Cost Versus Benefits: Super Bowl Voodoo Economics

I’ve been pretty hard on the Arizona Republic and much of our other news media, but I have to give credit to Laurie Roberts, Mark Curtis, and a few others who are keeping the dialog going about the real cost of big events like the Super Bowl. However, even these professional journalists aren’t able to keep up with the taxpayer-funded giveaways.

Laurie’s Republic column lampooning Scottsdale city council member (and Wells Fargo VP) Linda Milhaven for taking advantage of a buy-one-get-one-free deal (Scottsdale leader scoops up free Super Bowl ticket) references the $646,000 Scottsdale taxpayer-funded subsidy to the Brute Squad (aka, the Super Bowl Host Committee) via city contract 2013-041-COS. However, Laurie forgot about the $475,000 paid to Scottsdale Fashion Square (New Event Funding Agreement No. 2014-052-COS) back in June, reported by Beth Duckett (Scottsdale OKs up to $475,000 for Super Bowl Fan Fest).

$646,000 and $475,000 add up to over a million dollars! And no one has asked the simple question: What are Scottsdale’s incremental public safety costs for these events? Our police and fire departments will have to pay out a lot of overtime to staff up. I’ll bet the answer to be pushing a million dollars. Glendale estimated its incremental public safety cost for the Super Bowl to be at least $3 million.

So what’s the benefit? The Happy Talk Team from the City of Scottsdale’s economic development department pronounced among other wild claims made in the city council presentation that the $646,000 direct payment to the Brute Squad will return, “incremental bed and sales tax generated to Scottsdale, over and above normal overnight visitor spending as a result of Super Bowl 2015 is projected to be approximately $727,698.” The incremental tax revenue is the only legal (according to case law) measure by which a governmental entity can justify such an expenditure. And technically, the contract doesn’t guarantee a minimum return, so it may NOT be constitutional.

As for the Fashion Square subsidy, the folks who manage that shopping venue think it will yield direct return of about $237,600, clearly NOT acceptable by the case law standard.

As I have reported many times before on ScottsdaleTrails, economic benefits arising from taxpayer subsidies to professional sports events and stadium/arena facilities have been widely discredited. The public safety costs are just one overlooked erosive effect.

Another is the fact that many attendees are local folks. Counting their ticket prices and related spending toward the total benefit ignores the perfectly obvious fact that they might have spent that money for some other form of local entertainment. In effect, the Super Bowl (to cite one major event) cannibalizes money away from other local entertainment venues.

I should add that the NFL (to name one out-of-state beneficiary) takes a lot of their earnings out of town (not to mention out-of-state) when they leave. So the net is actually a huge sucking sound, relative to the money earned by local entertainment venues. That revenue is more likely to be spent locally.

This isn’t new information, folks. Many respected media outlets have ridiculed the claimed benefits of professional sports.

Drew Johnson in a Washington Times in an article entitled “Golden Hammer: Many NFL stadiums built on the backs of taxpayers,” says:

“More than 20 years of academic research has failed to find a significant relationship between an investment in a sports stadium and significant job or income growth,” the Reason Foundation determined in a 2007 study [Reason was citing a journal article, quoted below].

and

Public funding of NFL stadiums never pays off for the taxpayers, according to Neil deMause, author of the book “Field of Schemes” and editor of a website of the same name.

“If there’s one thing that economists can agree on — and they don’t agree on much — it’s that any local benefits from public spending on sports stadiums is a slim fraction of what their boosters claim,” said Mr. deMause, a leading critic of public subsidies for sports stadiums.

and

“Take whatever number the sports promoter says, take it and move the decimal one place to the left. Divide it by ten, and that’s a pretty good estimate of the actual economic impact,” Holy Cross Economist Victor Matheson told the Atlantic, on his theory for determining the taxpayers’ actual return on their investment in a pro football venue.

The Reason Foundations 2007 article (referenced above) about a proposed new San Diego Chargers football stadium in Oceanside, CA, said,

At first glance, a sports stadium seems like an economic boon. In truth, they are, at best, minor economic players in a city’s economic health. More than 20 years of academic research has failed to find a significant relationship between an investment in a sports stadium and significant job or income growth. In a 2000 article in the Journal of Economic Perspectives, researchers from Smith College and Vanderbilt University found that “independent work on the economic impact of stadiums and arenas has uniformly found that there is no correlation between sports facility construction and economic development.”

In fact, stadiums can actually divert spending away from local businesses and increase expenditures on public safety and other city services. Other research has shown that stadiums inject very little new money into a city’s economy; rather, they reshuffle the jobs and money already there.

International Business Times’ David Sirota said in an article from July 2014 about municipal pension cuts,

A landmark 1997 Brookings Institution study by sports economist Andrew Zimbalist concluded that “a new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment” and that few facilities “have earned anything approaching a reasonable return on investment” for taxpayers.

That finding was confirmed by University of Maryland and University of Alberta researchers, whose 2008 review of major academic research found that “sports subsidies cannot be justified on the grounds of local economic development.” In addition, a 2012 Bloomberg News analysis found that taxpayers have lost $4 billion on such subsidies since the mid-1980s.

Aaron Gordon said in a 2013 Pacific Standard article, “America has a stadium problem,”

Economists have long known stadiums to be poor public investments. Most of the jobs created by stadium-building projects are either temporary, low-paying, or out-of-state contracting jobs—none of which contribute greatly to the local economy. (Athletes can easily circumvent most taxes in the state in which they play.)

Most fans do not spend additional money as a result of a new stadium; they re-direct money they would have spent elsewhere on movies, dining, bowling, tarot-card reading, or other businesses. And for every out-of-state fan who comes into the city on game day and buys a bucket of Bud Light Platinum, another non-fan decides not to visit and purchases his latte at the coffee shop next door.

All in all, building a stadium is a poor use of a few hundred million dollars.

…Economists have also been, according to [Judith] Long, drastically underestimating the true cost of these projects. They fail to consider public subsidies for land and infrastructure, the ongoing costs of operations, capital improvements (weneedanewscoreboard!), municipal services (all those traffic cops), and foregone property taxes (almost every major-league franchise located in the U.S. does not pay property taxes “due to a legal loophole with questionable rationale” as the normally value-neutral Long put it).

Due to these oversights, Long calculates that economists have been underestimating public subsidies for sports facilities by 25 percent, raising the figure to $259 million per facility in operation during the 2010 season.

Gordon quotes Professor J.C. Bradbury, a Kennesaw State University sports economist and author of Hot Stove Economics:

“You have classic concentrated benefits and dispersed costs, and politicians have time preferences. They want to get re-elected now, and paying it off later is someone else’s problem.”

and Professor Bruce K. Johnson of Centre College:

“I think that’s really what’s going on here [agreeing with Bradbury].” He recalled that voters in Pittsburgh initially voted down referendums on funding new stadiums for the Pirates and the Steelers, but they got built anyway (which is not an uncommon occurrence).

All of this analysis is borne out by the well-documented experience of the City of Glendale with the Arizona Cardinal’s stadium. Michael Bidwell’s high-profile pouting about Glendale’s resistance to kicking in even more money to the Host Committee Brute Squad is just the latest in a long history of Super Begging.

Chris Coppola’s recent article in the Republic, “Couldn’t get Super Bowl tickets? Neither could these Arizona elected officials,” reported the NFL’s snub of the mayor of Glendale (host city).

Jerry Weiers may turn out to be the only real hero of the taxpayers in this whole story. His gracious response to Michael Bidwell’s whining:

“My job is not to go to a football game. My job is to make sure my city does the very best job hosting this massively important event.”

Weiers inherited some pretty bad stuff from a decade of pandering that came before him. The results–chief among them, massive debt–were painfully probed in a recent Ken Belson New York Times article, “Albatross of Debt Weighs on Super Bowl City“:

But the friction in Glendale is acute because the city has a reputation for betting big on sports — and paying a price for it. In the last decade, the city spent hundreds of millions of dollars to build a hockey arena for the Coyotes and a spring training complex for the Chicago White Sox and the Los Angeles Dodgers.

The hope was that the facilities would prompt residential and commercial development. But when the recession hit in 2008, the Coyotes went bankrupt, the mall next to the arena foundered, and the city was overwhelmed by its debt payments and was forced to slash public services.

“The city of Glendale is the poster child for what can go wrong” when a city invests heavily in sports, said Kevin McCarthy, the president of the Arizona Tax Research Association. “You don’t want to be building stadiums and not be able to hire police officers.”

Glendale is by no means the first city to have sports facilities turn into albatrosses. Cincinnati and Miami, to name just two, built stadiums for wealthy owners in deals that backfired.

But the scale of spending in the city of 230,000 residents is unique. According to Moody’s Investors Service, Glendale’s debt is equal to 4.9 percent of its tax base, nearly four times the national median and twice the average rate for cities in Arizona. More than 40 percent of the city’s debt is dedicated to paying off sports complexes.

Many of these same concerns apply to the massive subsidies that Scottsdale taxpayers have unwittingly contributed to the Scottsdale Tournament Players Club course (where the Waste Management Open is being played as I write this) and Phil Mickelson. Both the TPC (a division of the PGA) and Mickelson lease city-owned facilities. Scottsdale Mayor Jim Lane and the city council majority recently forgave lease obligations for millions of dollars in capital maintenance and improvements that had been long-deferred by the lessees.

Not only did they forgive the obligations, they turned around and funded the catch-up work. But wait, there’s more! The city doesn’t have the money, so they floated bonds; i.e., they BORROWED the money, which the taxpayers are obligated to repay.

I’ve previously documented many of these concerns on ScottsdaleTrails, for all the attention the facts get from Scottsdale city officials.

Now that we’ve had a night and day of drizzling rain, I’m left to wonder if these big events are going to return even a fraction of the more realistic estimates of the economists…let alone the cotton candy bragging of their promoters.

Worst of all, those same guys will be back with their hands outstretched begging for more because of the shortfall!

And did I mention that thanks to Russ Wiles, intrepid Arizona Republic readers who saw his article, “NFL’s financial success draws scrutiny, controversy,” are aware that the National Football League (unlike the individual franchises) enjoys a “non-profit” designation from the IRS, in spite of $327,000,000 in revenue in fiscal year 2012/13.

I could care less that Linda Milhaven got a free $800 ticket to the Super Bowl. Good for her. What I DO care about is the MILLION dollars in taxpayer-funded subsidies to a favored private business which Milhaven and her cronies approved!