Recently MunicipalBonds.com reviewed the common practice of financing sporting facilities construction with tax-exempt municipal debt in order to advise muni bond investors. The researcher found that contrary to popular opinion, subsidizing stadiums offers little contribution to local economies and spends public dollars on projects that reap the largest wins for private entities:
The sole winners from these constructions are various sporting team owners and the construction firms that will reap the benefits from these huge construction contracts,” according to Jayden Sangha, who manages the Stockton, Calif., municipal bond portfolio.
Federal Losses from Subsidizing Stadiums
Sangha found that since 2010, $2.7 billion in municipal debt has been issued for professional sports stadiums.
He pointed out that the federal government has lost a substantial amount of tax revenue because the debts issued to construct the facilities are tax exempt, and Congress rejected several proposals during the Obama administration. There is a chart of the lost federal tax revenues by specific stadium projects in the article, including the newly constructed Detroit Little Caesars Arena, financed in part through a $250 million muni bond issued in 2014, which cost the federal government $71 million in revenue.
Justifications for Subsidizing Stadiums Don’t Hold Water
Proponents say that by subsidizing a stadium, the local government will:
- Expand the local economy
- Generate revenue
- Increase consumer spending
- Create jobs
But Sangha claimed these assumptions are easy to refute when factoring in lost opportunities for public funds and the net impact on the full local economy.
Public funds earmarked for a stadium cannot be spent on key functions of municipal government, like education and infrastructure upgrades, or long-term asset management plans.
Further, a subsidized stadium doesn’t increase what people spend on entertainment, it just reallocates where they spend. Thus, new stadiums and surrounding new businesses take business from existing local revenue streams — a risk that is not always evaluated in plans to build stadiums with a city’s public funds.
Historically, the cities that have built these sporting facilities show that sporting event revenues typically constitute a small share of a city’s economic output and these events do not employ a substantial number of people,” wrote Sangha.
He concluded by advising municipal debt investors to carefully analyze the revenue streams backing a debt to subsidize a stadium, and the potential worst-case scenarios.
Some of the sentiments discussed are echoed in a recent Detroit News story about the Little Caesar’s Arena, pictured above, set to open September 12th with a Kid Rock performance.