The Financial Aspects of Governmental Stadium Subsidies in the United States - Assignment Example

The decision that the government makes with the taxpayers money affects everyone in a community. The money that is collected is supposed to be distributed for a wide array of uses and it is sometimes difficult to decipher the optimum budget allocation. The public in general are against governmental initiatives that provide help to corporate America at the expense of spending on programs for regular citizens. The new corporate handouts that have become controversial due to their astronomical multimillion dollar figures are stadium subsidies to built new facilities for professional sports teams. This paper provides an in depth analysis of the positive and negative aspects of the use of governmental stadium subsidies in the United States. Professional sports teams were integral part of the US culture during the 20th century and its popularity in the 21st has continued to climb. American are very passionate about their sports especially baseball, basketball and football. Having a professional sports team in a city is good for the local economy since sports related activities spur the internal economy of the nearby neighborhoods where stadiums are located. The cities that have professional sports teams in their boundaries want to keep their sports team and many other cities seek to acquire teams all across America. Sports owners know that their entertainment product is in high demand, thus they have use this fact to influence local governments to help them build new stadiums. Some owners have threaten to leave if one is not provided, while cities without spots have utilized the offering of a new stadium to attract expansion teams and relocation of establish franchises into their communities. The offering of new stadium has been used by governments as strategic move to ensure professional teams stay in their communities. When new stadium are build these construction projects bring an influx of new jobs in the short term during the construction phase. Once they are built permanent jobs are created for maintenance, security, food merchants and administrators of the stadiums. Since the new buildings are larger than the old facilities the city receives higher property taxes and overall tax revenues associated with the team having facilities that can hold larger crowds which translates in higher attendance during home games. Another economic benefits associated with building new stadium is a positive effects from economic externalities. The creation of a new stadium is suppose to increase the aggregate income of an area by generating increase spending on lodging, meals, travel and entertainment activity in the surrounding neighborhood to the arena (Groothouis, et al.). The new stadiums that have been built during the last decade are state of the art facilities that incorporate high technological multimedia instruments. In order to increase the benefits to the community from investments these new structures are multipurpose facilities that can used to host other types of entertainment or business events such as music concerts, car shows and annual business events. The government in many instances negotiates as part of their subsidy investment the rights to rent the stadium space to the private industry which generates a positive flow rental income. One of the largest and ambitious dual complex projects was the Manhattan complex for the NFL’s New York Jets team. The building is a stadium and large convention center with an overall cost of $2.2 billion of which $600 will be subsidize by the state. City officials estimate that there is annual market of $300 million for floor space in the area (Economist). New Stadiums are also utilized by city planners as part of large strategic plans to renovate entire cities. The stadiums are the cornerstone piece that allows developers to create a wide array of new infrastructure and buildings to revive downtown areas. A city that utilized its new stadium as part of larger renovation plan was Kansas City with its 18,000 seat Sprint Center. The new $276 million stadium is the first part of a plan that offers over $2 billion in state subsidies to renovate the area. New urban arenas such as the Sprint Center are expected to justify massive public subsidies by generating permanent improvements by surrounding neighborhoods (Chapman). The Kansas City initiative shows an economic development model to build up the real estate value in a city since there the new stadium is not associated the operation of any professional sports team, but the city hopes to attract a team soon. This model was successfully implemented by Denver with the creation of Coors Field for the Colorado Rockies baseball team. A decade after the inauguration of this stadium the region surrounding the stadium experienced over $2 billion in commercial real estate development that have brought tremendous economic benefits for the residents of the region (Chapman). Appendix A shows a picture of Coors Field and the surrounding infrastructure around the stadium. A model utilized to demonstrate the intangible value of the use of stadium subsidies is the civic pride perspective. Civic pride refers to the non-financial benefits that people obtain by having a team in the city such as the ability to sheer for the team, share bonding experiences with other fans and bragging rights between the city and other communities (Owen). Civic pride can be used by governmental agencies as a marketing tool that can effectively attract tourism into the city. The tourism campaigns of a community can showcase the existence of a professional sports team with luxurious new stadiums. Civic pride is value added proposition which could be compared to the accounting principle of goodwill. Goodwill is the value of all favorable attributes that relate to an organization that can not be quantified, but its evaluation comes from qualitative aspects (Weygandt, et al 422.). The civic pride model provides a strong argument that positive benefits come from the use of stadium subsidies to help professional sports team. There is plenty of proof that the use of stadium subsidies provides positive benefits for the community, but quantitative economic and econometric analysis demonstrate a completely different view of the actual results. It seems that the economic benefits of a new stadium do not outweigh its overall costs. Studies perform by economist Coates and Humpries in 1999 estimate that the construction of a new stadium reduces city’s per capita income by $10, meanwhile other economic studies also found that the leisure and recreation employment also fall as a consequence of the construction of new stadiums (Groothius). The empirical data proves that the assumption that there are positive economic externalities associated with the construction of new stadiums is erroneous. One of the problems with stadium subsidies is that they have gotten out of control in recent years. From 1990 t0 1994 the average stadium subsidies amounted to $161 million, but between the period 2000-2006 the average governmental subsidies increased to an average of $265 million (Coates, 2006). The general public is now more aware of the economic consequence of building new stadiums. More people are learning th0at the major economic beneficiaries of these projects are the team owners and players which are getting richer at the expense of the taxpayers and fans. George Bush was one of the rich capitalist that was able to use a $141 for new park for the Texas Rangers in the 1990’s to increase the value of his investment from $600,000 to $14 million after it was sold (Nader). In Seattle there was request by the NBA Supersonics for a new stadium with a threat of leaving if it did not occur. The community is no longer blind and in a public vote performed to the residents of the city the people rejected the governmental subsidy proposal since its economic costs far outweigh the benefit for the residents of the area. The cost of opportunity of injected hundreds of million of dollars into these stadium are too high for the communities. The money allocated for these projects could be used to build new roads, improve the educational system, and invest in technology and innovation projects among others. The economic argument for a subsidy in theory is suppose to provide a capital injection to struggling industry such as farming in order to improve the overall state of the industry. It goes against common economic wisdom to utilize the subsidy mechanism to provide assistance to the multibillion dollar sports industry. The presence of professional sports team in the United States reflects that the American people are loyal followers of the game. To them sports is cultural phenomenon that inspires people and serves an invaluable social purpose. The popularity of the game has allowed sports team to get great subsidy deals to built new arenas worth hundreds of millions of dollars. Research has shows that are lots of benefits associated with the creation of new stadium, but in real economic terms the reality is that new stadium are not good investment for the community since their overall economic impact is non existent or negative. Intangible perspectives such as civil pride and the ability of stadium to spur further real estate development in communities are the primary reasons that cities continue to approve mega stadium subsidy deals despite the fact that in economic terms the cost of the stadium subsidy are greater than their benefits. Works Cited Page Art.com. 2008. “Coors Field, Denver Colorado.” 6 October 2008. Chapman, P. “Arena Led Urban Revivals.” National Real Estate Investor (Nov 2006), Vol. 48 Issue 6, p61-64 Coates, D. “Stadium and Arenas Economic Development or Economic Redistribution?” Contemporary Economic Policy (Oct 2007), Vol. 25, Issue 8, p 565-577 Economist. 14 April 2005. “To Build or not to Build.” 6 October 2008. Groothius, P., Johnson, B., Whitehead, J. 2004. “Public Funding of Professional Sports Stadiums: Public Choice or Civic Pride?” 5 October 2008. Nader, R. 27 March 2000. “Stadium Subsidies Scalp the Public.” Boston Globe. 7 October 2008. Owen, J. “The Intangible Benefits of Sports Team” Public Finance and Management (Sept 2005), Vol. 6 Issue 3, p321-345 Weygant, J., Kieso, D., Kimmel, P. 2002. Accounting Principles (6th ed.). New York: John Wiley & Sons. Appendix A: Coors Field and Downtown Denver (Art). Read More