the team can afford to build.

I’m all for great new ballparks, but team owners and other private interests should build these diamonds—not the taxpayers.

Raymond J. Keating is chief economist for the Small Business Survival Committee, and co-author of U.S. by the Numbers: Figuring What’s Left, Right, and Wrong With America State by State (Capital Books, 2000)

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